Department  of  Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
SUMMARY  OF  OIG ACTIVITIES  ON 
MEDICAID 
JmIE  1993  OFFICE OF INSPE(XOR  GENERAL 
The  mission of the  Office of Inspector  General  (OIG),  as mandated  by Public  Law 95-452, as 
amended,  is to protect  the  integrity  of the Department  of Health  and Human  Services (HHS) 
programs  as well as the  health  and welfare  of beneficiaries  served  by those  programs.  This 
statutory  mission  is carried  out  through  a nationwide  network  of audits,  investigations,  and 
inspections  conducted  by three  OIG  operating  components:  the  Office of Audit  Services,  the 
Office of Investigations,  and the  Office of Evaluation  and Inspections.  The  OIG  also informs 
the  Secretary  of HHS  of program,  and management  problems,  and recommends  courses  to 
correct  them. 
OFFICE OF AUDIT  SERVICES 
The  OIGS Office of Audit  Services  (OAS)  provides  all auditing  services for HHS,  either  by 
conducting  audits with its own audit  resources  or by overseeing  audit work done  by others. 
Audits  examine  the  performance  of HHS  programs  and/or  its grantees  and contractors  in 
carrying out  their  respective  responsibilities  and are intended  to provide  independent 
assessments  of HHS  programs  and operations  in order  to reduce  waste,  abuse,  and 
mismanagement  and to promote  economy  and efficiency throughout  the  Department. 
OFFICE OF INVESTIGATIONS 
The  OIGS Office of Investigations  (01)  conducts  criminal,  civil, and administrative 
investigations  of allegations  of wrongdoing  in HHS  programs  or to HHS  beneficiaries  and of 
unjust  enrichment  by providers.  The  investigative  efforts  of 01  lead to criminal  convictions, 
administrative  sanctions,  or civil money  penalties.  The  01  also oversees  State  Medicaid  fraud 
control  units which investigate  and prosecute  fraud  and patient  abuse  in the Medicaid  program. 
OFFICE OF EVALUATION  AND  INSPECTIONS 
The  OIGS Office of Evaluation  and Inspections  (OEI)  conducts  short-term  management  and 
program  evaluations  (called  inspections)  that  focus on issues of concern  to the  Department, 
the  Congress,  and the  public.  The  findings  and recommendations  contained  in these  inspection 
reports  generate  rapid,  accurate,  and up-to-date  information  on the efficiency, vulnerability, 
and effectiveness  of departmental  programs.  Department  of  Health and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
SUMMARY  OF  OIG  ACTIVITIES  ON 
MEDICAID 
I  JUNE  1993  OEI-12-92-00550 
L  EXECUTIVE  SUMMARY

PURPOSE 
This  report  consolidates  information  obtained  during  the  course  of Office  of Inspector 
General  (OIG)  reviews  of the  Medicaid  program  and  offers  solutions  to long  standing 
problems.  This  is not  an assessment  of the  Health  Care  Financing  Administrations 
(HCFA)  effectiveness  in managing  Medicaid.  We  focus  on problems  that  have  not 
been  resolved.  Apolicpakers  consider  ways toreform  thehealth  care  system, 
lessons  drawn  from  the  Medicaid  program  can be  instructive. 
BACKGROUND 
The  Medicaid  program  is the  major  vehicle  through  which  the  Federal  and  State 
governments  provide  health  care  to low income  persons  and  long term  care  to the 
disabled  and  low income  elderly. 
In Fiscal  Year  (FY)  1991,28.2million  Medicaid  beneficiaries  were  eligible  for 
services.  Thirteen  million  of those  were  children;  another  6.8 million  were  their 
parents.  While  the  nonelderly  poor  comprise  the  great  majority  of Medicaid 
beneficiaries,  they  use  proportionately  far fewer  of Medicaids  dollars  than  the  3.4 
million  elderly  beneficiaries  or the  4.1 million  blind  or disabled  beneficiaries.  In 
reality,  a few beneficiaries  requiring  intensive  services  consume  most  of the  dollars 
spent  by the  Medicaid  program.  Elderly  persons  receiving  long term  care  represent  6 
percent  of beneficiaries,  using 30 percent  of program  spending.  Nonelderly  disabled 
persons  represent  15 percent  of Medicaid  beneficiaries,  using 38 percent  of program 
spending.  Of $76.9 billion  in vendor  payments  made  in fiscal year  1991, 28 percent 
went  to hospitals  for inpatient  services,  27 percent  went  to nursing  facilities,  and  10 
percent  went  for intermediate  care  services  for the  mentally  retarded. 
ISSUES 
The Medicaid program must successjidly implement major new legiriktion tzrpanding 
eli~ility  for SWCW and imp~emenhngcost containment measures, such  as service 
expansions  for pregnant  women  and  children. 
l%e Medicaid program must aggressive~ identfj  pdicim  which are outdated and waste 
precious rerounxr,  such  as overly generous  payments  to institutions  for mentally 
retarded  persons  and  enhanced  Federal  matching  for family  planning  services. 
%  Medicaid program must identijj new stratqer  to rruuimke & health care dolhm, 
such as managed  care  and  cost sharing. 
States must ensure that paymenti  made to providers are fair while reducing admhuktrative 
burdens, through  operational  changes  to ensure  claims  are  accurate  and  overpayments 
i  are  recovered,  scrutiny  of payment  rates  which might  be too  generous  to some 
providers  and  too  skimpy  to others,  aggressive  pursuit  of third  party  liability,  review  of 
claims  to ensure  services  are  medically  necessary,  and  more  extensive  use  of electronic 
claims,  review  and  payment. 
l%e Jkiicaid  program must ensure that long term care expenditures, which account for a 
huge proportion  of Medicaid outkzys, are managed wke&, through  tighter  limits  on 
transfers  of assets  and  tougher  asset  recovery  laws. 
The Medicaid program must ensure that qualiq  of care is berng delivered to beneficiaries, 
including  effective  implementation  of new rules  for nursing  homes,  development  of an 
effective  system  of quality  assurance  for Medicaid  managed  care  settings,  and 
implemention  of new rules  for review  of drug  use. 
lhe Medicaid program must electively  protect  i~e~fiom  jiaud  and abuse, taking  full 
advantage  of Medicaid  Fraud  Control  Units,  identifying  questionable  patterns  of care 
and  billings,  and  designing  strategies  to prevent  fraud. 
Final&, Federal and State relikions must be improved, thus  avoiding  unconstructive 
attempts  by the  Federal  government  to save money  or accomplish  its objectives  at the 
expense  of States  and  unproductive  attempts  by the  States  to increase  the  amount  of 
Federal  funds  they  receive  without  instituting  real  changes  in their  own programs. 
RECOMMENDATIONS 
As discussed  in this report,  the  problems  and  challenges  facing  the  Medicaid  program 
are  substantial.  We  are  aware,  of course,  that  many  policymakers  are  arguing  for  a 
fundamental  restructuring  or elimination  of the  Medicaid  program.  During  the  course 
of our  audits,  inspections,  and  investigations  in the  Medicaid  program,  we have  made 
numerous  specific  recommendations  for change.  Many  of these  recommendations 
have  been  accepted  by the  Health  Care  Financing  Administration  and  some  have  not. 
Some  require  legislative  changes;  others  require  action  by the  States. 
All significant  unimplemented  OIG  recommendations  are  included  in one  of two 
documents,  The  Office  of Inspector  General  Cost-Saver  Handbook  (the  Red  Book)  is 
a compendium  of OIG  recommendations  to reduce  unnecessary  spending  by the 
Department  through  administrative  or regulatory  change,  or by the  Congress  and 
Administration  through  legislative  change.  The  Office  of Inspector  General  Program 
and  Management  Improvement  Handbook  (Orange  Book)  contains  recommendations 
for  strengthening  program  and  management  efficiency  and  effectiveness.  For  our 
readers  convenience,  we have  reproduced  our listing  of recommendations  to improve 
the  Medicaid  program  in the  appendices  to this report. 
We  are  pleased  to see that  the  Administration  supports  our  recommendations  for 
extending  the  ban  on self-referral,  for lifting the  ban  on drug  formularies,  and  for 
tightening  loopholes  on transfers  of assets  and  strengthening  asset  recovery  laws. 
ii  TABLE  OF  CONTENTS

EXECUTIVE  SUMMARY

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1

ISSUES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4

Implementing  Major  Newkgislation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4

Identi~ing  Outdated  Policies.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...7

Identifying  New Strategies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8

Ensuring  Fair  Payments  and  Reducing  Burdens  . . . . . . . . . . . . . . . . . . . . . . .  10

Managing  LongTerm  Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...14

Ensuring  QualityofCare  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...15

Guarding  Against  Fraud  and  Abuse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...16

Improving  Federal-State  Relations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...18

