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U.S. Department of Health and O
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Washington, D.C. 20201  G
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Office of 
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Semiannual 
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Working with Others to Promote, Preserve & 
Protect the Nations Well-Being  oig_cover.qxd  5/28/2002  1:31 PM  Page 2
Office of Inspector General Components
Office of Audit Services (OAS)provides all auditing services for HHS, either through its 
own resources or by overseeing audit work of 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 in order to
reduce waste, abuse and mismanagement and to promote economy and efficiency throughout
the Department. 
Office of Counsel to the Inspector General (OCIG)provides legal services to OIG, rendering
advice and opinions on HHS programs and operations, imposes program exclusions and civil
monetary penalties on health care providers and litigates those actions within the Department.
The OCIG also represents OIG in the global settlement of cases arising under the Civil False
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, and renders advisory opinions on sanctions to the health care community.
Office of Evaluation & Inspections (OEI)conducts short-term management and program
evaluations that focus on issues of concern to the Department, the Congress and the public.
The OEI generally focuses on programs with significant expenditures of funds and services to
program beneficiaries or in which important management issues have surfaced.  The findings
and recommendations contained in the reports generate rapid, accurate, and up-to-date 
information on the efficiency, vulnerability and effectiveness of departmental programs.
Office of Investigations (OI)conducts criminal, civil and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment
by providers. Investigative efforts lead to criminal convictions, administrative sanctions or civil
monetary penalties.  The OI serves as liaison to the Department of Justice on all matters relating
to investigations of HHS programs and personnel.  The OI also oversees state Medicaid Fraud
Control Units which investigate and prosecute fraud and patient abuse in the Medicaid program.
Office of Management and Policy (OMP)provides mission support services to the IG 
and other components.  The OMPformulates and executes the budget, develops policy, 
disseminates OIG information to the news media and public, liaises with the Department,
Congress and external organizations, and manages information technology resources.  
This semiannual report and other OIG materials may be 
The OMPalso conducts and coordinates reviews of existing and proposed legislation and
accessed on the Internet at http://oig.hhs.gov 
regulations to assess implications and economic consequences for HHS programs and 
operations.  Message from the Inspector General

Reflecting on the events of September11, it is with pride that I acknowledge 
the contributions of our staff to the law enforcement response to the terrorist 
attacks-assisting the FBI, serving as liaison to a joint terrorism task force command 
center in New York City, and working as air marshals. In the wake of those 
horrific events, our first priority is to review concerns about departmental 
vulnerabilities, the readiness and capacity of government responders at all levels, 
and security at federal and other laboratories. We have become increasingly 
proactive in our efforts to secure sensitive HHS facilities and products. 
As we move forward from that national tragedy, we are focusing on 
additional priorities for the coming year as well. Among them, the need to 
revise the method by which Medicare and Medicaid pay for prescription drugs. 
Flaws in the current method of paymentbased on a list price reported by drug 
manufacturerscost Medicare and Medicaid millions in excess payments. We 
are working closely with other entities to achieve payment methods equitable to 
all parties, and we believe that significant progress is being made. 
With the anticipated growth in the nursing home population over the next 
several decades, also among our priorities is doing everything we can to ensure a 
safe environment for our Medicare and Medicaid beneficiaries in the nursing home 
environment. Not only are we examining inefficiencies in the payment systems for 
nursing home care, we are evaluating the role of the nursing home director, family 
experience with nursing home care, and quality assurance committees in nursing 
homes. 
There are many other areasadministration of grants, child support 
enforcement, abuse of the federal share of Medicaid, to name a fewupon which 
we will concentrate during the coming months. The results of our efforts in all of 
these endeavors will be shared in our reports which are available to the public on 
the OIG Internet site. 
As we move into our next reporting period, I thank those many providers who 
have worked willingly with us to build a stronger relationship and to seek ways to 
eliminate fraud and abuse. As a result of our collaborative efforts, I feel confident 
that we will find increasing success in meeting the ever-changing, increasingly 
complex needs of our beneficiaries. 
Janet Rehnquist 
Inspector General  Highlights 
Statistical Accomplishments 
For the first half of Fiscal Year 2002, OIG reported savings of over 
$13 billion comprised of over $12 billion in implemented recommendations 
and other actions to put funds to better use, $248.7 million in audit 
disallowances and $780.8 million in investigative receivables. 
(Details pp. 58, 61 and Appendix A.) 
Also for this reporting period, OIG reported exclusions of 1,366 
individuals and entities for fraud or abuse of the federal health care programs 
and/or their beneficiaries, 250 convictions of individuals or entities that 
engaged in crimes against departmental programs, and 106 civil actions. 
(Details pp. 15 and 61.) 
Significant Investigative Results 
'(cid:32) TAP Pharmaceutical Products Inc. paid more than $875 million in 
a global settlement with the Federal Government, as well as state governments, 
to resolve criminal and civil liability relating to the sales and marketing of its 
prostate cancer drug, Lupron. (Details p. 18.) 
'(cid:32) KPMG, LLP, formerly KPMG Peat Marwick, LLP, agreed to pay 
the Federal Government $9 million, plus interest, to settle allegations that it 
prepared false hospital cost reports that were submitted to the Medicare and 
Medicaid programs. (Details p. 18.) 
Inspector Generals Open Letter 
'(cid:32) The Inspector General issued an Open Letter to the provider 
community announcing new criteria for assessing whether and when a 
corporate integrity agreement will be appropriate. The letter also modified 
the billing review procedures required of providers operating under 
corporate integrity agreements, thereby reducing the burden of these 
requirements. (Details p. 20.) 
i  Financial Accountability 
'  In its audit of the Departments FY 2001 financial statements, OIG 
again issued a clean opinion, which means that the statements continued 
to fairly and reliably present financial information. However, serious 
internal control weaknesses were noted in the financial systems and 
processes used to produce financial statements and in Medicare 
information systems.  (Details p. 54.) 
Nursing Home Quality of Care 
'  To address nursing home quality of care issues, OIG participated 
in forming a Nursing Home Steering Committee headquartered in 
Washington, DC.  The purpose of the Steering Committeecomprised of 
representatives from OIG, CMS and DOJis to deter fraud, improve 
resident care, and coordinate government action in nursing home bankruptcy 
and other financial and litigation matters.  This reporting period, the efforts 
of the Steering Committee contributed to the coordination and success of 
an OIG-sponsored event, entitled Nursing Facility Quality of Care: 
Improving Government Enforcement Efforts.  At this symposium, federal 
and state prosecutors, investigators and regulators convened in 
Washington, DC, to exchange ideas on how various federal and state 
agencies can work together to identify and solve quality of care failures in 
the nations long term care facilities.  (Details p. 7.) 
Retail Food Safety 
'  In a study on retail food safety, OIG found that the industry and 
local, state and federal agencies embrace the model Food Code and 
recommended National Retail Food Regulatory Program Standards as 
blueprints for developing future inspection practices.  However, there were 
many concerns about implementing these standards, and OIG offered 
numerous suggestions for both FDA and states. (Details p. 38.) 
ii/ Table  of  Contents

Centers for Medicare and Medicaid Services  ...........................1

Financial Statement Audit     ............................................ 2

Delinquent Medicare Debt ...........................................2

StateH  ealthI nsuranceA  ssistanceP  rogram ................................... 3

CommunityB  eneficiaries................................................. 3

UniqueP  hysicianI dentificationN  umbers .................................... 3

Invalid Equipment/Supply UPINs  ................................... 3

Inaccuracy of Provider Data ........................................ 4

Editsf orU  nauthorizedL  aboratoryT  ests ..................................... 4

AmbulatoryS  urgeryC  enters .............................................. 4

PhysiciansR  olesi nH  omeH  ealth .......................................... 5

HomeH  ealthP  roviders  .................................................. 5

HomeH  ealthA  gencyF  raud  .............................................. 6

NursingH  omeF  raud  .................................................... 7

Nursing Facility Quality of Care: Improving Enforcement .  ..................... 7

NursingH  omeP  sychotropicD  rugU  se  ...................................... 8

RuralH  ealthC  linicC  laims  ............................................... 8

UniversityH  ospitalM  edicareB  adD  ebt  ..................................... 9

IncorrectlyR  eportedH  ospitalI npatientT  ransfers .............................. 9

PostacuteT  ransferC  are .................................................. 9

OutpatientP  sychiatricS  ervices ........................................... 10

HospitalI nvestigations .................................................. 10

MedicareA  dministrativeA  ppeals ......................................... 11

Beneficiary Awareness of Fraud  .......................................... 12

CriminalF  raud ........................................................ 12

Kickbacks ............................................................ 14

Frauda ndA  buseS  anctions  .............................................. 15

ProgramE  xclusions  ............................................. 15

CivilP  enaltiesf orP  atientD  umping ................................. 16

CivilP  enaltiesf orF  alseC  laims  .................................... 17

Compliance Activities ............................................ 19

InspectorG  eneralsO  penL  etter .................................... 20

ProviderS  elf-Disclosure  ................................................ 20

Industry Guidance  ..................................................... 21

AdministrativeC  ostsI ncludedi nA  djustedC  ommunityR  ateP  roposals............ 22

Nine-StateR  eview  .............................................. 22

Mid-AtlanticM  CO  .............................................. 22

MedicareC  ontractorA  dministrativeC  osts  .................................. 23

TerminatedM  edicareC  ontractor .......................................... 23

Payments for Beneficiaries Reported as Institutionalized ....................... 23

Dialysis Facilities Performance    ....................................... 23

Renal Beneficiary and Utilization System Problems    ....................... 24

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

iii  InhalationD  rugP  ayments  ............................................... 25

Electroconvulsive Therapy Reimbursement  ................................. 26

TransportationF  raud  ................................................... 26

Prescription Drug Fraud ................................................. 27

Medicaid Prescription Drug Pricing  ....................................... 28

MedicaidP  harmacyA  cquisitionC  osts  ..................................... 28

Medicaid Disproportionate Share Hospital Payments .......................... 29

Claims for Residents of Institutions for Mental Diseases  ....................... 29

Virginia ....................................................... 29

Texas ......................................................... 30

Medicaid Clinical Laboratory Services: Virginia ............................. 30

Federala ndS  tateP  artnership: J ointA  uditso fM  edicaid  ....................... 30

NewY  ork  ..................................................... 31

Delaware ...................................................... 31

Arizona  ....................................................... 31

MedicaidF  raud  ....................................................... 32

Public Health Agencies.  ...........................................35

FY 2001 Financial Statement Audits ....................................... 36

LaboratoryS  ecurity .................................................... 36

National Institute of Environmental Health Sciences Superfund .................. 37

Organ Donor Registries: A Useful, but Limited, Tool  ......................... 37

HumanS  ubjectP  rotectioni nC  linicalT  rials ................................. 37

Retail Food Safety  ..................................................... 38

FDAs Establishment Inventory    ....................................... 39

Storage and Handling of Equipment Exposed to Hazardous Material .............. 39

FacultyL  oanR  epaymentP  rogram......................................... 39

Exclusionsf orH  ealthE  ducationA  ssistanceL  oanD  efaults  ..................... 40

ControlsO  verE  thicsa ndT  ravelP  olicies  ................................... 41

Administration for Children and Families  ............................43

FY 2001 Financial Statement Audit ........................................ 44

AFDCO  verpaymentsa ndC  ollections ...................................... 44

Child Support to Families Exiting TANF  ................................... 44

Support for Children on TANF  ........................................... 45

Federal Child Support Case Closure Regulations     ......................... 45

Increased Health Care Coverage for Uninsured Children     ................... 46

Child Support Privatization in Maryland    ................................ 46

Child Support Enforcement in Maryland and West Virginia..................... 47

Child Support Enforcement .............................................. 47

InvestigativeT  askF  orces ......................................... 47

Investigations  .................................................. 48

Misuse of Grant Funds .................................................. 50

Discretionary Grants     ............................................... 51

ConnecticutsC  laimsf orF  osterC  areA  djustments ............................ 51

HeadS  tartR  eviews  .................................................... 51

iv  Pennsylvania ................................................... 51

WestV  irginia  .................................................. 52

PuertoR  ico  ................................................... 52

General Oversight ................................................53

Financial Statement Audit of the Department     ............................ 54

DepartmentalS  erviceO  rganizations  ....................................... 54

Departmental Child Support Obligations .................................... 55

NonfederalA  udits  ..................................................... 55

ResolvingR  ecommendations ............................................. 56

Table1 : R  eportsW  ithQ  uestionedC  osts ............................. 58

Table 2: Funds Recommended To Be Put to Better Use ................. 59

Legislativea ndR  egulatoryR  eviewa ndD  evelopment  ......................... 60

ReviewF  unctions ............................................... 60

DevelopmentF  unctions  .......................................... 60

Employee Fraud and Misconduct  ......................................... 61

Investigative Prosecutions ............................................... 61

Appendices ...................................................... 63

Appendix A:	 Savings Achieved Through Policy and Procedural Changes Resulting

FromA  udits,I nvestigationsa ndI nspections .................... 65

Appendix B:	 Unimplemented Office of Inspector General Recommendations To Put

Funds to Better Use  ....................................... 69

Appendix C:	 Unimplemented Office of Inspector General Program and Management

ImprovementR  ecommendations ............................. 75

AppendixD  :  Notest oT  ables1  a nd2   .................................... 77

Appendix E:	 Reporting Requirements of the Inspector General Act of 1978, 

asA  mended  ............................................. 85

Appendix F:  Statutory and Administrative Responsibilities ................... 87

Performance Measure    
Performance measures are used to evaluate the achievement of a program goal, such 
as the efficiency of an immunization program measured by the number of inoculations 
provided per dollar of cost. The OIG has identified some items throughout this report as 
performance measures by placing the symbols    following the items. In OIGs opinion, 
the audits, inspections and investigations identified with the performance measure symbol offer 
management information about whether some aspect or all of the programs or activities reviewed 
are achieving their missions and goals. These proposals are provided to management for their 
consideration as they develop their performance measures. 
v
  Centers for Medicare 
and Medicaid Services 
The Centers for Medicare and Medicaid Services (CMS) administers 
the Medicare and Medicaid programs. Financed by the Federal Hospital 
Insurance Trust Fund, Medicare Part A provides hospital and other 
institutional insurance for persons aged 65 or older and for certain disabled 
persons. Medicare Part B (Supplementary Medical Insurance) is an optional 
program which covers most of the costs of medically necessary physician 
and other services and is financed by participants and general revenues. 
The Medicaid program provides grants to states for medical care for 
qualifying low-income people. State expenditures for medical assistance are 
matched by the Federal Government using a formula that measures per 
capita income in each state relative to the national average.  The State 
Childrens Health Insurance Program (SCHIP), created under the new title 
XXI of the Social Security Act, expands health coverage to uninsured 
children whose families earn too much for Medicaid but too little to afford 
private coverage. 
The Office of Inspector General (OIG) continues to devote 
significant resources to investigating and monitoring the Medicare and 
Medicaid programs.  These activities have helped ensure the cost-effective 
delivery of health care; improved the quality of health care; and reduced the 
potential for fraud, waste and abuse. In addition, these efforts have often 
led to criminal, civil and/or administrative actions against perpetrators of 
fraud and abuse. 
The OIG also reports on the audits of the CMS financial statements 
which presently account for more than 82 percent of Department of Health 
and Human Services (HHS) outlays.  In addition to issuing an opinion on 
the statements, auditors assess compliance with Medicare laws and 
regulations and the adequacy of internal controls. 
1/ Centers for Medicare and Medicaid Services 
FINANCIAL STATEMENT AUDIT   

In the audit report on its Fiscal Year (FY) 2001 financial statements, CMS 
sustained the unqualified audit opinion first issued on the FY 1999 financial 
statements. Auditors found that the statements presented fairly, in all material 
respects, the financial position of CMS as of September 30, 2001, and 2000, and its 
net costs for the years then ended, as well as the changes in net position, budgetary 
resources, and reconciliation of net costs to budgetary obligations for FY 2001. 
However, the audit found continuing material weaknesses in financial systems and 
regional and central office oversight and in Medicare electronic data processing 
(EDP) controls. 
The Medicare contractors improved their maintenance of supporting records 
for Medicare activities and year-end balances. However, because they lacked an 
integrated accounting system to accumulate and report financial information, they 
continued to use ad hoc, labor-intensive reports, which increased the risk of human 
error, material misstatement or omission. The audit also revealed numerous and 
continuing weaknesses in EDP processing controls at the Medicare contractors, as 
well as certain application control weaknesses at a contractor shared system.  Such 
weaknesses increase the risk of unauthorized access to and disclosure of sensitive 
information, malicious changes that could interrupt data processing or destroy files, 
improper Medicare payments, and disruption of critical operations. 
Officials at CMS concurred with the recommendations and are in the 
process of taking corrective action. Most importantly, they are continuing efforts 
to implement the Healthcare Integrated General Ledger Accounting System.  The 
new system, expected to be fully operational in 2007, will incorporate contractors 
financial data, including claims activity, into CMS internal accounting system. 
(A-17-01-02001) 
DELINQUENT MEDICARE DEBT 
Despite CMS significant progress in managing debt, especially at Medicare 
contractors, serious problems remain. The OIG identified an estimated $670 million 
(absolute value) in misstated and misclassified delinquent Medicare debt in 
information reported to the Treasury Department. Misstatements included $450 
million in reconciliation errors, $68 million in unsupported or unrecorded 
transactions, and $152 million in classification errors regarding the debts 
eligibility for referral to Treasury for collection. Further, CMS did not have an 
adequate process for pursuing debt using the required demand letters. 
2
 Centers for Medicare and Medicaid Services 
The OIG made specific recommendations for improving supporting 
documentation, periodic reconciliations, and supervisory review of delinquent debt 
activities. The CMS concurred with the recommendations. (A-17-01-02003) 
STATE HEALTH INSURANCE ASSISTANCE PROGRAM

A study assessing State Health Insurance Assistance Program (SHIP) 
performance in providing information to Medicare beneficiaries found that SHIPs 
target programs to meet the needs of the local community. Beneficiaries are 
interested in SHIP services, yet most are unaware of the programs existence. 
The OIG made several recommendations to enhance the usefulness of 
SHIPs in the broader context of the entire set of information and referral sources 
which CMS provides for Medicare beneficiaries. (OEI-07-00-00580) 
COMMUNITY BENEFICIARIES

Medicare home health beneficiaries who begin receiving services without 
having first been discharged from a hospital are known as community home 
health beneficiaries. Prior to this study, not much was known about their needs and 
access to home health care or how they have been affected by recent changes in the 
Medicare payment methodology. The OIG found that about 40 percent of 
Medicare home health beneficiaries do not have a prior hospital or nursing home 
stay. Through reliance on their physicians, family and the aging network, they 
appear to be getting access to Medicare home health care. (OEI-02-01-00070) 
UNIQUE PHYSICIAN IDENTIFICATION NUMBERS

The Consolidated Omnibus Budget Reconciliation Act of 1985 required 
CMS to establish Unique Physician Identification Numbers (UPINs)one assigned 
to each physician who provides services to Medicare beneficiaries.  The CMS 
contracts with one company to maintain the UPIN Registry that contains relevant 
data on all UPINs.  During this reporting period, OIG issued the two following 
reports regarding UPINs and registry data. 
The OIG found that Medicare 
Invalid Equipment/Supply UPINs 
paid $32 million for medical 
equipment and supply claims 
with invalid UPINs in 1999.  In addition, OIG found that Medicare allowed 
$59 million in 1999 for medical equipment and supply claims with UPINs 
3
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that were inactive on the date of service. The OIG also found that a small 
number of suppliers accounted for a significant share of allowed charges for 
claims with invalid or inactive UPINs. 
The OIG recommended that CMS revise claims processing edits to 
ensure that UPINs listed on medical equipment and supply claims are valid 
and active. The OIG also recommended that CMS emphasize to suppliers 
the importance of using accurate UPINs when submitting claims to Medicare. 
The CMS agreed.  (OEI-03-01-00110) 
In this report, OIG examined 
Inaccuracy of Provider Data 
inaccuracies in CMS UPIN 
Registry. The OIG identified 
incorrect addresses for 28 percent of sample providers during the course of an 
inspection assessing the appropriateness of Medicare Part B payments for 
outpatient mental health services. Even the Medicare carriers did not have 
accurate addresses for all of these providers.  The OIG estimates that 
Medicare paid about $35 million ( $17 million) in 1998 for outpatient mental 
health services billed by providers with inaccurate mailing addresses. 
The Health Insurance Portability and Accountability Act of 1996 
requires CMS to establish unique identifiers for all health care providers. 
OIG, therefore, recommended that CMS take steps to validate and update 
UPIN Registry data prior to implementation of the new provider identifier 
system.  The CMS concurred and has taken steps to update the registry. 
(OEI-03-99-00131) 
EDITS FOR UNAUTHORIZED

LABORATORY TESTS

This report found that the CMS Common Working File (CWF) edits, 
designed to detect and prevent payment of unauthorized laboratory tests, appear to 
work well. They successfully identified and correctly processed 998 out of every 
1,000 services billed to Medicare by laboratories holding a Clinical Laboratory 
Improvement Amendment of 1988 Certificate of Waiver or Certificate for Provider 
Performed Microscopy Procedures.  (OEI-05-00-00050) 
AMBULATORY SURGERY CENTERS 
A series of OIG reports assessed how state agencies and accreditors oversee 
ambulatory surgical centers (ASCs) and how CMS holds them accountable. The 
ASCs have experienced explosive growth, more than doubling in number from 
4
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1990 to 2000. During the same time period, the volume and complexity of 
procedures performed in ASCs has increased dramatically, from 12,000 to over 
101,000 major procedures annually. For these reasons, oversight is more important 
than ever. However, Medicares system of quality oversight is not up to the task. 
States have not recertified nearly a third of ASCs in 5 or more years, and CMS 
does little to monitor the performance of state agencies and accreditors. 
The report made recommendations to CMS to strengthen its quality oversight 
of ASCs. While CMS responded positively to the report, it did not fully commit 
itself to a number of the recommendations, particularly those calling for a minimum 
survey cycle and a more accessible complaint process. 
(OEI-01-00-00450; OEI-01-00-00451; OEI-01-00-00452) 
PHYSICIANS ROLES IN HOME HEALTH 
Based on interviews with physicians and analysis of CMS claims data, 
OIG found that physicians are currently playing a key role in initiating, certifying 
and monitoring the care for Medicare home health beneficiaries. However, they 
are doing so despite limited 
knowledge of Medicare 
home health rules and in 
discomfort with CMS 
expectations. At present, 
the availability of 
reimbursement for their 
oversight role does not 
seem to have significant 
impact on physicians who 
care for Medicare home 
health patients. 
In order to address physician concerns and improve the Medicare home 
health services, OIG recommended that CMS establish a working group within 
CMS Physician Regulations Issues Team to improve communication and to 
consider modifying the physician home health oversight role. (OEI-02-00-00620) 
HOME HEALTH PROVIDERS 
The objective of this report was to determine if CMS enrolled home health 
agencies who are excluded from Medicare by OIG or debarred from government 
5
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participation by the General Services Administration; felons; or undercapitalized 
parties. The OIG independently reviewed a sample of home health agencies, 
owners and managers enrolled in Medicare between October 1, 1997, and 
September 30, 2000. Based on this review, OIG found that CMS processes seem to 
have effectively prevented enrollment of such parties. (OEI-04-00-00550) 
HOME HEALTH AGENCY FRAUD 
Home health agencies (HHAs) represent an important segment of the health 
care industry because they allow many patients to remain in their own homes at less 
expense than might be incurred at a hospital or other institution. The OIG identified 
a number of fraudulent arrangements by which home health care providers, medical 
professionals and others associated with the operation of HHAs inappropriately 
billed Medicare and Medicaid, as in the following examples: 
'	 In Texas, three former owners of an HHA were sentenced for conspiracy, 
health care fraud, money laundering, mail fraud and kickbacks to respective 
terms of 17 years, 14 years, and 8 years and 1 month imprisonment. They 
were also jointly ordered to pay close to $4.3 million in restitution. The 
investigation found that during their operation of the HHA, the owners 
submitted fraudulent costs on their 1994 through 1997 Medicare cost 
reports. 
'	 Lifeline Health Care of Southwest Florida, Inc., an HHA, and The Lifeline 
Health Group, Inc. agreed to pay the government $3.1 million, plus interest, 
for allegedly submitting false claims to the Medicare program for home 
health services that were not medically necessary, were provided to patients 
who were not homebound, and were not properly documented. As part of 
the settlement, the HHA entered into a comprehensive 5-year corporate 
integrity agreement. 
'	 Two owners of an Arizona HHA were sentenced for theft of public money, 
property or records and embezzlement. The co-owners were charged with 
billing Medicare for services not rendered or not medically necessary and 
for creating and submitting false documents. The court set special conditions 
prohibiting one of the owners from ever holding a position requiring billing 
public or private entities. The other owner was ordered to surrender her 
license as a registered nurse and to pay $20,100 in fines.  Both agreed to 
lifetime exclusions from federal health care programs. 
6
 Centers for Medicare and Medicaid Services 
NURSING HOME FRAUD

