Department of Health
and Human Services
Office of Inspector General
Semiannual Report
April 1, 1998 - September 30, 1998
June Gibbs Brown
Inspector General STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative
reporting and enforcement responsibilities and authorities are listed below:
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF MANAGEMENT AND
BUDGET CIRCULARS
P.L.   96-304  Supplemental Appropriations and Rescissions Act of 1980
P.L.   96-510  Comprehensive Environmental Response, Compensation and Liability Act
P.L.   97-255  Federal Managers Financial Integrity Act
P.L.   97-365  Debt Collection Act of 1982
P.L.   99-499  Superfund Amendments and Reauthorization Act of 1986
P.L. 101-576  Chief Financial Officers Act of 1990
P.L. 102-486  Energy Policy Act of 1992
P.L. 103-62   Government Performance and Results Act of 1993
P.L. 103-355  Federal Acquisition Streamlining Act of 1994
P.L. 103-356  Government Management Reform Act of 1994
P.L. 104-156 Single Audit Act Amendments of 1996
P.L. 104-191  Health Insurance Portability and Accountability Act of 1996
P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996
P.L. 104-208  Federal Financial Management Improvement Act of 1996
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25 User Charges
A-  50 Audit Follow-up  
A-  76 Performance of Commercial Activities
A-  87 Cost Principles for State, Local and Indian Tribal Governments
A-102 Grants and Cooperative Agreements with State and Local Governments
A-110 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
A-122 Cost Principles for Nonprofit Organizations
A-123 Management Accountability and Control
A-127 Financial Management Systems
A-129 Policies for Federal Credit Programs and Non-Tax Receivables
A-133 Audits of States, Local Governments and Non-Profit Organizations
  A-134 Financial Accounting Principles and Standards
General Accounting Office Government Auditing Standards
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES
Criminal investigative authorities include:
Title   5, United States Code, section 552a(I)
Title 18, United States Code, sections on crime and criminal procedures as they pertain to OIGs oversight of
departmental programs and employee misconduct
Title 42, United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 1320a-7b, the Social Security
and Public Health Service Acts
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as
those at:
Title 31, United States Code, section 3729 et seq., the False Claims Act and 3801 et seq., the Program Fraud Civil
Remedies Act
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320b-10, 1320c-5, 1395l, 1395m, 1395u, 1395dd and
1396b A MESSAGE FROM THE SECRETARY
The American people rely on the benefits and services provided under the many programs
of the Department of Health and Human Services (HHS).  We at HHS are committed to
safeguarding those benefits and services into the future.  Key to achieving that goal is
practicing a policy of zero tolerance for fraud and abuse.  And one of our most valuable
partners in this effort is the Office of Inspector General (OIG).
The Administration and the Congress have repeatedly recognized the importance of fighting
fraud in the health care arena.  In 1996, they gave law enforcement a major boost through
the establishment of the Fraud and Abuse Control Program, authorized in the Health
Insurance Portability and Accountability Act (HIPAA).  The HIPAA envisions a
fraud-fighting program that coordinates the efforts of a broad array of law enforcement and
health care agencies and provides the framework and resources for the struggle to improve
the Nations health care system.  Since enactment of HIPAA, the number of health care
fraud convictions and exclusions of unsuitable health care providers have increased
dramatically.  Moreover, we have seen implementation of OIG recommendations for policy
and procedural changes which will result in savings of billions of dollars for the taxpayer.
Recognizing that fighting fraud is not just a challenge for law enforcement, we are working
to detect and stop fraud before it ever happens.  The OIGs preventive and deterrent
function, including the development of front-end controls when designing benefit programs,
has been crucial to those efforts.  The  OIG has also successfully enlisted the help of the
public and the health care industry itself in identifying fraud and helping us fight it.
The Inspector General and I have the same mission.  I am pleased that at HHS we have
been able to work so successfully as a team towards our common goal of ensuring excellent
service to our customers.  Working together, we will continue to make real progress against
fraud and abuse and restore public confidence in the ability of Government to ensure and
improve the health and well-being of our children, our families, our Nation.
I extend my appreciation to the Inspector General for her efforts on behalf of the
Department and the American taxpayer, and I commend her staff for their continued
professionalism and  dedication.
Donna E. Shalala FOREWORD
This semiannual report highlights the activities and accomplishments of the Department of
Health and Human Services (HHS) Office of Inspector General (OIG) for the 6-months
ending September 30, 1998.  During this period, we continued to build on our solid record
of achievement, identifying opportunities for improving quality of care and services and
enhancing program efficiency and effectiveness.  
The success of our efforts is largely the result of the collaborative working relationship that
exists between OIG and the Department.  The OIG must work closely and constructively
with  departmental  managers  to  ensure  that  HHS  programs  are  administered  in  a
cost-effective manner and structured so as to avoid fraud and abuse.  At the same time, OIG
must maintain the independence necessary to investigate, audit and critique those programs
in the best interest of the American taxpayer.  I believe that we have achieved this balance at
HHS.  We are supported in our dual role by Secretary Shalala, who has always regarded
OIG as a valuable resource.  In this environment, departmental managers are encouraged to
confer with OIG staff in developing policy and procedures, and to act to close loopholes in
response to OIG findings of vulnerability in agency programs or operations.  
One of the areas of greatest concern within the Department continues to be the integrity of
the Medicare program.  During this reporting period, we issued our second comprehensive
financial  statement  audit  of  the  Health  Care  Financing  Administration  and  found  that
unnecessary or improper benefit payments continued to plague the program.  We will
continue to work with the Department to ensure that identified weaknesses are corrected.
Also, we are monitoring HHSs progress in meeting one of the greatest challenges facing
Federal agencies today, that of readying for the year 2000. 
In seeking ways to further extend our reach, we have established numerous partnerships
with others inside and outside the Department.  These initiatives have allowed us to stretch
our dollars, drawing upon the expertise of others while sharing our own.  In one such effort,
OIG and the Office of Child Support Enforcement joined together to design a criminal
justice model to combat the problem of criminal nonpayment of child support.  Using
multiagency task forces, this approach is intended to create a streamlined system of case
identification, referral and prosecution which will heighten the impact of law enforcement
efforts in the field of child support enforcement.
Moreover, we have broadened the focus of our work beyond the traditional after-the-fact
investigations and audits of past conduct, so that we not only detect fraud, waste and abuse,
but also work to prevent them.  Recognizing that Government alone cannot solve the problems of fraud, we have sought ways to inform and educate the public, including the
provider and beneficiary communities, and enlist their help in avoiding impropriety.  During
this reporting period, OIG unveiled its comprehensive compliance program guidance for the
home health industry.  This is the third set of guidelines to be developed by OIG for a
provider group doing business with the Federal health care programs, and others are under
development.
Another key aspect of our prevention initiatives has been to step up our efforts to exclude
offending  providers  from  future  participation  in  Federal  health  care  programs.    Such
exclusions serve the dual purpose of preventing continued payments to providers deemed
untrustworthy and protecting beneficiaries from substandard care.  This year, we reported a
record 3,021 exclusions of such providers.
In addition, we are pleased that our efforts have once again yielded impressive savings to the
Government:  over  $11.6  billion  for  Fiscal  Year  1998.    We  will  continue  to  seek
opportunities to enhance the efficiency and effectiveness of HHS programs and to improve
the lives of the programs beneficiaries. 
June Gibbs Brown
Inspector General
  HIGHLIGHTS
Introduction
During the 6-month period ending September 30, 1998, the Department of Health and
Human  Services  (HHS)  Office  of  Inspector  General  (OIG)  carried  out  a  number  of
initiatives in furtherance of its mission to protect HHS programs and the health and welfare
of the beneficiaries served by them.  Highlights of OIGs accomplishments for this period
follow.
Statistical Accomplishments
The OIG is pleased to report record savings of $11.6 billion for fiscal year (FY) 1998,
comprised of $10,964.8 million in implemented recommendations and other actions to put
funds to better use, $146.5 million in disallowances from questioned costs and $515.9
million in investigative receivables.  (See Appendix A and the sections entitled "Resolving
Office of Inspector General Recommendations, A. Questioned Costs" and "Investigative
Prosecutions  and  Receivables"  in  the  General  Oversight  chapters  of  OIGs  FY  1998
semiannual reports for details.)
In addition, for FY 1998, OIG reported 3,021 exclusions of individuals and entities for fraud
or abuse of the Federal health care programs and/or their beneficiaries, 261 convictions of
individuals or entities that engaged in crimes against departmental programs, and 927 civil
actions.  (See sections entitled "Fraud and Abuse Administrative Sanctions" in the Health
Care Financing Administration chapters and "Investigative Prosecutions and Receivables" in
the General Oversight chapters of OIGs FY 1998 semiannual reports.)
Medicare Managed Care
As  of February 1998, over 6 million Medicare beneficiaries received their health care
services through managed care plans, such as health maintenance organizations (HMOs).
During this reporting period, OIG looked at several aspects of managed care:
Beneficiary and Physician Satisfaction
Beneficiaries sampled in an OIG review generally reported good access to HMO services in
1996  and  substantial  improvement  in  some  problem  areas  since  a  1993  review.
Nevertheless, OIG recommended that the Health Care Financing Administration (HCFA)
better inform beneficiaries about their rights and HMO procedures and restrictions, and
improve its oversight of enrollee access to health care and reasons for disenrollment.  In
another review, OIG  proposed that HCFA address the access problems reported by a sample
of particularly vulnerable Medicare beneficiaries.  (See page 19)
In  a  survey  of  physicians,  OIG  found  that  overall  satisfaction  with  HMOs  was  low.
However, despite concerns with the referral process, clinical independence, access to care
i and other matters, most physicians believed that their Medicare patients received good care.
(See page 18)
Oversight by HCFA
In a report on HCFAs processes for monitoring the performance of managed care plans,
OIG proposed revisions to better ensure beneficiaries access to services.  For example, OIG
recommended that the processes be more geared to capturing information on the plans
performance  in  todays  evolving  managed  care  market  and  targeted  to  specific
characteristics of individual plans.  (See page 17)
Administrative Costs
Two reviews assessed the administrative costs included in adjusted community rate (ACR)
proposals,  HMOs  estimates  of  the  funds  needed  to  provide  Medicare  services  to
beneficiaries in the upcoming contract year.  In a review of the ACR process, OIG found that
Medicare could save about $1 billion a year if administrative costs were determined in
accordance with Medicares longstanding principle of paying only its fair share of needed
health care costs.  A review focusing on a particular HMO identified over $700,000 in
administrative  costs  that  would  be  considered  inappropriate  in  other  Medicare
reimbursement situations.  The results of additional reviews underway will be shared with
HCFA  for  its  consideration  of  legislative  changes  to  clearly  delineate  allowable
administrative costs.  (See pages 20 and 21)
Institutionalized Beneficiaries
At another HMO, OIGs sample of beneficiaries found that many had been incorrectly
classified as institutionalized.  Since Medicare pays a higher rate for such beneficiaries, OIG
estimated that the HMO received at least $1.6 million more than allowed over a 2-year
period.  A breakdown in the transmission of information in the HMOs computer system was
the primary cause of the overpayments.  (See page 20)
Quality of Care
Some of OIGs most significant work during this reporting period related to the quality of
care provided to program beneficiaries.
Elder Abuse in Nursing Homes
With public concern for the safety of the elderly on the rise, OIG continued to concentrate
on measures used by nursing homes and other long-term care facilities to prevent abuse and
neglect.  A recent consolidated report concluded that current State safeguards did not ensure
that potentially abusive nursing home staff were systematically identified and excluded from
employment.  Instead, States used a patchwork of measures, including criminal background
checks and screens of nurse aide registries.  These safeguards varied in coverage from State
to State and were usually limited to Statewide records.  The records themselves lacked
critical information on some individuals criminal histories.
To better ensure a safe and secure nursing home environment, OIG recommended stronger
safeguards, including the development of a national abuse registry.  Also, OIG suggested
ii that its Healthcare Integrity and Protection Data Bank (HIPDB) be expanded to include the
national abuse registry.  The HCFA and the Administration on Aging generally agreed with
OIGs recommendations, and HCFA planned to further examine the expansion of HIPDB.