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...20

Appendix  A.  Unimplemented  OIG  Recommendations:  Cost  Savers

Appendix  B.  Unimplemented  OIG  Recommendations:  Program  Improvements

Appendix  C.  Endnotes
 INTRODUCTION

PURPOSE 
This report  consolidates  information  obtained  during  the  course  of Office  of Inspector 
General  (OIG)  reviews  of the  Medicaid  program  and  offers  solutions  to longstanding 
problems.  This  is not  an assessment  of the  Health  Care  Financing  Administrations 
(HCFA)effectiveness  inmanaging  Medicaid.  We  focus  onproblems  thathave  not 
been  resolved.  As policymakers  consider  waysto  reform  the  health  care  system,
. 
lessons  drawn  from  the  Medicaid  program  can be  instructive. 
BACKGROUND 
The  Medicaid  program  is the  major  vehicle  through  which  the  Federal  and  State 
governments  provide  health  care  tolow  income  persons  and  long term  careto  the 
disabled  and  low income  elderly.  Persons  receiving  grants  from  the  Aid to Families 
with Dependent  Children  (AFDC)  program,  and  the  aged,  blind  or disabled  receiving 
cash  assistance  through  Supplemental  Security  Income  (SS1), are  categorically 
eligible  for Medicaid.  Asset  and  income  tests  are  also  applied.  States  can,  at their 
option,  expand  eligibility  under  Medicaid  to the  medically  needy,  those  who  are 
categorically  eligible  but  dont meet  the  income  and  asset  tests. 
In Fiscal  Year  (FY)  1991, 28.2 million  Medicaid  beneficiaries  were  eligible  for 
services.  Thirteen  million  of those  were  children;  another  6.8 million  were  their 
parents.  While  the  nonelderly  poor  comprise  the  great  majority  of Medicaid 
beneficiaries,  they  use proportionately  far fewer  of Medicaids  dollars  than  the  3.4 
million  elderly  beneficiaries  or the  4.1 million  blind  or disabled  beneficiaries.  In 
reality,  a few beneficiaries  requiring  intensive  services  consume  most  of the  dollars 
spent  by the  Medicaid  program.  Elderly  persons  receiving  long  term  care  represent  6 
percent  of beneficiaries,  using 30 percent  of program  spending.  Nonelderly  disabled 
persons  represent  15 percent  of Medicaid  beneficiaries,  using  38 percent  of program 
spending.  Of $76.9 billion  in vendor  payments  made  in fiscal year  1991, 28 percent 
went  to hospitals  for inpatient  services,  27 percent  went  to nursing  facilities,  and  10 
percent  went  for intermediate  care  services  for the  mentally  retarded. 
Administration of the Program 
States  administer  their  Medicaid  programs  within  broad  Federal  requirements  and 
guidelines.  These  requirements  allow States  considerable  discretion  in determining 
income  and  other  resource  criteria  for eligibility,  covered  benefits,  and  provider 
payment  mechanisms.  As a result,  Medicaid  programs  vary considerably  from  State  to 
State. 
Within  the  Federal  government,  the  Health  Care  Financing  Administration  is 
responsible  for reviewing  State  plans  for their  Medicaid  programs  and  approving 
1
 waivers  from  Federal  rules.  The  Medicaid  Bureau  was established  in order  to give 
proper  attention  to the  role  of the  Federal  government  in overseeing  States 
implementation  of Federal  requirements. 
I%ogram Cosk3 
The  Medicaid  program  is financed  jointly  with State  and  Federal  funds.  Federal 
contributions  vary from  State  to State  and  currently  range  from  50 percent  to 83 
percent  of program  medical  expenditures.  Administrative  costs  are  financed  at  other 
rates. 
Medicaid  is a major  source  of budget  pressures  for both  the  Federal  and  State 
governments.  Expenditures  have  grown  dramatically  in recent  years.  Total  Medicaid 
expenditures  were  $88 billion  in 1991, compared  to $38 billion  in 1988.  For  States, 
this means  that  Medicaid  threatens  to break  the  bank.  It is the  second  largest  or 
largest  State  budgetary  item  in most  States,  surpassed  only by education.  Some  States 
have  responded  by cutting  services  or limiting  eligibility.  The  pressures  that  are  placed 
on the  Federal  government  are  also serious.  If current  trends  continue,  Federal 
expenditures  for Medicaid  will match  Federal  expenditures  for Medicare  sometime 
around  1997.  The  Congressional  Budget  Office  projects  that  Medicaid  will represent 
seven  percent  of all Federal  spending  in 1996, compared  to three  percent  in  1990. 
Recent Initiatives 
In recent  years,  two competing  pressures  have  been  placed  upon  the  Medicaid 
program.  First,  the  program  has been  called  upon  to provide  more  services  or provide 
existing  services  to more  beneficiaries.  New Federal  mandates  were  placed  upon 
States  to expand  coverage  for pregnant  women  and  children.  At the  same  time,  the 
Federal  government  has called  upon  States  to reduce  their  costs. 
Because  of their  frustration  with the  programs  rising costs,  administrative 
requirements,  and  new mandates,  States  have  taken  action.  Some  States  have 
attempted  to implement  new  and  innovative  ways of providing  health  care  for their 
low-income  and  disabled  populations,  but  face  losing Federal  financial  support  if 
existing  Medicaid  rules  arent  waived.  Many  States  have  instituted  measures,  such  as 
provider  taxes,  to increase  the  amount  of the  Federal  match.  Other  States  weigh 
reducing  services  or limiting  eligibility to portions  of their  Medicaid  populations. 
Role of the OjJice of Ihspector General 
The  OIGS mandate  is to protect  the  integrity  of the  United  States  Department  of 
Health  and  Human  Services  (DHHS)  programs  and  the  beneficiaries  of those 
programs  by reducing  fraud,  waste  and  abuse  and  by promoting  the  effectiveness  and 
efficiency  of the  departments  programs. 
2
 The  OIG  accomplishes  its mission  through  a series  of audits,  evaluations  (inspections) 
of program  operations,  and  investigations  of possible  civil or criminal  violations.  The 
OIG  also reviews  all regulatory  and  legislative  proposals  developed  by the  Department 
to assess their  effect  on fraud,  waste  and  abuse. 
Methodology 
The  issues presented  in this report  are  based  on the  inspection,  audit  and  investigative 
work  of the  OIG. 
Rather  than  present  findings,  as we normally  do, this report  describes  the  challenges 
facing  the  Medicaid  program.  We  describe  how program  managers  must  implement 
new requirements  successfully,  identi~  outdated  and  wasteful  policies,  identify  new 
strategies  to maximize  its health  care  dollars,  ensure  that  providers  are  paid  fairly 
while reducing  administrative  burdens,  ensure  that  long term  care  dollars  are  managed 
wisely, ensure  that  services  provided  are  of high quality,  protect  the  program  from 
fraud  and  abuse,  and  ensure  a constructive  relationship  between  the  Federal  and  State 
governments. 
3
 ISSUES