Nursing facilities and their residents have become common targets for 
fraudulent schemes through which health care providers, medical professionals, 
nursing facility staff and others associated with the operation of nursing homes 
improperly bill Medicare and Medicaid. In addition to protecting federal health 
care programs from these improper billing schemes, OIG also strives to protect the 
health, well-being and safety of nursing home residents. Investigations of improper 
billing and quality of care issues resolved during this reporting period follow. 
'	 In California, Covenant Care agreed to pay the government $3.65 million to 
settle allegations that the companyoperating approximately 45 nursing 
homessignificantly inflated and overcharged the amount of nursing hours 
provided to Medicare patients. Covenant Care also entered into a corporate 
integrity agreement. 
'	 In Louisiana, Twin Oaks Nursing Home, Inc. (Twin Oaks), agreed to pay 
the government $100,000 to resolve allegations of failing to provide 
appropriate care. Issues included deficiencies in documentation, improper 
staffing levels, inadequate supplies and deteriorated equipment. Twin Oaks 
also agreed to enter into a 5-year corporate integrity agreement that includes 
a quality monitor requirement. 
'	 A licensed practical nurse at a Pennsylvania nursing home was sentenced to 
10 months incarceration and lost her nursing license for falsifying a patients 
record after a medication error was discovered. The patient later died as a 
result of the mistake. 
NURSING FACILITY QUALITY OF CARE: 
IMPROVING ENFORCEMENT 
During the past few years, OIG has conducted a number of evaluations and 
investigations focusing on nursing facility quality of care matters. One of OIGs 
foremost priorities is to continue its involvement in nursing facility quality of care 
issues. As part of this ongoing effort and to better coordinate involvement in 
quality of care issues, on January 31-February 1, 2002, OIG sponsored a symposium, 
Nursing Facility Quality of Care: Improving Government Enforcement Efforts, 
in Washington, DC. 
The objective of the symposium was to improve the governments nursing 
facility quality of care enforcement efforts through an analysis of the current 
7
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methods utilized by the government when pursuing these kinds of cases.  The
symposium included a series of case studies presented by attorneys and investigators
who had successfully conducted quality of care cases.  The meeting included
participants from CMS, DOJ, United States Attorneys Offices, Medicaid Fraud
Control Units, state survey officials and OIG.
NURSING HOME PSYCHOTROPIC DRUG USE
The OIG released this report, along with a companion  report, on the use of
psychotropic drugs in nursing homes.  Conducted in response to concerns
expressed by the Senate Special Committee on Aging about the use of psycho-
tropic drugs as inappropriate chemical
restraints, OIG found that there is not a
pervasive problem in this regard.  Where there
are problems, they are related to chronic use,
inappropriate dosage, a lack of documented
benefit to the resident, and unnecessary
duplicate drug therapy.  In some cases, a lack
of adequate documentation for residents
psychotropic drug use was noted.
The OIG suggested that CMS consider
educating providers to better document the use
of these drugs.  The CMS agreed and is acting upon the suggestion. 
(OEI-02-00-00490; OEI-02-00-00491) 
RURAL HEALTH CLINIC CLAIMS 
This report identified potential Medicare overpayments, totaling approximately
$2.8 million, paid to rural health clinics in 13 states for Calendar Years 1997 through
1999.  The potential overpayments included $2.6 million in Part B billings for
individual services that were covered and paid on the basis of an all-inclusive rate
per visit and $0.2 million in duplicate claims for services provided to the same
beneficiaries, for the same dates of service, and with the same diagnoses.
In addition to recommending financial adjustments, OIG recommended that
CMS implement Common Working File edits to detect claims that contain Part B
services paid under the all-inclusive rate.  The OIG also recommended that CMS
require the fiscal intermediaries to develop effective procedures and computer
system edits to detect duplicate claims.  The CMS agreed with almost all of the
recommendations.  (A-07-00-00108)
8 Centers for Medicare and Medicaid Services 
UNIVERSITY HOSPITAL MEDICARE BAD DEBT 
The OIG found that $5.4 million of the $7.2 million claimed as bad debts by 
an Alabama university hospital on its FY 1997 cost report was unallowable, 
primarily because the hospital had not developed its patient accounts receivable 
system to properly accumulate complete, accurate and timely Medicare bad debts. 
As a result, the hospital relied on a consultant to prepare its bad debt listing but did 
not verify the accuracy of the work. 
In addition to recommending a financial adjustment, OIG recommended 
that the hospital improve its accounts receivable systems and controls.  The 
hospital generally agreed.  (A-04-00-06005) 
INCORRECTLY REPORTED HOSPITAL INPATIENT TRANSFERS 
This report pointed out a continuing significant problem with incorrect 
hospital reporting of inpatient prospective payment system (PPS) transfers as 
discharges. Since 1992, the number of incorrectly reported transfers has trended 
downward, but remains high. The OIG identified over 153,000 claims for incorrectly 
reported transfers from January 1992 through June 2000 with potential over-
payments totaling nearly $233 million. Contributing causes include misapplication 
of the PPS transfer policy by the CMS regional offices and the fiscal intermediaries, 
problems with computer system interfaces at hospitals, and breakdowns in 
communication between hospitals medical and billing staffs. 
The OIG recommended, among other things, that CMS issue clarifying 
instructions to hospitals and fiscal intermediaries regarding the PPS transfer policy 
and initiate collection of the overpayments identified to date. The CMS agreed to 
collect overpayments for the 4-year period specified in regulations regarding the 
reopening of Medicare claims.  (A-06-00-00041) 
POSTACUTE TRANSFER CARE 
In this report, OIG pointed out that CMS has no controls in place to prevent 
excessive payments to inpatient prospective payment system (PPS) hospitals for 
erroneously coded patient discharges that are followed by postacute care, such as 
care in a skilled nursing facility or by a home health agency. Medicare policy calls 
for inpatient payment rates to be reduced when PPS hospitals discharge beneficiaries 
in 10 specified diagnosis related groups (DRG) to such settings.  However, OIG 
9
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estimates, based on a statistical sample, that Medicare paid approximately $52.3 
million nationwide in excessive DRG payments to inpatient PPS hospitals as a 
result of erroneously coded discharges. 
In addition to recommending recovery of overpayments, OIG recommended 
that CMS, as a long-term remedy, establish edits in its Common Working File to 
compare inpatient claims potentially subject to the postacute care policy with 
subsequent claims.  This will allow potentially erroneous claims to be reviewed and 
appropriate adjustments to be made to the discharging hospitals inpatient claim. 
The CMS officials concurred. (A-04-00-01220) 
OUTPATIENT PSYCHIATRIC SERVICES 
In this report, OIG found that many of the outpatient psychiatric services 
claimed by a Maryland medical center for FY 1997 were not allowable.  Based on 
the results of a sample review of claims, OIG estimated that the center overstated 
its charges by at least $957,500. 
The OIG recommended that the center strengthen procedures to ensure that 
charges are for covered and properly documented services. The center did not 
agree. (A-03-99-00012) 
HOSPITAL INVESTIGATIONS 
The following are significant examples of hospital-related cases resolved 
during this period: 
'	 In Connecticut, Danbury Hospital agreed to pay the government $7.5 million 
to settle allegations that it violated the False Claims Act with respect to its 
1986 cost report. Based upon a review by OIG, the government found 
that the hospital was overpaid by the fiscal intermediary when the fiscal 
intermediary attempted to manipulate cost reports in order to increase its 
performance score. The hospital did not enter into a corporate integrity 
agreement because it demonstrated that it had extensive and effective 
compliance programs in place. The government did not waive its 
permissive exclusion authority as part of the settlement agreement in this 
case. 
'	 Kaweah Delta Health Care District (Kaweah), a subdivision of the State of 
California, agreed to pay the government $475,000 to resolve its potential 
10
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liability under the Civil Monetary Penalties Law for the submission of false 
claims.  This payment is in addition to the $270,006 that Kaweah paid to the 
fiscal intermediary in 1999, representing a total recovery of $745,006.  The 
settlement covers two separate violations: 1) for submitting separate claims 
to Medicare for laboratory services that were included in the composite rate, 
and 2) for presenting claims for the technical component of services under 
inappropriate billing codes resulting in a higher rate of reimbursement. 
'	 York Hospital of York, Pennsylvania, paid $270,000 to resolve its civil 
monetary penalty liability.  York presented claims to Medicare for certain 
Emergency Department services that it represented were personally and 
identifiably provided by faculty physicians to Medicare beneficiaries when, 
in fact, York did not possess sufficient documentary evidence to establish 
the presence of the physicians during the performance of these services. 
'	 The former chief executive officer (CEO) of a New Jersey hospital was 
sentenced to 3 months incarceration and ordered to pay $211,572 in 
restitution and a fine of $5,000 for tax evasion. From 1992 through 1996, 
the CEO caused the hospital to pay for some personal expenses, which were 
not reported as income on his tax returns. The CEO also caused the 
hospital to charge Medicare for personal expenses not related to patient 
care. In 1996, the hospital dismissed the CEO after an internal investigation 
revealed the scheme; the hospital also made an adjustment to its Medicare 
cost report to cover the loss incurred by Medicare as a result of the CEOs 
actions. 
MEDICARE ADMINISTRATIVE APPEALS 
The OIG examined the impact of amendments made by the Benefits 
Improvement and Protection Act of 2000 (BIPA) to the Medicare appeals system. 
The amendments, effective October 1, 2002, could negatively affect the already 
backlogged and overwhelmed appeals process. An earlier OIG report detailed 
fundamental weaknesses in the Medicare appeals process, many of which could be 
exacerbated by the implementation of the BIPA amendments. For example, short 
time frames called for by BIPA could result in appeals cases being prematurely 
accelerated to higher, more expensive levels of appealreducing the quality of 
decisions and adversely effecting the financing and administration of the Medicare 
program. 
To resolve these problems while still meeting the intent of the BIPA 
amendments, this report offers recommendations to restructure and improve the 
administration of the system, including the establishment of an administrative 
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appeals process that is dedicated to Medicare and adjustments to the mandated time 
frames. The Department generally agreed with the recommendations. 
(OEI-04-01-00290) 
BENEFICIARY AWARENESS OF FRAUD

This follow-up report addresses current Medicare beneficiaries level of 
awareness of fraud and compares it to levels reported in1998.  The OIG found that 
outreach activities designed to educated beneficiaries about Medicare fraud are 
meeting most of their goals.  In 2001, beneficiaries were more knowledgeable 
about Medicare fraud and were 
significantly more likely to 
receive information about fraud 
than they were 3 years ago. 
Additionally, beneficiaries are 
reporting suspected fraud using 
an approach consistent with the 
three-step process which directs 
them to first contact their health 
care provider, then their 
Medicare insurance company, 
and finally  the OIG hotline. 
(OEI-09-00-00590) 
0%  5%  10%  15%  20%  25% 
CRIMINAL FRAUD 
One of the most common types of fraud perpetrated against Medicare, 
Medicaid and other federal health care programs involves the filing of false claims 
or statements. Such false claims may be pursued civilly under the False Claims Act 
and, in appropriate cases, may also be prosecuted under federal criminal statutes. 
The successful resolution of these matters often results from combining investigative 
efforts and resources with the FBI and other law enforcement agencies. Descriptions 
of criminal prosecutions that resulted from the investigation of both false claims-
related offenses and other health-care related offenses during this period follow. 
'	 A Texas woman was sentenced to 17.5 years incarceration and ordered to 
pay over $9.3 million in restitution and over $3,000 in special assessments 
after being convicted on 32 counts of health care fraud.  The woman 
defrauded Medicare, Medicaid and several private insurance companies by 
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billing for services not rendered through multiple companies she established. 
The billing scheme defrauded health insurance programs, negatively 
affected beneficiaries and compromised the identities of physicians whose 
provider numbers she used to falsely bill the programs. Although first 
indicted on 17 counts of health care fraud in April 2000, the woman 
continued her false billings and as a result, was indicted on 15 additional 
counts of health care fraud in May 2001.  Evidence submitted showed that 
the woman, even after two indictments, still continued to falsely bill health 
care programs for services not rendered. 
'	 A California physician, who also owned and operated a clinic, was sentenced 
to 5 years in prison and ordered to pay $2.87 million in restitution. The 
physician was convicted of multiple felony counts, including mail fraud, 
wire fraud, bankruptcy fraud and making false statements. Evidence proved 
the physician deliberately misdiagnosed patients as suffering from a rare 
vascular disease that requires patients to obtain expensive pumps, braces 
and other medical devices. The physician was also convicted of making 
false statements when he filed for bankruptcy in 1996. 
'	 A New York woman was sentenced to 18 months incarceration and ordered 
to pay a total of $565,230 in restitution for health care fraud.  As the billing 
clerk and bookkeeper for her husbands dental practice, the woman 
improperly billed insurance companies for nonrendered services. The 
woman admitted that she shopped around by submitting claims for 
different services to find out which insurance companies would reimburse 
the most and which companies would require the least amount of 
documentation. 
'	 In Maine, the chief financial officer (CFO) of a nonprofit organization 
providing housing and 24-hour care to Medicaid recipients with disabilities 
was sentenced to 27 months in prison and ordered to pay $392,992 in 
restitution for health care fraud.  The CFO used his position to access the 
nonprofits operating account from which he cut extra payroll checks for 
himself, then provided false statements to Medicaid in an attempt to hide 
the scheme.  The CFO used the stolen money to build an addition to his 
home and to purchase a home theater system. 
'	 In Ohio, a husband and wife were sentenced for stealing health care funds 
from their former employer. The husband was sentenced to 19 months 
incarceration and his wife to 13 months. The couple was also ordered to 
pay a total of $189,304 in restitution and to undergo drug treatment and 
counseling. While working for a company that provides billing and other 
management services to health care providers, the couple engaged in a 
scheme through which they diverted health care payment checks to 
accounts established for their own personal use. 
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KICKBACKS

Many businesses use referrals to meet the needs of customers or clients for 
expertise, services or items that are not part of their own regular operations or 
products. The medical profession relies heavily upon referrals because of the myriad 
specialties and technologies associated with 
health care. Referrals in and of themselves are 
legal. However, if referrals of federal health 
The anti-kickback statute authorizes 
penalties against anyone who  care program beneficiaries are made in exchange 
knowingly and willfully solicits,  for anything of value, both the giver and 
receives, offers or pays remuner receiver may violate the federal anti-kickback 
ation, in cash or in kind, to induce  statute. 
or in return for 1) referring an 
individual to a person or entity for 
Violators may be subject to criminal 
the furnishing, or arranging for the 
penalties and to exclusion from participation in 
furnishing, of any item or service 
federal health care programs. They may also be 
payable under the federal health 
subject to civil monetary penalties.  The 
care programs; or 2) purchasing, 
leasing or ordering, or arranging  following are examples of anti-kickback 
for or recommending the purchas enforcement actions: 
ing, leasing or ordering of any 
'  In Tennessee, three pharmacy benefits 
good, facility, service or item 
payable under the federal health  management (PBM) company owners agreed to 
care programs. (Section 1128B(b)  pay the government $1.3 million for allegedly 
of the Social Security Act,  engaging in a kickback scheme to obtain PBM 
42 U.S.C.  1320a-7b)  business for their company. After obtaining the 
PBM business, the owners diverted money from 
the health care program for their personal 
benefit in the form of loans, consulting fees, dividends and bonuses. As part of the 
settlement, the PBM owners agreed to be excluded from participating in the federal 
health care programs for 15 years. 
'	 OB-GYN Associates of Cookeville, Tennessee, and several individual 
physicians paid $109,900 to resolve their civil monetary penalty liability for 
violations of the physician self-referral (Stark) statute and the kickback 
provisions of the Civil Monetary Penalties Law.  From 1997 through 2000, 
the physicians had a financial relationship with a mobile ultrasound company 
from which they received referral feesostensibly in the form of rentin 
return for referring Medicare beneficiaries to the company for ultrasound 
studies and diagnostic testing. 
'	 A New York man was ordered to pay $18,000 in restitution and a $5,000 fine 
for violating the anti-kickback statute. As the security director for a hospital, 
one of his responsibilities included arranging ambulance transportation for 
hospital patients. In 1995, the man began accepting kickbacks from the 
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owner/operator of an ambulance company in exchange for Medicare and 
Medicaid referrals to the company. 
FRAUD AND ABUSE SANCTIONS

During this reporting period, OIG administered 1,472 sanctions, in the form 
of program exclusions or civil actions, on individuals and entities for alleged fraud 
or abuse or other activities that posed a risk to federal health care programs and/or 
their beneficiaries. 
Program Exclusions 
Section 1128 of the Social Security Act (42 U.S.C.  1320a-7) provides several grounds for 
excluding individuals and entities from participation in Medicare, Medicaid and other federal 
health care programs. Exclusions are required for individuals and entities convicted of the 
following types of criminal offenses: 1) Medicare or Medicaid fraud; 2) patient abuse or neglect; 
3) felonies for other health care fraud; and 4) felonies for illegal manufacture, distribution, 
prescription or dispensing of controlled substances. The OIG has the discretion to exclude 
individuals and entities on several other grounds, including: misdemeanors for other health care 
fraud (other than Medicare or Medicaid) or for illegal manufacture, distribution, prescription or 
dispensing of controlled substances; suspension or revocation of a license to provide health care 
for reasons bearing on professional competence, professional performance, or financial integrity; 
provision of unnecessary or substandard services; and submission of false or fraudulent claims to a 
federal health care program. 
During this reporting period, OIG excluded 1,366 individuals and entities. 
The following are examples of exclusions that were administered: 
'	 A Missouri transportation 
Providers who are subject to exclusion are 
company owner/operator was  granted due process rights, including a hearing 
excluded for 15 years after he  before an HHS administrative law judge and 
was convicted of submitting or  appeals to the HHS Departmental Appeals Board 
causing the submission of false  and the federal district and appellate courts, 
claims for ambulance services  regarding whether the basis for the exclusion 
exists and the length of the exclusion is 
provided to patients. 
reasonable.

Additionally, he entered into a 
$325,000 settlement agreement

in a parallel civil suit.

'  In Colorado, two certified nurse aides (CNAs) were convicted in a time-card 
fraud scheme that lasted more than a year and resulted in a loss to 
15
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Medicaid of approximately $63,000. Additionally, one of the CNAs had 
previously been convicted and had violated his parole.  Both CNAs were 
excluded for 10 years. 
Civil Penalties for Patient Dumping 
Section 1867 of the Social Security Act (42 U.S.C.  1395dd) provides that when an individual 
presents to the emergency room of a Medicare-participating hospital, the hospital must provide an 
appropriate medical screening examination to determine whether that individual has an emergency 
medical condition. If an individual has such a condition, the hospital must provide either: 1) 
treatment to stabilize the condition; or 2) an appropriate transfer to another medical facility. 
If a transfer is ordered, the transferring hospital must provide stabilizing treatment to minimize the 
risks of transfer and must ensure that the receiving hospital agrees to the transfer and has available 
space and qualified personnel to treat the individual. In addition, the transferring hospital must 
effect the transfer through qualified personnel and transportation equipment. Further, a 
participating hospital with specialized capabilities or facilities may not refuse to accept an 
appropriate transfer of an individual who needs services if the hospital has the capacity to treat the 
individual. 
The OIG is authorized to collect civil monetary penalties of up to $25,000 against small hospitals 
(less than 100 beds) and up to $50,000 against larger hospitals (100 beds or more) for each 
instance in which the hospital negligently violated any of the section 1867 requirements. In 
addition, OIG may collect a penalty of up to $50,000 from a responsible physician for each 
negligent violation of any of the section 1867 requirements and, in some circumstances, may 
exclude a responsible physician. 
Between October 1, 2001, and March 31, 2002, OIG collected $109,000 from 
4 hospitals for patient dumping violations. The following is a sampling of the 
alleged violations involved in the Patient Anti-Dumping statute settlements from 
this reporting period: 
'	 A Victor Valley Community Hospital in California agreed to pay $40,000 to 
resolve allegations that it had violated section 1867 of the Social Security Act 
on seven occasions. One patient did not receive stabilizing treatment or an 
appropriate transfer and another experienced a delay in treatment until her 
insurance company agreed to pay for treatment. Five patients did not receive 
appropriate medical screening examinations; four resulting from the hospital 
calling the patients insurance companies for payment authorization which 
was denied.  The settlement amount reflected the hospitals limited ability to 
pay. 
'	 Englewood Hospital in New Jersey agreed to pay $15,000 to resolve 
allegations that it violated section 1867 of the Social Security Act. The OIG 
found that the hospital failed to provide medical examinations to 
16
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several people who came to the hospital emergency room for evaluation and 
treatment. The hospital discharged the patients and sent them to private 
physicians offices. 
Civil Penalties for False Claims 
Under the Civil Monetary Penalties Law (CMPL), section 1128A of the Social Security Act, 42 
U.S.C.  1320a-7a, a person is subject to penalties, assessments, and exclusion from 
participation in federal health care programs for engaging in certain activities. For example, a 
person who submits to a federal health care program a claim for items and services that the 
person knows or should know is false or fraudulent is subject to a penalty of up to $10,000 for 
each item or service falsely or fraudulently claimed, an assessment of up to three times the 
amount falsely or fraudulently claimed, and exclusion. For the purposes of the CMPL, 
should know is defined to mean that the person acted in reckless disregard or deliberate 
ignorance of the truth or falsity of the claim. The CMPL also authorizes actions for a variety 
of other violations, including submission of claims for items or services furnished by an 
excluded person, requests for payment in violation of an assignment agreement, and payment 
or receipt of remuneration in violation of the anti-kickback statute (42 U.S.C.  1320a-7b(b)). 
The authority to bring CMPL cases has been delegated to the Inspector General. 
The OIG also assists DOJ in bringing (and settling) cases under the False 
Claims Act. Many providers elect to settle their cases prior to litigation. As part of 
resolving these cases, providers often agree to put compliance measures in place to 
avoid exclusions and to remain a provider in the Medicare program.  The integrity 
programs established by these agreements are designed to prevent a recurrence of 
the fraudulent activities that gave rise to the case at issue. 
Under the federal civil False Claims Act (FCA), 31 U.S.C.  3729-3733, a person or entity is liable 
for up to treble damages and up to $11,000 for each false claim it knowingly submits or causes to be 
submitted to a federal program. Similarly, a person or entity is liable under the FCA if it knowingly 
makes or uses, or causes to be made or used, a false record or statement to have a false claim paid. 
The FCA defines knowing to include not only the traditional definition, but also instances when 
the person acted in deliberate ignorance of the truth or falsity of the information or in reckless 
disregard of the truth or falsity of the information. Under the FCA, no specific intent to defraud is 
required. Further, the FCA contains a qui tam or whistleblower provision that allows private 
individuals to file suit on behalf of the United States and entitles that whistleblower to a percentage 
of any fraud recoveries. 
The government, with the assistance of OIG and often the FBI and other law 
enforcement agencies, recouped more than $728.7 million through both Civil and 
Monetary Penalties Law and False Claims Act civil settlements related to the 
Medicare and Medicaid programs during this reporting period. 
17  Centers for Medicare and Medicaid Services 
Examples of civil penalties for false claims include the following: 
'	 TAP Pharmaceutical Products Inc. (TAP) paid more than $875 million to 
resolve criminal and civil liability resulting from sales and marketing of its 
prostate cancer drug, Lupron.  TAP pled guilty to conspiring to violate the 
Prescription Drug Marketing Act by causing the sale of free samples and paid 
$290 million in criminal finesthe largest criminal fine ever in a health care 
fraud prosecution. On the civil side, TAP paid $585 million, plus interest, to the 
Federal Government and the states for damages suffered by the Medicare, 
Medicaid and Tricare programs. The settlement followed a lengthy 
investigation into TAPs pricing, sales and marketing practices for Lupron. 
As part of the civil settlement, TAP also entered a comprehensive 7-year 
corporate integrity agreement that requires that TAP report certified pricing 
information to the federal and state government and requires, for the first 
time, an outside audit of TAPs sales and marketing practices. 
'	 KPMG, LLP (KPMG), formerly KPMG Peat Marwick LLP, agreed to pay $9 
million, plus interest, to the Federal Government to resolve allegations of 
submitting false hospital cost reports to the Medicare and Medicaid programs 
on behalf of Basic American Medical, Inc. (BAMI) and Columbia Hospital 
Corporation (now known as HCA, Inc.). The government alleged that 
KPMG, acting as a reimbursement consultant and preparer of the hospital 
cost reports, knowingly made claims that were false, exaggerated or 
ineligible for payment and concealed errors from the government, thereby 
enabling BAMI and HCA to falsely retain funds.  KPMG also prepared 
reserve cost reports detailing non-allowable expenses and allocations 
contained in the filed cost reports and estimated the reimbursement impact in 
the event that these nonallowable expenses and allocations were detected on 
audit. 
'	 Raytel Cardiac Services, Inc.(RCS) and Raytel Medical Corporation 
(collectively, Raytel) agreed to pay the government $11.5 million, plus 
interest, and to enter into a 5-year corporate integrity agreement to resolve 
the corporations liability for the submission of false claims and false 
statements to the government. The $11.5 million settlement figure is 
comprised of $5 million in restitution based on a guilty plea by RCS to 
obstruction of a criminal investigation and $6.5 million to resolve Raytels 
civil liability under the False Claims Act. A corporation with locations in 
New York, Connecticut and New Jersey, Raytel is one of the Nations largest 
providers of trans-telephonic pacemaker monitoring. The allegations in the 
case centered around Raytels failure to fully complete all necessary steps in 
performing the monitoring services, as well as conducting the monitoring for 
the required length of time. 
18
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'	 In New York, Impath, Inc. (Impath), agreed to pay the government $9 million to 
settle allegations of improperly billing Medicare for diagnostic pathology 
services. A qui tam alleged that from 1992 to 1998, Impath, a large clinical 
laboratory with facilities in New York, California and Arizona, presented 
improper Medicare claims and supporting records to the government. The 
settlement also contains compliance provisions. 
'	 Molina Healthcare of California, Inc., doing business as Molina Medical 
Centers (Molina), a Medicaid managed care plan in California, paid $600,000 
to resolve its civil monetary penalty liability for furnishing false and 
misleading information to Medicaid beneficiaries. Molina sent over 17,000 
false and misleading lettersstating that if the beneficiaries did not re-enroll 
with Molina they would lose access to their primary care physiciansto 
Medicaid beneficiaries enrolled in its plan. These letters appeared as though 
they were sent directly from the beneficiaries physicians; in reality, they 
were sent by a mailing house at the request and direction of Molina. 
Compliance Activities 
Because the great majority of providers are honest and wish to avoid fraud 
and abuse issues, OIG is actively working with the private sector to develop methods 
to prevent the submission of improper claims and inappropriate conduct. The OIG 
has already initiated significant outreach efforts with the private sector to encourage 
these compliance endeavors. The OIGs compliance program guidelines are available 
on the Internet at http://oig.hhs.gov in the Compliance Tools and Fraud 
Detection & Prevention sections. 
OIG has developed and released nine compliance program guidances for: 
clinical laboratories, hospitals, home health agencies, third-party billing companies, 
durable medical equipment (DME), prosthetics and orthotics suppliers, hospices, 
Medicare+Choice organizations that offer coordinated care plans, nursing homes, 
and individual and small group physician practices.  The OIG is currently working 
on compliance guidance for ambulance service providers and the pharmaceutical 
industry. 
In addition to developing compliance program guidance that promotes the 
voluntary adoption of compliance measures by private industry, OIG monitors 
compliance and integrity obligations agreed to by health care providers as part of 
global fraud settlements. These compliance obligations are typically negotiated 
through an agreement commonly referred to as a corporate integrity agreement 
(CIA). Presently, OIG is monitoring approximately 324 corporate integrity 
agreements. 
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Inspector Generals 
Open Letter 
Please Note: The following is a synopsis of the Inspector 
Generals Open Letter. The full text of the letter can be 
found on the Internet at http://oig.hhs.gov. 
On November 20, 2001, the Inspector General issued an Open Letter to 
Health Care Providers in which she announced modifications to CIAs in response 
to concerns from the provider and enforcement community regarding the civil 
settlement process. These modifications addressed two major, but related, areas. 
The first area addressed concerns the resolution through a CIA of OIGs 
administrative exclusion authority in connection with a fraud settlement. The 
Inspector General noted that there were a limited number of cases where it would 
be appropriate to resolve a providers permissive exclusion liability separately or 
subsequent to resolution of the False Claims Act case and that, in certain cases, it 
may be appropriate to release OIGs administrative exclusion authorities without a 
corporate integrity agreement. The Open Letter listed eight criteria OIG will 
consider when determining whether a CIA is appropriate. 
The second major area concerned OIGs modification to the CIA claims 
review procedures. In part because of provider concerns about the costs of the CIA 
billing review requirements, OIG modified the billing review procedures by 
requiring a full, statistically valid random sample of claims only if the providers 
initial sample of claims indicated an error rate at or above 5 percent. This 
modification would be offered both for all future CIAs and current CIAs, where 
appropriate. 
PROVIDER SELF-DISCLOSURE 
In keeping with a longstanding commitment to assist providers and suppliers in 
detecting and preventing fraudulent and abusive practices, on October 21, 1998, 
OIG issued a set of comprehensive guidelines for voluntary self-disclosures titled, 
Provider Self-Disclosure Protocol. The Protocol is available on the Internet at 
http://oig.hhs.gov in the Compliance Tools section. In addition, it can be found 
in 63 Federal Register 58,399 (October 30, 1998). 
Essentially, the Protocol guides providers and suppliers through the process of 
structuring a disclosure to OIG of matters uncovered that are believed to constitute 
potential violations of federal laws (as opposed to innocent mistakes that may have 
resulted in overpayments). Pursuant to the Protocol, an appropriate submission 
20
 Centers for Medicare and Medicaid Services 
would include a thorough internal investigation as to the nature and cause of the 
matters uncovered and a reliable assessment of their economic impact (e.g., an 
estimate of the losses to the federal health care programs). The OIG evaluates each 
submission to determine the appropriate course of action. To date, OIG has 
received 131 submissions. 
Among the benefits experienced by disclosing providers is the allocation of 
investigative resources that can contribute to an expeditious inquiry and a prompt 
resolution of the matter. Additionally, disclosing providers that demonstrate the 
effectiveness of their compliance programs and that, as part of the resolution of the 
matter, agree to continue such compliance activities may avoid entering into a 
corporate integrity agreement with OIG. In those cases where objective evidence of 
a comprehensive compliance program exists and OIG believes an agreement is 
necessary, OIG may make significant modifications in the term of an agreement or 
the role of the independent review organization. 
Overall, the Protocol provides helpful guidance to providers and the 
community at large concerning how to achieve resolution of identified misconduct 
through a cooperative and open relationship with the government. To date, self-
disclosure cases have resulted in 30 recoveries and 15 settlements collectively 
totaling over $46.5 million. Successful resolution to provider self-disclosure is 
demonstrated in the following example: 
'	 Summa Health System Hospitals (Summa), an Ohio health care provider, 
agreed to pay the government $770,000 to resolve its False Claims Act 
liability for the improper billing of dialysis services. As part of the settlement, 
Summa also agreed to maintain its current compliance program for 3 years. 
The settlement stemmed from Summas self-disclosure under the OIG 
Provider Self-Disclosure Protocol. 
INDUSTRY GUIDANCE 
The OIG has continued to issue advisory opinions, special fraud alerts, 
special advisory bulletins and other guidance as part of its ongoing effort to promote 
the highest level of ethical and lawful conduct by the health care industry. For the 
period from October 1, 2001, through March 31, 2002, OIG accepted 21 advisory 
opinion requests and issued 5 advisory opinions. On December 4, 2001, OIG issued a 
final safe harbor regulation for ambulance restocking arrangements. Also, in 
accordance with the Health Insurance Portability and Accountability Act of 1996, 
OIG solicited proposals (via Federal Register notice) for modifying existing safe 
harbors to the anti-kickback statute. The OIG received 22 timely filed responses to 
the December 19, 2001, notice. 
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ADMINISTRATIVE COSTS INCLUDED IN 
ADJUSTED COMMUNITY RATE PROPOSALS 
Through adjusted community rate (ACR) proposals, managed care 
organizations (MCOs) present to CMS an initial rate that represents the commercial 
premium that the MCO would charge its non-Medicare enrollees for services 
included in the managed care plan. This rate is then adjusted by various factors 
described in the regulations, including the relative costs to Medicare beneficiaries. 
Administrative costs are one component of the ACR. At the request of the former 
CMS Administrator, OIG completed several reviews of administrative costs 
included in ACR proposals.  The results are being shared with CMS so that 
appropriate legislative changes can be considered. 
This report pointed out that the CMS 
Nine-State Review  methodology for developing ACR proposals 
still results in Medicare paying a dispropor
tionate share of administrative costs. Audits 
of the proposals prepared by 10 MCOs in 9 states showed that $97.1 million of 
base-year costs would have been recommended for disallowance had the 
MCOs been required to follow the Medicare programs general principle of 
paying only reasonable costs. Because there is no statutory or regulatory 
authority governing the allowability of costs in the ACR process, the MCOs 
were not required to adhere to this principle.  (A-03-01-00017) 
This review (part of the nine-state review) of 
Mid-Atlantic MCO  ACR proposals submitted by a Mid-Atlantic 
MCO was made to determine if the 
administrative costs were reasonable, 
necessary and allocable when compared with Medicares general principle of 
paying only reasonable costs.  The OIG found that $36.4 million in costs 
were 1) related-party costs for management fees that were based on a 
percentage of premium revenues rather than actual costs; 2) unallocable costs 
consisting of commissions paid to brokers who sell non-Medicare insurance 
policies; 3) related to such items as bad debts, travel and entertainment, 
promotions, donations, and tax penalties; 4) unsupported and undocumented; or 
5) apportioned to Medicare using an allocation method that would have been 
inappropriate under Medicares cost-based criteria. (A-03-01-00002) 
22
 Centers for Medicare and Medicaid Services 
MEDICARE CONTRACTOR ADMINISTRATIVE COSTS

