Testimony Before the United States House of Representatives 
Committee on Energy and Commerce 
Subcommittee on Oversight and Investigations 
 
 
 
   
Medicare Part D:  Measures Needed To Strengthen  
Program Integrity  
 
  Testimony of:   
 
  Ann Maxwell     
  Assistant Inspector General    
Office of Evaluation and Inspections 
Office of Inspector General  
Department of Health and Human Services 
 
 
 
 
July 14, 2015 
10 a.m. 
Rayburn House Office Building, Room 2322 
   
 
 
Testimony of: 
Ann Maxwell 
Assistant Inspector General for Evaluation and Inspections 
   Office of Inspector General, U.S. Department of Health and Human Services 
 
Good morning, Chairman Murphy, Ranking Member DeGette, and other Members of the 
Subcommittee.  I am Ann Maxwell, Assistant Inspector General for Evaluation and 
Inspections of the Office of Inspector General (OIG), U.S. Department of Health and Human 
Services (HHS).  Thank you for the opportunity to testify about fraud, waste, and abuse 
trends in the Medicare Part D Program and the status of our recommendations to address the 
underlying vulnerabilities of the program.  During my testimony, I will be drawing heavily 
from two OIG products, our portfolio report, Ensuring the Integrity of Medicare Part D 
(OEI-03-15-00180) and our data brief, Questionable Billing and Geographic Hotspots Point 
to Potential Fraud and Abuse in Medicare Part D (OEI-02-15-00190), both of which were 
issued in June 2015.  With your permission, Mr. Chairman, I would like to submit both of 
those reports for the record.   
 
OIG has made stopping Part D fraud a top priority.  With over 39 million Americans 
depending on the program for their prescription drugs costing over $120 billion a year, OIG 
finds it imperative to take a comprehensive approach to combat Part D fraud.     
 
I will first describe our investigative efforts and analysis of potential fraud indicators to 
describe the scale of the fraud challenge in Part D.  While we understand that enforcement is 
an important tool in addressing fraud in Part D, it cannot address the systemic changes that 
the Centers for Medicare & Medicaid Services (CMS) needs to make to protect the integrity 
of the program.  In this vein, I will then provide an overview of the unimplemented 
recommendations OIG has made to CMS that if implemented, would significantly increase 
CMSs ability to improve the Part D programs effectiveness and protect its beneficiaries. I 
will close by suggesting action that would improve program integrity. 
THE MEDICARE PART D PROGRAM IS VULNERABLE TO FRAUD 
In June 2015, OIG deployed more than 300 special agents and forensic specialists, alongside 
hundreds of other law enforcement personnel, to execute arrest and search warrants across 
the country.  It was the largest national health care fraud takedown to date and resulted in 
more than 240 subjects being charged with defrauding the Medicare and Medicaid programs 
involving over $700 million in false billings.  Much of the fraud involved prescription drugs 
and those charged included doctors, pharmacy owners, and others.  Twenty-eight individuals  
 
 
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from South Florida alone were charged with Part D fraud totaling more than $38 million in 
Medicare overpayments.  
 
This takedown put into sharp focus the threat that fraud schemes pose to the Part D program.  
These schemes increasingly involve criminal networks, which have become a pervasive 
problem in health care fraud.  Schemes include billing for drugs that are not dispensed, 
illegal dispensing of expired or adulterated drugs, doctor shopping, and drug diversion when 
a prescription drug is redirected for an illegal purpose, such as recreational use or resale.  For 
example, two individuals arrested in the June takedown in South Florida allegedly sold 
diverted prescription drugs worth a total of approximately $200,000 to undercover agents on 
three separate occasions.  The diversion of controlled substances, such as opioids, is of 
particular concern due to its severe health risk and potential for abuse.  However, we are also 
concerned with the diversion of noncontrolled substances, such as HIV and antipsychotic 
medications, as these drugs are becoming more common in fraud schemes.  Fraud related to 
these drugs can harm beneficiaries and present a significant financial loss to Medicare.   
 