IMPLEMENTING  MAJOR  NEW  LEGISLATION 
The  Medicaid program  must successfully implement  major  new legislation expanding 
eligibility for services and implementing  cost containment  measures. 
	 HCFA  and the States must succewjidly implement program expansions for 
pregnant women and chikken. 
Eligibility  levels for the  Medicaid  program  have  recently  been  extended  beyond  the 
traditional  welfare populations  previously  served  by Medicaid.  Medicaid  programs 
must  now cover  all pregnancy  related  services  for pregnant  women,  and  medical 
services  for children  under  age  six, whose  income  exceeds  the  States  AFDC  income 
level but  is less than  133 percent  of the  Federal  poverty  level.  At their  option,  States 
can  receive  Federal  matching  for such sefices  provided  for pregnant  women  and 
children  up to  185 percent  of the  Federal  poverty  level.  By 2001, all children  under 
age  19 in families  living under  the  Federal  poverty  level must  be  covered  by Medicaid. 
Our  1992 report  on the  Medicaid  expansions  for pregnant  women  found  that  many 
States  have  endorsed  the  optional  eligibility  expansions,  with some  States  innovatively 
implementing  the  expansions.  However,  significant  problems  still prevent  newly 
eligible  women  from  receiving  prenatal  care.  These  problems  include  inadequate 
client  outreach,  cumbersome  application  processes,  insufficient  prenatal  providers, 
difficulties  with presumptive  eligibility,  staffing  shortages,  lack  of timeliness  in 
providing  information  and  training  for States  to implement  the  expansions,  and 
inadequate  data  collection  systems  and  evaluation  processes  to measure  progress  and 
outcomes.1  The  OIG  plans  periodic  reports  on States  efforts  in these  areas. 
	 HCFA  and the States must succemj%llyhnpkment  program e.rpansionsfor EPSDT 
inundated in OBRA  1989. 
OBRA  1989 enacted  major  changes  to the  Early  and  Periodic  Screening,  Diagnosis, 
and  Treatment  (EPSDT)  program,  which is the  mandatory  program  to provide 
comprehensive  health  services  to those  under  21.  Children  must  be  screened 
periodically  for health  and  developmental  problems.  If potential  problems  are  found, 
the  child must  be referred  for further  services  or treatment. 
OBRA  1989 instituted  new major  changes  to the  EPSDT  program.  Among  other 
things,  it required  HHS  to establish  goals for States  to meet  and  mandated  coverage 
of any service  found  to be necessary  as a result  of screenings. 
The  HHS  set a yearly  participation  goal for  each  State,  by the  end  of FY  1995, to 
screen  at least  80 percent  of EPSDT-eligible  children  and  to provide  at least  80 
percent  of screenings  recommended  for children.  States  report  on their  performance 
4
 to the  Federal  government.  An  OIG  inspection  completed  in August  1992 examined 
State  reports  from  the  period  April  1, 1990 to September  1, 1990.  We  found  that  the 
screening  and  participation  ratios  used  to measure  States  performance  in the  EPSDT 
program  are  essentially  inaccurate.  According  to their  own reporting,  some  States 
screen  more  than  100 percent  of eligible  children.  At  the  same  time  we conducted 
our  study, HCFA  had  formed  a task  group  to evaluate  the  EPSDT  reporting  system. 
We  recommended  that  HCFA  modify  the  methods  by which  it measures  screening  and 
participation  rates  so that  they  are  meaningful  and  accurate  reflections  of 
performance.2  The  HCFA  agreed  with  our  recommendations.  We  are  awaiting  final 
action  to implement  the  necessary  changes.  Once  these  changes  are  place,  it will be 
both  possible  and  important  to monitor  State  performance,  understand  why some 
States  may be  performing  better  than  others,  and  take  necessary  corrective  action  so 
that  all States  may reach  the  goals  set by OBRA. 
A second  major  change  under  OBRA  1989 is that  States  must  now pay for  any service 
that  is necessary  to treat  a condition  a screening  identifies,  whether  or not  the  State 
Medicaid  plan  covers  the  service  (as long  as the  service  is one  for which  Federal 
matching  payments  would  be  allowed).  In a future  study,  the  OIG  plans  to evaluate 
what  kinds  of treatments  are  being  provided  and  how referrals  for treatment  are  being 
made  under  the  EPSDT  program. 
b	 HCFA  and the States must succewfidly implement new programs designed to limit 
M2dicaid costi numdhted in OBRA 1990. 
OBRA  1990 included  provisions  for two new programs  designed  to control  Medicaid 
costs:  a rebate  program  for prescription  drugs,  and  a buy-in  provision  for private 
insurance  by Medicaid  for some  beneficiaries. 
Drug Rebate Rqyanz:  Though  an optional  service  (not  required  to be  provided  by 
Federal  rules),  nearly  all States  cover  prescription  drugs.  Due  to concerns  that  costs 
of prescription  drugs  for Medicaid  were  rising faster  than  both  the  non-medical  and 
medical  inflation  rate,  and  that  Medicaid  programs  were  paying  more  than  other 
purchasers  for such  drugs,  the  Congress  enacted  legislation  in OBRA  1990 requiring 
drug  manufacturers  to give rebates  to Medicaid  programs  as a condition  for 
participation  in Medicaid  payments  for their  drugs. 
Section  4401 of OBRA  1990 established  a detailed  process  for the  payment  of rebates 
under  Medicaid  by drug  manufacturers  to the  States  and  HCFA.  As a condition  for 
payment  by the  Medicaid  program  to pharmacies  for a manufacturers  drugs,  the  drug 
manufacturer  must  enter  into  a contractual  arrangement  with HHS  (acting  for the 
States),  whereby  the  manufacturer  will offer  rebates  to the  States  in exchange  for the 
States  agreeing  to cover  all of the  manufacturers  drugs  under  Medicaid  (the  law 
nearly  eliminated  the  use  of drug  formularies). 
The  rebates  are  calculated  using formulas  based  on manufacturer  pricing  data.  The 
law requires  manufacturers  to report  quarterly  to the  Secretary  on their  average 
5
 manufacturer  price  (AMP)  and  their  best price  for each  covered  drug  (the  lowest 
price  offered  to any buyer).  The  HCFA  provides  this information  to the  States. 
States  use  claims  data  to determine  the  total  number  of doses  of each  drug  dispensed 
in the  previous  quarter  and  the  pricing  data  provided  by the  manufacturers  through 
HCFA  to arrive  at a bill that  is submitted  to the  manufacturer.  This  bill represents 
the  difference  between  the  AMP  and  the  best  price,  multiplied  by the  number  of 
doses  paid  for by the  State  Medicaid  program. 
Since  the  laws inception  in January  1991, the  OIG  has been  actively  involved  in 
monitoring  the  implementation  of the  drug  rebate  program.  Certain  significant 
problems  have  been  identified,  including: 
F  Drug  manufacturers  are  increasing  the  best price  of Medicaid  covered  drugs? 
States  had  no procedures  to monitor  the  correct  identification  of either  the 
b	
drug  product  or number  of units  dispensed,  as reported  by pharmacists.4 
	 Drug  manufacturers  vary in the  methods  they  use to determine  AMP  and  the 
length  of time  records  should  be  retained.5 
	 HCFA  supplied  inaccurate  unit  rebate  data  to the  States  for  all new  drugs  that 
entered  the  market  during  the  first quarter  of 1991.6 
	 HCFA  supplied  pricing  data  to the  States  that  included  errors  in AMP,  base 
AMP,  and  best  price,  resulting  in unit  rebate  amounts  being  overstated.7 
HCFA  has hot  ensured  that  States  establish  adequate  accountability  and 
b	
control  over  the  drug  rebate  program.  Of $475 million  in rebates  billed  in 
1991, $111 million  remains  uncollected.8 
In addition  to concerns  regarding  the  implementation  of the  drug  rebate  program,  we 
are  also concerned  that  the  law may have  given away with the  left hand  what  it took 
with the  right when  it effectively  eliminated  formularies. 
In  1990, we studied  the  difference  between  Canadas  reimbursement  for  drugs  and 
costs of the  Medicaid  program.  We  estimated  that  the  Medicaid  program  paid  $474 
million  more  for name  brand  drugs  than  would  have  been  paid  by Canadian 
prescription  drug  programs.  Canadas  lower  prices  were  attributable  to negotiated 
price  reductions  between  the  drug manufacturers  and  provincial  government, 
Centrally,  the  Federal  government  (Ottawa)  sets prices  through  a price  control  board. 
Importantly,  provinces  can include  or exclude  drugs  in their  formularies  (lists of 
covered  drugs),  and  thus  can  decide  that  a given drug  is too  expensive  and  other 
options  are  available.9 
We  recommended  that  HCFA  address  rising  drug  costs by pursuing  strategies  to limit 
payments  for  drugs.  We  suggested  three  options:  drug  formularies  (which were 
6
 eliminated  by OBRA  1990), drug  price  limits,  and  negotiation  with manufacturers. 
Relying  solely on a rebate  program  as a form  of negotiation,  without  the  option  of 
deciding  what  youll pay for, reduces  the  amount  of cost savings available.  In the 
course  of our work  on the  drug  rebate  program,  we attributed  part  of over  $500 
million  in increased  drug  costs by the  Medicaid  program  to OBRA  1990s requirement 
that  States  open  drug  formularies.l 
Use of Employer Group Halth  Ilnu.rance:  Section  4402 of OBRA  1990 requires  States 
to purchase  (buy in) group  health  insurance  for Medicaid  clients  when  such purchases 
would  be  cost effective.  The  first step  in implementing  this mandate  is for States  to 
establish  methodologies  and  systems  for  determining  cost effectiveness.  Currently  only 
about  18 States  have  established  some  sort  of program.  Methodologies  for measuring 
cost effectiveness  (as a basis  for deciding  whether  to buy into  the  private  insurance 
plan)  include  diagnosis  or disease  based  systems,  demographically  determined  systems, 
or systems  which  include  both  approaches.  We  are  currently  gathering  details  on 
these  systems  and  the  savings they  have  generated  for States,  if any. 
IDENTIFYING  OUTDATED  POLICIES 
The  Medicaid  program  must aggressively identi& policies which are  outdated  and 
waste precious  resources. 
Over  time,  the  Medicaid  program  has instituted  policies  designed  to provide  financial 
incentives  for certain  types  of care,  to increase  the  quality  of care,  or to maintain  or 
improve  access  to care.  In light of the  scarce  resources  that  are  available  to the 
Medicaid  program,  the  continued  justification  for such policies  must  be  reviewed  once 
new information  suggests  a better  course  of action  or the  original  objectives  are  met. 
In this regard,  we would  point  to two examples:  reimbursement  policies  for State-
operated  intermediate  care  facilities  for the  mentally  retarded  (ICF/MRs);  and 
enhanced  Federal  financial  participation  (FFP)  for family planning  services. 
Reimbumement for State ICFMRK  At  one  time,  the  quality  of care  provided  to  most 
persons  suffering  from  mental  retardation  ranged  from  poor  to worse.  In response, 
public  financing  and  direct  provision  of care  to the  mentally  retarded,  often  in the 
form  of large  State-run  institutions,  became  quite  popular.  In  1971, the  Medicaid 
program  was amended  to provide  Federal  reimbursement  to States  for  caring  for 
people  with developmental  disabilities  living in institutions.  As a result  of public 
support  for these  institutions,  the  quality  of care  provided  to persons  who  are  mentally 
retarded  improved  quite  dramatically. 
Today,  however,  the  situation  is different.  The  preferred  setting  for treating  persons 
with developmental  disabilities  has  shifted  from  the  institutional  to community  based 
care.  A number  of studies  have  shown  that  clients  with developmental  disabilities 
make  better  progress  toward  independent  functioning  in community  rather  than 
institutional  settings.  Still, Medicaid  policies  favor  institutions  (the  amount  spent  on 
services  in the  community  cant exceed  the  amount  spent  in the  institutions)  and 
7  reimbursement  rules  for large  State  institutions  are  quite  generous.  Despite  the  policy

shift toward  community-based  treatment,  most  Federal  Medicaid  funds  for the

developmentally  disabled  continue  to be  spent  on large  ICF/MRs.

Although  Federal  rules  since  1980 require  that  reimbursement  to State-run  ICF/MRs

reflect  the  reasonable  costs of an efficiently  and  economically  operated  facility,  these

terms  are  not  defined  in regulation.  Each  State  has  considerable  discretion  in defining

these  terms  and  setting  ICF/MR  payment  methodology.

A 1993 inspection  conducted  by the  OIG  examined  payments  to large,  State-run

ICF/MRs.  We found  that  Medicaid  reimbursement  rates  for large  ICF/MRs  are  more

than  five times  greater  in some  states  than  in others.  Average  Medicaid

reimbursement  in  1991 for large  ICF/MRs  ranged  among  States  from  $27,000 to

$158,000 per  resident.  This variation  was unrelated  to the  patients  severity  of illness,

quality  of service,  facility  characteristics,  or resident  demographics.*1

We  have  recommended  that  HCFA  take  action  to reduce  excessive  spending  of

Medicaid  funds  for  ICF/MRs  through  administrative  action,  legislation  to control

ICF/MR  reimbursement,  or comprehensive  legislation  to restructure  Medicaid

reimbursement  for both  ICF/MR  and  Home  and  Community  Based  (HCB)  waiver

services  for people  with developmental  disabilities.  In addition  to saving wasted

dollars  (we estimate  that  $683 million  in Federal  and  State  Medicaid  funds  could  have

been  saved  in  1991 if costs were  capped  in ICF/MRs),  such new policies  would

provide  incentives  for community-based  care  rather  than  institutional  care.