Under an agreement with CMS, an Indiana contractor processes and pays 
claims for Medicare Parts A and B services, as well as for durable medical 
equipment. Based on a review of the contractors administrative costs claimed for 
FYs 1998 and 1999, OIG recommended a financial adjustment of $4.7 million, 
including over $3 million in pension and post retirement heath benefit costs that 
were charged to Medicare based solely on accrual accounting entries rather than 
actual cash contributions. The contractor agreed with some of the recommended 
adjustments. (A-05-01-00023) 
TERMINATED MEDICARE CONTRACTOR 
A contractor in Pennsylvania processed and paid Medicare claims until the 
contractual relationship with CMS was terminated in 1997. Until that time, Medicare 
reimbursed the contractor for its Medicare employees pension costs. Regulations 
and Medicare contracts provide, however, that pension gains attributable to the 
Medicare segment of a terminated contractors pension plan be credited to the 
Medicare program. This OIG report identified about $2.9 million in excess pension 
assets that the contractor should remit to Medicare.  The contractor did not agree 
with this recommendation. (A-07-01-00132) 
PAYMENTS FOR BENEFICIARIES 
REPORTED AS INSTITUTIONALIZED 
Medicare pays a higher capitation rate to MCOs for Medicare beneficiaries 
who are institutionalized than for those who are not. Based on a statistical sample, 
OIG estimated that a California MCO received Medicare overpayments of at least 
$2 million for beneficiaries who were incorrectly classified as institutionalized in 
February 1998. The MCO did not agree with the recommendations to refund the 
identified overpayments and to review additional payments for possible overpayments. 
(A-09-01-00056) 
DIALYSIS FACILITIES PERFORMANCE    
An OIG inspection examined how the five major dialysis corporations use 
clinical performance measures to hold their facilities accountable for the quality of 
23
 Centers for Medicare and Medicaid Services 
care they provide. These five corporations provide treatment to about 70 percent of 
dialysis patients nationwide, the majority of which are Medicare beneficiaries. The 
OIG found that these corporations rely heavily on facility-specific clinical 
performance measures and have gained considerable knowledge on how to use them 
effectively.  They collect over 14 measures and generate timely facility-specific 
reports that compare the performance of facilities. 
The CMS is actively engaged in efforts to improve the use of clinical 
performance measures. Based on the lessons that these corporations have learned, 
OIG made several recommendations for CMS to consider as it strengthens its use of 
dialysis facility performance measures. The OIG also provided two supplemental 
reports with detailed information on these performance measures to CMS. 
(OEI-01-99-00052; OEI-01-99-00053; OEI -01-99-00054) 
RENAL BENEFICIARY AND 
UTILIZATION SYSTEM PROBLEMS    
The CMS describes the Renal Beneficiary and Utilization System as ...a 
mission critical system that is used by CMS and the renal community to perform 
their duties... This report indicated that data sets within the system were out-of-
date, incomplete and inaccurateresulting in duplication of effort, delays and 
program vulnerabilitiesand were created from a lack of resources, historical 
complications and an outdated system. 
The suggestions OIG offered to CMS include focusing on developing a 
strategic plan to address ESRD data management and establishing short-and long-
term targets; assessing data needs of end-users; ensuring efficient data distribution; 
and enhancing communication. The OIG also recommended that CMS coordinate 
with the Social Security Administration to address data errors in basic beneficiary 
information. The CMS is working to correct these problems. (OEI-07-01-00250) 
FRAUD INVOLVING DURABLE 
MEDICAL EQUIPMENT SUPPLIERS 
The durable medical equipment (DME) industry suffers from waves of 
fraudulent schemes in which federal health care programs are billed for equipment 
never delivered, higher-cost equipment than that actually delivered, unnecessary 
equipment or supplies, or equipment delivered in a state different from that billed in 
order to obtain higher reimbursement. During this reporting period, OIG obtained 
the following settlements and convictions regarding DME fraud: 
24  Centers for Medicare and Medicaid Services 
'	 In Kentucky, American HomePatient, Inc., (AHP), agreed to pay the 
government $7 million to resolve its liability under the False Claims Act and 
the Civil Monetary Penalties Law for submitting false claims to Medicare, 
Medicaid and TRICARE. From January 1995 through December 1998, AHP 
allegedly billed the government for DME supplied to patients around the 
country that did not meet the applicable reimbursement requirements. In 
addition, AHP allegedly provided free or discounted services to physicians 
and hospitals for referrals of patients to AHP. 
'	 Lincare Holdings, Inc. and Lincare, Inc. (collectively, Lincare) agreed to pay 
the government $3.15 million to settle its potential False Claims Act liability. 
Lincare is a nationwide provider of DME, primarily home oxygen and related 
supplies and drugs. The investigation involved the operation of two Lincare 
centers in northern California that allegedly submitted false claims related to 
home oxygen therapy. 
'	 In Georgia, a DME company owner was ordered to pay $626,838 in 
restitution for fraudulent concealment. The owner and his company submitted 
bills to Medicare for incontinence care supplies that were never provided. 
They then created false receipts in an effort to conceal their scheme from 
Medicare. 
'	 In New Jersey, three individuals were sentenced for conspiring in a Medicare 
fraud scheme with two DME company owner/operators.  The operators, 
already sentenced for their roles in the scheme, owned three New Jersey 
based companies that provided wound and incontinence care kits to nursing 
home residents in Puerto Rico. Two of the individuals sentenced included a 
doctor and a nursing home owner in Puerto Rico who received illegal kick-
backs in return for medically unnecessary and excessive DME referrals to 
the companies. The third individual, an office manager for the company 
owners, was sentenced for his role in attempting to cover up the scheme. 
The investigation found that many of the supplies paid for by Medicare were 
never used or were diverted to non-Medicare patients residing in the 
Dominican Republic. 
INHALATION DRUG PAYMENTS 
This report pointed out significant potentially improper payments by a 
durable medical equipment regional carrier to suppliers for inhalation drugs. Based 
on a statistical sample, OIG estimates such payments totaled $134 million for the 
12-month period ended September 30, 1999.  Claims were unallowable because 
25
 Centers for Medicare and Medicaid Services
documentation was insufficient, payments were
for drugs billed without a prescription, or the
items or supplies were not reasonable and
necessary for the beneficiarys condition. 
The OIG recommendations call for
improvements to procedures and controls and
financial adjustments.  The CMS concurred.
(A-06-00-00053)
ELECTROCONVULSIVE THERAPY REIMBURSEMENT
In this report, OIG indicated that Medicare allows almost one-half million
dollars annually for a form of electroconvulsive therapy (ECT) that is not clinically
recommended.  A 1985 National Institutes of Health Consensus Development
Conference Statement and more current research indicate that the use of multiple
monitored ECT is not effective and can pose a risk to patients. The OIG
recommended that CMS take action to assure that the Medicare coverage policy for
ECT is consistent with clinical guidelines.  The CMS concurred.  (OEI-12-01-0450)
TRANSPORTATION FRAUD
Common Medicare and Medicaid fraud schemes associated with
transportation and ambulance companies involve the submission of claims for
transporting patients to a hospital when patients are really taken to other facilities
for which claims are non-reimbursable.  Other schemes include billing singly for
patients who were transported as a group and falsely claiming reimbursement for
ambulatory patients.  The following examples of transportation fraud were resolved
during this reporting period:
' Two co-owners of an Arkansas ambulance company were sentenced for
conspiracy and health care fraud.  A federal trial jury found the two guilty of
submitting false claims for medically unnecessary transportation of dialysis
patients.  The co-owners were each sentenced to 46 months imprisonment
and were jointly ordered to pay over $1 million in restitution to Medicare
and Medicaid.  In addition, the companys former general manager was
sentenced for his part in the conspiracy to 9 months confinement in a
halfway house. 
26 Centers for Medicare and Medicaid Services 
'	 A California-based medical transportation provider and its president were 
sentenced for health care fraud.  The president was sentenced to 15 months 
incarceration and ordered to pay $445,631 in restitution jointly with the 
company. The company and its president submitted fraudulent medical 
transportation claims to a Medicare HMO for services not rendered.  Some 
of the claims included dates of service for beneficiaries who were already 
deceased. 
'	 In New Jersey, an ambulance company owner was sentenced to 15 months 
incarceration and ordered to pay $431,000 in restitution for mail fraud in 
connection with a scheme to defraud Medicare. The owner routinely billed 
Medicare for ambulatory patients and inflated mileage.  She also billed for 
oxygen when none was provided, billed for ambulance services when a van 
was used, and misstated diagnoses and places of service on claims.  In some 
instances, she billed Medicare for patients who were actually being trans-
ported for local shopping trips. 
PRESCRIPTION DRUG FRAUD 
Working jointly with such partners as the Drug Enforcement Administration 
and state and local authorities, OIG has identified and investigated illegal schemes 
to obtain, use and distribute prescription drugs. The schemes often entail individuals 
who defraud the Medicare or Medicaid programs in order to obtain the drugs under 
false pretenses for their personal use or for resale. Participants in these often complex 
schemes may include patients, beneficiaries, pharmacists, physicians and others. 
By investigating these schemes, OIG aims to deter the illegal use of prescription 
drugs, to curb the danger associated with street distribution of highly addictive 
medications, and to protect the Medicare and Medicaid programs from making 
improper payments. The following are examples of prescription drug fraud cases: 
'	 GeorgiaA woman was sentenced to 18 months incarceration, ordered to 
pay $30,805 in restitution and to seek drug and alcohol treatment for theft or 
embezzlement in connection with health care. The woman stole a Medicare 
beneficiary card and used it at numerous emergency rooms and hospitals in 
order to obtain prescriptions for narcotics. 
'	 PennsylvaniaA pharmacy employee was sentenced to 28 months 
incarceration and ordered to pay $5,000 in restitution for conspiracy to 
distribute controlled substances and possession of bank robbery proceeds. 
Through an arrangement with the pharmacist/pharmacy owner, the employee 
bought controlled substances without lawful prescriptions in order to 
distribute them for cash. 
27
 Centers for Medicare and Medicaid Services 
'	 Washington, DCA woman was sentenced to 10 months in prison for 
unlawful distribution of methadone. Along with other individuals including 
doctors and pharmacists, the woman participated in a scheme involving 
Medicaid fraud and drug diversion. 
This period, OIG also continued to focus specifically on the illegal use and 
distribution of the controlled and highly addictive time-release medication 
OxyContin, as demonstrated in the following example: 
'	 MaineIn an ongoing investigation involving Medicaid fraud and the illegal 
acquisition and distribution of OxyContin, seven additional individuals were 
sentenced to an average incarceration of close to 30 months and were ordered 
to pay a total of $30,305 in restitution.  All were members of a group in 
southern Maine who used Medicaid to pay for illegally acquired OxyContin 
which was then illegally distributed.  Of the 21 people charged to date, 20 
have pled guilty and one has been found guilty in a jury trial; 19 have been 
sentenced. 
MEDICAID PRESCRIPTION DRUG PRICING 
The OIG found that 30 states were using at least some of the revised average 
wholesale prices that First DataBank began reporting as a result of DOJ 
investigations. However, the method by which these states implemented the revised 
prices varied considerably. States reported both advantages and disadvantages to 
using the revised prices.  States that use the revised prices believe they will lead to 
short-term cost savings, but are unsure of the long-term impact. States concerns 
about the revised prices reinforce OIGs conclusion that the current systems reliance 
on reported average wholesale prices as the basis for drug reimbursement is 
fundamentally flawed.  (OEI-03-01-00010) 
MEDICAID PHARMACY ACQUISITION COSTS 
Most states use average wholesale price (AWP) minus a percentage discount, 
which varies by state, as a basis for reimbursing pharmacies for drug prescriptions. 
The objective of these reviews in eight states was to develop an estimate of the 
discount below AWP at which pharmacies purchase brand name and generic drugs. 
The OIG determined that there was a significant difference between AWP and 
pharmacy acquisition costs for generic drugs and brand name drugs. The OIG 
recognizes that acquisition cost is just one factor of many that must be considered in 
pharmacy reimbursement policy. However, a change in any of the factors affecting 
such reimbursement could have a major impact on program expenditures. 
28
 Centers for Medicare and Medicaid Services 
The OIG believes that the difference between the AWP and pharmacy 
acquisition costs is significant enough to warrant consideration in any evaluation 
of the states Medicaid programs and, therefore, recommends that the states consider 
the results of these reviews. (A-06-01-00001; A-06-01-00002; A-06-01-00003; 
A-06-01-00004; A-06-01-00005; A-06-01-00006; A-06-01-00007; A-06-01-00008) 
MEDICAID DISPROPORTIONATE 
SHARE HOSPITAL PAYMENTS 
The Medicare, Medicaid and State Child Health Insurance Program Benefits 
Improvement and Protection Act of 2000 increased public hospitals Medicaid 
disproportionate share hospital (DSH) reimbursement from 100 percent to 175 
percent of uncompensated care costsa change expected to increase federal 
spending by $380 million during FYs 2003 through 2005. Based on recent and 
ongoing reviews, OIG believes that the reimbursement increase may not be 
warranted. The DSH payments are not always retained by public hospitals, are 
often returned to the states for other uses, and are not always calculated correctly. 
The OIG recommended that CMS seek legislation to at least delay, if not 
repeal, the implementation of the increase in DSH payments until the need for and 
use of DSH funds for direct care of uninsured patients can be sufficiently reviewed. 
If the new limit is implemented, OIG recommends additional legislative reform to 
ensure that DSH funds remain at the hospitals to provide care to vulnerable 
populations. The CMS initially concurred with the recommendations. However, 
when commenting on the final report, CMS said that it currently had no plans to 
seek a legislative change. (A-06-01-00069) 
CLAIMS FOR RESIDENTS OF 
INSTITUTIONS FOR MENTAL DISEASES 
The objective of these reviews was to determine if controls were in place to 
effectively preclude states from claiming federal Medicaid funding for 21- to 64-
year-old residents of psychiatric hospitals that are institutions for mental diseases 
(IMD). The OIG found that controls were not adequate to preclude the states 
examined from making inappropriate claims. 
This review found that from July 1, 1997, through 
Virginia  December 31, 2000, Virginia paid Medicaid claims of $2.7 
million ($1.4 million federal share) for 21- to 64-year-old 
IMD residents. Recommendations called for making 
29  Centers for Medicare and Medicaid Services 
financial adjustments and changing the Medicaid Management Information 
System to deny crossover payments to private IMDs. The state generally 
agreed. (A-03-00-00212) 
The OIG found that from September 1, 1997, through 
Texas  August 31, 2000, Texas improperly claimed $425,000 in 
federal funds for IMD residents aged 21 to 64 who were 
temporarily released to general acute care hospitals for 
medical treatment. In addition to recommending financial adjustments, OIG 
recommended that the state cease claiming federal funds for these clients 
and develop controls or edits to detect and prevent such claims.  The state 
agreed with the recommendations. (A-06-00-00074) 
MEDICAID CLINICAL LABORATORY 
SERVICES: VIRGINIA 
Under Medicaid requirements, reimbursement to providers for clinical 
laboratory services may not exceed what the Medicare program recognizes as 
reimbursement for the same services. This follow-up review in Virginia found that 
controls did not exist to prevent the state from claiming federal funding for out-
patient clinical laboratory services in excess of Medicare amounts. The report 
noted that the state was overpaid $446,000 in federal funds for Calendar Years 
(CY) 1996, 1997, and 1998. The overpayments related to unbundling (paying for 
panel tests at the higher individual services amount rather than the lesser amount for 
the panel), duplicate services, and state laboratory fees above the Medicare carrier 
fees. As of the start of this audit, the state had not yet refunded the $724,000 
federal share of overpayments related to CYs 1993 and 1994 identified in a prior 
OIG audit. 
The OIG recommended that the state make a financial adjustment for the 
overpayments identified and install and revise edits to detect and prevent payments 
for unbundled and duplicate services. The state generally agreed with the recom-
mendations and stated that it had completed an offset against federal funds for the 
CYs 1993 and 1994 overpayment. (A-03-00-00204) 
FEDERAL AND STATE PARTNERSHIP: 
JOINT AUDITS OF MEDICAID 
One of OIGs major initiatives has been to work more closely with state 
auditors in reviewing the Medicaid program.  The Partnership Plan was developed 
30  Centers for Medicare and Medicaid Services 
to foster these joint reviews and provide broader coverage of the Medicaid program. 
The partnership approach has been an overwhelming success in ensuring more 
effective use of scarce audit resources by both the federal and the state audit 
sectors. To date, partnerships have been developed in 25 states.  Reports issued to 
date have resulted in identifying over $229 million in federal and state savings and 
have led to joint recommendations for savings at the federal and state levels, as well 
as improvements in internal controls and computer system operations. 
A joint audit with a New York State agency determined 
New York  that Medicaid might have inappropriately paid between 
$33 million and $37.1 million for certain diagnostic and 
special education services for eligible students from 
January 1, 1997, through December 31, 1999. Most of the overpayments 
were attributed to a control weakness by the agency responsible for submitting 
claims to Medicaid. While officials corrected the weakness prior to the 
audit, they did not take steps to repay the overpayments. The report 
recommended, among other thing, that the state recoup inappropriate 
Medicaid payments and establish procedures to eliminate Medicaid billings 
for duplicate claims.  (A-02-01-01024) 
An audit conducted with the Delaware State Auditor 
Delaware 
indicated that a state agency had overpaid Medicaid 
MCOs and other health care providers $364,000 for 
services rendered on behalf of deceased recipients. The 
overpayments resulted because of major weaknesses in internal controls. 
The state agreed with recommendations to recover the overpayments and 
has begun to strengthen internal controls.  (A-03-00-00205) 
A partnership audit conducted by the Arizona Office of 
Arizona 
Program Integrity identified potential Medicaid over-
payments of about $3.4 million (federal share, $2.2 million) 
for end stage renal disease (ESRD) services during the 
period January 1, 1996, through June 30, 1999. The potential over-
payments included claims with separate charges for laboratory tests already 
in the composite rates (unbundling), services and charges exceeding 
authorized amounts and frequency limits without appropriate medical 
documentation, and billing for laboratory tests without Clinical Laboratory 
Improvement Amendments certification. The report recommended, among 
other things, that the state recoup erroneous payments and review and/or 
update controls related to ESRD services. (A-09-01-00095) 
31
 Centers for Medicare and Medicaid Services 
MEDICAID FRAUD