(See page 50)
Institutional Review Boards
The OIG released four final inspection reports that addressed the role of institutional review
boards (IRBs) in protecting human subjects participating in clinical research.  Although OIG
did not claim that there are widespread abuses of human research subjects, the findings serve
as a warning signal of a system in jeopardy.  The OIG concluded that IRBs are reviewing
too much, too quickly, with too little expertise.  They are conducting minimal continuing
reviews  of  approved  research,  facing  conflicts  that  threaten  their  independence,  and
providing little training for clinical investigators and board members.  Further, OIG believes
that neither IRBs themselves nor the Department devote sufficient attention to evaluating
IRB effectiveness.  (See page 36)
Distribution of Organs for Transplantation
In updating a 1991 inspection report in response to a congressional request, OIG found that
both racial and geographic disparities in waiting times still exist and, in some cases, seem to
be growing for those waiting for transplant organs.  Black recipients still wait longer than
white recipients for kidney transplants and the difference in waiting times has grown.  This
inspection report reemphasizes that the national organ allocation system should focus on
equity among patients, not among transplant centers, and on common medical criteria, not
the circumstances of a patients residence or transplant center affiliation.  (See page 37)
Patient Dumping
Referrals to OIG of potential violations of the patient anti-dumping statute have increased
dramatically.  The statute requires that an emergency medical screening examination and
appropriate stabilizing treatment be provided to patients who present at the emergency
department of a Medicare participating hospital.  The OIG is currently investigating over
150 cases of alleged patient dumping, representing hundreds of instances where individuals
were potentially refused  medical screening examinations and/or treatments for possible
emergency medical conditions.  In FY 1998, OIG settled 54 cases with the imposition of
$1.83 million in civil monetary penalties and community outreach obligations.  In addition,
OIG is preparing for hearings in three other dumping cases, involving two physicians and
one hospital.  (See page 12) 
Child Support Enforcement
Along with the Office of Child Support Enforcement (OCSE) and its other Federal, State
and local partners, OIG has developed procedures designed to expedite the detection and
prosecution of absent parents who are delinquent in their child support.  To date, OIG has
investigated  378  child  support  cases  nationwide.    These  cases  have  resulted  in  75
convictions  and  court-ordered  restitution  of  over  $6.6  million.    Moreover,    OIG  has
conducted audits and inspections involving various aspects of the child support enforcement
program. 
iii Child Support Enforcement Task Force
As part of its effort to further increase child support collections, OIG and OCSE initiated a
multiagency, multijurisdictional investigative task force which consists of three investigative
units from different States.  The task force is designed to identify, investigate and prosecute
criminal nonsupport cases both on the Federal and State levels through the coordination of
law enforcement, criminal justice and child support office resources.  It is anticipated that
the task force will streamline the process by which the cases best suited for criminal action
will be identified and prosecuted.   (See page 45)
Satisfaction Survey
An extensive survey of State child support agencies found that most States were satisfied
overall with both the central and regional OCSE, especially in the areas of communication,
coordination and program support. The survey found that opportunities to improve services
remained, but OCSE got high marks for its performance, particularly in recent years.  Case
studies for programs in Colorado, Massachusetts, Minnesota, New York, South Carolina and
Texas  were  developed  by  OIG  to  supplement  the  first  report.    The  case  study  report
discussed each States program highlights, working relationships with the Federal OCSE,
some cross-analysis on specific issues and suggestions for support.  (See page 44)
Availability of Health Insurance:  Connecticut 
In a separate review, OIG determined that children under the CSE program were receiving
Medicaid benefits because private health insurance was unavailable or unaffordable to their
noncustodial parents.  The report noted that taxpayers, rather than the noncustodial parents,
provided medical support to nearly 14,000 of these children through the Medicaid program
in Connecticut.  The OIG estimated that the State could save about $11.4 million (Federal
and State combined) in annual Medicaid costs if it required noncustodial parents to offset
Medicaid premiums paid by the State on behalf of their children.  The State agreed to do so,
and  both  HCFA  and  the  Administration  for  Children  and  Families  endorsed  OIGs
suggestion. (See page 44)     
Departmental Oversight
As part of its oversight responsibilities for departmental activities, OIG assessed progress
toward Year 2000 computer system readiness and, through the financial statement audit
process, accountability for taxpayer dollars.
Year 2000 System Compliance
As the millennium approaches, OIG is monitoring the Departments progress in renovating
its mission-critical computer systems to recognize and process four-digit dates.  This effort
is part of an initiative by the Presidents Council on Integrity and Efficiency to monitor
preparations throughout the executive branch.
To allow time for dealing with unanticipated problems, the Department set December 31,
1998  as  its  deadline  for  system  compliance.    The  OIGs  first  status  report  indicated,
however, that both Medicare contractor and departmental systems were at risk of missing the
deadline.  Equally important was the apparent widespread lack of adequate contingency
iv planning -- a critical need in the event of mission-critical system failures.  Additional status
reports will be issued until the Year 2000.  (See page 54)
Federal Financial Accountability
The OIGs recent audit of the departmentwide consolidated financial statements for FY 1997
noted an improvement in Federal financial accountability; that is, OIGs opinion on the
statements advanced from a disclaimer for FY 1996 to a qualification for FY 1997.  Because
of continuing problems, however, OIG was unable to issue an unqualified (or "clean")
opinion.  The audit report estimated that improper Medicare fee-for-service payments in FY
1997 amounted to about $20.3 billion, or about 11 percent of the total $177.4 billion in
fee-for-service payments.  Additionally, OIG identified systemic internal control problems
which were related to material financial statement amounts or which affected a number of
operating divisions.  For instance, although required by Federal accounting standards, the
Department did  not  have an acceptable method for estimating incurred but unreported
grantee expenses at yearend.  The OIG continues to work with the Department in its efforts
to achieve full financial discipline.  (See pages 2, 40, 50, 54)
OIG Work in Performance Measurement
In order to identify work done in the area of performance measurement, OIG has labeled
some items throughout this report as performance measures with the symbol            .
Performance measures are used to evaluate the achievement of a program goal, such as the
efficiency of an immunization program which is measured by the number of inoculations
provided per dollar of cost.  In OIGs opinion, the audits, inspections and investigations
identified  with  the  performance  measure  symbol  offer  management  information  about
whether  some  aspect  or  all  of the programs  or  activities reviewed are achieving their
missions and goals.  These proposals are provided to management for their consideration as
they develop their performance measures.  (See Appendix F)
Internet Address
This semiannual report and other OIG materials may be accessed on the Internet at the
following address: http://www.dhhs.gov/progorg/oig
v Table of Contents
Chapter I  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1
Financial Statement Audit of Health Care Financing Administration for
Fiscal Year 1997  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Fraud and Abuse Control Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
A.  Physicians at Teaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
B.  Diagnosis Related Group Payment Window Project . . . . . . . . . . . . . . . . . . . . . .6
C.  Operation Bad Bundle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
D.  Patient Transfers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
E.  Bacterial Pneumonia Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Other Hospital Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Using Software to Detect Upcoding of Hospital Bills  . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Hospital Stays for Medicare Beneficiaries Discharged to Home Health
Agencies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Fraud and Abuse Administrative Sanctions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
B.  Civil Penalties for Patient Dumping  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
C.  Civil Penalties for False Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
D.  Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Medicare Beneficiary Satisfaction:  1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Medicare Beneficiaries with Additional Medical Insurance in 1997  . . . . . . . . . . . . . . .16
Medicares Oversight of Managed Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Physician Perspectives of Medicare Health Maintenance Organizations . . . . . . . . . . . .18 Beneficiary Perspectives of Medicare Risk Health Maintenance
Organizations:  1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Beneficiary Perspectives of Medicare Risk Health Maintenance
Organizations - 1996:  Beneficiaries with Functional Limitations,
Comorbidities and Disabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Payments to a Risk-Based Health Maintenance Organization for
Beneficiaries with Institutional Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Administrative Costs Submitted by Risk-Based Health Maintenance
Organizations on Adjusted Community Rate Proposals . . . . . . . . . . . . . . . . . . . . . . . . .20
A. Adjusted Community Rate Proposal Process . . . . . . . . . . . . . . . . . . . . . . . . . . .20
B. Administrative Cost Component at One HMO  . . . . . . . . . . . . . . . . . . . . . . . . .21
Medicare Hospice Beneficiaries:  Services and 
Eligibility  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Development of a Prospective Payment System for Skilled Nursing
Facilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Medical Necessity of Physical and Occupational Therapy in Skilled
Nursing Facilities:  California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Home Health Care Visits:  Texas  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Medicare Contractors Excess Pension Assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
A.  Colorado  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
B.  Connecticut  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Home Office Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Laboratory Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Independent Physiological Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Medicare Allowances for Lymphedema Pumps  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Medicare Part B Allowances for Wound Care Supplies  . . . . . . . . . . . . . . . . . . . . . . . . .26
Ancillary Medical Supplies in Skilled Nursing Facilities:  California  . . . . . . . . . . . . . .27
Medicare Payments for Therapeutic Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .27 Impact of High-Priced Generic Drugs on Medicare and Medicaid . . . . . . . . . . . . . . . . .28
Medicare Allowances for Albuterol Sulfate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Federal and State Partnership: Joint Audits of Medicaid  . . . . . . . . . . . . . . . . . . . . . . . .30
Medicaid Managed Care and HIV/AIDS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Routine Prenatal and Postpartum Care for Undocumented Aliens . . . . . . . . . . . . . . . . .32
Calculation of Medicaid Drug Rebates and Medicaid Drug
Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .35
Institutional Review Boards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Food and Drug Administrations Citizen Petition Process  . . . . . . . . . . . . . . . . . . . . . . .36
Annual Reporting Process for Investigational New Drugs . . . . . . . . . . . . . . . . . . . . . . .37
Cancer Information Service  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Racial and Geographic Disparity in the Distribution of Organs for
Transplantation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Health Centers Access to the National Practitioner Data Bank  . . . . . . . . . . . . . . . . . . .38
Use of the 340B Drug Pricing Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .38
Substance Abuse and Mental Health Services Administrations
Treatment Improvement Protocols  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Fiscal Year 1997 Financial Statement Audits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
A.  Food and Drug Administration  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
B.  National Institutes of Health  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
C.  Centers for Disease Control and Prevention and Agency 
for Toxic Substances and Disease Registry . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
D.  Health Resources and Services Administration  . . . . . . . . . . . . . . . . . . . . . . . .41 E.  Substance Abuse and Mental Health Services Administration  . . . . . . . . . . . . .41
F.  Indian Health Service   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Chapter III  ADMINISTRATION FOR CHILDREN AND FAMILIES,
AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .43
State Child Support Satisfaction Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
A.  Survey Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
B.  Case Studies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Availability of Health Insurance for Children under the Child Support
Enforcement Program:  Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Automated Data Processing Expenditure Reporting:  Missouri   . . . . . . . . . . . . . . . . . .45
Child Support Enforcement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Identifying and Reporting Cases of Statutory Rape  . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Contract Administration for Head Start Grantee Reviews  . . . . . . . . . . . . . . . . . . . . . . .48
Emergency Assistance Program Costs:  Pennsylvania  . . . . . . . . . . . . . . . . . . . . . . . . . .49
Payments under the Refugee Resettlement Program:  Florida  . . . . . . . . . . . . . . . . . . . .49
A.  Cash Assistance Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
B.  Medical Assistance Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Financial Statement Audit of the Administration for Children and
Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Business Process Reengineering Pilot  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Safeguards Against Elder Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
A.  Safeguarding Long-Term-Care Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
B.  Elder Abuse Safeguards in Illinois  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Health Care Antifraud Volunteer Project  Performance Measures  . . . . . . . . . . . . . . . . .51
Chapter IV  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Year 2000 System Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Financial Statement Audit of the 
Department for Fiscal Year 1997  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Reviews of Departmental Service Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
A. Departmentwide Payroll System  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
B. Division of Financial Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
A.  Office of Inspector Generals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .56
B.  Quality Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .58
A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
B.  Funds Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .60
A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
B.  Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Governmental Accounting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
A.  Tennessee Consolidated Retirement System . . . . . . . . . . . . . . . . . . . . . . . . . . .61
B.  Virginia Internal Service Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Employee Fraud and Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Program Fraud Civil Remedies Act  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
APPENDIX A - Savings Achieved Through Policy and Procedural 
Changes Resulting from Office of Inspector General
Audits, Investigations and Inspections April 1998 
through September 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - Unimplemented Office of Inspector General 
Recommendations to Put Funds to Better Use . . . . . . . . . . . . . . .B-1 APPENDIX C - Unimplemented Office of Inspector General 
Program and Management Improvement 
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the Inspector General 
Act of 1978, as Amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
APPENDIX G - Status of Public Proposals for New and Modified 
Safe Harbors to the Anti-Kickback Statute  . . . . . . . . . . . . . . . . G-1 Health Care 
Financing 
Administration Chapter I
HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General
Activities
The Health Care Financing Administration (HCFA) is responsible for administering the
Medicare and Medicaid programs.  Medicare Part A provides hospital and other institutional
insurance for persons age 65 or older and for certain disabled persons, and is financed by the
Federal  Hospital  Insurance  Trust  Fund.    Medicare  Part  B  (Supplementary  Medical
Insurance) is an optional program which covers most of the costs of medically necessary
physician and other services, and is financed by participants and general revenues.