Enhanced FFP for Fan@  Pkmning Servkex  States  have  been  reimbursed  at the

enhanced  matching  rate  of 90 percent  for family planning  services  since  1972.  While

the  higher  FFP  rate  was originally  needed  to jump start  the  program,  family planning

services  are  now a well established  part  of the  States  Medicaid  programs  and  it is

time  for this incentive  to be  eliminated.  A  1992 OIG  audit  found  that  the  90 percent

rate  is costly, unjustified,  and  may act  as a disincentive  to the  States  design  and

maintenance  of internal  controls.12

In addition  to examining  program  costs funded  at special  rates,  we are  also looking  at

administrative  costs for  the  AFDC,  Medicaid  and  Food  Stamp  programs.  We  are

exploring  the  impact  of a single block  grant  for these  three  programs  administrative

costs on the  States  and  Federal  government.  Reducing  special  matching  rates  is one

option  that  we are  examining.

IDENTIFYING  NEW  STRATEGIES 
The  Medicaid  program  must identifj new strategies  to maximize its health  care  dollars. 
Like  every  other  third  party  insurer,  the  Medicaid  program  must  search  for ways it can 
make  the  best  use of its health  care  dollars.  In the  course  of our work  on the 
Medicaid  program,  two important  strategies  present  themselves:  increased  use  of 
8  managed  care  or gatekeepers  as a way to reduce  the  inappropriate  use  of semices  and 
provide  continuity  ,of care;  and  cost-sharing  by beneficiaries  as a way to collect  funds 
that  can be  used  to maintain  services. 
A@u.zged  Care:  Many  health  care  policy  analysts  have  suggested  the  use  of managed 
care,  whether  in formal  staff  health  maintenance  organizations  (HMOS)  or  in looser 
confederations  of primary  care  case  managers,  as  a way  to  reduce  the  inappropriate 
use  of services  by beneficiaries  and  provide  better  access  to  and  continuity  of care. 
While  significant  expansions  in the  use  of managed  care  by  Medicaid  recipients  will 
undoubtedly  present  new  problems  and  challenges  (such  as the  difficulty  of recruiting 
case  managers,  as is now  being  faced  by the  Maryland  Medicaid  program),  our  work 
on  nonurgent  use  of emergency  rooms  (ERs)  suggests  that  managed  care  can  indeed 
be  an  important  strategy. 
The  use  of emergency  departments  for non-urgent  care  by Medicaid  recipients  has 
long been  recognized  by State  and  Federal  policymakers  as a problem.  In  1983, the 
OIG  reported  that  Medicaid  recipients  use ERs  for non-urgent  care  largely  because 
other  sources  of care  are  either  unavailable  or inaccessible  to them.  We  estimated 
that  at least  half  of Medicaid  ER  visits were  non-urgent  and  could  have  been  more 
appropriately  treated  in community  care  settings. 
Our  1992 study  on use  of ERs  by Medicaid  recipients  found  that  non-urgent  use  of 
emergency  rooms  has  remained  a problem,  for some  of the  same  reasons  we cited  in 
1983.  We  estimate  that  over  one-half  to two-thirds  of Medicaid  emergency  room  visits 
in our  nine  sample  states  are  non-urgent. 
We  identified  a number  of ways that  States  are  using to reduce  non-urgent  use of 
emergency  rooms.  These  approaches  include  managed  care,  pre-paid  plans,  24 hour 
telephone  line to  a nurse,  tiered  pricing,  triage  fees,  emergency  room  claims  review, 
co-payments,  and  lock-ins.  The  approach  most  frequently  considered  successful  (by 
the  states  own self evaluations)  addresses  access  to care  through  managed  care  or 
prepaid  programs.  One  of the  primary  functions  of managed  care/pre-paid  plans  is to 
provide  recipients  with an ongoing  source  of primary  care  and  referral  to other 
services.  By having  an individual  or group  act  as a gate keeper,  and  directing  care  to 
the  most  appropriate  setting,  the  number  of non-urgent  visits to the  emergency  room 
may be  reduced. 
The  success  of state  initiatives  to control  non-urgent  use  of ERs  is difficult  to 
document,  but  our  sample  states  offered  some  evidence  to indicate  these  controls  have 
had  a salutary  effect.  In Missouri,  for  example,  ER  visits by individuals  enrolled  in a 
managed  care/pre-paid  program  have  declined  despite  an increase  in enrollment.  In 
Wisconsin  and  Pennsylvania,  the  percent  of non-urgent  visits for Medicaid  recipients 
enrolled  in managed  care  is lower  than  that  of Medicaid  recipients  in the  traditional 
fee-for-service  Medicaid  program.  For  the  years  1987 through  1989, seven  states  have 
reported  savings of approximately  $182 million  from  managed  care  and  pre-paid 
programs  which included  controls  placed  on non-urgent  use  of ERs.  Three  of the 
9  programs  have  reported  savings of approximately  $13.6 million  that  are  directly 
attributable  to ER  controls,13 
Cost Sharing  Section  1902(a)(14)  of the  Social  Securi~Act  provides  that  Medicaid 
may impose  enrollment  fees,  premiums,  or similar  charges,  and  deductions,  costs 
sharing  or similar  charges.  Children,  HMO  enrollees,  pregnancy  services,  emergency 
services,  hospice  services,  and  services  provided  to residents  of nursing  facilities  or 
medical  institutions  are  exempt  from  cost sharing. 
A  1993 study by the  OIG  found  that  27 States  use  cost-sharing  in their  Medicaid 
programs.  Copayments  range  from  50 cents  to $3.00, with the  exception  of inpatient 
hospital  copayments  which  range  up to $50 per  admission.  Four  States  also  use  a 2 or 
5 percent  coinsurance  for certain  services,  and  one  State  recently  implemented  a 
inpatient  hospital  deductible  of $100,  The  cost of administering  a cost-sharing 
program  is minimal,  since the  charges  are  simply deducted  from  provider 
reimbursement,  effectively  requiring  the  provider  to collect  the  copayment  or accept  a 
reduced  fee. 
States  without  cost sharing  could  save between  $167 and  $355 million  annually  by 
applying  cost  sharing  to just  four  services--inpatient  hospital  services,  outpatient 
hospital  services,  physician  visits, and  prescription  drugs. 
Although  we did not  find  evidence  to suggest  that  expanded  cost-sharing  in the 
Medicaid  program  will significantly  reduce  inappropriate  use  of services,  neither  did 
we find that  cost-sharing  created  a barrier  to the  appropriate  use  of needed  services. 
Essentially  cost-sharing  is a way for the  program  to offset  some  of its costs without 
undue  burden  on providers  or beneficiaries,  and  in our view is certainly  preferable  to 
reducing  services  or eligible  beneficiaries.  As a result,  we have  recommended  that 
HCFA  promote  the  development  of effective  cost-sharing  programs  in the  States.14 
ENSURING  FAIR  PAYMENTS  AND  REDUCING  BURDENS 
States  must make  operational  changes  to ensure  that payments  made  to providers  of 
semice  are  fair and that payments  are  made  only for services that are  medically 
necessary,  while reducing administrative burdens  and streamlining claims processing. 
In the  course  of our  extensive  work  on the  Medicare  program,  we have  identified 
numerous  instances  in which  the  program  has made  excessive  payments  to providers. 
Three  basic  problems  cause  excessive  payments:  inaccurate  claims  (caused  by 
imprecise  coding  systems,  unbundling  and  upcoding),  inappropriate  payment  rates,  and 
other  insurers  not  paying  their  share.  The  Federal  government,  in administering  the 
Medicare  programj  has  also faced  challenges  in determining  whether  services  delivered 
are  medically  necessary.  Finally,  in order  to reduce  its own costs as well as the  costs 
of providers,  the  Medicare  program  has attempted  to streamline  claims  processing. 
States  administering  the  Medicaid  program  face  similar  problems,  as discussed  below. 
10
 Inacczuate Claims:  Under  the  Medicare  program's  prospective  pa~ent  system, 
inpatient  hospital  services  are  reimbursed  a predetermined  amount,  depending  on the 
illness  and  its classification  under  a diagnosis  related  group  (DRG).  Like  Medicare, 
21 States  use  a DRG  type  reimbursement  system  for inpatient  hospital  costs.  An OIG 
computer  match  found  that  $38.5 million  in improper  claims  for outpatient  physician 
services  were  made  as a result  of improper  billing by hospitals.15 16 Weve 
suggested  that  Medicaid  programs  using a DRG  system  may  also be vulnerable  to such 
improper  claims.1  Likewise,  we have  documented  unbundling  by physicians  billing 
Medicare  and  Medicaid,18 unbundling  of laboratory  tests,19 and  unbundling  of 
surgical  procedures.  20 Even  when  the  vast  majority  of providers  try to bill the  system 
accurately,  imprecise  coding  systems--absence  of a code  to  accurately  reflect  the 
services  being  provided,  overlapping  codes,  inadequate  definitions--can  prevent 
providers  from  billing  the  system  accurately. 2122232AAl  third  party payers  who 
rely on providers  to self-report  the  services  they  provide  and  pay for such services  on 
a per  claim basis  face  such problems. 
When  overpayments  are  made,  it is important  that  the  program  seek  to recover  them. 
This  does  not  always occur.  We  have  conducted  reviews  of in hospitals  and  nursing 
homes  which  document  significant  credit  balances.  Credit  balances  occur  when 
reimbursement  for services  provided  to a Medicaid  beneficiary  exceeds  the  charges 
billed.  We  estimate  that  nationally  hospitals  have  received  and  retained  $73.3 million 
in credit  balances~  and  nursing  homes  have  received  and  retained  $32 million  in 
credit  balances.~ 
Iizappropriate Payment Ratex  Although  for many  types  of providers,  Medicaid 
payments  rank  low in comparison  to Medicare  and  private  payers,  we have 
documented  instances  in which Medicaid  payments  may be too  high. 
For  example,  the  Omnibus  Budget  Reconciliation  Act  (OBRA)  of 1981 required  State 
Medicaid  agencies  to establish  hospital  payment  rates  that  took  into  account  hospitals 
serving  a disproportionate  number  of low-income  individuals  with  special  needs.  The 
law did not  define  the  criteria  to be  used  to identify  disproportionate  share  hospitals 
or low income  individuals  with special  needs.  Therefore,  State  Medicaid  agencies 
were  allowed  to develop  their  own criteria  and  methodologies  for quali&ing  and 
reimbursing  hospitals.  Subsequent  legislation  passed  in 1986, 1987, 1990, and  1991 
expanded  the  program,  established  minimum  criteria,  and  placed  some  limited  controls 
on the  program.  Even  so, disproportionate  share  payments  to hospitals  are  growing  at 
an substantial  rate:  we estimate  that  for 34 States,  payments  will increase  from  $763 
million  in FY  1990 to $5.5 billion  in FY  1993.  Of most  concern  to us, however,  are 
the  results  of our  audit  in South  Carolina,  where  we found  that  such Medicaid 
payments  contributed  to total  hospital  profitability.  When  considering  total  hospital 
profits,  the  average  South  Carolina  hospital  receiving  disproportionate  share  dollars 
earned  profits  of $3.1 million.  On the  average,  these  hospitals  received  Medicaid 
disproportionate  share  payments  of $2.9 million.  Current  literature  in the  health  care 
field  indicates  that  hospitals  in other  States  have  increased  their  total  profitability  as a 
result  of payments  received  under  the  disproportionate  share  program.27  Eliminating 
11
 such payments  in order  to provide  higher  rates  of payments  to, for example,