At present, 47 states and the District of Columbia have established Medicaid 
Fraud Control Units (MFCUs). The MFCUs conduct investigations and prosecute 
providers charged with defrauding the Medicaid program or persons charged with 
patient abuse and neglect. As required by the Omnibus Budget Reconciliation Act 
of 1993, three statesIdaho, Nebraska and North Dakotahave sought and 
received waivers from the requirement that all states operate MFCUs. 
The Inspector General is delegated the authority to annually certify each 
MFCU eligible to receive federal grant funds under the Medicaid fraud control 
program.  The MFCUs receive 90 percent federal funding for the first 3 years of 
operation and 75 percent thereafter.  During FY 2002, OIG is providing oversight 
for and administration of approximately $116.9 million in funds granted by CMS to 
the units to facilitate their mission. 
Since the inception of the Medicaid fraud control program, the MFCUs have 
successfully convicted thousands of Medicaid providers and have recovered 
hundreds of millions of program dollars. Although most Medicaid fraud cases are 
investigated by the units, OIG works with the units and/or other law enforcement 
agencies on such cases as well, as demonstrated by the following examples: 
'	 Minnesota MFCUAllina Health System, a large integrated health care 
organization operating a variety of medically-related facilities and businesses, 
agreed to pay more than $16 million to settle allegations that it had 
submitted false claims to the Medicare, Medicaid and TRICARE programs 
between 1994 and 2001. The settlement agreement resolves two qui tam 
suits that alleged that the organization performed audits showing that it 
owed the federal health programs substantial overpayments and knowingly 
failed to return the overpayments. The settlement agreement also resolves a 
number of other issues. As part of the settlement, the organization agreed to 
enter into a comprehensive 5-year corporate integrity agreement covering all 
its lines of business. 
'	 New York MFCUA psychiatrist was ordered to pay $786,585 in restitution, 
a $50,000 fine and to undergo mental health treatment for mail fraud. The 
psychiatrist billed Medicare, Medicaid and a private insurer for services he 
did not perform and for inflated amounts of therapy time. In some instances, 
he billed for more than 24 hours of psychotherapy provided in a single day. 
32
 Centers for Medicare and Medicaid Services 
'	 California MFCUA laboratory owner was sentenced to 6 months in jail 
and ordered to pay $551,724 in restitution for health care fraud.  He was one 
of three laboratory owners involved in a scheme to bill Medicare and Medi-
Cal improperly for oxygen laboratory tests. The laboratories routinely 
changed dates of service, altered test results, and billed for tests not 
rendered. 
'	 Montana MFCUThe former acting administrator at a nursing home was 
sentenced to 15 months imprisonment and ordered to pay $15,277 in 
restitution for theft from a health care facility, embezzlement and theft, and 
theft from an Indian tribal organization. The administrator conspired with 
an administrative assistant at the nursing home to steal Medicare, Medicaid, 
Social Security and other funds intended for nursing home residents. The 
funds were deposited into a bank account under their control and withdrawn 
for their own use. The administrative assistant was also sentenced for theft 
from a health care facility to 12 months imprisonment and ordered to pay 
$18,537 in restitution. 
'	 Ohio MFCUA former home health care nurse was ordered to pay $1,100 in 
fines and to undergo periodic drug testing while on probation for creating 
false documents in connection with health care benefits. The nurse admitted 
to documenting patient visits which did not occur, forging patient signatures 
on log sheets, and creating false nursing notes.  As a result of her actions, 
the HHA improperly billed Medicare and Medicaid for services not 
rendered. 
33
 34
 Public Health Agencies 
The activities conducted and supported by HHS public health 
agencies represent this countrys primary defense against acute and chronic 
diseases and disabilities. These programs provide the foundation for the 
Nations efforts in promoting and enhancing the continued good health of 
the American people. These divisions within the Department include the 
following: 
National Institutes of Health (NIH) 
Food and Drug Administration (FDA) 
Centers for Disease Control and Prevention (CDC) 
Health Resources and Services Administration (HRSA) 
Indian Health Service (IHS) 
Agency for Toxic Substances and Disease Registry (ATSDR) 
Agency for Healthcare Research and Quality (AHRQ) 
Substance Abuse and Mental Health Services Administration (SAMHSA) 
The OIG continues to examine policies and procedures throughout 
these agencies to determine whether proper controls are in place to guard 
against fraud, waste and abuse. These activities include preaward and 
recipient capability audits.  This oversight work has provided valuable 
recommendations to program managers for strengthening the integrity of 
agency policies and procedures. 
35
 Public Health Agencies 
FY 2001 FINANCIAL STATEMENT AUDITS

In support of its audit of the consolidated HHS-wide financial statements for 
FY 2001, OIG audited, through contracts with independent public accounting firms, 
the financial statements of the major operating divisions. Agency officials are 
taking corrective actions on most of the recommendations. 
!	 NIH: The accounting firm issued an unqualified opinion on the NIH FY 2001 
financial statements and noted a repeated material weakness for lack of an 
integrated financial system and sufficient financial analyses and reviews. A 
new material weakness was noted in the area of investment in management 
systems due to inadequate and inconsistent documentation to support 
decisions regarding new systems and to support the tracking of financial 
activities. (A-17-01-00009) 
!	 CDC and ATSDR: The accounting firm issued an unqualified opinion on 
the CDC and ATSDR FY 2001 financial statements and noted no material 
weaknesses.  (A-17-01-00010) 
!	 FDA: The FDA received an unqualified opinion on the FY 2001 financial 
statements. No material weaknesses were noted in the system of internal 
controls. (A-17-01-00008) 
LABORATORY SECURITY 
As part of a major initiative to address bioterrorism issues, OIG is reviewing 
laboratory security at departmental, federal grantee and private-sector locations. 
The objective of this work is to ensure that laboratories working with select 
agentssubstances that could potentially be used in bioterrorism attacksare 
adequately secured. To assess physical security, OIG is using DOJ standards, 
developed in 1995 following the Oklahoma City bombing, that focus on perimeter 
security, entry security, interior security and security planning. The OIG is also 
reviewing laboratories compliance with CDC regulations on the transfer of select 
agents and with the U.S.A. Patriot Act of 2001, which restricts certain individuals 
access to such agents.  Reviews have been completed or are underway at CDC, 
NIH, FDA and numerous grantees and private businesses. (Various CINs) 
36
 Public Health Agencies 
NATIONAL INSTITUTE OF ENVIRONMENTAL 
HEALTH SCIENCES SUPERFUND 
Through an agreement with the Environmental Protection Agency, the 
National Institute of Environmental Health Sciences (NIEHS) received Superfund 
money to carry out health-related and other activities. As required by statute, OIG 
audited the NIEHS Superfund obligations and disbursements for FY 2000.  The 
audit found that these funds were generally administered in accordance with 
applicable laws and regulations; however, discrepancies between the Time and 
Attendance System and employees earnings and leave statements were noted. The 
NIEHS agreed with the recommendations to resolve these discrepancies. (A-04-01-
04000) 
ORGAN DONOR REGISTRIES: 
A USEFUL, BUT LIMITED, TOOL 
In response to the Secretarys request, made at the time he announced his 
Organ Donor Initiative, OIG assessed the value of donor registries as a strategy for 
increasing organ donation. The study found that registries have provided some 
assistance to organ procurement efforts, but that there are limitations to the 
contribution that registries can make to increasing the number of donors. For 
example, their use appears to increase consent rates for families, but so far registries 
contain only a limited number of donors. The OIG identified a number of practices 
that could take fuller advantage of the opportunities that registries offer. 
The OIG recommended that HRSA establish a mechanism to disseminate 
information on donor registries and to support research projects that seek to 
maximize the impact that registries can have.  The HRSA concurred with the 
recommendations. (OEI-01-01-00350) 
HUMAN SUBJECT PROTECTION 
IN CLINICAL TRIALS 
Inspecting the growth of foreign clinical trials for new drug applications, 
OIG found that clinical trials in foreign countries have increased dramatically, and 
FDA cannot assure the same level of protection as it can for domestic trials. An 
increasing number of these trials are being conducted in countries wherein institutional 
review boards (IRBs) have limited experience in protecting human subjects. Entities 
37  Public Health Agencies 
familiar with international research have raised concerns about the ability of some 
inexperienced foreign IRBs to adequately protect human subjects. 
Among other things, OIG recommended that FDA obtain more information 
about the foreign IRBs, encourage greater sponsor monitoring, and that the Office 
for Human Research Protections encourage accreditation. The FDA generally 
concurred with the recommendations. (OEI-01-00-00190) 
RETAIL FOOD SAFETY 
Members of the retail food industry, state and local agencies, and the Federal 
Government overwhelmingly agreed that FDA has demonstrated its support for 
the model Food Code and the voluntary Recommended National Retail Food 
Regulatory Program Standards. All embrace the Food Code and the Standards as 
blueprints for developing future retail food inspection practices. Respondents at 
every level, however, expressed concern about issues of implementation. For 
example, the frequency of revisions to the Food Code may act as a drawback to 
adopting the most recent Food Code. 
In this study, OIG recommended that FDA develop strategic plans which 
map out future actions for both FDA and the states, and OIG offered numerous 
suggestions for developing these plans. The FDA agreed with the recommendations, 
noting that some of them can be implemented with current resources, but others will 
be implemented as resources become available. On January 15, 2002, FDA 
responded to OIGs request for FDAs Implementation Plan in which the agency set 
forth its current thinking about enhancing food safety and security at the retail 
level, provided time- line projections and identified where resources will be needed 
for an orderly comprehensive implementation of the recommendations. 
(OEI-05-00-00540) 
38
 Public Health Agencies 
FDAS ESTABLISHMENT INVENTORY    

The FDA has regulatory responsibility for more than 100,000 firms, which 
it must inspect to ensure product quality and safety. These firms are listed on an 
official establishment inventory, which FDA uses to plan inspections, justify existing 
resources, and request additional resources should its workload increase.  Based on 
a review of the inventorys accuracy, OIG estimated that 16 percent of the 
establishments were no longer in business.  The OIG recommended that FDA take 
appropriate steps to ensure that the inventory is complete, accurate and up-to-date. 
The FDA generally agreed. (A-15-01-20001) 
STORAGE AND HANDLING OF EQUIPMENT 
EXPOSED TO HAZARDOUS MATERIAL 
The purpose of this review was to determine whether NIH maintains adequate 
controls over the handling and storage of laboratory equipment potentially exposed 
to hazardous material. Although NIH stated that improvements had been made since 
the issuance of a 1998 Federal Occupational Health report, OIG remains concerned 
about a lapse in documenting equipment exposed to hazardous material. The NIH 
agreed with OIGs recommendationsto appropriately tag equipment and to file 
paperwork accordinglyand completed their implementation. (A-15-01-00040) 
FACULTY LOAN REPAYMENT PROGRAM 
The Faculty Loan Repayment Program run by HRSA provides degree-trained 
health professionals from disadvantaged backgrounds with loan repayments of up to 
$20,000 per year. In exchange, these individuals agree to serve as faculty members 
at academic medical or health-related institutions for at least 2 years.  Program 
goals include the development of a diverse faculty that can serve as effective role 
models and mentors for disadvantaged students. Under the statute, the academic 
institution is required to match the federal loan repayment, unless it can demonstrate a 
financial hardship, in which case it can request a waiver.  This report found that 
waivers are routinely granted without an in-depth review of the institutions financial 
condition. 
The OIG recommended that HRSA develop detailed policy guidance for 
evaluating waiver requests. The OIG believes that one effect of doing this would 
be to maximize the reach of federal dollars to assist more disadvantaged faculty 
applicants. The agency agreed. (OEI-12-01-00510) 
39
 Public Health Agencies 
EXCLUSIONS FOR HEALTH EDUCATION 

ASSISTANCE LOAN DEFAULTS

Through the Health Education Assistance Loan (HEAL) program, HRSA 
guarantees commercial loans to students seeking education in a health-related field 
of study. The students are allowed to defer repayment of these loans until after they 
have graduated and begun to earn an income.  Although the Departments Program 
Support Center (PSC) takes all steps that it can to ensure repayment, some loan 
recipients ignore their indebtedness. 
After PSC has exhausted all efforts to secure repayment of these debts, it 
declares the individual in default. Once the individual has been declared in default, 
the Social Security Act permits, and in some instances mandates, exclusion from 
Medicare, Medicaid and all federal health care programs for nonpayment of these 
loans. During this 6-month period, 287 individuals and related entities were 
excluded as a result of PSC referral of their cases to OIG. 
Individuals who have been excluded as a result of their default may enter 
into settlement agreements whereby the exclusion is stayed while they pay specified 
amounts each month to satisfy their debt. If they default on these settlement 
agreements, they can then be excluded until their entire debt is repaid, and they 
cannot appeal these exclusions. Some health professionals, upon being notified of 
their exclusion, immediately repay their HEAL debts. 
After being excluded for nonpayment of their HEAL debts, a total of 1,618 
individuals have taken advantage of the opportunity to enter into settlement 
agreements or completely repay their debts. This figure includes the 156 
individuals who have entered into such a settlement agreement or completely repaid 
their debts during this reporting period.  The amount of money being repaid through 
settlement agreements or through complete repayment totals over $112 million. Of 
that amount, over $9.7 million is attributable to this reporting period.  In the 
following examples, each individual entered into a settlement agreement to repay 
the amount indicated: 
'  An Illinois physician$403,324 
'  A California physician$230,344 
'  A Colorado dentist$179,610 
'  A Michigan osteopath$176,650 
40
 Public Health Agencies 
CONTROLS OVER ETHICS AND TRAVEL POLICIES

The object of this review was to determine whether adequate controls 
existed to ensure that HRSA adhered to regulations and policies regarding outside 
activities, financial disclosure, appointment of staff fellows and expert consultants, 
and travel. The review revealed no evidence of substantive violations of ethics or 
travel policies. However, OIG identified technical lapses related to the timeliness 
and completeness of certain forms and an inappropriate policy regarding the 
supervisory approval chain for travel. The HRSA officials stated that they had 
already taken action in some areas and planned to take action in the remaining areas 
in accordance with OIGs recommendations. (A-03-01-00351) 
41
 42
 Administration for 
Children and Families 
The Administration for Children and Families (ACF) provides 
direction and funding for programs designed to promote stability, economic 
security, responsibility and self-support for the Nations families.  Some of 
the major programs include Temporary Assistance for Needy Families 
(TANF), Child Support Enforcement, Foster Care, Family Preservation and 
Support, Head Start, and the Child Care and Development Block Grant. 
The OIG reviews those programs serving children and families. 
Reports have focused on ways to increase the efficient use of program 
dollars; to more effectively implement programs; to better coordinate 
programs among the Federal Government, and state and local governments; 
and to strengthen states financial management practices. 
43
 Administration for Children and Families 
FY 2001 FINANCIAL STATEMENT AUDIT

In support of its audit of the consolidated Departmentwide financial 
statements for FY 2001, OIG contracted with an independent accounting firm to 
audit ACFs financial statements. The ACF received an unqualified opinion on its 
financial statements, with no weaknesses considered to be material. 
(A-17-01-0003) 
AFDC OVERPAYMENTS AND COLLECTIONS 
Under the former Aid to Families with Dependent Children (AFDC) 
program, state agencies administering the Title IV-A program were obligated to 
recover overpayments to recipients. Although the program was repealed and 
replaced by the Temporary Assistance to Needy Families (TANF) program, the 
requirement to recover AFDC overpayments remains in effect. States are still 
obliged to recover these overpayments and to return the proportionate federal share 
of the overpayments they collect to the U. S. Treasury. Some states have 
improperly retained these funds. 
During this reporting period, OIG conducted reviews in Illinois, Texas, and 
Louisiana to determine the process used by each to identify and return the federal 
share of AFDC overpayments collected. Approximately $31 million was identified 
as the federal share of the unremitted collections, which OIG recommended be 
refunded. (A-05-01-00030; A-06-01-00035; A-06-01-00073) 
CHILD SUPPORT TO FAMILIES EXITING TANF 
This inspection revealed that states pay some families less in TANF cash 
assistance than they collect in child support on their behalf.  The OIG also found 
that, after leaving TANF, 8 percent of custodial parents in 5 in-depth site visits 
experienced delays in receiving their child support payments and 3 percent were 
underpaid. Eleven states reported that they were not always able to accurately 
distribute child support. Additionally, in the states visited, there was no systematic 
oversight of the child support distribution process. 
The OIG recommended that the Office of Child Support Enforcement (OCSE) 
and the Office of Family Assistance ensure that the state child support enforcement 
and TANF systems effectively share information about their joint caseload and 
44
 Administration for Children and Families 
accurately and efficiently disburse payments to TANF leavers by providing 
technical assistance and state use of Special Improvements Project grants to 
facilitate needed changes. The ACF generally concurred with the findings. 
(OEI-05-01-00220) 
SUPPORT FOR CHILDREN ON TANF 
This report demonstrates a strong correlation between payment compliance 
of non-custodial parents and their income. If payment requirements are out of synch 
with income and resources, payment compliance is lowraising particular problems 
for low-income parents. The OIG found that the level of payment required in child 
support orders for non-custodial parents with earnings below poverty was 69 percent 
of their reported earnings. 
By way of contrast, the average for all non-custodial parents was 40 percent. 
Overall compliance with the support order over a 32-month period was 38 percent. 
However, this ranged from 17 percent for parents with earnings below poverty to 62 
percent when earnings were two times the poverty line. Thus, if support order 
payment levels are properly correlated to income at the early stages of support 
orders, compliance rates can be improved with support levels increasing as income 
rises. The ACF agreed with OIGs findings and is taking action accordingly. 
(OEI-05-99-00392) 
FEDERAL CHILD SUPPORT CASE CLOSURE REGULATIONS     
Appropriate child 
support case closures can help 
Allowable Closure Reasons Under 
states concentrate resources on  Federal Regulations 
those cases where there is a 
Notice Required 
greater likelihood of successful 
No Enforceable Order and Arrearages Less Than $500

enforcement and collection. This  Noncustodial Parent is Deceased

process, implemented by states,  Paternity cannot be Established

Noncustodial Parents Location is Unknown

is subject to federal regulations. 
Noncustodial Parent is Disabled, Institutionalized or

This OIG study found an 
Incarcerated 
estimated 32 percent national  Noncustodial Parent is a Foreign Citizen 
error rate among child support  Agency has Lost Contact with a Non-TANF Client 
A Non-TANF Client is Non-cooperative 
case closures. Three types of 
An Initiating State is Non-responsive in an 
errors comprised the error rate:  Interstate Case 
10 percent of cases did not meet  Notice Not Required 
Agency has Completed Locate-only Services in 
a federal closure reason; 25 
Non-TANF Cases 
percent of cases requiring notice 
Non-TANF Custodial Parent Requests Closure 
of closure did not have notice  A Good Cause Exception has Been Granted 
provided; and 11 percent of 
45
 Administration for Children and Families 
cases that received notice of closure were closed before the required 60 days had 
elapsed. Closing cases that do not meet a closure reason effectively halts 
enforcement action in workable cases. When clients are not provided advance 
notice of closure, they are likely unaware of the closure action and miss the 
intended prompt to supply additional information that could lead to successful 
enforcement. The OIG suggested that OCSE work with states to reduce the error 
rate. The agency generally agreed. (OEI-06-00-00470) 
INCREASED HEALTH CARE COVERAGE 
FOR UNINSURED CHILDREN    
The OIG estimated that, during the 12 months ended February 2001, an 
additional 13,100 uninsured children in Connecticut could have been enrolled in the 
State Childrens Health Insurance Program (SCHIP) if the State Child Support 
Enforcement agency had been included in the enrollment process. Noncustodial 
parents unable to provide other health insurance (e.g., because it was not available 
or too costly) and residing in the state could have contributed $11 million of the 
SCHIP premiums for 11,600 of these children. Noncustodial parents residing in 
other states could have contributed 83 percent of the premiums for 1,500 of the 
uninsured children. 
The OIG recommended that the state SCHIP and Child Support Enforcement 
agencies improve coordination of their efforts to ensure that uninsured children 
eligible for SCHIP are enrolled and that noncustodial parents contribute toward the 
premiums when possible. (A-01-01-02500) 
CHILD SUPPORT PRIVATIZATION 
IN MARYLAND    
In a limited-scope review of selected performance criteria during the first 
year of a 3-year Child Support Enforcement privatization contract, OIG found that 
the contractors performance and reporting generally did not meet the terms and 
requirements of the contract. The contractors quality assurance function did not 
provide effective oversight of child support operations, and the contractor did not 
perform all services or abide by all representations included in its response to the 
request for proposal. The OIGs report included several recommendations to the 
state agency to better monitor the contractors performance. (A-03-01-00223) 
46
 Administration for Children and Families 
CHILD SUPPORT ENFORCEMENT IN 
MARYLAND AND WEST VIRGINIA 
The OIG evaluated Marylands and West Virginias processes and procedures 
to ensure that noncustodial parents obligations are determined and met before 
public funds are used to cover their childrens medical needs. Policies and 
procedures were found to be generally satisfactory, and the respective state laws and 
regulations appeared to comply with Title IV-D of the Social Security Act. 
However, neither state had legislation authorizing a decisionmaker, such as a judge 
or Family Law Master, to order noncustodial parents to contribute toward the 
states cost of providing coverage under the Medicaid program.  (A-03-01-00217; 
A-03-01-00218) 
CHILD SUPPORT ENFORCEMENT 
The OIG has made the detection, investigation and prosecution of absent 
parents who fail to pay court-ordered child support a priority. The OIG has worked 
with the Office of Child Support Enforcement (OCSE), DOJ, U.S. Attorneys Offices, 
U.S. Marshals Service and other federal, state and local partners to develop 
programmatic and operational procedures to expedite the collection of child support 
and to bring to justice those who willfully disregard their obligations. 
Since 1995, OIG has opened 1,705 investigations of child support cases 
nationwide which have resulted in 529 convictions and court-ordered criminal 
restitution and settlements of over $29.5 million. 
Investigative Task Forces 
In 1998, OIG and OCSE initiated Project Save Our Children, a criminal 
child support initiative made up of multiagency, multijurisdictional investigative 
task forces. The task forces are designed to identify, investigate and prosecute 
egregious criminal nonsupport cases both on the federal and state levels through the 
coordination of law enforcement, criminal justice and child support office resources. 
The 10 task force regions appear in a table on the following page. 
Central to the above task forces are the screening units located in each task 
force region and staffed by analysts and auditors from both OIG and OCSE. The 
units receive child support cases from the states, conduct preinvestigative analyses 
of these cases through the use of databases, and then forward the cases to the 
investigative task force units where they are assigned and investigated. The task 
47
 Administration for Children and Families 
force approach streamlines the process by which the cases best suited for criminal 
prosecution are identified, investigated and brought to fruition.  At this point, the 
task force units have received over 4,350 cases from the states. 
As a result of the work of the task forces, 193 federal arrests have been 
executed and 161 individuals sentenced. The total ordered amount of restitution 
related to federal investigations is close to $7 million. There have been 307 arrests 
on the state level and 276 convictions or civil adjudications to date, resulting in 
$10.7 million in restitution being ordered. 
Task Force  Task Force  Task Force 
Region  Headquarters  States 
Mid-Atlantic  Baltimore, Maryland  Delaware, District of Columbia, 
Maryland, Pennsylvania, Virginia, 
West Virginia 
Midwest  Columbus, Ohio  Illinois, Indiana, Michigan, 
Minnesota, Ohio, Wisconsin 
Northeast  New York, New York  New Jersey, New York, Puerto Rico 
Southeast  Atlanta, Georgia  Alabama, Florida, Georgia, 
Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee 
Southwest  Dallas, Texas  Arkansas, Louisiana, New Mexico, 
Oklahoma, Texas 
West Coast  Sacramento, California  Arizona, California, Hawaii, Nevada 
New England  Boston, Massachusetts  Connecticut, Maine, Massachusetts, 
New Hampshire, Rhode Island, 
Vermont 
Great Plains  Topeka, Kansas  Iowa, Kansas, Missouri, Nebraska, 
North Dakota, South Dakota 
Rocky Mountains  Denver, Colorado  Colorado, Montana, Utah, Wyoming 
Pacific North  Olympia, Washington  Alaska, Idaho, Oregon, Washington 
Investigations 
During this period, OIG investigations of child support cases, nationwide, 
resulted in 74 convictions and court-ordered criminal restitution of over $3.6 million. 
Examples of the federal arrests, convictions and sentences resulting from OIGs 
enforcement work, both inside and outside the task force regions, include the 
following: 
48
 Administration for Children and Families 
'	 OklahomaA man was sentenced to 5 years supervised probation and 
ordered to pay $71,678 in restitution. In 1981, the man married using a 
false identity and, soon after, left his wife prior to the birth of their child and 
with no means of support. Since that time, the man has attempted to avoid 
paying child support by moving frequently and using various assumed 
names and social security numbers to hide his true identity. 
Another man was sentenced to 15 months in prison and ordered to pay 
$66,526 in restitution.  A jury convicted the man after he refused an offer 
allowing him to plead to a misdemeanor if he paid the arrearage owed while 
serving probation. Although he earned approximately $50,000 a year 
working with a railroad company, he never made a voluntary child support 
payment. 
'	 New YorkA man was sentenced to 3 years probation and ordered to pay 
$17,361 in restitution. In addition to being forbidden to possess a firearm, 
he must participate in a substance abuse program, submit to random drug 
testing and report to probation on a schedule set by that agency. In addition 
to being convicted at the federal level, he was also convicted and sentenced 
on a state charge of failure to pay child support in April 2001. In order to 
avoid paying support, the man earned unreported income for several years; 
he also used fictitious addresses in order to hide his assets and whereabouts. 
Another man was sentenced in state court to 6 months incarceration for 
contempt of court stemming from his failure to pay child support. The man 
fathered a child as the result of an affair; his daughter from that affair suffers 
from disabilities. The proprietor of an advertising agency, the man has 
claimed an annual income of up to $7.8 million in the past. Based upon his 
subsequent guilty plea to failure to pay child support, he will be sentenced at 
the federal level upon his release from state jail. 
'	 LouisianaA man was sentenced to 2 years imprisonment, 1 year probation 
and ordered to pay $84,536 in restitution. A computer programmer with an 
annual salary of $65,000, the man failed to pay support for the past 15 years. 
'	 MichiganA physician was sentenced to over 7 months in jail, 5 years 
probation and ordered to pay $62,359 in restitution for failure to pay child 
support, desertion and abandonment, and aggravated stalking.  In addition, 
he was ordered to pay over $1,000 in extradition fees and to undergo mental 
health counseling. At the time of his arrest, he was working as an 
emergency room physician at a hospital in Oklahoma. 
49
 Administration for Children and Families 
'	 OhioA man was sentenced to 2 years probation and ordered to pay 
$37,800 in restitution. Prior to his prosecution, he was living in New York 
with a girlfriend and assisting her operation of a Web site for childrens 
stories. While residing in New York, the man also worked as a truck driver 
and as a satellite television installer. 
'	 MontanaA man was sentenced to almost 7 months time served and 
ordered to pay $6,315 in restitution for failure to pay child support, misuse 
of a social security number, and false statements. In an effort to avoid his 
child support obligations, he used his sons social security number when 
applying for employment. After his sentencing, the man, who is a citizen of 
the United Kingdom, was remanded into the custody of federal law 
enforcement for deportation. 
MISUSE OF GRANT FUNDS 
Resolution of charges of misuse of HHS grant funds occurred in the 
following examples during this reporting period: 
'	 A Rhode Island man was sentenced to 10 years imprisonment (with 7 years 
suspended) and ordered to pay $244,334 in restitution for obtaining money 
under false pretenses. While serving on a city council addressing drug and 
alcohol abuse, the man embezzled $244,334, a portion of which came through 
an HHS grant by the SAMHSA.  He funneled money through the city and 
several community centers into the bank accounts of two fictitious companies. 
The funds were disguised as payments for services purportedly provided by 
the companies. 
'	 Based on the findings of a joint OIG audit and investigation, the former 
executive director and former fiscal director of an ACF grantee in New 
York were sentenced for conspiracy to defraud the government through their 
misuse of Head Start program funds. The former executive director was 
sentenced to 6 months imprisonment and ordered to pay $8,674 in 
restitution. The former fiscal director was sentenced to 24 months imprison-
ment and ordered to pay a total of $34,684 in restitution.  In 1999, ACF 
advised the grantee that as mother and daughter, the relationship between 
the executive director and the fiscal director created an unacceptable 
conflict of interest. In response, the mother paid her daughter $151,000 in 
unauthorized severance pay.  Later, the daughter fraudulently obtained a 
mortgage by misrepresenting that she was still an employee of the Head 
Start grantee. 
50
 Administration for Children and Families 
DISCRETIONARY GRANTS    