The Medicaid program provides grants to States for medical care for low-income people.
Eligibility for Medicaid is, in general, based on a persons eligibility for cash assistance
programs.    State  expenditures  for  medical  assistance  are  matched  by  the  Federal
Government using a formula that measures per capita income in each State relative to the
national average.  The Federal/State Childrens Health Insurance Program (CHIP), created
under the new title XXI of the Social Security Act, will expand health coverage to uninsured
children whose families earn too much for Medicaid but too little to afford private coverage.
The CHIP program is a partnership between the Federal and State Governments in which
States may choose to expand their Medicaid programs, design new child health insurance
programs or create a combination of both.
The Office of Inspector General (OIG) has devoted significant resources to investigating and
monitoring  the  Medicare  and  Medicaid  programs.    These  activities  have  often  led to
criminal, civil and/or administrative actions against perpetrators of fraud and abuse.  They
also have helped ensure the cost-effective delivery of health care, improved the quality of
health care and reduced the potential for fraud, waste and abuse.
Over the years, OIG findings and recommendations have contributed to many significant
reforms in the Medicare program.  Such reforms include implementation of the prospective
payment system (PPS) for inpatient hospital services and a fee schedule for physician
services; regional consolidation of claims processing for durable medical equipment (DME);
establishment of fraud units at Medicare contractors; prohibition on Medicare payment for
physician self-referrals; and new payment methodologies for graduate medical education.
1 The OIGs documentation of excessive payments led to recent statutory changes in the way
and/or the amount Medicare reimburses rural health clinics, skilled nursing facilities, home
health  agencies,  hospices,  ambulance  services,  oxygen  suppliers,  clinical  laboratories,
suppliers of certain Medicare-covered drugs and biologicals, teaching hospitals for indirect
medical education costs and the States for Medicaid disproportionate share payments. To
ensure quality of patient care, OIG has assessed clinical and physiological laboratories;
evaluated the medical necessity of medical equipment and of services provided by home
health agencies; analyzed various State licensure and discipline issues; reviewed several
aspects of medical necessity and quality of care under PPS, including the risk of early
discharge; and evaluated the care rendered by itinerant surgeons and the treatment provided
by physicians performing in-office surgery.
The OIG also audits HCFAs financial statements, which account for more than 83 percent
of Department of Health and Human Services (HHS) outlays.  In addition to issuing an
opinion on the statements, OIG has assessed compliance with Medicare laws and regulations
and the adequacy of internal controls.
Financial Statement Audit of Health Care Financing
Administration for Fiscal Year 1997
In its audit report on HCFAs fiscal year (FY) 1997 financial statements, OIG issued a
qualified opinion on the statements, an improvement over the disclaimer issued for FY 1996.
This improvement was attributed to a series of actions taken by HCFA following the earlier
audit.  Most important, HCFA developed a more reliable method for estimating Medicare
accounts payable, and OIG was satisfied with the reasonableness of this estimate.
Also, OIG estimated that the dollar value of improper Medicare fee-for-service benefit
payments made during FY 1997 totaled about $20.3 billion nationwide, or about 11 percent
of the $177.4 billion in fee-for-service payments reported by HCFA.  While this point
estimate was $3 billion less than last years point estimate of $23.2 billion, OIG was unable
to conclude that the error rate was statistically different.  Once again, OIG noted that the
improper  payments  were  caused  primarily  by  provider  billings  for  services  that  were
insufficiently  documented,  medically  unnecessary,  incorrectly  coded  or  noncovered.
Considering the significance of the error rate, OIG concluded that HCFAs oversight of the
Medicare program continued to fall short of providing reasonable assurance of detecting and
preventing improper Medicare payments.
The HCFA concurred with OIGs recommendations and is in the process of taking corrective
action.    The  OIGs  report  appears  in  HCFAs  FY  1997  Financial  Report.    (CIN:
A-17-97-00097)
2 Fraud and Abuse Control Program
During this reporting period, OIG took additional steps toward implementing the important
responsibilities assigned by the Health Insurance Portability and Accountability Act of 1996
(HIPAA).  The Act established a comprehensive program to combat fraud committed against
all health plans, both public and private.  This legislation required the Departments of Justice
(DOJ) and HHS to establish a Fraud and Abuse Control Program, effective January 1, 1997.
Under the joint direction of the Attorney General and the Secretary, acting through the HHS
Inspector General, the Fraud and Abuse Control Program is to achieve certain statutory
goals: coordinating Federal, State and local law enforcement efforts relating to health care
fraud;  conducting  investigations,  audits  and  evaluations  relating  to  health  care  fraud;
facilitating enforcement of the civil, criminal and administrative statutes applicable to health
care;  providing  industry  guidance  relating  to  fraudulent  health  care  practices;  and
establishing a national data bank to report final adverse actions against health care providers.
To fund the coordinated antifraud effort, HIPAA directs that an amount equaling recoveries
derived  from  health  care  cases  --  including  civil  monetary  penalties  (CMPs),  fines,
forfeitures and damages assessed in criminal, civil or administrative health care cases -- be
transferred to the Federal Hospital Insurance Trust fund.  Monies are appropriated from the
trust fund to a newly created expenditure account, called the Health Care Fraud and Abuse
Control (HCFAC) account, in amounts that the Secretary and the Attorney General annually
certify  are  necessary  to  finance  antifraud  activities.    Of  the  amount  so  certified  and
appropriated, a stipulated sum is available only for the purposes of the "activities of the
Office of the Inspector General of the Department of Health and Human Services, with
respect to medicare and medicaid programs."
As required by the HIPAA legislation, in January 1998, DOJ and HHS issued their annual
report of accomplishments achieved in the first year of the HCFAC program.  This report
details monetary recoveries of $1.087 billion, of which nearly $1 billion was restored or
transferred to the Medicare Trust Funds.  The HIPAA statute also requires that the General
Accounting  Office  (GAO)  conduct  a  biennial  review  of  these  recoveries,  as  well  as
expenditures and savings under the HCFAC program.  In addition, GAO must review
expenditures of HCFAC monies on activities not related to Medicare, and any other aspects
of the program that GAO considers appropriate.  During this semiannual period, GAO
issued its first such financial report (GAO-AIMD-98-157).  Importantly, their report found
that the intricate processes developed by DOJ and HHS to track both expenditures and
recoveries were sound.  The GAO noted that non-Medicare expenditures were not tracked or
reported separately from other authorized inquiries under the program, and that savings
realized during FY 1997 were often attributable to activities that commenced in earlier
years, but culminated in the year under review.  Finally, the report noted that implementation
of the Healthcare Integrity and Protection Data Bank was behind schedule, and gave revised
implementation dates.
3 With the added resources and authorities provided by HIPAA, OIG has stepped up its efforts
designed  to  prevent  fraud  and  abuse.    A  key  part  of  OIGs  prevention  efforts  is  the
development of compliance program guidance to assist various sectors of the health care
industry in establishing measures to combat fraud and abuse.  The guidance, developed in
conjunction with the provider community, seeks to promote voluntary compliance with
applicable statutes, regulations, and program requirements governing Federal health care
programs,  by  identifying  steps  that  health  care  providers  could  undertake  to  improve
adherence to Medicare and Medicaid rules.  During this reporting period, OIG released
compliance program guidance for home health agencies, and revised compliance program
guidance for clinical laboratories.  The OIG also solicited, by notice in the Federal Register,
input and comments on issues that should be addressed in the upcoming guidance for the
durable medical equipment industry.  These compliance program guidances are discussed
further on page 15.
The OIG has pursued other measures designed to promote fraud prevention as a central
component of the HCFAC program; among them, issuance of fraud alerts, advisory opinions
and other guidance as part of an ongoing effort to promote the highest level of ethical and
lawful conduct by the health care industry.  In accordance with HIPAA, OIG has enlisted the
help of the provider and beneficiary communities to prevent impropriety, by soliciting
proposals  (via  Federal  Register  notice)  for  modifying  existing  safe  harbors  to  the
anti-kickback statute, and for developing new safe harbors and fraud alerts.  The OIG
received 32 timely-filed responses to the 1996 notice and 17 to the 1997 notice.  A more
detailed description of these proposals is set forth in Appendix G.
The OIG  continues to provide direction, technical assistance and advice regarding the
development and operation of HIPAAs required final adverse actions data bank, now named
the Healthcare Integrity and Protection Data Bank (HIPDB).   During this reporting period,
the Notice of Proposed Rule Making (NPRM) for the regulations required by HIPAA to
implement the new final adverse actions data bank was developed by the Department,
signed by the Secretary and forwarded to the Office of Management and Budget (OMB) for
review and clearance prior to its publication in the Federal Register for public comment this
fall.  The Health Resources and Services Administration continues its work in implementing
the HIPDB on behalf of OIG.  The OIG also continues to chair the Executive Steering
Council that participates in oversight of the HIPDB, and acts as liaison to involve other
Federal and State law enforcement agencies in both reporting to and querying the HIPDB. 
Regulations implementing various provisions of HIPAA are under development.  Proposed
rules revising OIGs civil money penalty (CMP) authorities were published for public
comment in March.  Also during this reporting period, a final rule strengthening OIGs
authority to exclude individuals and entities from participation in Medicare and State health
care programs was approved by the Secretary and is under review in OMB.  
4 The OIG has added additional staff to accomplish the offices responsibilities under the
expanded antifraud and abuse program, and to continue to move toward its goal to have an
investigative presence in every State.  Implementation of HIPAA has been a cooperative
effort.  The OIG has and will continue to work closely with other components of HHS,
chiefly HCFA and the Assistant Secretary for Management and Budget.
Copies of OIGs compliance program guidances, as well as other materials developed by
OIG as part of its effort to identify and curb health care fraud, are available on the Internet at
http://www.dhhs.gov/progorg/oig. 
Major Hospital Initiatives
The OIG has launched five national projects involving civil actions at hospitals that were
falsely billing the Medicare program.  Four of the five grew from OIG hospital audits that
identified irregularities in Medicare billing practices.
A.  Physicians at Teaching Hospitals
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules
governing reimbursement to physicians at teaching hospitals (also known as the PATH
initiative).  The specific objectives of the PATH audit initiative are to verify compliance with
the Medicare rules governing payment for physician services provided by residents and
interns, and to ensure that all claims for physician services accurately reflect the level of
service provided to the patient.
Medicare pays the costs of training residents and interns through the graduate medical
education (GME) program.  Medicare also pays an additional amount in recognition of the
additional costs  associated  with  training residents and  interns (also known  as indirect
medical education or IME).  These payments can total over $100,000 per resident per year.
Medicare paid approximately $8.1 billion to teaching hospitals in 1996 for the costs of
training residents and interns.  The Medicare payments described above include payments to
teaching physicians for their role in supervising residents and interns.