OIG pursues such fraud cases through coordinated Federal and State enforcement efforts, 
including the Medicare Fraud Strike Force teams.  During the last three years (FY 
20122014), OIGs Part D investigations resulted in 339 criminal actions, 31 civil actions, 
and over $720 million in investigative receivables.  Yet, as successful as these enforcement 
efforts have been, they alone do not solve the problem of prescription drug fraud.  
Vulnerabilities still exist in the Part D program, where spending has risen sharply, 
pharmacies practice questionable billing, and hotspots for noncontrolled substances have 
developed.   
 
Medicare spending for Part D drugs has more than doubled since 2006, and spending for 
commonly abused opioids has grown even faster.   
Spending for Part D drugs represents the amount that the Government, beneficiaries, and 
plan sponsors paid to pharmacies for drugs.  From 2006 to 2014, spending for Part D drugs 
increased by 136 percent, from $51.3 billion to $121.1 billion.  Over the same time, spending 
for commonly abused opioids grew from $1.5 billion to $3.9 billion, an increase of 156 
percent.  These drugs are narcotics intended to manage pain from surgery, injury, and illness.  
They can create a euphoric effect, which in turn makes them very vulnerable to abuse.   
 
The increase in spending for commonly abused opioids appears to have been driven by an 
increase both in the number of beneficiaries receiving these opioids and in the average 
number of prescriptions per beneficiary.  Both of these numbers have increased more rapidly 
for commonly abused opioids than for all drugs.   
 
 
 
 
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More than 1,400 pharmacies had questionable billing for Part D drugs in 2014, raising 
concerns about fraud and abuse.   
When OIG examined pharmacy billing patterns to look for questionable billing that might be 
an indicator of fraud, we identified 1,432 retail pharmacies that had questionable billing.  
Together these pharmacies billed $2.3 billion to Part D in 2014.  These pharmacies each 
billed excessively high amounts for at least one of the five questionable billing measures we 
reviewed.  Although some of this billing may be legitimate, all pharmacies that bill 
extremely high amounts warrant further scrutiny.  Examples of measures and associated 
questionable billing in 2014 are described below.   
 
  A total of 468 pharmacies billed for commonly abused opioids in an extremely high 
percentage of their prescriptions.  This may indicate that a pharmacy is billing for 
medically unnecessary drugs that may be used inappropriately or diverted and resold for 
a profit.  Each of the pharmacies we identified billed for commonly abused opioids in at 
least 17 percent of its Part D prescriptionsnearly three times the national average. 
 
  A total of 216 pharmacies billed for beneficiaries who had an unusually high number of 
prescribers for commonly abused opioids.  This may indicate that the beneficiaries have 
been doctor shopping for the purpose of inappropriately obtaining prescriptions.  These 
pharmacies billed for beneficiaries who, on average, had at least four prescribers for 
commonly abused opioids.  In comparison, the national average was two prescribers per 
beneficiary for these drugs.   
 
  A total of 314 pharmacies billed for a high number of different types of drugs, per 
beneficiary, which may indicate that a pharmacy is billing for drugs that were not 
provided or that were provided, but were medically unnecessary.  Each of these 
pharmacies billed, on average, for more than 12 different types of drugs for each 
beneficiary in 2014.  This was double the national average.     
 
Geographic hotspots for certain drugs point to possible fraud and abuse.   
OIG also identified a number of metropolitan areas where average Medicare payments per 
beneficiary for certain drugs was significantly higher than the average payments nationwide.  
We focused this analysis on noncontrolled substances because fraud related to these drugs is 
becoming more common and can present a substantial financial loss to Medicare and pose 
the danger of patients taking improperly prescribed medications.  Although medical need 
and prescriber practices may vary across different areas of the country, the patterns in these 
hotspots warrant further scrutiny, as they may indicate fraud and abuse.  Selected hotpots 
include:  
 
  In the San Juan area in Puerto Rico, the billing for diclofenac potassium, a generic anti-
inflammatory used for conditions such as rheumatoid arthritis and osteoarthritis, was 31 
 
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times higher than the national average.  Almost one-third of all Medicare spending for 
diclofenac potassium was in this one hotspot. 
 
  In  the New York area, billing for Solaraze, a brand-name topical ointment used to treat a 
skin condition in which lesions form as a result of sun damage, were almost nine times 
the national average.  Half of all Part D spending for this drug, for which there is a less 
expensive generic equivalent, was in this one hotspot. 
 