obstetricians,  might  be  a better  use  of these  funds.

Payments  to HMOS  are  another  area  where  we have  concerns  based  on an  audit  of a

major  provider  in Pennsylvania.  Here  again,  we found  substantial  profits  being

enjoyed  by a HMO  servicing  Medicaid  patients,  suggesting  that  the  Medicaid  payment

rate  is too  generous.  Rate  setting  for HMOS is an area  we expect  to focus  on in the

coming  year.

l%tid Parfy Liabil@:  Third  party  liability  refers  to the  responsibility  of other  parties

other  than  the  Medicaid  program  or the  beneficiary  to pay the  costs  of care  obtained

by the  beneficiary.  The  Medicaid  program  is the  payer  of last  resort,  meaning  that

any other  responsible  insurer  must  pay for services  before  Medicaid  does.  The  OIG

has performed  third  party  liability  reviews  in several  States.  One  survey  of six

agencies  showed  that  five States  do not  have  adequate  systems  to record  and  follow-up

on outstanding  billings to third  parties .%  In another  State,  our  survey showed  that

although  the  State  agencys system  identified  liable  third  parties,  it did not  bill all third

parties.29

J&zlical  Necewity:  OIG  audits  of Medicare  home  oxygen  therapy  claims  and 
ambulance  services  found  numerous  instances  in which  claims  were  submitted  and 
paid  for  services  that  were  not  medically  necessary.  3031  Weve  suggested  that  State 
Medicaid  programs,  which  also  reimburse  providers  for  oxygen  and  ambulance 
services,  may  also  be  vulnerable  to  such  claims  and  have  suggested  joint  audits  with 
State  agencies  to  examine  the  question.32 
Electronic  Clizirn+,RevIewand Payment:  The  increased  use  of electronic  claims,  point 
of service  or point  of sale technology,  and  electronic  funds  transfer  holds  promise  for 
reducing  administrative  costs while  at the  same  time  improving  relations  with program 
providers. 
Physicians  contend  that  the  hassle factor--administrative  red  tape  associated  with 
participating  in Medicaid--discourages  many  doctors  from  treating  patients  who are 
covered  by Medicaid.  When  providers  refer  to the  administrative  burden,  they 
generally  are  referring  to such problems  as slow payments;  rejection  of claims  because 
the  billing form  was completed  incorrectly;  difficulties  in correcting  claims  that  contain 
errors;  inability  to verify recipients  Medicaid  eligibility, leading  to claim  denials; 
frequent  changes  in policies,  covered  procedures,  and  required  documentation;  and 
confusing  provider  manuals.  Physicians  often  cite  administrative  burdens  as one 
reason,  in addition  to low payment  rates,  that  they  dont participate  in Medicaid. 
In  1992, the  OIG  conducted  a study to  examine  promising  approaches  being  used  by 
State  Medicaid  programs  to be  responsive  to physician  complaints  about  Medicaids 
administrative  burden.  Particular  complaints  about  claims  processing  center  around 
frustration  with the  process  of submitting  and  getting  claims paid.  For  example,  one 
physician  told  us, Even the  most  intelligent  neurosurgeon  gets hung  up  on what  needs 
12  to be  done.  Another,  expressing  a common  complaint,  said,  Physicians  arent  given 
an explanation  for rejected  claims.  It is the  doctors  responsibility  to track  the  claim 
and  find out why it was denied,  which  takes  extra  staff time  and  financial  resources. 
In an attempt  to  address  these  types  of complaints,  at least  28 States  have  instituted 
electronic  claims  systems  for physician  services.  The  proportion  of claims  in each  of 
these  states  that  are  submitted  electronically  ranges  from  3 percent  in North  Dakota 
to 66 percent  in Georgia. 
Staff  at several  state  Medicaid  agencies  we spoke  with stressed  their  commitment  to 
electronic  claims  submission.  Advantages  of using electronic  claims  submission  include 
faster  payment  compared  to submission  of paper  claims  and  reduced  cost to the 
provider  for clerical  services,  since  paperwork  is decreased  and  the  physicians 
signature  is not  required  on each  claim.  Despite  the  advantages  of electronic  claims 
processing,  most  physician  claims  are  still submitted  on paper.  One  reason  is that 
many  physician  offices  do not  have  available  the  computer  hardware  necessary  for 
electronic  submission  of claims. 
In Florida,  the  Medicaid  agency  had  developed  software  that  enables  any provider  to 
submit  claims  electronically.  (The  software,  as well as claims  submission,  is free  of 
charge  to the  provider.)  Using  the  system,  physicians  can  tailor  the  software  to meet 
their  particular  needs  when  it is installed.  For  example,  some  information,  such as the 
physicians  name  and  address  and  the  date  of the  claim,  may be  automatically  inserted 
each  time  a claim  is prepared,  and  diagnostic,  procedure,  or billing codes  (for  common 
illnesses  that  physicians  may treat)  can be  inserted  with a single keystroke. 
Several  states  have  also developed  automated  telephone  inquiry  systems  to answer 
physician  inquiries.  These  systems  can be  accessed  with a touch-tone  phone,  Since 
most  calls to Medicaid  concern  eligibility  or claims  status,  these  can be  handled  quickly 
and  systematically,  freeing  staff to deal  with the  more  difficult  situations  and  questions. 
For  example,  Marylands  automated  voice  response  system  operates  continuously,  and 
permits  providers  to verify dates  of program  eligibility for services  rendered  up  to one 
year  previously.33 
Point  of service  systems  have  great  potential  for improving  the  administration  of 
Medicaid  programs  across  the  country.  They  can  perform  eligibility verification,  claims 
submission,  claims. adjudication,  and  utilization  review  on a real-time  basis.  New 
Yorks point  of service  system  is savings millions  a year  by performing  eligibility 
verification  and  utilization  review.  Massachusetts  uses its point  of service  system  for 
eligibility verification  only.  It is also saving millions  of dollars  annually.  Even  so, few 
States  have  developed  or plan  to develop  point  of service  systems.34 
Likewise,  our  inspection  on electronic  funds  transfer  found  that  only eight  States  are 
using this electronic  method  to reimburse  Medicaid  providers.  A number  of factors 
are  preventing  additional  States  from  using electronic  funds  transfer:  concerns 
regarding  loss of cash flow, potential  fraud,  and  initial  cost.  We  consider  these 
13  problems  to be  easily surmountable,  although  others  (provider  populations  that  change 
banks  frequently,  inadequate  capabilities  of local  banks)  may be  more  difficult  to 
overcome.  It is also true  that  electronic  funds  transfer  will only save money  if 
remittance  advisories,  the  notifications  sent  to physicians  regarding  their  payments,  are 
also sent  electronically.  If remittance  advisories  are  sent  by paper,  program 
administrators  might  as well include  the  check  in the  same  envelope  and  forgo 
electronic  funds  transfer.35 
MANAGING  LONG  TERM  CARE 
The  Medicaid  program  must ensure that long term  care  expenditures,  which account 
for a large proportion  of Medicaid  outlays and are  growing precipitously,  are  managed 
wisely. 
As discussed  earlier,  the  funds  paid  out  for long term  care  under  Medicaid  represent  a 
substantial  portion  of the  programs  total  dollars.  Yet,  in many  respects,  here  the 
Medicaid  program  acts  more  as an open  checkbook  than  a payor  of last  resort  for the 
needy. 
In  1989, the  OIG  completed  work  on a case  study of transfer  of assets  in the 
Washington  State  Medicaid  program.  We found  that  58 percent  of the  elderly 
applying  for assistance  who were  denied  because  they  exceeded  the  resource  eligibility 
threshold  became  eligible  in a few months  by transferring  or sheltering  their  assets.  In 
order  to qualify for Medicaid,  beneficiaries  used  various--and  completely  legal--means 
to appear  as though  they had  access  to no resources.  For  example: 
	 One  beneficiary  transferred  $153,500 to adult  children  using an irrevocable 
trust. 
	 One  beneficiary  used  $50,000 to pay off a note  on the  family home,  which  is 
exempt  under  Medicaid  rules  from  asset  tests. 
	 One  beneficiary  removed  his name  from  bank  accounts  and  certificates  of 
deposits  (totaling  $206,363)  and  from  the  family residence  ($40,000). 
	 One  beneficiary  transferred  property  with  an assessed  value  of $433,000 to the 
well spouse  to qualify the  incompetent  for medical  assistance  benefits, 
according  to the  court  order.3G 
Much  of what  we found  in 1989 still holds  true  today.  Elder  law attorneys  advising 
clients  on how to hide  their  affluence  by buying  exempt  assets,  transferring  money  or 