The fundamental tenet of the PATH initiative is that in order to receive reimbursement from
Medicare Part B for a service rendered to a patient, the teaching physician must have
personally provided that service or have been present when the intern or resident furnished
the care.   Physicians claiming reimbursement for services performed by the intern or
resident alone are making a duplicate claim--one that has already been paid for under Part A
through the GME and IME payments.
The PATH audits also include a review of Part B claims information and medical records to
determine if the teaching physician claimed the appropriate reimbursement for the level of
service provided.  The Medicare billing systems vulnerability to upcoding is a longstanding
5 concern at OIG.  The PATH reviews are designed to detect patterns or practices of upcoding,
resulting in unwarranted loss to the Medicare Trust Fund.
In sum, the PATH initiative has been undertaken as a result of OIGs extensive audit and
investigative work in this area.  To date, four institutions have entered into settlements with
the Federal Government to resolve potential False Claims Act liability related to improper
claims for Part B physician services submitted in the teaching setting.  These settlements
have  resulted  in  the  Governments  recovery  of  over  $67  million.    As  a  condition  of
settlement, these institutions have also implemented corporate integrity programs to prevent
and detect future improper claims.  An audit completed at two other institutions disclosed no
major problems with either billings in the teaching setting or upcoding, demonstrating that
providers can and do bill the Medicare program correctly.
To determine whether, and to what extent, problems similar to those noted above were
present at other teaching institutions throughout the country, the PATH project was expanded
into a national initiative, but limited to those institutions that received clear guidance before
December 30, 1992 from the Medicare Part B carriers communicating the applicable HCFA
reimbursement standards.  As an alternative to OIG auditors conducting the audits, these
providers  are  given  the  opportunity  to  conduct  self-audits  by  contracting  with  an
independent third party for a review of their Medicare billing practices, with Government
oversight, and to report the audit results to OIG.
B.  Diagnosis Related Group Payment Window Project
In  1995,  OIG  and DOJ launched a  national project  to  recover overpayments made to
hospitals as a result of claims submitted for nonphysician outpatient services that were
already included in the hospitals inpatient payment under the PPS.  Hospitals that submit
claims  for the  outpatient  service  in  addition  to the inpatient admission  are, in  effect,
submitting duplicate claims for the outpatient services.  In addition, the project seeks to
recover for those services rendered to beneficiaries during the inpatient admission that
should be included in the diagnosis related group (DRG), but are separately charged.  A
prevalent pattern of abuse was identified through repeated OIG audits of hospital claims for
inpatient services under PPS.  Prior to the inception of this project, OIG had issued four
reports to HCFA identifying approximately $115.1 million in Medicare overpayments to
hospitals caused by these improper billings.
This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for
outpatient services.  These hospitals receive notification from the local U.S. Attorneys
Office  concerning  OIGs  identification  of  erroneous  claims  and  the  facilitys  potential
exposure under the False Claims Act.  The hospitals are given the opportunity to enter into a
settlement with the Government under which the financial exposure of the institution is
substantially less than if litigated under the Act.  Compliance measures to prevent and detect
erroneous billing are also  required  under the terms  of the settlement.  The project is
6 primarily coordinated by the U.S. Attorneys Office - Middle District of Pennsylvania.  As of
the end of the reporting period, settlements had been executed with 2,483 hospitals and
about $63.8 million had been recovered.
One  of  the  most  important  parts  of  this  project  is  the  stipulation  in  each  settlement
agreement  that  each  hospital  will  assure  compliance  with  proper  billing  for
inpatient/outpatient services.  It is hoped that the deterrent effect of possible civil actions,
along with promised compliance, will remove this source of improper claims.
C.  Operation Bad Bundle
The OIG, DOJ and multiple States have joined forces to target false or fraudulent Medicare
and Medicaid claims in hospital outpatient laboratories.  A project begun in Ohio by OIG,
DOJ, the State of Ohio and the Medicare fiscal intermediary proved so successful, United
States Attorneys Offices in other States began their own investigations as part of an
expanded effort known as Operation Bad Bundle.  This project involves the recovery of
multiple damages, when appropriate, for improper and excessive claims submitted for
hematology and automated blood chemistry tests by hospital outpatient laboratories.  These
abuses stem from the improper unbundling and double billing of laboratory tests, and, in
certain cases, the billing for certain medically unnecessary tests.
Clinical laboratory services were particularly vulnerable to these abuses because of the
multiple number of tests ordered at one time and the capability of automated equipment to
run numerous tests from one sample of blood at a low cost.  Under Medicare guidelines, the
hospitals were required to bill certain groupings of blood tests using a bundled code.  The
reimbursement for blood chemistry tests bundled into a panel is significantly less than that
for each test run separately.
The OIG and DOJ are working together on the national project to provide targeting data to
the United States Attorneys offices interested in pursuing this recovery initiative in their
districts.  The OIG also collaborated with DOJ to produce a model settlement agreement that
includes compliance measures, which has been disseminated to all participating districts
throughout the United States.
Thus far, 221 hospitals have entered settlements in Operation Bad Bundle, with settlements
totaling more than $45 million.  More hospitals are expected to settle in the near future.
D.  Patient Transfers
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for
patient transfers between two PPS hospitals.  Under Medicare reimbursement rules, the
hospital transferring a patient is to receive a per diem payment based on the length of stay,
and the hospital receiving the transferred patient is to be paid a diagnosis-related payment
based on the final discharge code.
7 Since 1986, however, OIG has found that many transferring hospitals inappropriately claim
full diagnosis-related payment rather than the per diem payment.  The HCFA has already
acted on OIGs first report, which identified $227 million in recoveries and savings.  The
OIGs second report, issued in November 1996, and a more recent computer analysis of
claims disclosed additional overpayments of approximately $202 million.  Currently, OIG is
working with U.S. Attorneys offices nationwide to address this continuing problem.
E.  Bacterial Pneumonia Project
The OIG and DOJ are investigating whether hospitals across the country have routinely
assigned  the  incorrect  diagnosis  code  to  hospital  admissions  for  bacterial  pneumonia.
Medicare pays for inpatient hospital services based on DRGs, which are assigned based on
the diagnosis codes identifying the condition(s) treated during the hospital admission.  One
diagnosis code is to be used for  "bacterial pneumonia - other specified bacteria," i.e., where
a physician diagnoses the patient with a pneumonia caused by a specific bacteria and there is
no other diagnosis code for that particular bacteria.  This code should rarely be used since
there  are  specific  diagnosis  codes  for  pneumonia  caused  by  almost  all  known
pneumonia-causing types of bacteria.  Because cases that should properly be coded as "other
specified bacteria" are expected to be complex, such cases are grouped to a higher-paying
DRG than most pneumonia cases.  The OIG believes that many hospitals have been using
the "other specified bacteria"  diagnosis code for hospital admissions where the physician
has not diagnosed a specific bacteria as the cause of the pneumonia.  In such cases, the
hospital should use a different diagnosis code for "bacterial pneumonia - unspecified,"
which generally results in the case being grouped to a DRG which pays several thousand
dollars less than the code for "other specified bacteria."
The OIG is currently investigating the coding for bacterial pneumonia at over 100 hospitals.
To date, one hospital has settled its liability for such coding by paying over $644,000 and
agreeing to corporate integrity requirements.
Other Hospital Investigations
The following cases are significant examples of other hospital cases resolved during this
period, which were not part of the special projects described above:
 A  medical  center  in  Texas  entered  a  settlement  agreement  to  pay  the
Government $17.2 million for allegedly defrauding Medicare, Medicaid, the
Tricare/Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS) and other Federal health care programs.  In addition, the
medical center agreed to enter into a 5-year program to ensure compliance
with the billing requirements of Medicare, Medicaid and all other Federal
health care programs.  A qui tam action filed by a former employee alleged
that the center submitted false claims by representing that services were
8 personally provided by faculty physicians employed by the center, but the
center  did  not  possess  sufficient  documentary  evidence  to  show  the
involvement of these physicians.
 A psychiatric hospital located in Florida agreed to pay $4.7 million to
resolve its civil liability for fraudulent Medicare billings.  Investigation
showed that over a 6-year period, the hospital routinely admitted elderly
patients for inpatient services that were not medically necessary.  Many of
the  patients  suffered  from  organic  brain  disorders  and  would  not  have
benefitted from psychiatric treatments.  In addition, the hospital provided
inadequate patient care and falsified patients medical records.  As part of
the settlement, the hospital agreed to enter into a comprehensive corporate
integrity program which will be monitored and enforced by OIG for the
next 5 years.
 In Georgia, a hospital agreed to pay nearly $4.3 million to settle a qui tam
False  Claims  Act  case.    The  Government  alleged  that  the  hospitals
pharmacy improperly billed the Georgia Department of Medical Assistance
(GDMA)  for  dispensing  fees  relating  to  prescription  medications.  The
hospital pharmacy routinely billed GDMA for dispensing fees over and
above  an  allowable  amount  authorized by  GDMA.   This  hospital  also
agreed to an extensive 5-year corporate integrity agreement.
 A hospital in Georgia agreed to pay more than $950,000 to settle allegations
that it improperly coded services in its chemical dependency unit in 1991 -
1992, before it was acquired by the Nations largest for-profit hospital
corporation.   In addition,  it was  not  properly  licensed  by the State to
perform such services.  A corporate integrity agreement was negotiated, but
since the hospital no longer offers chemical dependency treatment and the
corporation  did  not  own  or  operate  the  hospital  at  the  time  of  the
misconduct, no provisions specific to a chemical dependency unit were
included.
Using Software to Detect Upcoding of Hospital Bills
This  inspection  report  focused  on  using  commercial  off-the-shelf  software  to  detect
diagnosis related group (DRG) upcoding.  The OIG tested the ability of two software
products to identify hospitals with a high rate of DRG upcoding. Hospitals identified by the
software had an average upcoding rate that was twice as high as the upcoding rate of other
hospitals.  However, when examining performance at the DRG level, the software was
distinctly less successful for all but a small group of DRGs with the very highest rates of
upcoding.  The testing results led OIG to raise caution about the ability of these products at
this time.  (OEI-01-97-00010)
9 Hospital Stays for Medicare Beneficiaries Discharged to Home
Health Agencies
Hospital ownership of a home health agency affects hospital length of stay, according to this
OIG inspection report.   For example, patients who had bowel procedures were discharged 4
days sooner from hospitals that owned a home health agency than from those that did not.  A
1-day difference was found for patients with joint replacements and pulmonary disease.  No
such differences were found for patients with heart failure and shock, vascular procedures
and heart procedures.  The OIG suggested that HCFA consider hospital ownership as an
additional factor when selecting future diagnosis related groups to be covered under the
recently enacted "transfer reimbursement provision" of the Balanced Budget Act of 1997
(BBA).   (OEI-02-94-00321)
Fraud and Abuse Administrative Sanctions 
During this reporting period, OIG imposed 2,117 sanctions, in the form of exclusions or
civil actions, on individuals and entities for engaging in fraud or abuse of Federal and State
health care programs and/or their beneficiaries.  More than half the exclusions were based
on  conviction  of  program-related  crimes,  conviction  for  the  illegal  manufacture  or
distribution of controlled substances, conviction related to patient abuse or neglect, or loss of
license to practice health care, as well as other bases. 
A.  Program Exclusions
Title  XI  of  the  Social  Security  Act  provides  a  wide  range  of  authorities  to  exclude
individuals and entities from participation in Federal health care programs.  Exclusion is
mandatory for those convicted of program-related crimes, crimes related to patient abuse or
neglect, felony convictions for defrauding other health care programs and felony convictions
for  the  illegal  manufacture  or  distribution  of  controlled  substances.  Exclusion  is
discretionary for those who have lost a license or the right to participate in a State health
care program for reasons related to professional performance, professional competence or
financial integrity, or provided substandard care or unnecessary services, or engaged in
various types of prohibited activities.