The OIG reviewed a sample of 30 discretionary grants awarded by 3 ACF 
components and issued reports to 25 grantees during this reporting period.  The 
purpose of these grants included economic/community development, job creation 
for low-income/unemployed residents, runaway youth assistance, and refugee 
services. The OIG found that about half of the grantees in the sample did not 
achieve or only partially achieved the grant objectives. The OIG also noted that 
about half of the grantees, including some that had achieved their grant objectives, 
had fiscal and/or internal control weaknesses.  The OIG is continuing its review by 
assessing ACFs internal monitoring and oversight of these grantees.  (Various 
CINs) 
CONNECTICUTS CLAIMS FOR 
FOSTER CARE ADJUSTMENTS 
For the quarters ended December 1996 through September 1999, Connecticut 
claimed a total of $22.6 million in federal funds for retroactive Title IV-E foster 
care adjustments. However, the state was not able to provide proper support for 
about $2 million of the amount claimed. Also, the state could not fully support its 
claim for one quarter when it was transitioning to a new computer system. Therefore, 
OIG set this amount ($11 million) aside until the state and ACF reach a workable 
solution. 
The OIG recommended that the $2 million be returned to ACF.  However, 
the state believes that the full $13 million ($11 million plus $2 million) should be 
referred to ACF for final resolution.  (A-01-01-02501) 
HEAD START REVIEWS 
At ACFs request, OIG reviewed financial practices at Head Start programs 
in two states and Puerto Rico. 
The OIGs review of selected financial and program 
Pennsylvania 
management practices in FY 2000 revealed internal 
controls and management practices in need of 
improvement. The grantee expended Head Start funds 
on programs or activities that were unallowable, inappropriate or unreasonable. 
Financial reports, including the required independent audits and financial 
51
 Administration for Children and Families 
status reports, were not prepared, submitted late, or submitted with incorrect 
information. The grantee could not provide required documentation for all 
major procurements, and actual enrollment was consistently below the funded 
enrollment level. Further, the grantee did not equitably charge administrative 
costs to benefitting programs, resulting in overcharges to the Head Start 
program.  (A-03-01-00555) 
The OIG reviewed selected financial and management 
West Virginia 
practices following allegations of questionable 
financial transactions. The review disclosed 
questionable short-term transfers of Head Start funds 
in 1998 to programs with funding difficulties.  The OIG also found that 
program disallowances were repaid to ACF primarily using residual federal 
fund balances from dormant programs and that the grantees executive 
director used the grantees building as collateral for a personal loan. The 
review also disclosed that the grantee did not properly allocate costs to 
benefitting programs, which could result in funding the program for a far 
greater number of children than were actually served, and charged Head 
Start for the full cost of surplus items distributed to the general population. 
(A-03-01-00510) 
The OIG determined the allowability, allocability and 
Puerto Rico 
reasonableness of $3.6 million claimed by a grantee 
for personnel services for FY 1999. The OIG found 
that the grantees practice of charging support service 
employees arbitrarily to Head Start and other programs it administered was 
not appropriate because these costs should be allocated to the programs that 
benefit. The reallocation resulted in a downward adjustment of $1.2 million 
of compensated personnel services. Further, the grantee improperly claimed 
$39,000 for health insurance and $76,000 for cost-of-living adjustments for 
support service employees. The grantee officials generally agreed with the 
findings and recommendations. (A-02-99-02005) 
52
 General Oversight 
The Office of the Assistant Secretary for Budget, Technology and 
Finance (ASBTF) is responsible for developing and executing the Department 
of Health and Human Services (HHS) budget; ensuring that HHS perfor
mance measurement and reporting are in compliance with the Government 
Performance and Results Act; establishing and monitoring departmental 
policy for financial management (including debt collection, audit resolution, 
cost policy and financial reporting); and developing and monitoring HHS 
information technology policy (including IT security). The Assistant 
Secretary is the Departments Chief Financial Officer and oversees the 
Departments Chief Information Officer. The Department also has the 
responsibility, by virtue of the magnitude of its funding, to negotiate the 
payment rates and methods that many outside entities, such as state and 
local governments, charge for administering HHS and other federal 
programs. 
The Office of the Assistant Secretary for Administration and 
Management (ASAM) is responsible for HHS policies regarding human 
resources, grants and acquisitions management. This office also oversees 
the Program Support Center, which provides a range of administrative 
services, such as human resources, financial management and administrative 
operations. 
The OIG has oversight responsibility for these activities at the 
departmental level. A related major responsibility flows from Office of 
Management and Budget (OMB) Circular A-133, under which HHS is the 
cognizant agency to audit the majority of federal funds awarded to major 
research schools, state and local government cost allocation plans, and 
separate indirect cost plans of state agencies and local governments. Also, 
OIG oversees the work of nonfederal auditors of federal money at some 
6,700 entities, such as community health centers and Head Start grantees, as 
well as at state and local governments, colleges and universities and other 
nonprofit organizations. The OIG is also responsible for auditing the 
Departments financial statements. 
53
 General Oversight 
FINANCIAL STATEMENT AUDIT 
OF THE DEPARTMENT    
As required by the Government Management Reform Act of 1994, OIG 
audited the Departments consolidated/combined financial statements for FY 2001. 
This audit encompassed individual audits of 10 operating divisions financial 
statements and reviews of 4 service organizations.  The audit report, which appears 
in the Departments FY 2001 Accountability Report, included a clean, or 
unqualified, opinion on the financial statements. This means that, for the third 
consecutive year, the statements were reliable and fairly presented. 
However, the audit report noted two continuing material internal control 
weaknesses, which are those problems that are systemic across a number of operating 
divisions, as well as significant dollar issues affecting only one division.  First, the 
Department continued to have serious weaknesses in its financial systems and 
processes for producing financial statements. These weaknesses included non-
integrated financial management systems, insufficient financial analyses and 
reporting, and grant accounting issues. Second, Medicare information systems 
controls remained inadequate. Access controls, systems software controls and 
entity-wide security programs were the most troublesome areas. (A-17-01-00001) 
DEPARTMENTAL SERVICE ORGANIZATIONS 
In support of its audit of the consolidated HHS-wide financial statements for 
FY 2001, OIG contracted for examinations of four service organizations that 
provide common administrative, data processing and accounting services to 
individual operating divisions. In accordance with Statement on Auditing Standards 
No. 70, independent accounting firms examined the organizations controls and 
tested their operating effectiveness. 
!	 Center for Information Technology: The accounting firm concluded that 
controls were suitably designed and operating with sufficient effectiveness. 
No significant exceptions were noted.  (A-17-01-00012) 
!	 Human Resources Service:  The firm examining the Human Resources 
Service concluded that controls were suitably designed and operating with 
sufficient effectiveness.  No significant exceptions were noted. 
(A-17-01-00014) 
54
 General Oversight 
!	 Division of Payment Management: According to the firm contracted to 
examine the Division of Payment Management, controls were suitably 
designed and operating with sufficient effectiveness.  No significant 
exceptions were noted.  (A-17-01-00013) 
!	 Division of Financial Operations:  The firm concluded that controls were 
suitably designed, except for noted deficiencies related to entity-wide 
security planning and management, access controls, application software 
development and change control, and segregation of duties. Also, the 
controls were operating effectively with the exceptions that separation 
procedures were not always followed, the contingency plan had not been 
updated since December 1999, and the Business Continuity and Contingency 
Plan had not been tested since October 1999. (A-17-01-00011) 
DEPARTMENTAL CHILD SUPPORT OBLIGATIONS 
Some departmental employees were delinquent in meeting their child support 
obligations and their wages are not being withheld for that purpose. In most cases, 
states did not know that delinquent obligors were departmental employees and, 
therefore, had not notified the Department of the required withholding action. More 
than half of these were Indian Health Service employees. The Department enters 
all income withholding orders which are received; however, some data entry errors 
did occur. 
The OIG recommended that the Department undertake a series of steps to 
address these issues.  The OCSE, PSC and IHS agreed with OIGs findings and 
recommendations and took appropriate action.  To strengthen its efforts to make 
HHS itself a model employer with regard to child support enforcement, a senior 
official was appointed to oversee departmental compliance with these matters. 
(OEI-05-00-00300) 
NONFEDERAL AUDITS 
The OMB Circular A-133 establishes audit requirements for state and local 
governments, colleges and universities, and nonprofit organizations receiving federal 
awards. Under this circular, covered entities are required to have an annual 
organization-wide audit which includes all federal money they receive. These 
annual audits are conducted by nonfederal auditors, such as public accounting firms 
and state auditors. As cognizant auditor, OIG reviews the quality of these audits 
and assesses the adequacy of the entitys management of federal funds. In the first 
55
 General Oversight 
half of FY 2002, OIGs National External Audit Review Center reviewed about 
1,076 reports that covered $439 billion in audited costs. Federal dollars covered by 
these audits totaled $103.1 billion, about $45.8 billion of which was HHS money. 
The OIGs oversight of the nonfederal audit activity not only provides 
Department managers with assurances about the management of federal programs 
but also identifies any significant areas of internal control weakness, noncompliance 
and questioned costs that require formal resolution by federal officials.  By taking a 
proactive stance, OIG identifies entities for high-risk monitoring and any trends that 
could indicate problems in HHS programs. In addition, OIG profiles nonfederal audit 
findings of a particular program or activity over time to identify systemic problems. 
As a further enhancement of audit quality, OIG provides training and technical 
assistance to grantees and the auditing profession. 
To rely on the work of nonfederal auditors, OIG maintains a quality control 
review process which assesses the nonfederal reports received and the audit work 
that supports selected reports. The nonfederal audit reports reviewed and issued 
during this reporting period fall into the following categories: 
Reports issued: 
Without changes or with minor changes  1,041 
With major changes  31 
With significant inadequacies  4 
Total  1,076 
The 1,076 reports included recommendations for HHS program officials to 
take action on cost recoveries totaling $2.8 million, as well as 4,083 recommendations 
for improving management operations. In addition, these audit reports provided 
information for 47 special memoranda which identified concerns for increased 
monitoring by departmental management. 
RESOLVING RECOMMENDATIONS 
The tables that appear on pages 58 and 59 are provided in accordance with 
the Supplemental Appropriations and Rescissions Act of 1980 (Public Law 96-304) 
56
 General Oversight 
and section 5 of the Inspector General Act and indicate the dollar value of actions 
taken on OIG recommendations. 
In Table 1, Dollar Value Questioned costs are those challenged because of 
violation of law, regulation, grant conditions, etc.  Dollar Value Unsupported 
costs are those not supported by adequate documentation. 
Table 2 summarizes recommendations that funds be put to better use 
through cost avoidances, budget savings, etc. 
These costs are separate from the amount ordered or returned as a result of 
OIG investigations. All footnotes and additional explanatory information can be 
found in Appendix D. 
57
 General Oversight 
Table 1:  Reports With Questioned Costs 
Reports  Number of  Dollar Value  Dollar Value 
Reports  Questioned  Unsupported 
Section 1 
For which no management 
decision had been made by 
the beginning of the reporting 
period1  444  $1,208,429,000  $185,235,000 
Issued during the reporting 
period  120  $355,697,000  $64,276,000 
Total Section 1  564  $1,564,126,000  $249,511,000 
Section 2 
For which management 
decision was made during 
the reporting period2,3 
Disallowed costs  $248,730,000  $14,917,000 
Costs not disallowed  $107,028,000  $90,832,000 
Total Section 2  148  $355,758,000  $105,749,000 
Section 3 
For which no management 
decision had been made by 
the end of the reporting period 
Total Section 1 minus 
Total Section 2  416  $1,208,368,000  $143,762,000 
Section 4 
For which no management 
decision was made within 
6 months of issuance4  302  $876,468,000  $87,647,000 
58
 General Oversight 
Table 2:  Funds Recommended To Be Put to Better Use 
Reports  Number of  Dollar Value 
Reports 
Section 1 
For which no management decision had 
been made by the beginning of reporting 
period1  39  $63,258,602,000 
Issued during the reporting period  8  $1,004,867,000 
Total Section 1  47  $64,263,469,000 
Section 2 
For which management decision was 
made during the reporting period 
Value of recommendations that 
were agreed to by management 
Based on proposed 
management action  2  $55,497,000,000 
Based on proposed 
legislative action 
Value of recommendations that 
were not agreed to by management  0  0 
Total Section 2  2  $55,497,000,000 
Section 3 
For which no management decision had 
been made by the end of the reporting 
period2 
Total Section 1 minus 
Total Section 2  45  $8,766,469,000 
59
 General Oversight 
LEGISLATIVE AND REGULATORY 
REVIEW AND DEVELOPMENT 
Review Functions 
Section 4(a) of the Inspector General Act of 1978 requires that the 
Inspector General review existing and proposed legislation and regulations 
and make recommendations in this report concerning the impact on the 
economy and efficiency of the administration of the Departments programs 
and on the prevention of fraud and abuse.  In reviewing regulations and 
legislative proposals, OIG uses as the primary basis for its comments the 
audits, inspections, investigations and other activities highlighted in this and 
previous semiannual reports. 
Development Functions 
The OIG is responsible for the development and public announcement 
of a variety of sanction regulations addressing civil money penalty and 
program exclusion authorities administered by the Inspector General, as 
well as advisory opinions and safe harbor regulations related to the anti-
kickback statute. During this reporting period, OIG: 
!	 Published final regulations setting forth a new safe harbor to protect 
certain arrangements involving hospitals or other receiving facilities 
that replenish drugs and medical supplies used by ambulance 
providers when transporting patients to hospitals. (66 FR 62979; 
December 4, 2001) 
!	 Developed and cleared final rulemaking addressing a series of 
revisions and technical corrections to OIG fraud and abuse authorities 
set forth in 42 CFR, Chapter V and continued to develop proposed 
regulations that will codify the new and revised Medicare+Choice 
and Medicaid managed care civil money penalty provisions. 
!	 Published several Federal Register notices that set forth OIG policy 
and procedures in various areas. These included the annual solicitation 
notice for new safe harbors and Special Fraud Alerts (66 FR 65460; 
December 19, 2001). This notice solicited recommendations and 
proposals for developing new and modifying existing safe harbors, as 
well as developing new OIG Special Fraud Alerts. 
60
 General Oversight 
EMPLOYEE FRAUD AND MISCONDUCT

The OIG has oversight responsibility for the investigation of 
allegations of wrongdoing by Department employees when it affects internal 
programs. Most of the persons employed by HHS are dedicated, honest 
civil servants. Occasionally, however, individuals violate their fiduciary 
responsibilities, as illustrated in the following examples: 
'	 A federal judge in Maryland sentenced a former OIG employee for 
conspiracy to commit access device fraud. She was sentenced to 
4 months incarceration, 4 months in a halfway house and was ordered 
to pay $48,925 in restitution. As part of a conspiracy to commit 
credit card and bank fraud, the employee misused her position to 
access and obtain the personnel information of other OIG employees. 
She then turned the information over to her co-conspirators, who 
subsequently used this information to open fraudulent credit card 
accounts and purchase goods and services throughout the metropolitan 
area of Washington, DC. 
'	 In South Dakota, a former IHS employee was sentenced and ordered 
to pay $6,746 in restitution for theft or embezzlement from a health 
care benefit program.  As an accounting technician with the IHS, the 
employee was responsible for scheduling vendor payments using the 
electronic certification system.  Several times during 1998 through 
1999, the employee diverted funds from vendor bank accounts into 
her own checking account by changing the bank routing information. 
INVESTIGATIVE PROSECUTIONS 
During this semiannual reporting period, OIG investigations resulted 
in 250 successful criminal actions. Also during this period, 696 cases were 
presented for criminal prosecution to DOJ and, in some instances, to state 
and local prosecutors. Criminal charges were brought by prosecutors 
against 312 individuals and entities. 
In addition to terms of imprisonment and probation imposed in the 
judicial processes, over $780.8 million was ordered or returned as a result of 
OIG investigations during this reporting period. Civil settlements from 
investigations resulting from audit findings are included in this figure. 
61
 62
 Appendices

63
 64
 Appendix A

Savings Achieved Through Policy and Procedural Changes Resulting From Audits,

Investigations and Inspections 

October 1, 2001, through March 31, 2002

The following schedule highlights savings resulting from Office of Inspector General (OIG) 
efforts to prevent unnecessary obligations for expenditures of agency funds or to improve agency systems 
and operations. These achievements depend greatly on the contributions of others, such as partners 
within the Department and elsewhere. The amounts shown represent funds or resources that will be used 
more efficiently as a result of documented measures taken by the Congress or by management in response 
to OIG audits, investigations and inspections, including: actual reductions in unnecessary budget outlays; 
deobli-gations of funds; reductions in costs incurred or preaward grant reductions from agency programs 
or operations; and reduction and/or withdrawal of the federal portion of interest subsidy costs on loans or 
loan guarantees, or insurance or bonds. 
Legislative savings are annualized amounts based on Congressional Budget Office (CBO) estimates 
consistent with CBO savings. In keeping with OIG policy, savings from the Medicare provisions of the 
Balanced Budget Act (BBA) of 1997 were adjusted downward to reflect CBO estimates for related 
provisions of the Balanced Budget Refinement Act (BBRA) of 1999. Administrative savings are 
calculated by OIG using departmental figures, where available, for the year in which the change is 
effected or for multiple years, if applicable. 
Total savings from these sources amount to $12,015 million for this period. 
Savings 
OIG Recommendation  Implementing Action  ( millions) 
Centers for Medicare and Medicaid Services 
Reforming Medicaid Disproportionate Share  $4,070 
Payments:  Section 4721 of the BBA of 1997 reformed 
Disproportionate share payments to hospitals should be  disproportionate share payments under state 
related to costs incurred in treating Medicaid and  Medicaid programs by placing limitations on 
indigent patients to correct the inequities and abuses in  federal financial participation. 
current payment methodologies. 
(CIN: A-06-90-00073; CIN: A-04-92-01025) 
Medicare Part A Payments for Skilled Nursing  2,410 
Facilities: 
Services should be bundled into Medicare and  Section 4432 of the BBA of 1997 (as 
Medicaids payments to nursing homes; Part B  amended by the BBRA of 1999) required a 
payments for services normally included in the  PPS for SNF care. Covered services include 
extended care benefit should continue to be examined  Part A SNF benefits and all services for 
for appropriateness; and a legislative recommendation  which payment may be made under Part B 
should be developed to prohibit entities other than the  (except physician and certain other 
skilled nursing facility (SNF) from seeking coverage  professional services) during the period 
on behalf of persons in part A covered SNF stays for  when the beneficiary is provided covered 
enteral nutrition, incontinence care, and surgical  SNF care. 
dressings, and limit Medicare coverage of these 
services to Part A. In 1997 congressional testimony, 
OIG supported establishing a prospective payment 
continued 
65
 Appendix A 
Medicare Part A Payments for Skilled Nursing 
Facilities Continued 
system (PPS) and consolidated billing. 
(OEI-03-94-00790; OEI-06-92-00863; 
OEI-06-92-00864; CIN: A-17-95-00096; 
CIN: A-14-98-00350) 
Medicare Secondary Payer Extensions:  2,000 
Establish a centralized database of information about  The database capacity was achieved through 
private insurance coverage of Medicare beneficiaries.  the authorization of a data exchange between 
Extend the Medicare secondary payer (MSP) provision  the Social Security Administration and the 
to include end stage renal disease (ESRD) beneficiaries  Centers for Medicare and Medicaid Services 
as long as the individual has employer based coverage  (CMS) and between the Internal Revenue 
available.  Service and CMS. Section 4631 of the BBA 
(OEI-07-90-00760; OEI-03-90-00763;  of 1997 permanently extended current MSP 
CIN: A-10-86-62016; CIN: A-09-89-00100;  policies for beneficiaries who are disabled 
CIN: A-09-91-00103; CIN: A-14-94-00391;  and have ESRD. For ESRD beneficiaries, the 
CIN: A-14-94-00392) )  statute also increased the time period 
Medicare is secondary payer from 18 to 30 
months. 
Capital-Related Costs of Hospital Services:  1,160 
Extend congressionally mandated reductions in  Section 4402 of the BBA of 1997 provided 
hospital costs. The CMS should seek legislative  for rebasing of capital payment rates for an 
authority to continue mandated reductions in capital  additional reduction in the rate of 2.1 
payments; excess capacity was not considered in the  percent. 
capital cost policy. 
(CIN: A-09-91-00070; CIN: A-07-95-01127) 
Medicare Payments for Oxygen:  600 
The CMS should reduce Medicare payments for  Section 4552(a) of the BBA of 1997 reduced 
oxygen concentrators and ensure that beneficiaries  Medicare reimbursement for oxygen 25 
receive necessary care and support in connection with  percent until 1999 and by 30 percent for each 
their oxygen therapy.  subsequent year; section 4552(c) mandated 
(OEI-03-91-00711, OEI-03-91-001710)  that the Secretary develop service standards 
for oxygen provided in the home. 
Medicare Laboratory Reimbursements:  600 
In July 1989, OIG recommended that CMS take  Section 4553 of the BBA of 1997 provided 
advantage of economies of scale present in the  for reducing fee schedule payments by 
laboratory industry by considering competitive bidding  lowering the cap to 74 percent of the median 
or making reductions to the fee schedule amounts. In  for payment amounts, with no inflation 
January 1990, OIG recommended that CMS seek  update for 1998 through 2002. 
legislation to allow across the board adjustments in 
Medicare laboratory fee schedules, bringing them in 
line with the prices which laboratories charge 
physicians in a competitive marketplace. In a January 
1996 follow-up, OIG found that Medicare continued to 
pay more to clinical laboratories than physicians for 
the same tests. Although the Omnibus Budget 
Reconciliation Act of 1993 reduced the fee schedule to 
76 percent of the average in 1996, OIG recommended 
that CMS periodically evaluate the national fee 
schedule to ensure that it is in line with the prices 
continued 
66
 Appendix A 
Medicare Laboratory Reimbursements 
Continued 
physicians pay for the same clinical laboratory 
services. 
(OEI-02-89-01910; CIN: A-09-89-00031; 
CIN: A-09-93-00056) 
State Enhanced Payments Under Medicaid Upper  600 
Payment Limit Requirements: 
States are allowed to make enhanced payments to local  On January 12, 2001, CMS issued revisions 
government providers as long as aggregate state  to the upper payment limit regulations 
payments for each class of service do not exceed the  which, among other things, created new 
amount that would have been paid under Medicare cost  payment limits for local government-owned 
principles. The OIG found that states use of  providers. This final rule will significantly 
intergovernmental transfers maximized federal  affect a states ability to reap windfall 
Medicaid reimbursements. The OIG also found that  revenues by reducing the available funding 
enhanced payments were not based on the cost of  pool from which to make enhanced payments 
providing the service nor did OIG find a direct  to local government-owned providers. 
relationship in the use of these funds to increase the 
quality of care. (CIN: A-03-00-00216) 
Payments for Durable Medical Equipment:  300 
Excessive Medicare Part B payments for enteral and  Section 4316 of the BBA of 1997 froze 
parenteral nutrition, equipment and supplies should be  Medicare payments for enteral and parenteral 
reduced, or competitive acquisition strategies should be  nutrition and supplies for 1998 through 2002 
employed.  and simplified the process used to reduce 
(OEI-03-94-00021; OEI-06-92-00866;  inherently unreasonable prices by 15 percent. 
OEI-03-96-00230; OEI-06-92-00861) 
Medicare Payments to Hospitals for Bad Debt:  140 
The CMS should seek legislative authority to modify  Section 4451 of the BBA of 1997 reduced 
the bad debt payment policy.  bad debt payment to providers by 25 percent 
(CIN: A-14-90-00039)  in FY 1998, 40 percent in FY 1999, and 45 
percent in later years. The Benefits 
Improvement and Protection Act of 2000 
subsequently reduced the reduction to 30 
percent. 
Medicaid Drug Rebates-Sales to Repackagers  80.7 
Excluded from Best Price Determinations:  The CMS issued Medicaid Drug Rebate 
Medicaid rebates were lost because sales to HMOs  Program Release #47 in July 2000 to make it 
were improperly excluded from drug manufacturers  clear to manufacturers to not inappropriately 
best price determinations in FYs 1998 and 1999. The  exclude other prices from best prices, as 
CMS should require drug manufacturers who excluded  required by section 1927 of the OBRA of 
sales to HMOs from their best price calculations to  1990. 
repay the rebates and evaluate the policy guidance 
relating to exclusion of sales to other (non-HMO) 
repackagers from best price determinations. 
(CIN: A-06-00-00056) 
Medicare Payments for Prescription Drugs:  30 
The CMS should reexamine its Medicare drug  Section 4556 of the BBA of 1997 reduced 
reimbursement methodologies, with a goal of reducing  Medicare payments for drugs, which are paid 
payments as appropriate.  based on the average wholesale price, by 5 
(OEI-03-95-00420; OEI-03-94-00390;  percent. 
OEI-03-97-00290) 
67
 Appendix A 
Various Public Health Agencies 
Results of Investigations:  24.4 
In addition to any restitution, fines, settlements or  The operating division takes action based on 
judgments, or other monetary amounts resulting from  the results of OIG investigation to suspend or 
successful investigations, additional monetary losses  terminate payments to the offending 
are avoided through timely communication of the  individual or entity. 
investigative results to the operating division. 
68
 Appendix B