  In the McAllen area in Texas, 17 percent (more than four times the national average) of 
beneficiaries received the prescription version of Nexium, used to treat conditions such 
as gastroesophageal reflux disease.  Medicare paid $20 million for Nexium in this 
hotspot, even though there is an over-the-counter version available. 
 
These billing patterns raise questions about whether the drugs were medically necessary or 
were even provided to beneficiaries in the first place.  Also, because some of the drugs are 
available as generics or over the counter, there are questions about whether pharmacies are 
billing for the higher priced brand-name drug while providing a less expensive drug.  
CHANGES CMS CAN MAKE TO PROTECT THE INTEGRITY OF THE MEDICARE 
PART D PROGRAM  
Since Part D went into effect, OIG has raised concerns about oversight and made a number 
of recommendations to CMS to better safeguard the program and protect beneficiaries.  CMS 
has made some progress.  However, CMS, its National Benefit Integrity Medicare Drug 
Integrity Contractor (MEDIC), and Part D plan sponsors all need to do more to protect the 
Medicare Part D Program.  OIG recommendations center around two themes:  (1) leveraging 
Part D data to identify vulnerabilities and (2) employing additional tools to enhance the 
oversight of the Part D Program.  Our Part D Portfolio, which we have submitted for the 
record, goes into each of the unimplemented recommendations in detail.       
 
CMS Needs To Do More To Leverage Part D Data To Identify Vulnerabilities.  
The availability and proactive use of data are essential to identify and address program 
vulnerabilities, identify providers with questionable billing, and meaningfully target program 
integrity resources to the areas of greatest vulnerability.  A program as expansive as Part D 
requires the sophisticated use of data to maintain the visibility and vigilance necessary to 
uncover, address, and prevent fraud.  CMS has taken steps to improve data coordination 
among the key players tasked with safeguarding Part D.  Specifically, CMS has begun 
sharing plan sponsors voluntarily reported fraud data with the MEDIC.  In addition, CMS 
and the MEDIC developed a Pharmacy Risk Assessment tool and distributed it to plan 
sponsors to use in conducting additional analysis.  However, much remains to be done.  For 
example: 
 
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Increased use of data should include collecting and analyzing data necessary to hold plan 
sponsors accountable.  Plan sponsors are the private insurance companies responsible for 
administering the program and the programs first line of defense against fraud and abuse.  
However, CMS does not require plan sponsors to report the number of instances of potential 
fraud, waste, and abuse they identify, nor the actions they took to address them.  In lieu of a 
requirement, CMS established a mechanism for plan sponsors to voluntarily report data to 
CMS.  But less than half of Part D plan sponsors did so between 2010 and 2012.  Without 
this information from plan sponsors, it is impossible for CMS to review the effectiveness of 
plan sponsors fraud detection programs.     
 
Increased use of data should also involve making better use of the data already collected.     
We recommend that CMS and plan sponsors monitor beneficiary utilization for a wider 
range of drugs susceptible to abuse than they currently do.  In particular, we recommend 
expanding sponsors and CMSs drug utilization review to cover certain noncontrolled 
substances, such as HIV and antipsychotic medications.   
 
Additionally, while the MEDIC is CMSs key program integrity contractor for Part D and is 
required to investigate potential fraud and abuse, OIG found that the MEDIC used proactive 
data analysis to initiate only a small percentage of investigations and case referrals, and 
instead relied on external sources to identify most incidents of potential fraud and abuse.  
Although the percentage of the MEDICs investigations initiated from proactive analysis has 
increased over the years, it still remains around 10 percenta rather small percentage. 
 
CMS Needs To Employ Additional Measures to Enhance Its Monitoring of Fraud, Waste, 
and Abuse In Part D. 
Each entity involved in Part D has a role in detecting and preventing fraud, waste, and abuse.  
Plan sponsors have the primary responsibility for reviewing and paying claims.  As such, 
they must have adequate controls in place to prevent improper payments.  CMS, in turn, 
must exercise proper oversight of both the plan sponsors and the MEDIC to ensure that those 
entities are working to reduce the programs vulnerability to fraud, waste, and abuse. 
 