The BBA was designed to ensure further protection of the integrity of Medicare and other
Federal and State health care programs for current and future beneficiaries, and to combat
fraudulent and abusive program activities.  As a result of the Act, the scope of an OIG
exclusion now extends beyond Medicare and the State health care programs to any Federal
health care program.  The Act also requires a mandatory exclusion of not less than 10 years
for individuals who have been convicted on one previous occasion of an offense, and a
permanent exclusion if the individual has been convicted on two or more previous occasions
of one or more offenses  (including program-related crimes, patient abuse or neglect, health
care fraud and convictions relating to controlled substances).  
10 During this reporting period, OIG imposed exclusions on 1,624 individuals and entities.
The following are examples of some of the exclusions that were imposed:
 A California DME supplier was excluded for 20 years based on a conviction
for Medi-Cal theft.  He submitted false claims representing products that
were  either  not  needed  or  not  delivered,  or  the  amount  provided  was
overstated.  He purchased Medi-Cal stickers from recipients, which allowed
him to bill for these products.  He was sentenced to 4 years and 4 months
imprisonment and ordered to make restitution in the amount of $5.2 million.
 An  internist  from  New  York  was  excluded  for  15  years  based  on  his
conviction relating to Medicare fraud.  The scheme involved authorizing the
medical necessity of certain DME equipment when there was no need.  The
court  sentenced  him  to  serve  46  months  imprisonment  and  to  make
restitution of $1.2 million to the Medicare program.
 A dentist and owner of a dental clinic in Kentucky was convicted of mail
fraud involving false Medicaid claims.  The individual was sentenced to 30
months incarceration and ordered to pay $1 million to the United States, the
amount he received in Medicaid reimbursement from the State for dental
procedures which he had not performed.  He was excluded for 15 years.
 As a result of  his conviction, a  psychological examiner  in  Maine was
excluded  for  10  years.    While  working  as  a  licensed  psychological
examiner, the subject billed the Medicaid program for $131,400 for services
that he failed to provide.
 As a result of a conviction involving assault and injury to an elderly resident
of a nursing facility, a nurses aide in Texas was excluded for 15 years.  The
aide was sentenced to 10 years imprisonment and was convicted as a result
of the victims daughter placing a video camera in the victims nursing
facility room to document the abuse.
 A conviction in New Jersey for a felony involving counterfeit prescriptions,
forged doctors signatures and the resale of controlled substances resulted in
the exclusion of two individuals involved in the scheme.  They were both
excluded for the minimum mandatory period of 5 years.
 A Michigan pharmacist was excluded for a period of 10 years based on his
conviction involving mail fraud and Michigan Blue Cross/Blue Shield.  The
pharmacist billed for prescription drugs which he did not fill.  As a result of
11 the conviction, he was sentenced to 78 to 97 months incarceration.  The
scheme resulted in financial damages of approximately $207,549, which he
was ordered to repay.  
 A nurse in Texas was excluded for 3 years based on a conviction involving
obtaining dangerous drugs by forgery.  While working as the director of
nurses at a nursing home, the individual took discontinued drugs for her
own use.  She also altered prescriptions that were given her for her own
health problems before she presented them to the pharmacist to be filled.
 A physician was excluded indefinitely based on the revocation of his license
to  practice  medicine  in  New  York.    The  State  Board  for  Professional
Medical  Conduct  had  found  the  subject  guilty  of  willfully  harassing,
abusing or intimidating a patient either physically or verbally, engaging in
conduct in the practice of medicine which evidences moral unfitness to
practice medicine and practicing the profession fraudulently.
 An EKG monitoring center in Pennsylvania was excluded for a minimum
period of 25 years.  This exclusion was based on the companys association
with an individual who had been convicted and excluded.  The individual
was also excluded for 25 years and was the centers president, secretary and
treasurer.    The  scheme  involved  electronically  billing  for  services  and
products that were not provided to out-of-state and deceased beneficiaries.
B.  Civil Penalties for Patient Dumping
Section  1867  of  the  Social  Security  Act  (42  U.S.C.  1395dd)  provides  that  when  an
individual presents to the emergency room for examination or treatment, a hospital which
has a Medicare provider agreement is required to provide an appropriate medical screening
examination to determine whether that individual has an emergency medical condition.  If
an individual has such a condition, the hospital must provide, within the capabilities of the
staff and facilities available at the hospital, treatment to stabilize the condition, unless a
physician certifies that the individual should be transferred because the benefits of medical
treatment elsewhere outweigh the risks associated with transfer.  If a transfer is ordered, the
transferring hospital must arrange for a safe transfer, which includes providing stabilizing
treatment to minimize the risks of transfer, making sure the receiving hospital has agreed to
accept the transfer and effecting the transfer through qualified personnel and transportation
equipment.  A hospital is prohibited from delaying provision of examination or treatment for
an emergency medical condition to inquire about an individuals method of payment or
insurance status.  Further, a participating hospital with specialized capabilities or facilities
may not refuse to accept an appropriate transfer of an individual who needs those services if
the hospital has the capacity to treat the individual.
12 The OIG is authorized to impose CMPs of up to $25,000 against hospitals with less than 100
beds and up to $50,000 against hospitals with 100 beds or more for each instance where the
hospital negligently violates any of the requirements of section 1867 of the Act.  In addition,
OIG may impose a CMP up to $50,000 against a physician who is responsible for the
examination or treatment of an individual in a participating hospital, including a physician
on-call, for each negligent violation of any of the requirements of section 1867.
The OIG collected $1.1 million in CMPs from 32 providers and practitioners during this
reporting period.  The following are examples of CMP cases resolved by OIG:
 An Oregon hospital agreed to pay $175,000 to resolve allegations of not
providing appropriate medical screening examinations to all patients who
came to the emergency room.  It was hospital policy to contact a patients
health maintenance organization for payment authorization after triage, but
prior  to  performing  a  medical  screening  examination.    When  "prior
authorization"  was  denied,  the  patient  left  the  hospital  without  further
evaluation or treatment.  The seriousness of the medical conditions upon
presentment ranged from not very serious to very serious (such as potential
heart attack or stroke).
 A small New York hospital agreed to pay $15,500 to resolve allegations that
it did not assure safe and appropriate transfers to two patients, including the
transfer of a pregnant woman in labor.
 A small Georgia hospital agreed to pay $20,000 to resolve allegations that it
failed to provide an appropriate medical screening and stabilizing treatment
to a 5-year old who was brought into the emergency room by his mother.
This was the second time this hospital paid CMPs for not performing an
appropriate medical screening examination to a person presenting with a
significant medical problem.
 An  on-call  doctor  from  Arkansas  agreed  to  pay  $37,500  to  resolve
allegations that he failed to come to the hospital to stabilize a pregnant
woman in labor or to ensure a safe transfer of the patient.  The decision not
to treat and to transfer the patient was allegedly due to her status as a
Medicaid patient.
C.  Civil Penalties for False Claims
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and
assessments against  health care  providers  who submit  false or improper claims to the
Medicare and State health care programs.  The CMP law allows for the imposition of CMPs
13 and assessments in lieu of damages.  The OIG also assists DOJ in bringing (and settling)
cases against wrongdoers under the False Claims Act.  Many providers elect to settle their
cases prior to litigation.  As part of resolving these cases, OIG frequently imposes corporate
integrity agreements on entities as a condition for being allowed to remain as a provider in
the  Medicare  program.    These  integrity  programs  established  by  these  agreements  are
designed to prevent a recurrence of the fraudulent activities which gave rise to the case at
issue.  The Government, with the assistance of OIG, recouped more than $320.8 million
through both CMP and False Claims Act civil settlements related to the Medicare and
Medicaid programs during this reporting period.  Some examples of these cases include:
 In Illinois, one of the largest Medicare carriers in the country agreed to pay
$140 million to resolve its civil liability.  In addition to the civil settlement,
the  corporation  pled  guilty to  obstructing and conspiring  to obstruct  a
Federal audit, and making false statements to HCFA.  As part of the plea,
the  corporation  also  agreed  to  pay  $4  million  in  criminal  fines.    An
investigation by OIG and several other Federal agencies showed that the
corporation  falsified  reports  used  to  evaluate  its  performance.  The
corporation concealed its poor performance and falsely claimed superior
performance in processing Medicare claims for the Federal Government.
Earlier, two corporation managers pled guilty and five employees were
indicted on various criminal charges related to the scheme. 
 A Pennsylvania Medicare carrier agreed to pay $38.5 million to resolve its
liability for misconduct in its performance as a carrier.  Investigation by
OIG and other Federal agencies found that during the years 1988 through
1996, the carrier engaged in the following misconduct: failing to properly
process and/or take appropriate action to recover Medicare secondary payer
claims; obstructing the carrier performance evaluation program by rigging
samples  for  HCFA  audits;  failing  to  recover  overpayments;  failing  to
monitor end stage renal disease laboratory claims; and  overriding payment
safeguards when processing Part B claims.  As part of the settlement, the
carrier agreed to enter into an extensive corporate integrity program to
ensure  proper  training  for  its  employees  and  external  reviews  of  its
performance under its contract with Medicare.
 In Louisiana, a rehabilitation corporation and a physician stockholder in the
corporation agreed to pay the United States the sum of $4.4 million to settle
their civil liability for allegedly billing Medicare for inpatient rehabilitation
when  the  Medicare  beneficiaries  treated  could  not  benefit  from  such
rehabilitation.  These patients were also admitted for inpatient rehabilitation
for longer periods of time than were medically necessary.
14  In New Jersey, a national provider of parenteral and enteral therapy (PEN
therapy) agreed to pay $4 million to settle its civil liability under the False
Claims Act and the CMP law.  Between January 1990 and June 1995, this
corporation submitted claims to the Medicare program for PEN therapy for
patients in Puerto Rico.  The Medicare claims and supporting documents
falsely stated that the patients suffered from a medical or physical condition
that would make them eligible for Medicare coverage of PEN therapy.  In
fact,  the  patients  did  not  suffer  from  those  conditions.    There  were
eight-criminal convictions in Puerto Rico relating to this scheme.
 A contract management company entered into a settlement agreement with
the United States in the amount of almost $2.8 million.  This company also
agreed to pay the States of Arkansas, Louisiana, Maryland, Massachusetts,
Michigan,  New  Jersey,  New  York,  Pennsylvania,  West  Virginia,  New
Hampshire and Texas a total of $381,584.  The Government alleged that
from 1990 through 1994, the  company, which provided physician services
management to hospital emergency departments, submitted false claims to
Medicare and Medicaid by routinely upcoding to levels III, IV and V, when
they should have been reimbursed as levels I and II.
D.  Compliance Activities
The existence of an "effective" compliance program can offer an organization certain credit
under the Federal Sentencing Guidelines.   This and other benefits have served to encourage
the private sector to develop methods to prevent and detect violations under the False
Claims Act and the CMP law.  The OIG has already initiated significant outreach efforts
with the private sector to discuss these endeavors.
The  OIG  continues  in  its  efforts  to  promote  voluntarily  developed  and  implemented
compliance programs by providing guidance for the various parts of the health care industry.
To this end, OIG has developed and released compliance program guidance for clinical
laboratories, hospitals and home health agencies.  The OIG is currently working on guidance
for other sectors of the industry, including third-party medical billing companies and durable
medical equipment suppliers.  The seven fundamental elements of an effective compliance
program  are:  implementing  written  policies,  procedures  and  standards  of  conduct;
designating a compliance officer and compliance committee; conducting effective training
and education; developing effective lines of communication; enforcing standards through
well-publicized disciplinary guidelines; conducting internal monitoring and auditing; and
responding promptly to detected offenses and developing corrective action initiatives. 
In addition to developing compliance program guidance, OIG monitors corporate integrity
obligations  imposed  on  health  care  providers  as  part  of  global  settlements  of  OIG
investigations and audits.  Presently, OIG is monitoring over 340 Government-imposed
15 corporate integrity agreements.  These agreements cover the range of providers from small
physician offices to large laboratory corporations.  The duration of most corporate integrity
agreements is 5 years and these agreements require a substantial effort by the provider to
ensure  that  the  organization  is  operating  within  HCFA  rules  and  regulations  and  the
parameters  established  by  the  corporate  integrity  agreement.    Failure  to  adhere  to the
corporate integrity agreement could result in exclusion of the provider in addition to other
penalties.