Unimplemented Office of Inspector General Recommendations 

To Put Funds to Better Use

This schedule represents potential annual savings or one-time recoveries which could be realized 
if Office of Inspector General (OIG) recommendations were enacted by the Congress and the 
Administration through legislative or regulatory action, or policy determinations by managemen t. (In 
many cases, these recommendations are beyond the direct authority of the departmental operating 
division.) It should be noted, however, that the Congress normally develops savings over a budget cycle 
which results in far greater dollar impact statements. Savings are based on preliminary OIG estimates and 
reflect economic assumptions which are subject to change. The magnitude of the savings may also 
increase or decrease as some of the proposals could have interactive effects if enacted together. 
More detailed information may be found in OIGs Red Book. 
Savings 
OIG Recommendation  Status  (millions) 
Centers for Medicare and Medicaid Services 
Medicare Coverage of State and Local Government  $1,559 
Employees:  In responding to OIGs report, CMS agreed 
The CMS should require Medicare coverage and  with the recommendation to mandate 
hospital insurance contributions for all state and local  Medicare coverage for all state and local 
employees, including those hired prior to April 1,  government employees. However, this 
1986. If this proposal is not enacted, seek legislation  proposal was not included in the Presidents 
making Medicare the secondary payer for retirees of  FY 2003 budget. The CMS did not agree 
exempt state and local government agencies.  with the recommendation to make Medicare 
(CIN: A-09-88-00072)  the secondary payer. 
Excessive Medicare Payments for Prescription  1,600 
Drugs:  The BBA of 1997 reduced Medicare 
The CMS should examine its Medicare drug  payments by limiting them to 95 percent of 
reimbursement methodologies.  the average wholesale price (AWP). The 
(OEI-03-97-00290; OEI-03-97-00292;  OIG believes additional corrective action is 
OEI-03-97-00293; OEI-03-97-00390;  warranted. 
OEI-03-95-00420; OEI-03-94-00390) 
Clinical Laboratory Tests:  1,130* 
The CMS should develop a methodology and  The CMS initially agreed with the first 
legislative proposal to pay for tests ordered as custom  recommendation but not the second. The 
panels at substantially less than the full price for  FY 2001 budget included a proposal to 
individual tests, and study reinstating the beneficiary  reduce payment updates from 2003 through 
coinsurance and deductible provisions for laboratory  2005 and a proposal to reinstate laboratory 
services as a means of controlling utilization.  cost sharing. In addition, the BBA required 
(CINs: A-09-89-00031; A-09-93-00056)  the Secretary to contract with the Institute 
of Medicine for a study of Part B laboratory 
test payments; CMS may use the results to 
develop a new payment methodology. 
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined. 
69  Appendix B 
Hospital Capital Costs:  820 
The CMS should determine the extent that capital  The CMS did not agree with the 
reductions are needed to fully account for hospitals  recommendation. Although the BBA of 
excess bed capacity and report the percentage to the  1997 reduced capital payments, it did not 
Congress.  include the effect of excess bed capacity 
(CINs: A-09-91-00070; A-14-93-00380)  and other elements included in the base-
year historical costs. The Presidents FY 
2001 budget would have reduced capital 
payments and saved $630 million in FY 
2001 through FY 2005. 
Payment Policy for Medicare Bad Debts:  340 
The OIG presented four options for CMS to consider,  In responding to OIGs report, CMS agreed 
including the elimination of a separate payment for bad  with the recommendation to include a bad 
debts, the offset of Medicare bad debts against  debt factor in the DRG rates. The BBA of 
beneficiary Social Security payments, the limitation of  1997 provided for some reduction of bad 
bad debt payments to prospective payment system  debt payments to providers. The Benefits 
hospitals that are profitable, and the inclusion of a bad  Improvement and Protection Act (BIPA) of 
debt factor in the diagnosis-related group (DRG) rates.  2000 subsequently increased bad debt 
The CMS should seek legislative authority to further  reimbursement. However, additional 
modify bad debt policies. (CIN: A-14-90-00339)  legislative changes are needed to implement 
the modifications that OIG recommended. 
Graduate Medical Education:  157.3 
The CMS should revise the regulations to remove from  The CMS did not concur with the 
a hospitals allowable graduate medical education  recommendations. Although the BBA of 
(GME) base-year costs any cost center with little or no  1997 and the BBRA of 1999 contained 
Medicare utilization and submit a legislative proposal  provisions to slow the growth in Medicare 
to compute Medicares percentage of participation  spending on GME, OIG believes that its 
under the former more comprehensive system.  recommendations should be implemented 
(CIN: A-06-92-00020)  and that further savings can be achieved. 
Paperless Claims:  126 
The CMS should lead a target outreach to encourage  The CMS concurred with OIGs 
voluntary conversion to paperless Medicare claim  recommendations. The Administrations 
filing by physicians who submit claims on paper and  proposal for both FY 2002 and 2003 would 
who have a moderate to high level of interest in  assess a $1.50 fee on most, but not 
making the switch. This effort should be coordinated  necessarily all, paper claims. Also, under 
with efforts to promote further use of electronic data  the CMS Claims Processing User Fee Act 
interchange by providers under the administrative  of 2001, significant outreach to providers 
simplification provisions of the Health Insurance  will be conducted. 
Portability and Accountability Act of 1996. The CMS 
should begin to plan now for the policy changes that 
will be necessary to achieve an almost completely 
paperless environment for processing Medicare claims. 
These policy changes can include targeting a date 
when all physicians will be mandated to submit 
paperless claims, targeting a date when paperless claim 
submission will become a condition for Medicare 
participation, or continuing to accept paper claims but 
imposing a filing fee to cover the incremental cost of 
doing so. 
(CIN: A-05-94000039; OEI 01-94-002300) 
70
 Appendix B 
Medicaid Drug Rebate Program:  123 
The best price calculation in the Medicaid drug rebate  Disagreeing with the recommendation, 
program should be indexed to the consumer price  CMS believes that savings will be achieved 
index-urban. (CIN: A-06-94-00039)  through the Presidents budget proposal to 
enact a legislative change that would base 
the drug rebate on the difference between 
the AWP and the best price for a drug 
Expansion of the Diagnosis Related Group Payment  83.5 
Window:  The CMS did not concur with the 
The CMS should propose legislation to expand the  recommendation, and no legislative
proposal was included in the Presidents
DRG payment window to at least 7 days immediately 
FY 2001 budget. 
prior to the day of admission. (CIN: A-01-92-00521) 
Inpatient Psychiatric Care Limits: 
The CMS should develop new limits to deal with the  The CMS agreed with OIGs findings but
47.6 
high cost and changing utilization patterns of inpatient  stated that further analysis would be
required before any legislative changes
psychiatric services and apply a 60-day annual and a 
could be supported. 
190-day lifetime limit to all psychiatric care regardless 
of the place of service. (CIN: A-06-86-62045) 
Nonemergency Advanced Life Support Ambulance  47 
Services:  The BBA of 1997 required that CMS link 
The CMS should modify its Medicare policy to allow  payments to services provided and that the 
payment for nonemergency advanced life support  definitions of basic life support and 
ambulance service only when that level of service is  advanced life support ambulance services 
medically necessary; instruct carriers to institute  be subject to negotiated rulemaking. The 
controls to ensure that payment is based on the medical  Negotiated Rulemaking Committee 
need of the beneficiary; and closely monitor carrier  Statement on the Medicare Ambulance 
compliance.  Services Fee Schedule was signed in 
(CINs: A-01-91-00513; A-01-94-00528)  February 2000. The CMS published the 
final rule in the Federal Register in 
February 2002. 
Medicare Orthotics:  43 
The CMS should take action to improve Medicare  The CMS generally concurred. However, 
billing for orthotic devices. The CMS should also  CMS did not agree to set specific standards 
require standards for suppliers of custom-molded and  for suppliers of custom-molded and 
custom-fabricated orthotic devices.  custom-fabricated devices. 
(OEI-02-99-0 01 20) 
Reimbursement for Hospital Beds:  40 
The CMS should take immediate steps to reduce  The CMS concurred and is considering 
Medicare payments for hospital beds used in the home.  options to determine the best approach to 
This should include the elimination of the higher  achieve a fair price for hospital beds. The 
reimbursement rate currently paid during the first 3  agency is examining payment allowances 
months of rental.  and methodologies at other payers and is 
(CIN: A-06-91-00080; OEI-07-96-00221;  reviewing data to determine if Medicare 
payments are excessive. However, the 
OEI-07-96-00222) continued 
71
 Appendix B 
Reimbursement for Hospital Beds Continued 
BBRA of 1999 imposed a moratorium on 
the application of CMS inherent 
reasonableness authority. Thus, while the 
moratorium is in place, CMS may not act 
on a determination that costs are excessive. 
The BIPA of 2000 increased DME 
payments by 3.7 percent for 2001. 
End State Renal Disease Payment Rates:  22* 
The CMS should reduce the payment rates for  The CMS agreed that the composite 
outpatient dialysis treatments to reflect current  payment rates should reflect the costs of 
efficiencies and economies in the marketplace.  outpatient dialysis treatment in efficiently 
(CIN: A-14-90-00215)  operated facilities, and the BBA of 1997 
required the Secretary to audit the cost 
reports of each dialysis provider at least 
once every 3 years. The BBRA of 1999 
increased each composite rate payment for 
dialysis services furnished during 2000 by 
1.2 percent above the payment for services 
provided on December 31, 1999. The BIPA 
of 2000 increased the rate for services 
provided in 2001 by 2.4 percent and 
required the Secretary to develop a 
composite rate that includes, to the extent 
feasible, payment for clinical diagnostic 
laboratory tests and drugs that are routinely 
used in dialysis treatments but are currently 
separately billable. 
Medicaid Reimbursement for Clinical Laboratory  17.8 
Services:  The CMS wrote to all state Medicaid 
State agencies should install edits to detect and prevent  directors in January 1997, alerting them to 
payments for clinical laboratory services that exceed  OIGs review, encouraging them to use 
the Medicare limits and billings that contain duplicate  Medicares bundling policies and urging 
tests, recover overpayments, and make adjustments for  them to install appropriate payment edits in 
the federal share of the amounts recovered.  their claim processing systems. The OIG is 
(CINs: A-01-95-00005; A-05-95- 00035;  conducting several follow-up reviews in 
A-01-96-00001; A-06-95-00078; A-06-95-00031;  this area. 
A-04-95-01108; A-04-95-01109; A-07-95-01139; 
A-07-95-01147; A-04-95-01113; A-07-95-01138; 
A-09-95-00072; A-05-96-00019; A-10-95-00002; 
A-01-95-00006; A-02-95-01009; A-03-96-00200; 
A-03-96-00202; A-03-96-00203; A-05-95-00062; 
A-06-96-00002; A-06-95-00100; A-04-98-01185; 
A-03-00-00204; A-01-01-00003) 
*This estimate represents annual program savings of $22 million for each dollar reduction in the 
composite rate, given the population of ESRD beneficaries at the time of OIGs review. 
72
 Appendix B 
Medicare Claims for Railroad Retirement  9.1 
Beneficiaries:  The FY 2002 and 2003 budgets did not 
The CMS should discontinue use of a separate carrier  include this type of legislative proposal. 
to process Medicare claims for railroad retirement 
beneficiaries. (CIN: A-14-90-02528) 
Indirect Medical Education:  TBD* 
The CMS should reduce the indirect medical education  The CMS agreed with the recommendation, 
(IME) adjustment factor to the level supported by  and the BBA of 1997, as amended by the 
CMS empirical data and initiate further studies to  BBRA of 1999, reduced the IME adjustment 
determine whether different adjustment factors are  to 5.5 percent in 2002 and thereafter. The 
warranted for different types of teaching hospitals.  OIG believes the factor should be further 
(CIN: A-07-88-00111)  reduced to eliminate any overlap with the 
disproportionate share adjustment. 
Medicare Secondary PayerEnd Stage Renal  TBD 
Disease Time Limit:  The CMS was concerned that an indefinite 
The CMS should extend the Medicare secondary payer  MSP provision might encourage insurers to 
(MSP) provisions to include end stage renal disease  drop uneconomical services, namely facility 
(ESRD) beneficiaries without a time limitation.  dialysis and transplantation. The OIG 
(CIN: A-10-86-62016)  continues to advocate that when Medicare 
eligibility is due solely to ESRD, the group 
health plan should remain primary until the 
beneficiary becomes entitled to Medicare 
for old age or disability. At that point, 
Medicare would become the primary payer. 
Home Health Agencies:  TBD 
The CMS should revise Medicare regulations to  Although the BBA of 1997 included 
require the physician to examine the patient before  provisions to restructure home health 
ordering home health services.  benefits, CMS still needs to revise 
(OEI-04-93-00262; OEI-04-93-00260;  Medicare regulations to require that 
OEI-12-94-00180; OEI-02-94-00170;CINs:  physicians examine Medicare patients 
A-04-95-01103; A-04-95-01104; A-04-94-02087;  before ordering home health services. 
A-04-94-02078; A-04-96-02121; A-04-97-01169;  Subsequent to the BBA, OIGs four-state 
A-04-97-01166; A-04-97-01170; A-04-99-01195)  review found that unallowable services 
continued to be provided because of 
inadequate physician involvement. While 
agreeing in principle, CMS said it would 
continue to examine both coverage rules 
and conditions of participation to develop 
the discipline necessary for ensuring proper 
certification. Also, CMS established 
additional payments for physician care plan 
oversight and undertook efforts to educate 
physicians and beneficiaries. 
*To Be Determined 
73
 Appendix B 
Connection Between the Calculation of Medicaid  TBD 
Drug Rebates and Drug Reimbursement:  The CMS agreed to pursue a change in the 
The CMS should seek legislation that would require  rebate program similar to that recommended. 
participating drug manufacturers to pay Medicaid drug  The Presidents FY 2003 budget proposes a 
rebates based on average wholesale price (AWP) or  legislative change that would base the drug 
study other viable alternatives to the current  rebate on the difference between the AWP 
program of using average manufacturer price (AMP) to  and the best price for a drug. 
calculate the rebates. This legislation would have 
resulted in about $1.15 billion in additional rebates for 
100 brand-name drugs with the highest total Medicaid 
reimbursements in Calendar Years 1994-96. 
(CIN: A-06-97-00052) 
Various Public Health Agencies 
Medicare Rates for Indian Health Service  8.2 
Contracted Health Services:  The IHS concurred with OIGs 
The Indian Health Service (IHS) should revise its  recommendations. However, the proposal 
legislative proposal to incorporate OIGs updated  was not included in the Presidents FY 
savings figures and should identify elements to be  2003 budget. 
included in the implementing regulations. Also, IHS 
should continue to pursue the most favorable rates at 
hospitals that have previously offered less than 
Medicare rates and should strategically identify and 
pursue other opportunities where lower rates may be 
negotiated. 
(CIN: A-15-97-50001) 
Recharge Center Costs:  1.9 
The Assistant Secretary for Administration and  The Deputy Assistant Secretary for Grants 
Management should propose changes to OMB Circular  and Acquisition Management concurred. In 
A-21 to improve guidance on the financial  addition, the Council on Government 
management of recharge centers. The revision should  Relations generally agreed and stated that 
include criteria for establishing, monitoring and  the proposed criteria should be included in 
adjusting billing rates to eliminate accumulated  the Compliance Supplement to OMB 
surpluses and deficits; preventing the use of recharge  Circular A-133, which provides guidance to 
funds for unrelated purposes and excluding  independent auditors in conducting 
unallowable costs from the calculation of recharge  compliance audits of educational 
rates; ensuring that federal projects are billed  institutions. This suggestion was forwarded 
equitably; and excluding recharge costs from the  to OMB for consideration. 
recalculation of facilities and administrative cost rates. 
(CIN: A-09-96-04003) 
74
 Appendix C

Unimplemented Office of Inspector General Program

and Management Improvement Recommendations

This schedule represents Office of Inspector General (OIG) findings and recommendations 
which, if implemented, would result in substantial benefits. The benefits relate primarily to effectiveness 
rather than cost-efficiency. More detailed information may be found in OIGs Program and Management
Improvement Recommendations (the Orange Book). 
OIG Recommendation  Status 
Centers for Medicare and Medicaid Services 
Accountability Over Billing and Collection of 
Medicaid Drug Rebates:  The CMS concurred with the recommendation. States 
The CMS should ensure that states implement  will now be required to maintain detailed supporting 
accounting and internal control systems in accordance  records of all rebate amounts invoiced to drug 
with applicable federal regulations for the Medicaid  companies using a formal accounts receivable system. 
drug rebate program. Such systems must provide for  The CMS issued a notice of proposed rulemaking in 
accurate, current, and complete disclosure of drug  FY 1996. 
rebate transactions and provide CMS with the financial 
information it needs to effectively monitor and manage 
the Medicaid drug rebate program. 
(CIN: A-06-92-00029) 
Fairly Presenting the Medicare Accounts 
Receivable Balance:  The CMS hired consultants to assist in validating the 
The CMS should require Medicare contractors to  FY 1999 accounts receivable activity and balance, as 
implement or improve internal controls and systems to  well as the activity for the first 6 months of FY 2000. 
ensure that reported accounts receivable are valid and  The Presidents FY 2001 budget included funding to 
documented.  establish financial management controls at the 
(CINs: A-17-95-00096; A-17-97-00097;  contractors and to hire contractor staff to implement 
A-17-98-00098; A-17-00-00500; A-17-00-02001)  the controls. For the long term, CMS is developing an 
integrated general ledger system as the cornerstone of 
its financial management controls. 
Safeguards Over Medicaid Managed Care 
Programs:  Although CMS initially concurred with some specific 
The CMS should consider safeguards available to  recommendations, the agency believes that section 
reduce the risk of insolvency and to ensure consistent  4706 of the BBA of 1997 sets forth congressional 
and uniform state oversight.  expectations on this issue in specifically requiring 
(CIN: A-03-93-00200)  managed care organizations to meet the solvency 
standards established by the state for private health 
maintenance organizations. The CMS expected to 
publish regulations implementing the solvency 
standards in the spring of 2002. 
75
 Appendix C 
Guidance to Drug Manufacturers to Better 
Implement the Medicaid Drug Rebate Program:  The CMS did not concur, stating that the drug law 
The CMS should survey manufacturers to identify the  and the rebate agreements already established a 
various calculation methods used to determine average  methodology for computing AMP. The OIG disagreed 
manufacturer price (AMP). The CMS should also  because the rebate law and agreement defined AMP 
develop a more specific policy for calculating AMP  but did not provide specific written methodology for 
which would protect the interests of the government  computing AMP. 
and which would be equitable to the manufacturers. 
(CIN: A-06-91-00092) 
Physician Office Surgery: 
The peer review organizations (PROs) should extend  The CMS has issued policy guidance and manual 
their review to surgery performed in physicians  instructions to explicitly state that PROs have the 
offices.  responsibility to review all care in physician offices 
(OEI-07-91-00680)  when a beneficiary complains. 
Medicare Beneficiary Satisfaction with Durable 
Medical Equipment Regional Carrier Services:  The CMS concurred. The CMS conducts annual 
The CMS should evaluate ways to increase beneficiary  evaluations to identify ways to improve performance. 
satisfaction with the one durable medical equipment  However, CMS is also working to develop new 
regional carrier with a low rating, and review effective  outreach techniques to increase beneficiaries 
ways to educate beneficiaries on what constitutes fraud  knowledge on detecting fraud and abuse. 
and abuse. 
(OEI-02-96-00200) 
Pressure Reducing Support Services: 
The CMS should establish the requirement for periodic  The CMS did not concur. 
review and renewal of the medical necessity for 
beneficiaries use of group 2 support surface 
equipment. 
(OEI-02-95-00370) 
General Oversight 
Cost Principles for Federally Sponsored Research 
Activities:  Hospital cost principles have been updated in a draft 
The Department should modernize and strengthen cost  regulation which is expected to be issued as a notice of 
principles applicable to hospitals by either revising  proposed rulemaking by September 30, 2002. 
existing guidelines to conform with Office of 
Management and Budget (OMB) Circular A-21 or 
working with OMB to extend Circular A-21 coverage 
to all hospitals. 
(CIN: A-01-92-01528) 
76
 Appendix D

Notes to Tables 1 and 2

Notes to Table 1 
1The opening balance was adjusted downward $6.1 million. 
2During the period, revisions to previously reported management decisions included: 
CIN: A-09-93-00083	 Child Support Intercept Programs-California: The State does not concur with finding, 
they agree they earned interest on the collections, but contend that the IRS intercepts are 
AFDC related income which was offset by an acceptable substitution methodology 
related to financing. Amended amount of Cost question for $380,533. 
CIN: A-09-00-62228	 Placer Community Action Council Inc.: Procedures were established to ensure bank 
deposits in excess of the FDIC insured limits have sufficient Collateral. All reasonable 
care was taken to safeguard Cost Question funds in the amount of $69,506. 
CIN: A-10-97-41196	 Confederated Tribes and Bands of The Yakama Indian: Grantee supplied documentation 
to support Question Cost for $122,934 
CIN: A-10-00-58628	 NA-Kuigpagmiut Inc.: Grantee supplied documentation to support Question Cost for 
$38,889. 
3Included are management decisions to disallow $17.5 million that was identified in nonfederal audit reports. 
4Due to administrative delays, many of which are beyond managements control, resolution of the following audits 
was not completed within 6 months of issuance; however, based upon discussions with management, resolution is 
expected before the end of the next semiannual reporting period: 
CIN: A-06-00-00056  MEDICAID DRUGS-REVIEW OF REPACKAGED DRUGS EX FROM, MARCH 2001, 
$108,000,000 
CIN: A-04-98-00123  REVIEW FOSTER CARE PMTS-CHILD CARE IN NC, APRIL 2001, $48,183,445 
CIN: A-01-00-00538  NATIONAL IDENTIFICATION OF SNF CONSOLIDATED BILLNG, JUNE 2001, $47,633,686 
CIN: A-01-00-00509  M/C PART B PMTS FOR DME PROVIDED TO SNF PATIENTS, JULY 2001, $35,000,000 
CIN: A-02-99-02007  NYSDFA - REV. RETROACTIVE JUVENILE JUSTICE CLAIMS, APRIL 2000, $32,614,777 
CIN: A-04-00-65030  STATE OF SOUTH CAROLINA, JULY 2000, $31,755,510 
CIN: A-04-98-00122  EMERGENCY ASSISTANCE CLAIMS-NC HHS/DIV.MENTAL HLTH, SEPTEMBER 1999, 
$25,993,849 
CIN: A-07-99-01279  OP PSYCH, JANUARY 2001, $18,515,190 
CIN: A-06-00-00051  AUDIT OF MEDICARE REHAB AGENCY COSTS IN TX, RHS, I, JUNE 2001, $18,394,465 
CIN: A-05-94-00064  MI BLUE CROSS/BLUE SHIELD, AUDIT OF ADMIN COSTS, JUNE 1996, $15,609,718 
CIN: A-01-01-02502  REVIEW OF UNCOLLECTED AFDC OVERPAYMENTS, AUGUST 2001, $12,400,000 
CIN: A-07-96-01176  MEDICARE EXCESS PENSION ASSETS - BC MICH, NOVEMBER 1996, $11,904,263 
CIN: A-07-01-02616  REVIEW OF MUTUAL'S OVERSIGHT OF PIP, AUGUST 2001, $11,336,867 
CIN: A-05-99-00070  MONITORING--CONTRACT AUDIT OF HCSC & TERMINATION, MARCH 2000, 
$9,921,720 
CIN: A-05-00-00045  OIG PARTNERSHIP: STATE AUDITOR REPORT ON MEDICAID, MAY 2000, $8,500,000 
CIN: A-09-97-44262  STATE OF CALIFORNIA, APRIL 1997, $7,300,000 
CIN: A-03-91-00552  INDEPENDENT LIVING PROGRAM --- NATIONAL, MARCH 1993, $6,529,545 
CIN: A-02-99-02001  NYS REV OF RETROACTIVE KINSHIP CLAIMS, SEPTEMBER 2000, $5,833,676 
CIN: A-07-99-02537  BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS, NOVEMBER 1999, 
$5,270,461 
CIN: A-05-96-00058  CLOSE-OUT AUDIT OF MEDICARE CONTRACT-BCBS-MI, DECEMBER 1997, 
$5,226,443 
77
 Appendix D 
CIN: A-01-00-00506  DIAGNOSIS-RELATED GROUP PAYMENT WINDOW, JULY 2001, $5,042,207 