assets  to others,  purchasing  trusts  and  other  means,  appear  to be  a growing  legal 
specialty.  Although  no one  knows the  extent  of transfers  of assets  (both  legal  and 
illegal)  to  qualify for Medicaid,  we found  over  $4 million  in assets  of only  114 
originally  denied,  but  subsequently  approved,  Medicaid  nursing  home  cases.  Currently, 
14
 HCFA,  the  U.S. General  Accounting  Office,  andthe  OIGaredeveloping  study plans 
in this area. 
ENSURING  QUALITY  OF CARE 
The  Medicaid  program  must ensure  quality of care  of services that are  delivered. 
For  the  sake  of the  programs  financial  integrity  and  beneficiaries  protection,  the 
Medicaid  program  had  a responsibility  to ensure  that  the  care  it pays for it necessary 
and  appropriate.  Inthisregard,  three  newinitiatives  are  critical:  successful 
implementation  of new nursing  home  quality  standards;  development  of a workable 
system  to ensure  quality  in managed  care  settings;  and  implementation  of drug  use 
review. 
Ntig  Home  QuaZ@:  The  Omnibus  Reconciliation  Act  of 1987 chartered  a new 
direction  in survey  and  certification  of nursing  homes.  Rather  than  focus  on process, 
the  new  surveys would  focus  on resident  quality  of life and  outcomes.  We  are 
currently  completing  a study to  assess how States  are  implementing  the  new survey 
and  certification  process. 
One  of the  most  significant  requirements  of OBRA  1987  was  a new  rule  regarding  the 
use  of chemical  and  physical  restraints.  The  OBRA  1987  established  that  nursing 
home  residents  have  the  right  to  be  free  from  physical  and  chemical  restraints  not 
required  to  treat  their  medical  symptoms.  In  1992,  we  conducted  a study  to  assess 
how  average  nursing  homes  were  implementing  this  important  provision.  Our  report 
described  the  lessons  learned  by nursing  homes  engaged  in  reducing  the  use  of 
physical  and  chemical  restraints.  It presented  the  lessons  in  three  areas  that  reflect 
the  operational  stages  of restraint  reduction:  1) establishing  a commitment  to  restraint 
reduction;  2)  reducing  restraints;  and  3)  maintaining  a restraint-free  home. 
Quality Assurance in Medicaid HMOS:  As  discussed  above,  States  have  turned  to 
managed  care  as their  best  alternative  to ensure  access  and  continuity  of care.  It is 
especially  important  to have  quality  assurance  (QA)  systems  in place  because  the 
capitated  payment  in managed  care  systems  may create  a financial  incentive  to 
undertreat,  and  because  Medicaid  beneficiaries  may have  difficulty  negotiating  a new 
and  different  system. 
In  1992 we reported  on HMO  quality  assurance  standards  required  by Medicaid 
agencies.  We  found  that  all Medicaid  agencies  contacted  the  study use  structural 
standards,  such as ,requiring  HMOS to have  a written  quality  assurance  plan.  Most 
have  carried  over  fee-for-service  process  standards  to their  HMO  program,  i.e., 
conducting  episodic  medical  record  reviews  and  requiring  HMOS to verify provider 
credentials.  Most  rely on complaint  standards  more  than  patient  satisfaction  surveys 
and  health  outcome  reviews  to ensure  quality. 
15
 Ensuring  compliance  with required  standards  varies  significantly  among  Medicaid 
agencies.  Compliance  with some  required  standards  is never  verified  by some,  others 
rely heavily  on HMO  self-assessments  of compliance.  When  Medicaid  agencies  do 
their  own compliance  audits  they  focus  on HMO  compliance  with  structural  and 
process  standards.37 
Drug UseRevzew: OBRA  1990 required  States,  by January  1, 1993, to develop  a drug 
use review  program  consisting  of prospective  and  retrospective  review  to  assure  that 
prescriptions  are  appropriate,  medically  necessary,  and  not  likely to result  in adverse 
effects. 
Prospective  drug  review  must  provide  for drug  review  before  the  prescription  is filled, 
typically  at the  point  of sale.  Retrospective  review  must  be  performed  through  the 
mechanized  drug  claims  system  to identify  fraud,  abuse,  or inappropriate  care.  The 
States  must  also establish  a Drug  Use  Review  Board.  Each  Board  must  report  to the 
Secretary  annually  and  the  Secretary  must  use the  reports  to evaluate  the  effectiveness 
of the  States  programs.  The  OIG  plans  a study to assess State  implementation  of 
drug  use review  programs  in  1993. 
Our  report  on ulcer  treatment  drugs  demonstrates  the  program  savings and  quality  of 
care  issues  that  arise  when  reviewing  prescription  drug  use.  In a review  of 1,600 
Medicaid  beneficiaries,  we found  that  38 percent  of the  recipients  received  dosages  of 
ulcer  treatment  products  that  were  in excess of manufacturers  recommendations. 
Limiting  payment  for the  six ulcer  treatment  drugs  under  study to the  dosages 
recommended  by manufacturers  would  save the  Medicaid  program  $112 million 
annually  as well as help  prevent  inappropriate  prescription  drug  use.38 
GUARDING  AGAINST  FRAUD  AND  ABUSE 
The  Medicaid  program  must effectively protect  itself from fkaud and abuse. 
	 Medicaid Fraud  Control Unitsstand as an essentialforce  in thejiont  lines 
combatting fi-audand abuse inMedicaid. 
The  Medicaid  program  must  ensure  that  its system  can identify  and  refer  cases  of 
fraud  to appropriate  authorities.  In order  to increase  the  quantity  and  quality  of fraud 
referrals,  the  HCFA  is encouraging  close working  relationships  between  Medicaid 
agency  staff who review  the  use  of services  by beneficiaries  and  Medicaid  Fraud 
Control  Units  (MFCU)  staff, who investigate  allegations  of fraud  in most  States.  We 
previously  reported  our  concerns  about  the  level  of referrals  from  Medicaid  agencies 
to the  MFCUS  and  continue  to support  additional  HCFA  leadership  in this area. 
16
 	 Identification of questionable patterns of care can provide important information 
in identijjingpossible jiaud 
Several  years  ago, in response  to concerns  about  the  diversion  and  improper  use of 
prescription  drugs  in Medicaid,  the  OIG  developed  software  for use by Medicaid 
officials in identi&ing  odd  or unexpected  patterns  in the  use, dispensing,  or prescribing 
of prescription  drugs.  This  program,  called  the  Medicaid  Abusable  Drug  Analysis 
System  (MADAS),  analyzes  scripts  for  all drugs  on Schedules  2 through  5 and  targets 
potential  diversion  activity by Medicaid  recipients  and  providers.  It can be  targeted  to 
specific  geographical  areas,  specific  drugs,  or an array  of abusable  drugs.  Currently, 
17 State  Medicaid  agencies  or Medicaid  Fraud  Control  Units  are  utilizating  MADAS 
data  to track  prescriptions  for controlled  substances. 
States  utilizing  MADAS  have  three  basic  objectives.  They  are  (1) to restrict 
availability  of prescription  drugs  to abusers  through  the  use  of lock-in  programs,  (2) 
the  removal  of physicians  and  pharmacies  abusing  the  program  and  (3) the  referral  of 
physicians  and  pharmacies  to law enforcement  agencies  for  criminal  prosecution. 
While  some  States  did not  maintain  detailed  statistics  on the  results  achieved  using 
MADAS,  we do know  that  MADAS  has been  directly  responsible  for three  successful 
prosecutions  in New Mexico  and  there  are  currently  20 ongoing  investigations  in 
Pennsylvania.  We  are  also aware  of numerous  referrals  to the  State  Bureau  of 
Narcotics  and  the  State  Police  in Minnesota,  Missouri  and  Oklahoma. 
E  Strategiesto prevent fraud on thejiont  end are essential

While  identification  of providers  and beneficiaries  defrauding  the  system  is crucial,  it is

also important  to reduce  opportunities  for fraud.  We  recently  completed  a study in

which we assessed  the  potential  of Multiple  Copy Prescription  Programs  (MCPPS)  for

the  prevention  of fraud  and  abuse  of prescription  drugs.  We found  that  MCPPS

reduce  vulnerability  to theft  and  forgery.  While  their  effect  on overall  prescribing  of

scheduled  drugs  is difficult  to assess from  existing  studies,  MCPPS appear  to have

shown  some  effect  on abuse  of scheduled  drugs  and  program  officials  associate

MCPPS with better  targeting  of investigator  resources  and  more  successful

prosecutions  of offenders  involved  in drug  diversion.39

Legal  prohibitions  on behavior  or activities  which  can lend  themselves  to fraudulent

acts  are  also essential.  For  example,  under  the  Medicare  and  Medicaid  anti-kickback

statute,  section  1128(B)(b)  of the  Social  Security  Act,  it is illegal  to offer  or pay a

profit  distribution  to physicians  to deliberately  induce  them  to refer  business  payable

under  Medicare  or any State  health  care  program.  Since  1987, we have  received  more

than  1,300 allegations  of violations  of the  anti-kickback  statute  and  have  opened  over

850 cases.