Medicare Beneficiary Satisfaction:  1997
This  is  the  sixth  national  survey  of  Medicare  beneficiary  satisfaction.  As  in  1995,
beneficiaries  reported  positive  experiences  with  several  key  aspects  of  the  Medicare
program.  For example, 89 percent were satisfied with the way Medicare processed claims
and 75 percent said they could get information when they needed it.  One service improved
-- 83 percent of beneficiaries were aware of Medicares coverage of flu immunizations; in
1995, only 76 percent knew.  However, the number of beneficiaries aware that Medicare
limits physicians fees and covers second surgical opinions decreased.  There was still a need
for improvement in some areas, such as carrier telephone service and beneficiary awareness
of their appeal rights.  Less than half of the beneficiaries knew that Medicare paid for
pneumonia shots and only about a fourth of those who had received home health services
knew that States had a "hotline" to report complaints.  The OIG recommended that HCFA
develop a plan for improving beneficiary understanding in these problem areas.  The HCFA
concurred with OIGs recommendation.  (OEI-04-07-00030)
Medicare Beneficiaries with Additional 
Medical Insurance in 1997
As part of its annual survey of Medicare beneficiaries, OIG looked at those beneficiaries
who had medical insurance that supplemented Medicare.  The OIG surveyed Medicare
beneficiaries nationwide and compared their responses to those of a similar 1995 survey.
The current survey showed that, in 1997, 86 percent of beneficiaries had medical insurance
coverage in addition to Medicare; this was about the same as in 1995.  As illustrated on the
facing page, in both survey years, most beneficiaries were satisfied with their supplemental
insurance policies.  (OEI-04-97-00031)
16 SATISFACTION WITH INSURANCE THAT SUPPLEMENTS MEDICARE
Percent of Beneficiaries
Level of Satisfaction
1995 1997
Very Satisfied 53% 53%
Generally Satisfied 35% 35%
Neither Satisfied Nor Dissatisfied 7% 6%
Generally Dissatisfied 3% 4%
Very Dissatisfied 2% 2%
Medicares Oversight of Managed Care
As of February 1998, 439 managed care plans counted over 6 million Medicare beneficiaries
as members, a 90 percent increase since December 1994.  Ideally, managed cares capitated
payment leads to innovation in providing cost-effective, high quality health care.  However,
because the economic incentives of operating within a fixed budget may encourage plans to
limit access to needed care in the interest of increasing profits, HCFA has a particular
responsibility to ensure beneficiaries access to services.  The 10 HCFA regional offices
carry out direct oversight of managed care plans with a site visit conducted every 2 years.
In a report on the processes HCFA uses to monitor the performance of managed care plans,
OIG proposed some revisions.  The OIG recommended that the processes be better geared to
capturing information that reflects plans performance in the constantly evolving managed
care market and provide greater flexibility to target reviews on the specific characteristics of
individual plans.  Further, OIG recommended that HCFA take better advantage of data that
are currently available to the agency as a way of monitoring plan performance on an
ongoing basis.  For example, HCFA should establish a centralized information system that
aggregates the results of plan monitoring reports in electronic form; implement a system to
track beneficiary inquiries and complaints received regarding managed care; and provide
monthly reports to regional offices on enrollment, disenrollment and rapid disenrollment.
The HCFA generally concurred with OIGs recommendations and indicated a number of
actions it is taking to address the issues raised.  (OEI-01-96-00190)
In a related report on staffing, OIG recommended that HCFA develop, coordinate and
provide a comprehensive training program for regional office staff with responsibility for
oversight of managed care plans; seek out people with experience in managed care, data
analysis  and clinical  expertise  as  it increases  regional  office staff  in its managed  care
operations; and develop a pilot program to provide opportunities for staff development and
17 staff  sharing  with  managed  care  plans  and  beneficiary  advocacy  groups.    The  HCFA
generally concurred with these recommendations as well.  (OEI-01-96-00191)
Physician Perspectives of Medicare Health 
Maintenance Organizations
The OIG conducted a survey to determine the experiences and perspectives of physicians
who work with Medicare health maintenance organizations (HMOs).  As illustrated in the
following chart, OIG found that overall physician  satisfaction with HMOs is low.  
Click Here to see chart
Many physicians reported concerns with Medicare HMOs, specifically regarding the referral
process,  clinical  independence,  access  to  care,  the  complaints  and  appeals  process,
utilization and quality assurance reviews, and marketing practices.  Further, OIG found that
most physicians rated Medicare enrollees knowledge of their HMO as low.  Despite these
misgivings, most believed that their Medicare patients received good care.
The OIG concluded that HCFA should work with physicians to address their concerns about
Medicare HMOs and to improve the quality of services provided to Medicare enrollees.  The
OIG believes that greater physician satisfaction with the Medicare HMO program will
enhance both enrollees and providers experiences with the program.  The HCFA generally
concurred with OIGs observations and conclusions.  (OEI-02-97-00070)
18 Beneficiary Perspectives of Medicare Risk 
Health Maintenance Organizations:  1996
Medicare beneficiaries may join a risk HMO through the Medicare program.  In return for a
predetermined monthly amount per enrollee, the HMO must provide all Medicare-covered
services that are medically necessary, except hospice care.  Once enrolled, beneficiaries are
usually required to use HMO physicians and hospitals.  As of October 1997, HCFA reported
that 307 risk HMO plans served more than 5 million Medicare enrollees.
In a random sample survey of enrollees and disenrollees from 40 Medicare risk HMOs, OIG
found that, overall, beneficiaries reported good access to service in 1996.  There had been
substantial improvement in some of the problem areas noted in an earlier OIG review in
1993.  However, some reported problems continued in 1996 and some new ones surfaced.
The OIG continues to believe that HCFA needs to improve its oversight of the Medicare risk
HMO program in six persistent problem areas: assuring HMOs properly inform beneficiaries
about their appeal and grievance rights; improving beneficiaries understanding of HMO
procedures  and  restrictions  for  obtaining  medical  services;  preventing  inappropriate
screening of beneficiaries health status at application; identifying and carefully monitoring
service access problems encountered by functionally limited, disabled and chronically ill
beneficiaries;  systematically  collecting  and  tracking,  over  time,  HMO-specific
beneficiary-reported data on access to medical services and reasons for disenrollment; and
distinguishing  between  administrative  and  nonadministrative  disenrollments,  if  HMO
disenrollment rates are to be used as  a performance indicator.  The 1996 survey data also
suggested that HCFA needs to take steps to better inform older women about gynecological
services  and  health.    The  HCFA  concurred  with  OIGs  recommendations.
(OEI-06-95-00430)
Beneficiary Perspectives of Medicare Risk Health 
Maintenance Organizations - 1996:  Beneficiaries 
with Functional Limitations, Comorbidities and Disabilities
The OIG found that functionally limited, comorbid and disabled beneficiaries experienced
more  problems  in  accessing  services,  particularly  specialized  services,  than  healthier
beneficiaries in Medicare risk HMOs.  Twenty-seven percent of disabled disenrollees said
their physicians failed to give them needed Medicare covered services, as did 20 percent of
comorbid and 8 percent of functionally limited disenrollees.  Thirty-six percent of disabled
and 21 percent of comorbid disenrollees said their physicians failed to refer them to needed
specialists. The OIG recommended that HCFA address these and other similar problems
identified by vulnerable beneficiaries in Medicare risk HMOs.  (OEI-06-95-00434)
19 Payments to a Risk-Based Health Maintenance Organization for
Beneficiaries with Institutional Status
Under risk-based contracts, HCFA makes monthly advance payments to HMOs at the per
capita rate set for each enrolled beneficiary.  A higher capitation rate is paid for risk-based
HMO enrollees who are institutionalized. 
In a review at one risk-based HMO covering the period October 1, 1994 through September
30, 1996, OIG identified Medicare overpayments totaling $167,630 for 41 beneficiaries
incorrectly classified as institutionalized from a sample of 100.  Based on these sample
results, OIG estimated that the HMO received Medicare overpayments of at least $1.6
million for beneficiaries incorrectly classified as institutionalized during the audit period.
The majority of the overpayments occurred due to a breakdown in the transmission of
information in the  HMOs computer systems.  The OIG recommended that the HMO
continue to strengthen internal control procedures to ensure that errors do not occur in the
future, refund the overpayments identified, and review the balance of the institutionalized
beneficiary universe to identify and refund additional overpayments.  While the HMO
agreed  with  OIGs  findings,  it  also  stated  that  the  systems  limitations  that  caused
overpayments also caused instances of underreporting.  If so, the HMO should work with
HCFA to determine if submitting retroactive claims is allowable.  (CIN: A-05-97-00014)
Administrative Costs Submitted by Risk-Based Health
Maintenance Organizations on Adjusted Community Rate
Proposals
Through  adjusted  community  rate  (ACR)  proposals,  HMOs  present  HCFA  with  their
funding estimates for providing Medicare-covered services to beneficiaries in the upcoming
contract year.  The estimate, which covers anticipated medical and administrative costs,
must be supported by the individual HMOs experiences with utilization and expenses.  The
ACR proposal is integral to pricing an organizations benefit package, computing savings (if
any) from Medicare payments, and determining additional benefits or reduced premiums
that could be made available to Medicare beneficiaries.  Two recent OIG reviews evaluated
aspects of the administrative costs included in ACR proposals.
A. Adjusted Community Rate Proposal Process
This review found that the ACR process enables  HMOs to exploit the use of certain
utilization factors when computing anticipated administrative costs.  About $1 billion a year
could be saved if such costs were determined in accordance with Medicares longstanding
principle of paying only its fair share of needed health care costs.  The OIG recommended
that HCFA require HMOs to allocate administrative costs using a more realistic method,
such as the ratio of Medicare enrollees in the HMO to total HMO enrollment, and introduce
legislation to return the resulting savings to the Medicare trust fund.  In response to the draft
20 report,  HCFA  agreed  with  the  first  recommendation  but  not  the  second.    (CIN:
A-14-97-00202)
B. Administrative Cost Component at One HMO
Another review assessed the reasonableness of the administrative cost component of the
ACR  proposal  for  one  risk-based  HMO.    The  OIG  identified  over  $700,000  in
administrative costs that would be considered inappropriate and unallowable in light of the
Medicare programs general principle of paying only reasonable costs.  Examples of such
costs included political and charitable contributions.
The OIG noted that, unlike other areas of the Medicare program, there is currently no
statutory or regulatory authority governing allowability of risk-based HMOs administrative
costs.  Additional reviews are underway, and preliminary results show similar charges at
other contractors.  The results of these reviews will be shared with HCFA so that appropriate
legislative changes can be considered.  (CIN: A-14-97-00205)
Medicare Hospice Beneficiaries:  Services and 
Eligibility
In this review, OIG determined that hospice agencies generally planned for and provided
appropriate  services.   The hospice agencies that treated the  sampled  beneficiaries had
developed  formal  plans  of  care  for  96  percent  of the  beneficiaries  and  93  percent  of
beneficiary families.  In 99 percent of the patient records examined by the medical reviewer,
documentation showed that beneficiaries and their families received services as indicated by
the plans of care.  Hospice services for both the patients and their families were provided
continuously, allowing agency personnel to remain close to the beneficiaries and the families
on a regular basis throughout the course of treatment.
However, OIG found that a significant portion of hospice patients in nursing homes were
ineligible for the hospice benefit.  Twenty-nine percent of sampled hospice beneficiaries in
nursing homes were ineligible, while only 2 percent of beneficiaries not residing in nursing
homes were ineligible.  In prior reviews, OIG had identified relatively high ineligibility rates
for hospice patients; a disproportionate share of these ineligible patients resided in nursing
homes.  This study adds to OIGs concern about the Medicare hospice program in the
nursing home setting.  The report refers the reader to the recommendations made in OIGs
earlier reports.  The HCFA stated that it is currently studying the issues involved and
working to identify ways to correct the problems noted.  (OEI-04-93-00270)
Development of a Prospective Payment System for Skilled
Nursing Facilities
As required by the Balanced Budget Act of 1997, HCFA is developing a Medicare PPS for
skilled nursing facilities (SNFs), effective for cost reporting periods beginning July 1, 1998.