CIN: A-01-97-00516  ADMIN. COSTS-PART A&B, RAILROAD RETIRE BOARD, JUNE 1999, $4,939,184 

CIN: A-03-99-00009  IBC ADMIN FY 96-97 AND NON-RENEWAL, JULY 2001, $4,644,602 

CIN: A-07-96-02001  MEDICARE PART B ADMIN COSTS AT BC/BS COLORADO, DECEMBER 1996, 

$4,483,104 
CIN: A-07-98-01263  DENVER CMHC, MAY 2000, $4,447,607 
CIN: A-05-94-00080  ASSOCIATED INS. MEDICARE ADMINISTRATIVE COSTS, JULY 1996, $3,954,632 
CIN: A-07-00-00109  MEDICARE CONTRACT TERM. & SEG. CLOSING- GALIC, SEPTEMBER 2000, 
$3,505,560 
CIN: A-03-00-00002  TRIGON PT-A AND TERMINATION, SEPTEMBER 2001, $3,464,705 
CIN: A-02-95-01019  STAFF BUILDERS HOME OFFICE MEDICARE COST REV. ORT, AUGUST 1998, 
$3,434,274 
CIN: A-05-93-00054  IL-ASSOCIATED INSURANCE GROUP-CONTRACT AUDIT, OCTOBER 1993, 
$3,355,560 
CIN: A-07-99-01298  DATE OF DEATH - 2, MAY 2001, $3,200,000 
CIN: A-03-94-00029  VERITUS INC -ADMIN COST, FEBRUARY 1998, $3,140,363 
CIN: A-05-98-00042  ADMINISTAR INS. CO.--ADMIN. COSTS AUDIT, SEPTEMBER 1999, $3,111,728 
CIN: A-01-01-00517  REVIEW OF MEDICARE OUTLIER PAYMENTS AT ROGER WILLIAMS HOSPITAL, 
JUNE 2001, $3,100,000 
CIN: A-06-99-00057  AUDIT OF MEDICARE REHAB AGENCY SRVCS IN TX, RHS,IN, JANUARY 2001, 
$3,097,201 
CIN: A-05-93-00013  MI-BLUE CROSS/BLUE SHIELD-CONTRACT MEDICARE AUDIT, APRIL 1993, 
$3,010,916 
CIN: A-09-98-50183  STATE OF CALIFORNIA, MARCH 1998, $3,000,000 
CIN: A-01-95-00504  MEDICARE PARTS A & B ADMIN COSTS - AETNA, JANUARY 1996, $2,938,223 
CIN: A-01-96-00508  MEDICARE ADMIN COSTS PARTS A & B AND RRB - TRAVELERS, MARCH 1996, 
$2,803,260 
CIN: A-05-97-00005  ADMINISTRATIVE COSTS CLAIMED UNDER MEDICARE A & B, FEBRUARY 1998, 
$2,569,067 
CIN: A-07-92-00579  BC/BS OF MICHIGAN INC -UNFUNDED PENSION COSTS, OCTOBER 1992, $2,535,698 
CIN: A-05-92-00026  ASSOCIATED INSURANCE CO. - MEDICARE ADMIN, FEBRUARY 1992, $2,530,409 
CIN: A-02-91-01006  BLUE SHIELD OF WESTERN NY MEDICARE ADM CTS PORTER, SEPTEMBER 1991, 
$2,379,239 
CIN: A-04-00-01209  OUTPATIENT PSYCHIATRIC SRVCS AT HOLLYWOOD PAV.HOSP, APRIL 2001, 
$2,366,287 
CIN: A-03-99-00038  EDGEWATER PSYC HOSPITAL, MARCH 2001, $2,348,604 
CIN: A-04-97-01166  REV. HOME HLTH SRVCS BY STAFF BUILDERS HOME HLTH, APRIL 1999, $2,300,000 
CIN: A-04-97-01170  REVIEW HOME HLTH SRVCS BY MEDCARE HOME HLTH SRVCS, APRIL 1999, 
$2,200,000 
CIN: A-07-00-00112  MEDICARE CONTRACT AND SEG. CLOSING - HCSC, JULY 2001, $2,148,287 
CIN: A-07-01-68554  STATE OF NEBRASKA , JUNE 2001, $2,113,388 
CIN: A-04-00-02162  REVIEW TREATMENT OF QUALIFIED DISCHRGS @ FCSO, FEBRUARY 2001, $2,042,060 
CIN: A-02-00-02502  UNIVERSITY OF MEDICINE & DENTISTRY CONTRACT AUDIT, APRIL 2001, $2,002,011 
CIN: A-05-00-00034  PROVENA ST. JOSEPH HOSPITAL-O/P PSYCH SERVICES, NOVEMBER 2000, $1,978,583 
CIN: A-04-97-01169  REVIEW HOME HLTH SRVCS BY MEDTECH HOME HLTH SRVCS, APRIL 1999, 
$1,900,000 
CIN: A-06-96-00009  NEW MEXICO BCBS ADMIN COST - CONTRACTED, NOVEMBER 1997, $1,879,366 
CIN: A-04-01-68839  STATE OF FLORIDA , JUNE 2001, $1,818,236 
CIN: A-05-97-00014  GROUP HEALTH PLAN INC.(HEALTHPARTNERS) INST. BENES, JUNE 1998, $1,808,308 
CIN: A-05-95-00059  AUDIT OF ADMINISTRATIVE COSTS--BCBS MICHIGAN, JANUARY 1997, $1,787,345 
CIN: A-03-00-00007  REVIEW OF 1-DAY DISCHARGES--PA., APRIL 2001, $1,649,411 
CIN: A-04-97-02143  REVIEW THERAPY SRVCS IN LIFE CARE SNF'S IN TN, DECEMBER 1999, $1,638,025 
CIN: A-02-97-01039  MEDASSIST - ORT ORTHOTICS PROVIDER TARGET, NOVEMBER 1999, $1,616,222 
CIN: A-06-99-00006  CONTRACT AUDIT OF BC/BS ADMINISTRATIVE COSTS, NOVEMBER 1999, $1,615,063 
CIN: A-04-99-01196  OIG-HCFA JOINT REVIEW OF JMV MEDICAL CORP., DECEMBER 2000, $1,600,417 
CIN: A-03-96-00012  BCBSM PT-B NON-RENEWAL COSTS, AUGUST 1998, $1,557,459 
CIN: A-05-93-00057  MI-BLUE CROSS & BLUE SHIELD OF MI-CONTRACT AUDIT, JULY 1993, $1,409,954 
78
 Appendix D 
CIN: A-09-01-67037  HAWAII DEPT. OF THE ATTORNEY GENERAL, JANUARY 2001, $1,407,910 

CIN: A-09-96-00064  ORT - HOSPICE - CALIFORNIA, MARCH 1997, $1,350,000 

CIN: A-10-91-00011  WPS - KEYSTONE COMPUTER ACQUISITION, OCTOBER 1992, $1,346,681 

CIN: A-05-95-00042  BCBSA ADMINISTRATIVE COSTS - CONTRACTED AUDIT, DECEMBER 1995, $1,333,598 

CIN: A-07-01-00128  PENSION COSTS CLAIMED FOR MEDICARE REIMBURSEMENT BY HEALTH CARE 

SERVICE CORPORATION (HCSC), MAY 2001, $1,292,114 
CIN: A-04-00-66032  STATE OF FLORIDA, AUGUST 2000, $1,210,637 
CIN: A-05-00-00004  NEW CENTER COMMUNITY MENTAL HEALTH CENTER, JUNE 2000, $1,181,000 
CIN: A-05-00-00049  PARTNERSHIP PLAN - IL HOSPITAL TRANSFERS, JUNE 2001, $1,150,113 
CIN: A-02-97-01026  EDDY VNA (#337152) HHA ELIGIBILITY REVIEW, SEPTEMBER 1999, $1,131,593 
CIN: A-05-98-00050  FOLLOW-UP MEDICAID CLINICAL LABORATORIES, JULY 1999, $1,097,036 
CIN: A-02-94-01029  HOSPICE ELIGIBILITY RVW IN PR - SAN GERMAN - ORT, JUNE 1995, $1,070,814 
CIN: A-09-98-00052  CALIFORNIA MEDICAL REVIEW INC. (CA. PRO), JANUARY 1999, $1,067,991 
CIN: A-05-94-00047  NATIONWIDE INS., MEDICARE PART B ADMIN. COSTS, SEPTEMBER 1995, $1,049,309 
CIN: A-07-99-01278  ORF-MO, SEPTEMBER 2000, $1,042,522 
CIN: A-05-01-00037  BC/BS OF MN. ADMIN COSTS-LEON SNEAD & CO., JUNE 2001, $1,037,090 
CIN: A-04-99-01199  REV. PSYCHIATRIC OUTPATIENT SRVCS-CORAL GABLES HOS, APRIL 2001, $1,031,497 
CIN: A-01-98-00500  PAYMENT EDITS FOR PSYCHIATRIC AT MA PART B CARRIER, SEPTEMBER 1998, 
$1,000,000 
CIN: A-09-94-01010  CLOSEOUT AUDIT--CONT NO. N01-ES-75196 (STRATAGENE), MARCH 1994, $983,208 
CIN: A-08-99-55285  NA-SOUTH DAKOTA URBAN INDIAN HEALTH INC., JUNE 1999, $902,377 
CIN: A-08-99-55284  NA-SOUTH DAKOTA URBAN INDIAN HEALTH INC., JUNE 1999, $902,046 
CIN: A-04-00-01210  REVIEW TREATMENT-QUALIFIED DISCHRGS-BCBSGA, DECEMBER 2000, $891,000 
CIN: A-05-92-00060  CONTRACTOR AUDIT - BCBS - ADMIN, FEBRUARY 1993, $879,609 
CIN: A-02-97-01034  DR. PILA FOUNDATION HOME CARE PRORAM (PONCE), SEPTEMBER 1999, $857,208 
CIN: A-07-98-02533  TRAVELERS FACP, DECEMBER 1998, $854,214 
CIN: A-06-99-00013  MEDICARE PART A ADMIN NM BLUE CROSS BLUE SHIELD, DECEMBER 1999, 
$817,487 
CIN: A-02-98-01040  NIAGARA CTY DEPT. OF HLTH-#337001-HHS ELIG REVIEW, DECEMBER 1999, 
$807,679 
CIN: A-03-99-00008  BLUE CROSS BLUE SHIELD OF DELAWARE - PART A, JANUARY 2000, $798,939 
CIN: A-07-99-00981  ASSIST REVIEW OF MEDICARE A/R HCFA RO DENVER, JANUARY 2000, $754,926 
CIN: A-09-00-00103  PACIFICARE HMO - MEDICARE DUAL ELIGIBLES, MAY 2001, $720,858 
CIN: A-05-91-00136  COMMUNITY MUTUAL INS CO. ADMIN COSTS, AUGUST 1992, $720,668 
CIN: A-09-97-00078  PHYSICIAN BILLINGS DR. SPENCER, JANUARY 1999, $683,264 
CIN: A-05-00-64226  NA-ILLINOIS DEPT. OF PUBLIC AID, MAY 2000, $654,017 
CIN: A-01-98-00503  PSYCHIATRIC OUTPT SERVICES AT THE FRANKLIN MED CTR, NOVEMBER 1998, 
$646,517 
CIN: A-01-99-00535  AUDIT OF M/C PART A ADMIN COSTS-ANTHEM BC/BS CT, AUGUST 2000, $621,256 
CIN: A-06-98-00066  ORT REVIEW OF ULTIMATE HOME HEALTH CARE INC., OCTOBER 1999, $602,982 
CIN: A-04-94-01078  MONITORING ADMIN COST -AUDIT M'CARE P. B BCBSSC, JULY 1994, $594,092 
CIN: A-04-93-01069  MONITORG ADMIN COST AUDIT MCARE PART A BCBSSC, JULY 1994, $590,844 
CIN: A-09-00-00067  COLLEGE HOSPITAL -O/P PSYCH SVCS, APRIL 2001, $567,888 
CIN: A-04-00-61620  STATE OF NORTH CAROLINA, MARCH 2000, $528,952 
CIN: A-05-00-00011  LIBERTYVILLE MANOR SNF -THERAPY SERVICES, SEPTEMBER 2001, $506,937 
CIN: A-05-99-00062  AMERICARE PHYSICAL THERAPY SERVICES, DECEMBER 2000, $503,619 
CIN: A-09-99-56858  HAWAII DEPT. OF HUMAN SERVICES, FEBRUARY 1999, $502,000 
CIN: A-03-93-21786  DISTRICT OF COLUMBIA DEPT. OF HUMAN SERVICES, OCTOBER 1993, $501,747 
CIN: A-03-92-16229  STATE OF PENNSYLVANIA, MARCH 1992, $496,876 
CIN: A-05-01-67384  MICHIGAN DEPT. OF COMMUNITY HEALTH , FEBRUARY 2001, $488,737 
CIN: A-04-98-01192  REVIEW AMERICA'S BEHAV.HLTH CARES PART. HOSPITALIZ, DECEMBER 1999, 
$452,928 
CIN: A-06-00-00011  FINAL ADMINISTRATIVE COST PROPOSAL - AR BC/BS, NOVEMBER 2000, $442,177 
CIN: A-07-01-00120  REVIEW OF UNFUNDED PENSION COCST AT BCBS OF OK, JULY 2001, $413,800 
CIN: A-05-97-00013  ACIFICARE OF CA-HMO INSTITUTIONAL STATUS PROJECT, APRIL 1998, $407,784 
CIN: A-02-01-67912  STATE OF NEW YORK , MARCH 2001, $389,622 
79
 Appendix D 
CIN: A-05-00-00030  CONTRACTED AUDIT-NATIONWIDE INS.-MEDICARE ADMIN., OCTOBER 2000, 
$385,081 
CIN: A-04-00-01208  OUTPATIENT CLINIC COSTS, CORAL GABLES HOSPITAL, FL, FEBRUARY 2001, 
$384,295 
CIN: A-09-98-00095  BLUE SHIELD OF CALIFORNIA, OCTOBER 1999, $378,191 
CIN: A-06-99-58928  ARKANSAS OFFICE OF CHILD SUPPORT ENFORCEMENT, APRIL 1999, $367,273 
CIN: A-01-99-00518  PSYCHIATRIC OUTPATIENT SVCS AT DANBURY HOSPITAL, MAY 2000, $342,168 
CIN: A-02-01-68556  ALBANY COUNTY OPPORTUNITY INC., MAY 2001, $339,237 
CIN: A-02-00-01000  GHI MEDICARE ADMIN. COSTS (CARMICHAEL & CO., CPA), APRIL 2001, $338,392 
CIN: A-02-00-01023  LONG ISLAND JEWISH MEDICAID OUTPATIENT MENTAL SRVS, AUGUST 2001, 
$319,130 
CIN: A-02-01-65217  PUERTO RICO DEPT. OF THE FAMILY, DECEMBER 2000, $317,042 
CIN: A-04-01-68747  STATE OF NORTH CAROLINA , JUNE 2001, $281,636 
CIN: A-05-96-00069  CPA AUDIT OF HOOPER HOLMES HHA G&A -OI CASE OPEN, FEBRUARY 1998, 
$280,515 
CIN: A-01-00-00511  REVIEW OF O/P PHARMACY SVC-BAYSTATE MED CTR, NOVEMBER 2000, $279,409 
CIN: A-06-97-00015  NEW MEXICO PRO CLOSE OUT AUDIT, SEPTEMBER 1999, $268,844 
CIN: A-09-94-30178  STATE OF ARIZONA, JUNE 1994, $267,021 
CIN: A-03-98-00027  KHPW/INSTITUTIONAL STATUS/MEDICARE, NOVEMBER 1998, $263,573 
CIN: A-05-00-60454  ST. CROIX CHIPPEWA OF WISCONSIN, DECEMBER 1999, $224,452 
CIN: A-01-00-00549  BETH ISRAEL AUDIT OF OUTPATIENT PHARMACY SVC, MARCH 2001, $221,905 
CIN: A-12-00-00012  REVIEW OF OCS GRANT TO BROWN MAGNOLIA, APRIL 2001, $221,889 
CIN: A-05-99-00067  WPS PART B ADMINISTRATIVE COSTS, NOVEMBER 2000, $221,644 
CIN: A-05-96-00052  ORT ASSIST-ANCILLARY COSTS-NW COM. HOSP., JUNE 1997, $206,508 
CIN: A-02-00-01032  REVIEW OF MEDICAID OUTPATIENT PSYCHIATRIC SERVICES PROVIDED BY 
SAINT BARNABAS HOSPITAL, FORDHAM-TREMONT COMMUNITY MENTAL HEALTH 
CENTER FOR FISCAL YEAR ENDED SEPTEMBER 30, 1999, JULY 2001, $205,100 
CIN: A-06-96-00064  ORT SNF RESEARCH AT METHODIST HOSPITAL, JANUARY 1997, $200,000 
CIN: A-03-01-00555  PDPI INC. -- HEAD START, JUNE 2001, $185,577 
CIN: A-06-01-68876  STATE OF LOUISIANA, JUNE 2001, $175,494 
CIN: A-03-99-00007  FOREST AMBULANCE SERVICE - EXTERNAL, DECEMBER 1998, $173,189 
CIN: A-02-00-01020  BCBS OF WESTERN NY (CARMICHAEL & CO., CPA, APRIL 2001, $171,631 
CIN: A-07-99-01287  WELLMARK ADMIN COSTS 98, NOVEMBER 1999, $160,626 
CIN: A-03-98-00034  FREESTATE HP/INSTITUTIONAL STATUS/MEDICARE, MARCH 1999, $156,987 
CIN: A-03-98-00025  ABINGDON AMBULANCE COMPANY - ABINGDON, VA, JANUARY 1999, $139,325 
CIN: A-05-00-00031  CONTRACTED AUDIT OF UGS--MEDICARE ADMIN. COSTS, NOVEMBER 2000, $138,182 
CIN: A-09-99-52846  INTER-TRIBAL COUNCIL OF CALIFORNIA INC., FEBRUARY 1999, $136,360 
CIN: A-02-98-01002  IPRO CLOSEOUT AUDIT - CPA CONTRACT MONITORING, DECEMBER 1998, $135,492 
CIN: A-05-00-00060  MEDICA FOLLOW-UP, REIMB. RATES FOR INSTI. BENES, JUNE 2001, $133,795 
CIN: A-06-00-00014  REV OF INFUSION THERAPY CLAIMS @ DOCTORS HEALTHCAR, JUNE 2000, $132,238 
CIN: A-04-01-68784  STATE OF SOUTH CAROLINA, JUNE 2001, $129,884 
CIN: A-09-01-66969  FRESNO INDIAN HEALTH ASSOCIATION INC., FEBRUARY 2001, $116,607 
CIN: A-05-97-00023  KAISER FOUNDATION-HMO INSTITUTIONAL STATUS PROJECT, APRIL 1998, $116,096 
CIN: A-02-96-02001  INTERNATIONAL RESCUE COMMITTEE - REFUGEE PROGRAM, JANUARY 1998, 
$114,631 
CIN: A-03-99-00003  AETNA-US HEALTHCARE/INSTITUTIONAL STATUS/MEDICARE, JULY 1999, $113,993 
CIN: A-03-95-03329  HENDERSON ASSOCIATES/CACS/ASC/282-91-0012, MARCH 1997, $111,289 
CIN: A-02-96-01001  VNS OF NY HOME CARE - ORT / HHA TARGET, SEPTEMBER 1997, $110,841 
CIN: A-03-01-00001  EASTERN SHORE AMBULANCE CO., AUGUST 2001, $110,417 
CIN: A-06-01-68039  PUEBLO DE SAN FELIPE, APRIL 2001, $109,446 
CIN: A-01-00-62266  STATE OF MAINE, MARCH 2000, $106,500 
CIN: A-03-01-69502  CHILD WELFARE LEAGUE OF AMERICA INC., AUGUST 2001, $102,852 
CIN: A-02-99-58263  PUERTO RICO OFFICE OF THE GOVERNOR OFFICE OF CHILD, JULY 1999, $101,799 
CIN: A-10-00-61811  STATE OF WASHINGTON, JANUARY 2000, $101,047 
CIN: A-05-00-65775  STATE OF WISCONSIN, SEPTEMBER 2000, $98,586 
CIN: A-09-97-00066  WALTER MCDONALD - INDIRECT COST RATE AUDIT, MARCH 1998, $95,733 
CIN: A-05-00-65108  NA-ILLINOIS DEPT. OF PUBLIC AID, JULY 2000, $95,309 
80
 Appendix D 
CIN: A-09-98-00065  CSBG DISC. GRANT #90EE004901 - LATINO RESOURCES, JANUARY 1999, $95,102