17
 IMPROVING  FEDERAL-STATE  RELATIONS 
Federal  and State  relationships must be improved. 
The  Medicaid  program  is supported  dually by the  Federal  and  State  governments. 
Rather  than  representing  the  best  of both  levels of governments,  too  frequently  the 
interests  of the  State  and  Federal  governments  have  been  seen  as opposing,  rather 
than  reinforcing,  each  other.  The  best,  and  most  recent,  example  is the  dispute  over 
provider  taxes  and  donations. 
Prior  to  1985, States  were  not  permitted  to use donated  funds  except  for training  State 
personnel  to administer  Medicaid.  In  1985, a new regulation  permitted  States  to use 
public  and  private  donations  for the  State  FFP  with limitations  (if the  funds  were 
transferred  to the  Medicaid  agency  and  were  under  its administrative  control  and  if 
the  funds  do not  revert  to the  donor  (unless  donor  was a nonprofit  organization  and 
the  Medicaid  agency  decided  independently  to use the  donors  facility)). 
Following  issuance  of this rule,  some  States  under  fiscal stress  began  to use  the 
provision  to maximize  funds  from  the  Federal  government.  Contributions  to States 
from  Medicaid  providers  (mostly  hospitals  and  nursing  homes)  were  used  as part  of 
the  States  share  of spending  for covered  services  and  matched  with Federal  funds. 
Around  the  same  time,  some  States  imposed  provider-specific  taxes  on health  care 
providers. 
These  revenue  sources  quickly became  controversial.  From  the  Federal  perspective, 
the  Federal  government  should  not  reimburse  States  for the  amounts  collected  from 
Medicaid-only  providers.  They  contend  that  these  are  not  costs incurred  by the  State, 
and  therefore  are  not  eligible  for the  Federal  match.  Reports  by the  OIG 
recommended  that  HCFA  take  action  to control  thse  provider  tax and  donation 
programs.40  From  the  States  point  of view, the  Federal  government  should  not  care 
what  sources  of revenue  the  State  uses  to pay for its Medicaid  program. 
From  1988 to  1990, Congress  enacted  measures  prohibiting  HCFA  from  implementing 
regulations  banning  the  use  of funds  from  taxes  and  donations  except  in certain  cases. 
Then  in November  1991, Congress  passed  the  Medicaid  Voluntary  Contribution  and 
Provider-Specific  Tax Amendments  of 1991.  Effective  January  1, 1992, States  are 
prohibited  from  using most voluntary  contributions  to claim  FFP.  The  law prohibits 
use of Federal  funds  to match  revenues  derived  from  provider-specific  taxes  unless 
these  taxes  are  broad-based  and  apply  uniformly  to all providers  of a given type  and 
all business  of the  providers  within  a class of services.  These  broad-based,  uniform 
taxes  are  considered  acceptable  since  they  are  not  unlike  imposing  a new property  tax 
to raise  State  revenues. 
States  budgets  have  also been  strained  by the  introduction  of unfunded  Federal 
mandates,  such  as those  introducing  new requirements  for setices  that  must  be 
provided  to pregnant  women  and  children.  Administrative  rules  and  requirements 
18  placed  on States  (such  as those  requiring  that  States  apply  for waivers  from  Federal 
rules  to implement  a new program  which  has previously  been  approved  for another 
State)  have  also caused  unnecessary  and  unproductive  tension  between  the  States  and 
Federal  government.  The  poor  Federal-State  relationship  has led to what  some  have 
termed  irresponsibility  at all levels and  led to calls for repeal  of the  Medicaid 
program  and  its current  Federal-State  structure. 
19
 RECOMMENDATIONS

As discussed  in this report,  the  problems  and  challenges  facing  the  Medicaid  program 
are  substantial,  We  are  aware,  of course,  that  many  policymakers  are  arguing  for a 
fundamental  restructuring  or elimination  of the  Medicaid  program.  During  the  course 
of our  audits,  inspections,  and  investigations  in the  Medicaid  program,  we have  made 
numerous  specific  recommendations  for change.  Many  of these  recommendations 
have  been  accepted  by the  Health  Care  Financing  Administration  and  some  have  not. 
Some  require  legislative  changes;  others  require  action  by the  States. 
All significant  unimplemented  OIG  recommendations  are  included  in one  of two 
documents.  The  Office  of Inspector  General  Cost-Saver  Handbook  (the  Red  Book)  is 
a compendium  of recent  OIG  recommendations  to reduce  unnecessary  spending  by 
the  Department  through  administrative  or regulatory  change,  or by the  Congress  and 
Administration  through  legislative  change.  The  Office  of Inspector  General  Program 
and  Management  Improvement  Handbook  (Orange  Book)  contains  recent 
recommendations  for  strengthening  program  and  management  efficiency  and 
effectiveness.  For  our  readers  convenience,  we have  reproduced  our  listing of 
recommendations  to improve  the  Medicaid  program  in the  appendices  to this report. 
We  are  pleased  to see  that  the  Administration  supports  OIG  recommendations  made 
in various  forums  for extending  the  ban  on self-referral,  for lifting the  ban  on drug 
formularies,  and  for tightening  loopholes  on transfers  of assets  and  strengthening  asset 
recovery  laws. 
20
 APPENDIX  A

UNIMPLEMENTED  OIG RECOMMENDATIONS:  COST  SAVERS 
ANNUAL  SAVINGS 
Establish  Mandatory  Prepayment  Edit  Screens  $12 million 
Control  Medicaid  Payments  to  Institutions  for 
Mentally  Retarded  People  $683 million 
Reduce  Non-urgent  Use  of Emergency  Rooms  $39.5 million 
Recover  or Adjust  Medicaid  Credit  Balances 
in Nursing  Facility  Accounts  $32 million 
Recover  or Adjust  Medicaid  Credit  Balances

in Hospitals  $73.3 million

A -1
 APPENDIX  B

UNIMPLEMENTED  OIG RECOMMENDATIONS: 
PROGRAM  IMPROVEMENTS 
Medicaid and Homeless Ilzdividud 
The  HCFA  should  work  with SSA to develop  a joint  strategy  to increase  access 
E	
to Medicaid  for eligible  homeless  individuals. 
	 The  HCFA  should  consult  with PHS  and  SSA to develop  models  to help 
homeless  individuals  apply  for Medicaid. 
The  HCFA  should  provide  technical  assistance  to States  to promote  the 
F	
development  of State  strategies  and  linkages  designed  to use  Medicaid  more 
effectively  to serve  this population. 
The  HCFA  should  use the  Interagency  Council  on the  Homeless  to provide 
F	
technical  assistance  to other  Federal  agencies  and  McKinney  providers  to make 
Medicaid  more  accessible  to homeless  individuals. 
Medicaid Expansions for I?enatal  Care--State and Local  Implementation 
  The  HCFA  should  develop  a comprehensive  outreach  strategy. 
The  HCFA  should  simplify and  streamline  the  application  process. 
b 
The  HCFA  should  develop  incentives  to increase  provider  participation. 
F 
	 The  HCFA  should  clarify policy and  monitor  implementation  of Medicaid 
expansions  for prenatal  care. 
The  HCFA  should  develop  data  collection  systems  and  evaluation  processes  to 
F	
measure  progress  of the  eligibility  expansions  and  future  program  effects. 
PoiM of Service Cikiins Management  Systemsfor Medicaid 
	 The  HCFA  should  collect  information  on point-of-semice  technology  and 
regulatory  distribute  it to the  States. 
Ekctronic  Funds l)ansfer for Medicaid l+owikm 
	 The  HCFA should  work  with State  Medicaid  agencies  to identify  problems  with 
electronic  funds  transfer  (EFT)  and  share  other  States  solutions  to these 
problems. 
B-1
 The  HCFA  should  assist States  in developing  billing  agreements  for providers 
F	
who use electronic  claims,  remittance  advisories,  and  fund  transfers. 
  The  HCFA  should  develop  guidelines  for provider  participation  in EFT. 
Early and PeriOdic Screening Diagnosk  and lleatment  (EPSDT)--Peflomumce 
Measurement 
	 The  HCFA  should  modify  the  methods  by which  it measures  rates  to correctly 
reflect  States  progress  in meeting  goals. 
Controh  over lkwnphon  DIugs 
	 The  HCFA  should  direct  its oversight  reviews  to States  that  do not  participate 
with the  OIG  in implementing  its program  to identify  prescription  drug  abuse 
and  diversion. 
	 The  HCFA  should  incorporate  into  its review  the  OIG  program  to evaluate  the 
effectiveness  of the  States  internal  controls  over  prescription  drug  abuse  and 
diversion. 
Medicaid Dkpropmiionate  Share 
	 The  HCFA  should  encourage  South  Carolina  to explore  alternative  payment 
methodologies. 
	 The  HCFA  should  gather  more  detailed  data  on disproportionate  share 
payments  that  could  be  used  to performed  a nationwide  review  of the  program. 
Medicaid Dmg Rebate  fiogram 
>	 The  HCFA  should  require  States  to develop  procedures  to monitor  the 
accuracy  of reporting  by pharmacists. 
The  HCFA  should  require  States  to perform  tests  of the  dosage  units  reports 
F	
and  establish  computer  edits  to detect  and  correct  obvious  errors. 
>	 The  HCFA  should  contact  the  various  national  pharmacy  associations  and 
request  their  participation  in alerting  pharmacists  to the  program  and  its needs. 
	 The  HCFA  should  alert  Congress  of the  impact  of eliminating  the  best  price 
from  the  existing  rebate  formula. 
The  HCFA  should  make  a legislative  proposal  to redefine  best  prices  based 
F	
upon  prices  as they  existed  in October  1990 and  adjust  for increases  in the 
Consmer  Price  Index. 
B-2
 APPENDIX  C