21 The OIGs report on the methodology used to develop the system expressed concern that the
PPS rates may be inflated because they were not adjusted downward for improper payments
made to skilled nursing facilities in the past.  Substantial improper payments, such as those
for medically unnecessary services, were identified in prior OIG reviews.  If such payments
are not eliminated from the base period (FY 1995) costs, skilled nursing providers will
realize an unwarranted financial windfall.  In response to the draft report, HCFA agreed to
work with OIG in examining base-year cost data and eliminating inappropriate costs.  (CIN:
A-14-98-00350) 
Medical Necessity of Physical and Occupational Therapy in
Skilled Nursing Facilities:  California
Many residents of Medicare-certified SNFs receive physical and occupational therapy.  In
1996, SNFs submitted claims totaling almost $7 billion for physical and occupational
therapy.  Steep increases in outlays for these services have prompted OIG and others to
examine this area.  The OIG conducted this inspection to determine, through a probe sample,
whether there is sufficient evidence of medically unnecessary physical and occupational
therapy to warrant a national study.
In a sample of six SNFs in California, OIG and a medical review contractor assessed 80
records.  The OIG found that medically unnecessary physical and occupational therapy
services at the sampled facilities ranged from less than 4 percent to more than 80 percent.
Multiple factors accounted for the high volume of medically unnecessary services; for
instance, skilled services were frequently provided when nonskilled services would have
been more appropriate.  The review raised additional concerns as well.  For example, OIG
observed instances in which billing was inflated by including time to transport the patient to
a therapy area and when patient fatigue required that a therapist halt the session.
The  OIG  noted  that  the  Balanced Budget Act of  1997,  with  its  implementation of a
prospective payment system for Part A beneficiaries and a $1,500 cap on therapy for Part B
beneficiaries,  creates  an  appropriate  structure  to  control  the  cost  of  therapy  services.
However,  OIG  believes  that  the  cost  formulas  being used to develop  the  prospective
payment  rates  and  Part  B  cap  could  be  significantly  compromised  by  the  volume  of
medically unnecessary services.  The OIG will conduct a full national study to quantify the
extent of medically unnecessary services and to develop baseline data to compare therapy
utilization before and after implementation of the Balanced Budget Act.  (OEI-09-97-00120)
Home Health Care Visits:  Texas
The OIG reviewed costs claimed for visits by a Texas home health care agency to determine
whether the visits met Medicare reimbursement guidelines.  As a result of the review,
overpayments totaling $4.7 million were identified.  Of this amount, $1.8 million has been
22 recovered,  and  an  additional  $2.9  million  remains  in  bankruptcy  court.    (CIN:
A-06-95-00092)
Criminal Fraud
The most common fraud investigated by OIG against health care providers is the filing of
false claims or statements in connection with the Medicare and Medicaid programs, as
illustrated in the following cases:
 In Florida, four persons pled guilty and were sentenced for conspiring to
defraud Medicare of more than $6 million between 1993 and 1996.  Two of
those  sentenced  were  owners/operators  of  six  clinics  and  diagnostic
companies, and the other two were clinic employees.  They were among
twelve persons indicted in a scheme that also involved physicians, patient
recruiters and unlicensed physicians assistants.  Medicare was billed for
services that were not medically necessary or were not performed, and the
proceeds were laundered by the clinic owners and employees.  Sentences
ranged from 4 years probation to 51 months imprisonment, and restitution
ordered totaled more than $3 million.  Two persons were acquitted and
several others are to be sentenced shortly.  One subject remains a fugitive.  
 A psychiatrist, who owned businesses offering psychological services to
residents of adult congregate living facilities, and his business manager
were  sentenced in Florida  for  submitting  false  Medicare and  Medicaid
claims.  The psychiatrists business offered structured recreational/leisure
services at no cost to operators, beneficiaries and recipients at the living
facilities, then billed the health insurance programs for psychiatric and
psychotherapeutic services never provided.  The psychiatrist was sentenced
to 78 months imprisonment, followed by 3 years probation, and ordered to
pay full restitution of $1.6 million.  The manager was sentenced to 4 months
home detention and 3 years supervised release.  Sentencing is pending on
two additional defendants.
Occasionally,  criminal  fraud  involves  illegal  kickbacks.    Many  businesses  engage  in
referrals to obtain expertise, services or items which are not part of their own operations or
products in order to meet the needs of customers or clients.  The medical profession relies
heavily upon referrals because of the myriad specialities and technologies associated with
health care.  If referrals of Medicare or Medicaid patients are made in exchange for anything
of value, however, both the giver and the receiver may violate the Medicare/Medicaid
anti-kickback  statute.    Violators  are  subject  to  criminal  penalties,  or  exclusion  from
participation in the Medicare and Medicaid programs, or both.  The following case is an
example of a fraudulent kickback scheme which resulted in a successful prosecution:  
23  An unlicensed physician from Cuba and owner of a Florida clinic was
sentenced for conspiracy to defraud Medicare and for money laundering.
He  filed  more  than  $3  million  in  false  Medicare  claims  for  physician
services, respiratory equipment and medication, and cardiovascular testing.
The owner also received approximately $85,000 in kickbacks from another
DME companys owner.  He then laundered the proceeds through various
bank accounts.  His sentence, 51 months incarceration and restitution of
close to $1.5 million, was an enhanced one because of patient endangerment
-- giving medication to patients without physicians examining them.  
Medicare Contractors Excess Pension Assets
Medicare  contractors  are  allowed  to  allocate  a  portion  of  employee  pension  costs  to
Medicare for payment.  However, Medicare contracts specifically prohibit any profit from
Medicare activities.  Regulations and the Medicare contracts provide that pension gains that
occur when a Medicare segment closes should be credited to the Medicare program.
A.  Colorado
A Colorado corporation was a Medicare Parts A and B contractor until its contracts were
terminated in 1994 and 1995, respectively.  The OIG computed excess Medicare pension
assets of $4.1 million as of January 1, 1996, which the contractor should remit to the Federal
Government.  Although the contractor disagreed with the findings, HCFA agreed with OIGs
analysis and resultant recommendation.  (CIN: A-07-97-01234)
B.  Connecticut
Two insurance companies formed a joint venture by contributing their medical businesses
(including one companys Medicare operations) to the joint venture on January 3, 1995.
Consequently, the one companys Medicare segment employees were terminated and the
Medicare  segment  was  closed  effective  December  31,  1994.    The  companys  former
Medicare segment employees began working for the joint venture on January 3, 1995, but
continued to accrue benefits under the former companys pension plan through January 31,
1996.
The OIG determined that as of January 1996, the company had excess Medicare pension
assets of over $5.6 million which should be remitted to the Federal Government.  The
company agreed with the recommendation but proposed reducing the amount.  However,
HCFA agreed with OIGs analysis and recommendation.  (CIN: A-07-97-01213)
Home Office Costs
This Operation Restore Trust review, conducted jointly by a Medicare contractor and OIG,
examined the home office costs of a major home health care chain to determine if they were
reasonable, allowable and allocable under Medicare reimbursement principles.  For the
24 fiscal year ended February 28, 1994, OIG found that Medicare costs were overstated by $3.4
million due to improperly classified home office costs, costs primarily related to private
lines of business, income offsets and clerical errors, undocumented expenses and other
unallowable costs.  In addition, a limited review of internal controls identified significant
weaknesses.  The chains home office agreed that many of the costs questioned had been
improperly claimed.  (CIN:  A-02-95-01019)
Laboratory Fraud
During  this  reporting  period,  OIG  successfully  completed  some  civil  cases  related  to
fraudulent billings to Medicare, Medicaid and other Federal health care programs on the part
of independent laboratories and physicians.  Convictions and settlements were also obtained
for other types of fraudulent or abusive activities involving these health care providers.  One
of the most reprehensible cases involving fraudulent billings for laboratory tests bears
noting.
 A national laboratory based in Massachusetts agreed to pay $15 million to
resolve  its  civil  liability  for  submitting  false  Medicare  claims.    The
laboratory also owned and operated several clinical testing laboratories.  In
1987, the laboratory and two diagnostic companies entered into a joint
venture  agreement  to  operate  a  clinical  laboratory  for  the  purpose  of
performing laboratory tests for end stage renal disease patients.  Over a
9-year period, the laboratory billed Medicare for thousands of tests that
were  not  medically  necessary  and  unbundled  blood  chemistry  tests  to
receive a higher rate of reimbursement.  In addition, the laboratory falsified
claims by misrepresenting patients medical conditions.  As a result, the
laboratory received approximately $5.8 million in Medicare overpayments.
A civil complaint has been filed against the diagnostic companies. 
Independent Physiological Laboratories
In  two  reports  on  independent  physiological  laboratories  (IPLs),  OIG  looked  at  the
vulnerabilities confronting Medicare and the perspectives of carriers.  The OIG found a
number of program vulnerabilities associated with these service providers.  Based on site
visits performed, OIG believes that as many as one out of five IPLs registered with HCFA
may  not  exist.    Moreover,  the  inspection  found  suspect  patient-physician  relationships
indicating potential misuse of beneficiary health insurance numbers and unique physician
identifiers.  The OIG also questioned assigning IPL provider numbers to physicians and
hospitals that appear not to  meet HCFAs definition of operating independently.  The
Medicare carriers surveyed for this study shared these concerns about IPLs.  The OIG
recommended that HCFA clearly define the criteria for operating independently from a
hospital, rural health clinic or a physician practice; establish a more stringent enrollment and
25 verification process; and strengthen the monitoring and control processes, or completely
reform the payment method for IPLs.  (OEI-05-97-00240, OEI-05-97-00241)
Medicare Allowances for Lymphedema Pumps 
Medicare allowed charges for the most expensive lymphedema pump increased from $18.5
million in 1991 to $106.7 million in 1995 -- almost 500 percent.  As a result of actions taken
by OIG and HCFA to counteract abuse, these charges dropped to $8.8 million in 1996 -- a
92 percent decrease -- as illustrated below.
Click Here to see chart
This decrease  saved  the  Medicare  program  $76.2 million in  1  year.   If HCFAs new
documentation  requirements  and  continued  OIG  surveillance  succeed  in  discouraging
unnecessary payments for the expensive model lymphedema pump, the 5-year savings will
total $381 million.  (OEI-04-97-00130)
Medicare Part B Allowances for Wound Care Supplies
In  a  series  of  earlier  reports,  OIG  had  identified  suspect  billing  practices  that  led  to
questionable Medicare allowances for wound care supplies.  In this inspection report on
trends  in  Medicare  Part  B  allowances  for  wound  care  supplies,  OIG  concluded  that
concerted efforts by HCFA, DME regional carriers (DMERCs) and OIG contributed to the
dramatic  decline  in  allowances  for  wound  care supplies,  saving Medicare  $58 million
between 1995 and 1996.  Five-year savings were estimated at nearly $300 million.  In
26 addition,  changes  enacted  by  the  Balanced  Budget  Act  of  1997  may  further  reduce
allowances for claims that exceed DMERC guidelines.  The HCFA concurred with OIGs
conclusions, as well as the savings estimated.  (OEI-03-94-00793)
Ancillary Medical Supplies in Skilled Nursing Facilities:
California
The OIG reviewed the costs claimed for ancillary medical supplies by 31 skilled nursing
facilities owned by a large corporation in California.  The review identified overpayments
totaling $1 million as a result of misclassified costs for FY 1991.  The corporation repaid the
$1 million plus an additional $600,000 to cover estimated overpayments for FYs 1992
through 1995.  (CIN:  A-09-98-00060)
Medicare Payments for Therapeutic Shoes
In this report, OIG identifies questionable practices relating to therapeutic footwear provided
to Medicare beneficiaries with diabetes.  The OIG found that Medicare allowed more than
$7 million for therapeutic footwear claims which had missing or inadequate documentation.