CIN: A-01-99-00507  NAT-WIDE REF OPNT PSYCH SVC AT ACUTE CARE HOSPITALS, MARCH 2000, $94,716

CIN: A-10-97-00003  BCWAAK-ADM COSTS REMOTE NETWORK ACTIVITIES FY 93 & 94, FEBRUARY 1998, 

$94,643 
CIN: A-07-95-01164  MEDICARE ADMIN COSTS - GENERAL AMERICAN, DECEMBER 1995, $89,929 
CIN: A-06-00-00013  REVIEW OF INFUSION THERAPY CLAIMS @ SPRING CREEK N, JUNE 2000, $89,288 
CIN: A-01-01-00503  REVIEW OF O/P MEDICAL SUPPLIES AT MERCY HOSPITAL, JULY 2001, $88,904 
CIN: A-07-00-00118  REVIEW OF KANSAS RURAL HEALTH CENTER, MAY 2001, $87,493 
CIN: A-08-99-56914  RURAL AMERICA INITIATIVES, JULY 1999, $87,468 
CIN: A-04-96-38655  STATE OF NORTH CAROLINA, APRIL 1996, $83,237 
CIN: A-10-01-67562  KENAITZE INDIAN TRIBE , MARCH 2001, $79,533 
CIN: A-04-94-02080  FINALIZATION OF BCBSFL DATA MATCH, JUNE 1995, $79,316 
CIN: A-04-96-01137  PARTIC. PART OF HCFA SURV.TEAM-DAYTONA NURSG-ORT, DECEMBER 1996, 
$76,130 
CIN: A-01-99-00530  NATIONWIDE REV OF O/P PSYCH SVCS @ PSYCH HOSPITALS, DECEMBER 2000, 
$75,413 
CIN: A-09-00-60032  OVELOCK PAIUTE TRIBE, DECEMBER 1999, $74,187 
CIN: A-01-00-00503  REVIEW OF MEDICARE OUTLIER PAYMENTS-MASS GENERAL, DECEMBER 2000, 
$73,019 
CIN: A-09-00-60444  OMBA SHOSHONE TRIBE, DECEMBER 1999, $64,030 
CIN: A-05-99-00045  KAISER HEALTH PLAN OF OHIO - INSTITUTIONAL STATUS, MAY 2000, $61,177 
CIN: A-05-96-00072  I DEPT OF COMMUNITY HEALTH/MEDICAID LAB SERVICES, AUGUST 1997, $59,956 
CIN: A-01-96-00505  CFO AUDIT OF HCFAS FINANCIAL STATEMENTS, JULY 1997, $59,327 
CIN: A-02-00-62534  CITY OF NEW YORK NEW YORK, JANUARY 2000, $58,309 
CIN: A-07-92-00526  MMIS ENHANCED FFP COSTS, JULY 1992, $58,149 
CIN: A-05-96-00051  ORT ASSIST-ANCILLARY COSTS-ST JOSEPH, JUNE 1997, $58,008 
CIN: A-09-97-00059  HEALTH SERVICES ADVISORY GROUP, INC PRO-AZ, MAY 1997, $57,925 
CIN: A-04-01-67287  COVINGTON PROTESTANT CHILDRENS HOME , DECEMBER 2000, $56,335 
CIN: A-08-99-54138  ROSEBUD SIOUX TRIBE, NOVEMBER 1998, $56,223 
CIN: A-04-00-64899  NA-STATE OF TENNESSEE, JULY 2000, $55,129 
CIN: A-07-97-01206  PENSION - WASHINGTON/ALASKA - UNFUNDED, MARCH 1997, $54,000 
CIN: A-06-99-56489  STATE OF LOUISIANA, JANUARY 1999, $53,963 
CIN: A-10-00-62761  BURNS PAIUTE INDIAN TRIBE, FEBRUARY 2000, $53,516 
CIN: A-08-00-60687  SOUTH DAKOTA FOUNDATION FOR MEDICAL CARE, NOVEMBER 1999, $52,536 
CIN: A-09-01-65664  NA-LOVELOCK PAIUTE TRIBE , DECEMBER 2000, $50,473 
CIN: A-05-00-00059  TITLE XIX - MEDICAID ESCHEATED WARRANTS, MARCH 2001, $50,162 
CIN: A-09-95-00095  HEALTH SERVICES ADVISORY GROUP, INC (HSAG), DECEMBER 1995, $49,585 
CIN: A-03-93-03306  URVEY RESEARCH ASSOC. CACS NO1-ES-45067, DECEMBER 1993, $48,779 
CIN: A-09-01-68898  STATE OF ARIZONA , JUNE 2001, $46,237 
CIN: A-07-00-00106  PENSION SEGMENTATION AUDIT AT BCBS OF OKLAHOMA, JULY 2001, $45,508 
CIN: A-03-99-03307  UNIV OF PENN/NIH/GRANT EXPENDITUIRES REVIEW, MAY 2001, $44,403 
CIN: A-09-99-52845  INTER-TRIBAL COUNCIL OF CALIFORNIA INC., FEBRUARY 1999, $43,315 
CIN: A-09-99-57306  PICAYUNE RANCHERIA OF THE CHUKCHANSI INDIAN TRIBE, SEPTEMBER 1999, 
$43,159 
CIN: A-07-01-00121  REV. OF PEN. COSTS FOR MED. REIMB. FOR BCBS OF OK, JULY 2001, $42,463 
CIN: A-03-99-00017  PSU-HERSHEY/PHY CREDIT BALANCES/MEDICARE, DECEMBER 1999, $41,712 
CIN: A-09-00-60443  YOMBA SHOSHONE TRIBE, JANUARY 2000, $41,373 
CIN: A-01-01-00507  OUTPATIENT PHARMACY SVCS AT LAWRENCE MEMORIAL HOSP, SEPTEMBER 2001, 
$41,210 
CIN: A-02-95-34279  PUERTO RICO DEPT. OF HEALTH, JUNE 1995, $40,207 
CIN: A-05-00-00017  INDIANA MEDICAID TRANSPORTATION SERVICES, MARCH 2001, $39,735 
CIN: A-02-95-34275  PUERTO RICO DEPT. OF HEALTH, JUNE 1995, $37,515 
CIN: A-03-97-44742  ASSOCIATION OF TEACHERS OF PREVENTIVE MEDICINE INC, FEBRUARY 1998, 
$37,260 
CIN: A-02-99-59166  CYPRESS HILLS CHILD CARE CORP., SEPTEMBER 1999, $36,935 
CIN: A-07-98-53295  WINNEBAGO TRIBE OF NEBRASKA, SEPTEMBER 1998, $36,808 
CIN: A-10-00-63008  STATE OF IDAHO, MARCH 2000, $36,800 
81
 Appendix D 
CIN: A-08-00-65136  STATE OF SOUTH DAKOTA, JUNE 2000, $36,380 

CIN: A-03-00-00010  PS GEISINGER HMO/INSTITUTIONAL STATUS/MEDICARE, JANUARY 2001, $35,639 

CIN: A-02-00-65502  ABYSSINIAN DEVELOPMENT CORP., AUGUST 2000, $34,737 

CIN: A-04-00-60897  STATE OF FLORIDA, MARCH 2000, $33,397 

CIN: A-09-01-00050  BALBOA NEPHROLOGY MEDICAL GROUP, APRIL 2001, $32,568 

CIN: A-03-99-00004  PSU-GEISINGER/PHY CREDIT BALANCES/MEDICARE, DECEMBER 1999, $32,165 

CIN: A-07-97-01199  BCBS NEW MEXICO UNFUNDED PENSION COST, FEBRUARY 1997, $31,372

CIN: A-09-96-42547  MARICOPA COUNTY ARIZONA, APRIL 1996, $30,766 

CIN: A-03-00-63919  MINGO COUNTY ECONOMIC OPPORTUNITY COMMISSION INC., MARCH 2000, 

$30,453 
CIN: A-03-00-00209  STATE SURVEY AND CERTIFICATION COSTS - VA, AUGUST 2001, $29,298 
CIN: A-03-98-03301  AAUAP -- INCURRED COST REVIEW -- HHS 105-95-7011, APRIL 1998, $28,289 
CIN: A-03-00-64076  NATIONAL MEDICAL ASSOCIATION, APRIL 2000, $27,106 
CIN: A-05-00-60452  ST. CROIX CHIPPEWA OF WISCONSIN, DECEMBER 1999, $26,363 
CIN: A-06-00-00020  REV OF INFUSION THERAPY CLAIMS @ VISTA CONTINUING, JUNE 2000, $25,008 
CIN: A-03-00-00004  GUTHRIE CLINIC/PHYSICIAN CREDIT BALANCES/MEDICARE, DECEMBER 1999, 
$23,759 
CIN: A-08-00-60654  SPIRIT LAKE TRIBE, JANUARY 2000, $22,031 
CIN: A-04-00-00133  ESCHEATED WARRANTS - FLORIDA, MAY 2001, $21,517 
CIN: A-04-00-01206  BCBSNC - M'CARE PART A ADMIN COST AUDIT-CARMICHAEL, SEPTEMBER 2000, 
$21,302 
CIN: A-10-01-67141  STATE OF IDAHO, DECEMBER 2000, $20,000 
CIN: A-04-01-67441  CATAWBA INDIAN NATION, APRIL 2001, $19,204 
CIN: A-04-97-01163  VIMI M'CARE PRO CONTRACT AUDIT, SEPTEMBER 1997, $18,758 
CIN: A-03-00-00200  GUTHRIE CLINIC/PHYSICIAN CREDIT BALANCES/MEDICAID, DECEMBER 1999, 
$18,318 
CIN: A-05-93-21928  WRIGHT STATE UNIV., JULY 1993, $18,308 
CIN: A-01-00-61896  JEWISH FAMILY SERVICE OF STAMFORD INC., DECEMBER 1999, $18,027 
CIN: A-03-97-00007  NE HEALTH CARE QUALITY FOUNDATION/CCAS/N HAMPSHIRE, MARCH 1997, 
$17,045 
CIN: A-07-00-00117  REV. OF PENSION COSTS FOR MED. REIMB. BC/BS OF ND, JANUARY 2001, $16,863 
CIN: A-01-99-55594  STATE OF VERMONT, NOVEMBER 1998, $16,623 
CIN: A-01-97-44143  BRANDEIS UNIV., JANUARY 1997, $16,602 
CIN: A-06-01-68297  NATIVE AMERICAN CENTER OF RECOVERY INC., MAY 2001, $16,314 
CIN: A-10-00-59080  ORTON SOUND HEALTH CORP., DECEMBER 1999, $15,000 
CIN: A-03-97-00008  NE HEALTH CARE QUALITY FOUNDATION/CCAS/VERMONT, MARCH 1997, $14,596 
CIN: A-09-00-00104  PACIFICARE OF CALIFORNIA - INSTITUTIONAL STATUS, MARCH 2001, $14,278 
CIN: A-07-99-60332  STATE OF NEBRASKA, JULY 1999, $14,209 
CIN: A-06-98-54189  CITY OF HOUSTON TEXAS, JULY 1998, $14,146 
CIN: A-09-96-00050  CFO - HCFA 1996, NOVEMBER 1997, $13,924 
CIN: A-10-00-63684  HOH INDIAN TRIBE, APRIL 2000, $13,602 
CIN: A-07-99-57985  STATE OF KANSAS, FEBRUARY 1999, $13,550 
CIN: A-09-01-66137  TOHONO O ODHAM NATION, NOVEMBER 2000, $13,329 
CIN: A-03-98-50338  NATIONAL MEDICAL ASSOCIATION, FEBRUARY 1998, $12,968 
CIN: A-09-01-67471  CATHOLIC CHARITIES OF SAN JOSE, JANUARY 2001, $12,420 
CIN: A-09-99-59787  PALAU COMMUNITY ACTION AGENCY, JUNE 1999, $12,326 
CIN: A-09-00-61853  FRESNO INDIAN HEALTH ASSOCIATION INC., MARCH 2000, $11,963 
CIN: A-03-01-66421  AMERICAN ASSOCIATION OF COMMUNITY COLLEGES, NOVEMBER 2000, $11,811 
CIN: A-08-99-60402  STATE OF SOUTH DAKOTA, JULY 1999, $11,774 
CIN: A-08-00-56759  SOUTH DAKOTA URBAN INDIAN HEALTH INC., NOVEMBER 1999, $10,933 
CIN: A-09-00-62572  NA-FRESNO INDIAN HEALTH ASSOCIATION INC., FEBRUARY 2000, $10,720 
CIN: A-07-00-63881  SANTEE SIOUX TRIBE OF NEBRASKA, APRIL 2000, $10,187 
CIN: A-10-97-00002  GROUP HEALTH INSTITUTIONALIZED, NOVEMBER 1997, $9,769 
CIN: A-02-01-66887  PUERTO RICO ADMINISTRATION OF CHILDREN & FAMILIES, FEBRUARY 2001, $9,000 
CIN: A-05-01-67360  MICHIGAN FAMILY INDEPENDENCE AGENCY, FEBRUARY 2001, $8,708 
CIN: A-09-01-68177  INDIAN HEALTH COUNCIL INC., MARCH 2001, $8,257 
CIN: A-07-97-01231  PROWEST-DOSHI WASHINGTON, JUNE 1997, $8,027 
82
 Appendix D 
CIN: A-05-00-63666  HO-CHUNK NATION, FEBRUARY 2000, $7,851 

CIN: A-05-01-68270  LAKE COUNTY COMMUNITY ACTION PROJECT, MAY 2001, $7,614 

CIN: A-03-98-00045  TEMPLE UNIV/PHYSICIAN CREDIT BALANCES/MEDICARE, JULY 1999, $7,280 

CIN: A-01-97-49174  BRANDEIS UNIV., AUGUST 1997, $7,068 

CIN: A-09-01-65778  INDIAN HEALTH COUNCIL INC., OCTOBER 2000, $7,032 

CIN: A-01-00-61715  STATE OF VERMONT, OCTOBER 1999, $6,766 

CIN: A-09-00-58580  TOHONO O ODHAM NATION, NOVEMBER 1999, $6,456 

CIN: A-04-99-56945  QUITMAN COUNTY DEVELOPMENT ORGANIZATION INC., MARCH 1999, $6,142 

CIN: A-07-95-01167  PENSION COSTS CLAIMED NEBRASKA BC/BS, JANUARY 1996, $6,075 

CIN: A-06-97-48062  SER-JOBS FOR PROGRESS NATIONAL INC., MAY 1997, $5,924 

CIN: A-08-99-56446  SISSETON-WAHPETON SIOUX TRIBE, MAY 1999, $5,843 

CIN: A-08-00-59899  SOUTH DAKOTA URBAN INDIAN HEALTH INC., NOVEMBER 1999, $5,496 

CIN: A-09-97-48829  COMMUNITY ACTION COMMISSION OF SANTA BARBARA COUNT, AUGUST 1997, 

$4,809 
CIN: A-09-01-67778  LOVELOCK PAIUTE TRIBE , JUNE 2001, $4,693 
CIN: A-01-00-60299  INDIAN TOWNSHIP TRIBAL GOVERNMENT PASSAMAQUODDY TR, JANUARY 2000, 
$4,597 
CIN: A-07-95-01123  REVIEW OF CPA ADM. COST - BCBS OF KANSAS CITY, MAY 1995, $4,045 
CIN: A-04-97-01162  HMSA M'CARE PRO CONTRACT AUDIT, SEPTEMBER 1997, $3,871 
CIN: A-02-00-64365  NA-MUNICIPALITY OF PONCE PUERTO RICO, MAY 2000, $3,788 
CIN: A-09-01-00067  EAST BAY NEPHROLOGY MEDICAL GROUP, AUGUST 2001, $3,418 
CIN: A-03-01-03303  JOHNS HOPKINS UNIVERSITY/KPMG/NIDA/N01DA-3-7301, FEBRUARY 2001, $3,347 
CIN: A-09-01-68929  COLUSA INDIAN COMMUNITY COUNCIL, AUGUST 2001, $3,306 
CIN: A-06-00-65029  STATE OF LOUISIANA, JULY 2000, $3,162 
CIN: A-02-01-66889  PUERTO RICO ADMINISTRATION OF CHILDREN & FAMILIES, FEBRUARY 2001, 
$3,103 
CIN: A-03-95-03318  TRANS-MANAGEMENT SYSTEMS 105-92-1527 (CCO), MAY 1996, $3,016 
CIN: A-02-01-66888  PUERTO RICO ADMINISTRATION OF CHILDREN & FAMILIES, FEBRUARY 2001, 
$2,883 
CIN: A-07-98-02502  CT. BC/BS PENSION COSTS CLAIMED, MARCH 1998, $2,725 
CIN: A-03-98-51505  ALLIEDSIGNAL TECHNICAL SERVICES CORP., APRIL 1998, $2,722 
CIN: A-02-97-49366  SENECA NATION OF INDIANS, SEPTEMBER 1997, $2,655 
CIN: A-01-97-45487  ABT ASSOCIATES INC., JANUARY 1997, $2,596 
CIN: A-08-00-61852  NATIVE AMERICAN SERVICES AGENCY INC., FEBRUARY 2000, $2,575 
CIN: A-03-97-43996  ACTUARIAL RESEARCH CORP., OCTOBER 1996, $2,561 
CIN: A-06-00-58523  OSAGE NATION OF OKLAHOMA, OCTOBER 1999, $2,247 
CIN: A-03-96-44076  ST. PAULS COLLEGE, AUGUST 1996, $2,029 
CIN: A-10-96-38114  STATE OF WASHINGTON, FEBRUARY 1996, $2,000 
CIN: A-07-97-01232  PROWEST - DOSHI ALASKA, JUNE 1997, $1,473 
Notes to Table 2 
1The opening balance was adjusted to reflect downward revaluation by $134 million. 
2Management decision has not been made within 6 months of issuance on 32 reports: 
Discussions with management are ongoing, and it is expected that the following audits will be resolved by 
the next semiannual reporting period: 
CIN: A-03-00-00203  PA/INTERGOVERNMENTAL TRANSFERS/MEDICAID, FEBRUARY 2001, $3,700,000,000 
CIN: A-05-00-00056  MEDICAID INTERGOVERNMENTAL TRANSFERS - IDPA, MARCH 2001, $1,870,000,000 
CIN: A-06-00-00023  MEDICAID PHARMACY/PHYSICIAN ACTUAL ACQUISITION COS, AUGUST 2001, 
$1,080,000,000 
83
 Appendix D 
CIN: A-10-00-00011  MEDICAID INTERGOVERNMENTAL TRANSFERS - WA STATE, MARCH 2001, 
$475,000,000 
CIN: A-01-99-00507  NAT-WIDE REF OPNT PSYCH SVC AT ACUTE CARE HOSPITLS ,MARCH 2000, 
$224,466,692 
CIN: A-04-00-02165  REVIEW OF AL MEDICAID INTERGOVERNMENTAL TRANSFERS, MARCH 2001, 
$147,500,000 
CIN: A-04-00-02169  REV. AL M'CAID INTERGOV'TAL TRANSFERS-HOSPITAL ENHANCE, MAY 2001, 
$63,000,000 
CIN: A-01-99-00530  NATIONWIDE REV OF O/P PSYCH SVCS @ PSYCH HOSPITALS, DECEMBER 2000, 
$56,936,287 
CIN: A -07-98-02534  EMPIRE BC/BS PENSION PLAN TERMINATION, MARCH 2000, $38,626,351 
CIN: A-02-01-67912  STATE OF NEW YORK ,MARCH 2001, $19,000,000 
CIN: A-04-97-00109  EMERGENCY ASSISTANCE CLAIMS - NC, JULY 1998,$13,000,000 
CIN: A-01-99-00506  FOLLOW-UP REVIEW OF SEPRTLY BILLABLE ESRD LAB TESTS, JANUARY 2001, 
$12,200,000 
CIN: A-06-99-00060  REVIEW OF AN HMO UNDERPAYMENT CLAIM OF 21 MILLION, JUNE 2001, $12,191,579 
CIN: A-01-00-00502  REV OF EXORBITANT MEDICARE PMTS FOR O/P SVCS, MAY 2001, $12,100,000 
CIN: A-03-91-00552  INDEPENDENT LIVING PROGRAM -- NATIONAL, MARCH 1993, $10,161,742 
CIN: A-07-96-01177  MEDICARE POST RETIREMENT CLAIM BC MICH, NOVEMBER1996, $8,978,998 
CIN: A-03-00-00007  REVIEW OF 1-DAY DISCHARGES--PA.,APRIL 2001, $6,300,000 
CIN: A-01-97-02506  REVIEW OF THE AVAIL OF MEDICAL COVERAGE/CSE SUPORT, JUNE 1998, $5,704,585 
CIN: A-04-98-01188  REVIEW ADMIN. COSTS @ M'CARE MANAGED RISK PLAN, AUGUST 1999, $2,559,357 
CIN: A-09-95-00095  HEALTH SERVICES ADVISORY GROUP, INC (HSAG), DECEMBER 1995, $1,389,723 
CIN: A-07-99-01298  DATE OF DEATH - 2,MAY 2001, $700,000 
CIN: A-03-00-00001  0PS GEISINGER HMO/INSTITUTIONAL STATUS/MEDICARE, JANUARY 2001, $306,269 
CIN: A-05-01-00074  REVIEW OF BID PROPOSAL RFP HCFA-01-0003, JUNE 2001, $282,049 
CIN: A-03-99-00038  EDGEWATER PSYC HOSPITAL, MARCH 2001, $208,731 
CIN: A-07-97-01230  FMQ - DOSHI OKLAHOMA, JUNE 1997, $203,510 
CIN: A-07-97-01231  PROWEST-DOSHI WASHINGTON, JUNE 1997, $163,552 
CIN: A-02-96-02001  INTERNATIONAL RESCUE COMMITTEE - REFUGEE PROGRAM, JANUARY 1998, 
$90,528 
CIN: A-07-97-01232  PROWEST - DOSHI ALASKA, JUNE 1997, $21,218 
CIN: A-09-00-60029  COCOPAH INDIAN TRIBE, DECEMBER 1999, $20,830 
CIN: A-05-96-00069  CPA AUDIT OF HOOPER HOLMES HHA G&A -OI CASE OPEN, FEBRUARY 1998, $17,555 
CIN: A-07-95-01164  MEDICARE ADMIN COSTS - GENERAL AMERICAN,DECEMBER1995, $16,632 
CIN: A-01-97-00526  PSYCHIATRIC OUTPATIENT SERVICES, MARCH 1998, $7,245 
CIN: A-01-98-00506  PSYCHIATRIC OUTPATIENT AT NEWTON-WELLESLEY HOSPITAL, MARCH 1998, 
$1,120 
84
 Appendix E

Reporting Requirements of the Inspector General Act of 1978, as Amended

The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed 
below with reference to the page in the semiannual report on which each of them is addressed. Where 
there are no data to report under a particular requirement, this is indicated as none. A complete listing 
of audit and inspection reports is being furnished to the Congress under separate cover. Copies are 
available upon request. 
Section of the Act  Requirement  Page 
Section 4(a)(2)  Review of legislation and regulations  60

Section 5 
(a)(1)  Significant problems, abuses and deficiencies  Throughout

(a)(2)  Recommendations with respect to significant problems, 
abuses and deficiencies  Throughout

(a)(3)  Prior significant recommendations on which corrective 
action has not been completed  Appendices B & C

(a)(4)  Matters referred to prosecutive authorities  61

(a)(5)  Summary of instances where information was refused  None

(a)(6)  List of audit reports  Under separate cover

(a)(7)  Summary of significant reports  Throughout

(a)(8)  Statistical Table 1Reports With Questioned Costs  58

(a)(9)  Statistical Table 2Reports With Recommendations 
That Funds Be Put to Better Use  59

(a)(10)  Summary of previous audit reports without management 
decisions  Appendix D

(a)(11)  Description and explanation of revised management 
decisions  Appendix D

(a)(12)  Management decisions with which the Inspector 
General is in disagreement  None

85
 86
 Appendix F

Statutory and Administrative Responsibilities

The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for 
semiannual reports to be made to the Secretary for transmittal to the Congress. A selection of other statutory and 
administrative reporting and enforcement responsibilities and authorities are listed below: 
Audit and Management Review Responsibilities and Office of Management and Budget Circulars 
P.L.  96-304  Supplemental Appropriations and Rescissions Act of 1980

P.L.  96-510  Comprehensive Environmental Response, Compensation and Liability Act

P.L.  97-255  Federal Managers Financial Integrity Act

P.L.  97-365  Debt Collection Act of 1982

P.L.  99-499  Superfund Amendments and Reauthorization Act of 1986

P.L. 101-576  Chief Financial Officers Act of 1990

P.L. 102-486  Energy Policy Act of 1992

P.L. 103-62  Government Performance and Results Act of 1993

P.L. 103-355  Federal Acquisition Streamlining Act of 1994

P.L. 103-356  Government Management Reform Act of 1994

P.L. 104-156  Single Audit Act Amendments of 1996

P.L. 104-191  Health Insurance Portability and Accountability Act of 1996

P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996

P.L. 104-208  Federal Financial Management Improvement Act of 1996

P.L. 106-398  Government Information Security Reform Act

P.L. 106-554  Report on Federal Agencies Monitoring of Personal Information Through Cookies

P.L. 106-554  Report on Water/Sewer Services Provided by the District of Columbia

Office of Management and Budget Circulars 
A- 21  Cost Principles for Educational Institutions 
A- 25  User Charges 
A- 50  Audit Follow-up 
A- 76  Performance of Commercial Activities 
A- 87  Cost Principles for State, Local and Indian Tribal Governments 
A-102  Grants and Cooperative Agreements with State and Local Governments 
A-110  Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations 
A-122  Cost Principles for Nonprofit Organizations 
A-123  Management Accountability and Control 
A-127  Financial Management Systems 
A-129  Policies for Federal Credit Programs and Non-Tax Receivables 
A-133  Audits of States, Local Governments and Non-Profit Organizations 
A-134  Financial Accounting Principles and Standards 
General Accounting Office Government Auditing Standards 
Criminal and Civil Investigative Authorities 
Criminal investigative authorities include: 
Title 5, United States Code, section 552a(i) 
Title 18, United States Code, sections on crime and criminal procedures as they pertain to OIGs oversight 
of departmental programs and employee misconduct 
Title 42, United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-56, 707, 1320a-7b, the Social 
Security and Public Health Service Acts 
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as 
those at: 
Title 31, United States Code, sections 3729-3733, (the False Claims Act) and 3801-3812 (the Program 
Fraud Civil Remedies Act) 
Title 42, United States Code, sections 1320a-7, 1320a-7a (Civil Monetary Penalties Law), 1320b-10, 
1320c-5, 1395l, 1395m, 1395u, 1395dd (Patient Anti-Dumping statute) and 1396b 
87
 88
 Office of Inspector General Components

Office of Audit Services (OAS)provides all auditing services for HHS, either through its 
own resources or by overseeing audit work of 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 in order to 
reduce waste, abuse and mismanagement and to promote economy and efficiency throughout 
the Department. 
Office of Counsel to the Inspector General (OCIG)provides legal services to OIG, rendering 
advice and opinions on HHS programs and operations, imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within the Department. 
The OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, and renders advisory opinions on sanctions to the health care community. 
Office of Evaluation & Inspections (OEI)conducts short-term management and program 
evaluations that focus on issues of concern to the Department, the Congress and the public. 
The OEI generally focuses on programs with significant expenditures of funds and services to 
program beneficiaries or in which important management issues have surfaced.  The findings 
and recommendations contained in the reports generate rapid, accurate, and up-to-date 
information on the efficiency, vulnerability and effectiveness of departmental programs. 
Office of Investigations (OI)conducts criminal, civil and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 
by providers. Investigative efforts lead to criminal convictions, administrative sanctions or civil 
monetary penalties. The OI serves as liaison to the Department of Justice on all matters relating 
to investigations of HHS programs and personnel. The OI also oversees state Medicaid Fraud 
Control Units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
Office of Management and Policy (OMP)provides mission support services to the IG 
and other components.  The OMP formulates and executes the budget, develops policy, 
disseminates OIG information to the news media and public, liaises with the Department, 
Congress and external organizations, and manages information technology resources. 
The OMP also conducts and coordinates reviews of existing and proposed legislation and 
regulations to assess implications and economic consequences for HHS programs and 
operations.  oig_cover.qxd  5/28/2002  1:05 PM  Page 1
U.S. Department of Health and  O
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Semiannual
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Working with Others to Promote, Preserve &
Protect the Nations Well-Being