ENDNOTES 
1.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Medicaid 
Expansions  for Prenatal  Care:  State  and  Local  Implementation,  0EI-06-90-O0160. 
2.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Early and 
Periodic  Screening,  Diagnosis,  and  Treatment  (EPSDT)--Performance  Measurement, 
OEI-07-90-00130. 
3.  Office  of Inspector  General,  Office  of Audit  Services,  Impact  of the  Omnibus 
Budget  Reconciliation  Act  of  1990  on  Drug  Expenditures  Including  Best  Price,  A-14-
91-02057. 
4.  Office  of Inspector  General,  Office  of Audit  Services,  Inaccurate  Reporting  of 
Medicaid  Drug  Data  by Pharmacists,  A-06-91-00056. 
5.  Office  of Inspector  General,  Office  of Audit  Services,  The Health  Care  Financing 
Administration  Needs  to Provide  Additional  Guidance  to Drug  Manufacturers  to 
Better  Implement  the  Program,  A-06-91-00092. 
6.	 Office  of Inspector  General,  Office  of Audit  Services,  Unit  Rebate  Amounts 
Inappropriately  Calculate  to Include  an Additional  Rebate  for Newly Marketed  Drugs 
in the  First  Quarter  1991, A-O6-91-OO1OO. 
7.  Office  of Inspector  General,  Office  of Audit  Services,  Improvements  Needed  in 
the  Health  Care  Financing  Administrations  Procedures  to Implement  the  Medicaid 
Drug  Rebate  Program,  A-O6-91-OO1O2. 
8.  Office  of Inspector  General,  Office  of Audit  Services,  Review  of Management 
Controls  Established  Over  the  Medicaid  Prescription  Drug  Rebate  Program,  A-06-92-
00029. 
9.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Strategies  to 
Reduce  Medicaid  Drug  Expenditures,  0EI-12-90-O0800. 
10.  Office  of Inspector  General,  Office  of Audit  Services,  Escalating  Outpatient 
Prescription  Drug  Costs  are  Severely  Impacting  Federal  and  State  Budgets,  A-06-92-
00046. 
11.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Medicaid 
Payments  to Institutions  for Mentally  Retarded  People,  OEI-O4-91-O1O1O. 
B-1
 12.  Office  of Inspector  General,  Office  of Audit  Services,  Elimination  of Enhanced 
Federal  Financial  Participation  Rate  for  Family  Planning  Services  under  Medicaid,  A-
01052,  December  1992. 
13.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Use of 
Emergency  Rooms  by Medicaid  Recipients,  OEI-06-90-00180. 
14.  office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Medicaid  Cost 
Sharing,  OEI-03-91-01800. 
15.  Office  of Inspector  General,  Office  of Audit  Services,  Millions in Improper 
Payments  to Hospitals  for Nonphysician  Services  under  The  Prospective  Payment 
System  (PPS)--October  1983 Through  January  1986, A-01-86-62024,  July  1988. 
16.  Office  of Inspector  General,  Office  of Audit  Services,  Improper  Medicare 
Payments  for Nonphysician  Outpatient  Services  under  the  Prospective  Payment 
System--February  1986 through  November  1987, A-01-90-00516,  August  1990. 
17.  Office  of Inspector  General,  Office  of Audit  Services,  Audits  of Health  Care 
Expenditures  and  Related  Issues:  Potential  for Joint  Federal/State  Reviews,  February 
1993. 
18.  Office  of Inspector  General,  Office  of Audit  Services,  Management  Advisory 
Report:  Manipulation  of Procedure  Codes  by Physicians  to Maximize  Medicare  and 
Medicaid  Reimbursements,  A-03-91-00019,  September  1991. 
19.  Office  of Inspector  General,  Office  of Audit  Services,  Changes  are  Needed  in the 
Way Medicare  Pays for Clinical  Laboratory  Tests,  A-09-89-00031. 
20.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Fragmented 
Physician  Claims,  0EI-12-88-O0901,  September  1992. 
21.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Pocket 
Dopplers:  Management  Advisory  Report,  OEI-03-91-00461,  May  1991. 
22.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Low Cost 
Ultrasound,  OEI-O3-88-O141O,August  1991. 
23.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Zero 
Crossers,  0EI-903-91-O0460,  August  1991. 
24.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  OEI-12-88-
00900, September  1992. 
25.  Office  of Inspector  General,  Office  of Audit  Services,  Nationwide  Audit  of 
Medicaid  Credit  Balances,  A-O4-92-O1O23. 
c-2  26.(cid:31)Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Medicaid 
Credit  Balances  in Nursing  Facility  Patient  Accounts,  OEI-07-90-00911,  JUIY1992. 
27.  Office  of Inspector  General,  Office  of Audit  Services,  Growth  of Medicaid 
Disproportionate  Share  Payments  and  Effect  on Hospital  Profitability,  A-O4-92-O1O25. 
28.  Office  of Inspector  General,  Office  of Audit  Services,  Early Alert  on Medicaid 
Third  Party  Liability  Issues, A-01-91-00005,  January  1992. 
29.  Office  of Inspector  General,  Office  of Audit  Services,  Early Alert  on Third  party 
Liability  Identification  and  Collection--Florida  Department  of Health  and 
Rehabilitative  Services,  A-O4-92-O1O2OJ,uly  1992. 
30.  Office  of Inspector  General,  Office  of Audit  Services,  Results  of National  Review 
of the  Medical  Necessity  for Oxygen  Concentrators--September  1, 1987 Through 
August  31, 1988, A-04-88-02058,  March  1990. 
31.  Office  of Inspector  General,  Office  of Audit  Services,  Review  of Medical 
Necessity  for Ambulance  Services, A-01-91-00513,  October  1992. 
32.  Office  of Inspector  General,  Office  of Audit  Services,  Audits  of Health  Care 
Expenditures  and  Related  Issues:  Potential  for Joint  Federal/State  Reviews,  February 
1993. 
33.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Medicaid 
Hassle:  State  Responses  to Physician  Complaints,  OEI-O1-92-OO1OO. 
34.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Point-of-
Service  Claims  Management  Systems  for Medicaid,  OEI-01-91-00820. 
35.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Electronic 
Funds  Transfer  for Medicaid  Providers,  OEI-01-91-00821. 
36.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  Transfer  of 
Assets  in the  Medicaid  Program:  A Case  Study  in Washington  State,  0EI-09-88-
01340. 
37.  Office  of Inspector  General,  Office  of Evaluation  and  Inspections,  A Review  of 
HMO  Quality  Assurance  Standards  Required  by Medicaid  Agencies,  0EI-05-92-
00110. 
38.  Office  of Inspector  General,  Office  of Audit  Services,  Nationwide  Audit  of Six 
Ulcer  Treatment  Drugs  Reimbursed  under  the  Medicaid  Prescription  Drug  Program, 
A-06-92-00003,  November  1992. 
39.  Office  of Inspecto]  General,  Office  of Evaluation  and  Inspections,  Multiple  Copy 
Prescription  Programs:  State  Experiences,  0EI-12-91-O0490. 
c-3  40.  Office  of Inspector  General,  Office  of Audit  Services,  MedicaidStateT  axand 
Donation  Programs,  A-14-91 -O1O1O;A-03-91-00203. 
c-4  Department  of  Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
SUMMARY  OF  OIG  ACTIVITIES  ON 
MEDICARE 
I 
JUNE  1993  OFFICE OF INSPECTOR GENERAL 
The  mission of the  Office of Inspector  General  (OIG),  as mandated  by Public  Law 95-452, as 
amended,  is to protect  the  integrity  of the  Department  of Health  and Human  Services (HHS) 
programs  as well as the  health  and welfare  of beneficiaries  served  by those  programs.  This 
statuto~  mission is carried  out  through  a nationwide  network  of audits,  investigations,  and 
inspections  conducted  by three  OIG  operating  components:  the  Office of Audit  Services,  the 
Office of Investigations,  and the  Office of Evaluation  and Inspections.  The  OIG  also informs 
the Secretary  of HHS  of program,  and management  problems,  and recommends  courses  to 
correct  them. 
OFFICE OF AUDIT  SERVICES 
The  OIGS Office of Audit  Services  (OAS)  provides  all auditing  sexvices for HHS,  either  by 
conducting  audits with its own audit  resources  or by overseeing  audit  work done  by others. 
Audits  examine  the  performance  of HHS  programs  and/or  its grantees  and contractors  in 
carrying out  their  respective  responsibilities  and are intended  to provide  independent 
assessments  of HHS  programs  and operations  in order  to reduce  waste,  abuse,  and 
mismanagement  and to promote  economy  and efficiency throughout  the Department. 
OFFICE OF INVESTIGATIONS 
The  OIGS Office of Investigations  (01)  conducts  criminal,  civil, and administrative 
investigations  of allegations  of wrongdoing  in HHS  programs  or to HHS  beneficiaries  and of 
unjust  enrichment  by providers.  The  investigative  efforts  of 01  lead to criminal  convictions, 
administrative  sanctions,  or civil money  penalties.  The  01  also oversees  State  Medicaid  fraud 
control  units which investigate  and prosecute  fraud and patient  abuse  in the  Medicaid  program. 
OFFICE OF EVALUATION  AND  INSPECTIONS 
The  OIGS Office of Evaluation  and Inspections  (OEI)  conducts  short-term  management  and 
program  evaluations  (called  inspections)  that  focus on issues of concern  to the  Department, 
the  Congress,  and the  public.  The  findings and recommendations  contained  in these  inspection 
reports  generate  rapid,  accurate,  and up-to-date  information  on the efficiency, vulnerability, 
and effectiveness  of departmental  programs.