Recently, CMS has implemented measures to bolster its monitoring and oversight of 
providers in Part D.  For example, CMS provided the MEDIC with the authority to request 
and collect information that it needs to investigate potential fraud directly from pharmacies 
and other entities.  CMS now requires plan sponsors to verify that prescribers have the 
authority to prescribe drugs and that claims contain valid prescriber identifiers.  CMS 
recouped some payments made after beneficiaries deaths.  It also provided data to plan 
sponsors to help them identify claims associated with excluded providers.  In addition, CMS 
expanded its guidance regarding the proper billing of Schedule II drugs, and plan sponsors  
 
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have reported strengthening their controls for these drugs.  But, again, more remains to be 
done. 
CMS, the MEDIC, and plan sponsors need to strengthen program oversight by employing 
additional tools.  Our work has shown that the current approach to oversight is not sufficient 
to protect Part D.  There are four key areas where we recommend further action.      
Strengthen controls to prevent payments for drugs not covered by Part D, such as payments 
to providers who are excluded from Federal health care programs.  OIG has found that plan 
sponsors do not have adequate controls to prevent improper payments.  OIG has found that 
plan sponsors processes have sometimes compromised their ability to detect, correct, and 
prevent fraud, waste, and abuse.  CMS has not exercised sufficient oversight of plan 
sponsors to prevent improper payments, such as payment for drugs that are not covered by 
Part D.  For instance, OIG has found that appropriate controls were not in place to prevent 
Part D payments for drugs prescribed by providers excluded from Federal health care 
programs.  It is important that claims for drugs prescribed by excluded providers be denied 
to protect beneficiaries from inappropriate or even harmful services.   
Conduct a more robust oversight of plan sponsors compliance programs. Plan sponsor 
compliance programs provide the roadmap for sponsors efforts to prevent and detect fraud, 
waste, and abuse.  They outline the protections the plan sponsor will put in place.  However, 
OIG has identified weaknesses in CMSs oversight of plan sponsors implementation of 
compliance programs.  Rectifying these weaknesses would lead to stronger and more 
consistent prevention measures to avoid fraud, waste, and abuse at the very beginning of the 
Part D payment process.  For these reasons, CMS should provide additional oversight of plan 
sponsors to ensure effective implementation of compliance programs, one of the primary 
tools for Part D program integrity. 
CMS needs a mechanism that would allow it to recover inappropriate payments in cases that 
have been declined by law enforcement agencies.  The MEDIC currently does not have 
administrative authority to recommend recoupment of payments associated with 
inappropriate services.  When law enforcement agencies do not accept MEDIC cases for 
further action, the MEDIC simply closes these cases because there are no established 
procedures to recommend recoupment of inappropriate payments.    
The law should be changed to more effectively deal with beneficiaries who may be abusing 
the program or inflicting harm on themselves by overutilizing drugs.  OIG investigations 
have found that Part D beneficiaries can be both victims and perpetrators of fraud.   
Beneficiaries can be harmed by overprescribing.  On the other hand, some of the fraud trends 
prevalent in Part D involve beneficiaries who act as complicit patients.  For example, in one 
investigation, the complicit beneficiary received unnecessary prescriptions, filled them at 
various pharmacies, and sold the pills to drug-trafficking organizations.  This could be 
addressed by restricting beneficiaries to a limited number of pharmacists or prescribers when 
 
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warranted.  This is commonly referred to as lock-in and has been successfully 
implemented by State Medicaid programs.  However, CMS has stated that it would require 
legislative authority to implement these restrictions.  
CONCLUSION 
As the agency charged with administering and overseeing Part D, CMS is responsible for 
improving the programs effectiveness and protecting its beneficiaries.  To protect the 
integrity of Part D, CMS should take action on OIGs unimplemented recommendations.  
OIG believes that CMS should employ all the tools at its disposal.  CMS needs to more 
effectively collect and analyze program data to proactively identify and resolve program 
vulnerabilities and prevent fraud, waste, and abuse before it occurs.  CMS also needs to 
implement a robust oversight plan designed to ensure proper payments, prevent fraud, and 
protect beneficiaries.   
As the Part D program continues to evolve and new fraud schemes emerge, OIG will 
continue to investigate fraud and offer recommendations to improve oversight and establish 
new methods for early detection and prevention of fraud, waste, and abuse.   
 
Thank you again for inviting me to speak with the committee today to share the results of 
OIGs audits, evaluations, and investigations on Part D.  I would be happy to answer any 
questions the committee may have. 
 
 
 
 
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