In most of these cases, suppliers had improperly indicated on the claims that appropriate
documentation was contained in their files.  Some beneficiaries reported that they seldom or
never wore the shoes provided because they fit poorly or were uncomfortable; these shoes
represented $1.1 million in allowances in 1996.  In addition, OIG found that Medicare
guidelines do not specify standards, training or minimum qualifications for nonphysicians
who fit and furnish the footwear.  The report also determined that there is potential for
enormous growth in the therapeutic footwear benefit which could reach hundreds of millions
of dollars a year.  
The OIG recommended that HCFA develop a strategy to make coverage requirements more
explicit and specific, eliminate the documentation problems encountered and develop a plan
to  ensure  that  the  therapeutic  footwear  benefit  contains  quality  assurance  safeguards.
(OEI-03-97-00300)
Fraud Involving Durable Medical Equipment Suppliers
The DME industry has consistently suffered from waves of fraudulent schemes in which
Medicare or Medicaid is billed for equipment never delivered, higher-cost equipment than
that actually delivered, totally unnecessary equipment or supplies, or equipment delivered in
a different State from that billed in order to obtain higher reimbursement.  A few years ago,
HCFA published new regulations addressing reimbursement problems that have recurred
over  the  years,  especially  those  created  by  telemarketing  and  carrier  shopping.
Consolidation  of  claims  processing  into  four  regional  jurisdictions,  as  specified  in the
regulations, may resolve many of these problems.  In the meantime, OIG continues to obtain
27 settlements and convictions of unscrupulous suppliers for other schemes as shown in the
following examples:
 A New York physician was sentenced for his part in a scheme involving a
DME company and its subsidiaries.  The physician signed certificates of
medical necessity for expensive medical equipment that was never provided
to beneficiaries.  Instead, the beneficiaries received only non-DME items.
He also billed Medicare for office visits which were not made.  He was
sentenced to 51 months imprisonment and 3 years probation, and ordered to
pay $1.4 million in restitution.  Nineteen persons involved in this scheme
have been indicted including doctors, salespersons and managers, for filing
false Medicare claims, conspiracy, and paying and accepting kickbacks.
Thus  far,  17  of  the  19  individuals  have  been  sentenced  in  this  case.
Sentencing is pending on two additional defendants.
 A California-based company that licenses franchises to nearly three dozen
home oxygen suppliers across the country, along with its billing company
and two franchises and their owners, agreed to pay $5 million to resolve
allegations of Medicare fraud.  A former owner and employee of a Kentucky
franchise and an employee of a Pennsylvania franchise accused them of
engaging  in  a  scheme  to  have  Medicare  pay  for  oxygen  service  for
beneficiaries who did not qualify for it.  In part, they gave false medical
information, such as a patients blood oxygen level, to receive payment.
The company also agreed to institute a corporate integrity program.
 In Vermont, a DME supplier agreed to pay $240,000 to resolve its civil
liability for submitting false Medicare claims.  The company engaged in a
telemarketing scheme whereby Medicare beneficiaries were contacted by
telephone and were solicited to accept DME products.  The company then
billed Medicare for body jackets, flotation mattresses and foam cushions
that the beneficiaries never used or that were medically unnecessary.  As a
result, the company was overpaid approximately $400,000.  The DME
company  and  its  three  principals  agreed  to  permanent  exclusion  from
Medicare, Medicaid and all other Federal health care programs.   
Impact of High-Priced Generic Drugs on Medicare and Medicaid
In this inspection report, OIG examined the impact of high-priced generic drugs on the
Medicare and Medicaid programs.  The OIG found that the Medicare program and its
beneficiaries could have saved $5 to $12 million for four drugs if 1997 reimbursement had
been based on the average wholesale price of the brand name products or the median of
generic drugs with prices less than the brands, rather than on higher-priced generic versions.
Also, OIG also found that Floridas Medicaid program could have saved half a million
28 dollars for just eight drugs in 1996 if higher-priced generic drugs had been reimbursed at
brand prices.
For the Medicare program, OIG recommended that HCFA not include higher-priced generic
drugs in the median calculation to determine allowances or propose limiting allowances to
brand  prices  when  higher-priced  generic  drugs  are  involved.    For  Medicaid,  OIG
recommended that HCFA limit reimbursement of higher-priced generic drugs to the amount
reimbursed for lower-priced brand or appropriately-priced generic drugs.  The HCFA agreed
with OIGs recommendation for Medicare, but not for Medicaid.  It will, however, inform
States of the study results so they can take appropriate action.  (OEI-03-97-00510)
Medicare Allowances for Albuterol Sulfate
In this inspection, OIG assessed the reasonableness of the current Medicare allowance for
albuterol sulfate.  The OIG found that Medicare will allow between 56 to 550 percent more
than the Department of Veterans Affairs will pay for generic versions of albuterol sulfate in
1998.  Moreover, Medicare allowed 20 percent more than the average Medicaid payment for
albuterol sulfate in 1997 and up to 333 percent more than acquisition costs available for
albuterol sulfate in 1998.  The OIG recommended that HCFA immediately reduce Medicare
reimbursement for albuterol  sulfate by 15 percent, resulting  in annual savings of $30
million.  (OEI-03-97-00292)
Transportation Fraud
A common Medicare fraud scheme associated with transportation and ambulance companies
is the submission of claims for transportation of patients to a hospital when they are really
taken somewhere else for which claims are nonreimbursable.  Other schemes include billing
singly for patients who were transported as a group and falsely claiming reimbursement for
ambulatory patients.  The following cases are examples of some of those settled during this
reporting period:
 An  ambulance  company  in  Louisiana  entered  into  a  civil  settlement
agreeing to pay the Government $1.9 million for submitting false claims to
Medicare  and  Medicaid  for  nonemergency  transportation  of  dialysis
patients.  Over a 4-year period, the company submitted fraudulent claims for
transporting  renal  disease  patients  to  and  from  dialysis  centers  whose
condition  did  not  qualify  for  Medicare  and  Medicaid  coverage  of
nonemergency  transportation.    The  company  also  entered  a  corporate
integrity agreement.  
 After  pleading  guilty,  the  president  of  an  ambulance  company  was
sentenced in Georgia for conspiracy in a Medicare fraud scheme.  He
submitted fraudulent claims for transporting patients to a dialysis center,
29 when several were actually hospitalized at the time.  He also filed claims for
oxygen that was never administered and for inflated mileage.  The estimated
loss to Medicare was more than $259,000.   He was sentenced to 12 months
incarceration, followed by 3 years supervised release and ordered to pay
$294,770 in restitution.
 In Illinois, two owners/operators of two separate ambulance companies
were  sentenced  for  their  part  in  a  Medicaid  fraud scheme.   Each  was
sentenced to 12 months and one day incarceration to be followed by 3 years
supervised probation, and ordered to pay $2,000 in restitution.  The owners
purchased Medicaid information, which identified recipients who had been
transported  to  the  hospital  by car or by  public  transportation,  from an
individual who worked at a local hospital.  The owners used the information
to create false claims, then billed Medicaid for ambulance services which
were never provided.  They received more than $120,000 as a result of the
false claims.
 An ambulance company, operating as a subsidiary of an integrated delivery
system in Minnesota, agreed to pay $500,000 to settle civil liability for
furnishing medically unnecessary ambulance services from January 1989
through December 1992.  It also agreed to a 3-year corporate integrity plan
that involves careful presubmission of each ambulance claim, employee
training, written compliance procedures, annual audits and annual reporting
to OIG.
Federal and State Partnership: Joint Audits of Medicaid
One of  OIGs major  initiatives has been  to  work  more  closely  with  State  auditors in
reviewing the Medicaid program.  To foster the creation of these joint review efforts and to
provide broader coverage of the Medicaid program, the Partnership Plan was developed.
The partnership approach has been an overwhelming success in ensuring more effective use
of scarce audit resources by both the Federal and the State audit sectors.
To  date,  partnerships  have  been  developed  with  20  State  auditors,  11  State  Medicaid
agencies and 2 State internal audit groups.  Extensive sharing of audit ideas, approaches and
objectives has taken place between Federal and State auditors.  Completed reports have
resulted in recovered and/or identified overpayments and potential program savings of $140
million in Federal and State government funds.
During this reporting period, a partnership report  on outpatient claims for Californias
Medicaid program was issued.  California administers the Selective Provider Contracting
Program under which it contracts with hospitals to provide inpatient care at a negotiated
rate.  The rate covers designated services during the inpatient stay and prohibits the separate
30 billing  on  an  outpatient  claim  form  of  certain  services  covered  by  the  inpatient  rate,
including those performed within 24 hours of the inpatient admission or on the discharge
date.
The California State auditor (CSA) estimated that the State overpays hospitals about $1.6
million annually because its automated payment system lacks certain edits necessary for
administering  the  contracting  program.    Further,  CSA  noted  that  the  States  plan  to
implement edits contained problems, such as inaccurate databases, faulty edit definitions and
inefficient procedures.  There were additional problems related to specific terms of the
contracts the State had negotiated with hospitals.  The CSA believes that correcting these
problems will eliminate overpayments to hospitals.  California officials generally agreed
with CSAs recommendations in these areas.  (CIN: A-09-98-00068)
Medicaid Managed Care and HIV/AIDS
Factors that affect both Medicaid financing and the treatment of Medicaid patients with
HIV/AIDS include the devolution of Medicaid control from Federal to State authority, the
continued expansion of managed care, the changing face of HIV/AIDS and new drugs to
treat HIV/AIDS.  The OIG surveyed all States to examine the extent of managed care
coverage of Medicaid beneficiaries with HIV/AIDS and visited six States operating various
managed  care  models  to  observe  how  these  States  address  concerns  of  persons  with
HIV/AIDS in Medicaid managed care.
The  OIG  found  that  those  Medicaid  managed  care  organizations  that  are  paid  an
AIDS-enhanced rate appear to provide all needed medical services and drugs to AIDS
patients.  Those not paid an enhanced rate report that they cannot afford to continue
providing these services and drugs without adequate financial compensation.  In the States
OIG visited, the Medicaid managed care and Ryan White programs do not coordinate the
services they provide to persons with HIV/AIDS.  The health of persons with HIV/AIDS is
increasingly dependent upon the integration of these services.
The OIG recommended that HCFA, in conjunction with the Health Resources and Services
Administration (HRSA), develop and disseminate technical assistance and guidance on
strategies that State Medicaid programs can use to establish appropriate managed care
contracts for needed medical services, and costs related to these services, for beneficiaries
with HIV and AIDS.  Further, OIG proposed that HCFA urge States to require Medicaid
managed care plans to coordinate with Ryan White programs on the services they provide to
Medicaid beneficiaries with HIV/AIDS.  The HRSA should continue to encourage Ryan
White grantees to work with Medicaid managed care plans.  Together these agencies should
work to develop strategies of coordination for Medicaid managed care and the Ryan White
programs.  The HCFA and HRSA concurred with OIGs findings and recommendations.
(OEI-05-97-00210)
31 Routine Prenatal and Postpartum Care for Undocumented Aliens
The Omnibus Budget Reconciliation Act of 1986 amended the Social Security Act to limit
Federal payment for undocumented aliens emergency medical care under the Medicaid
program.  Emergency medical care includes labor and delivery, but does not include routine
prenatal and postpartum care.  In October 1994, HCFA issued a policy memorandum
requesting its regional offices to advise States that nonemergency services provided to
illegal aliens are not eligible for Federal funds.
The OIG conducted a follow-up to an earlier inspection which found that two States had
covered and claimed Federal funds for routine postpartum care for undocumented alien
women.  In the current study, OIG determined that six States have claimed Federal funds for
routine  prenatal  and  postpartum  care  for  undocumented  alien  women;  three  still  do.
Moreover, survey respondents in 31 States and territories indicated that they were not aware
of HCFAs guidance on this subject.  Two HCFA regional offices had not sent guidance to
States.
Since misinterpretation or misunderstanding of the law on this matter continues to exist in
some States, OIG recommended that HCFA identify and recover funds that Minnesota,
Nebraska, Oklahoma, Vermont and West Virginia inappropriately claimed, and assure that
States  and  territories  are  aware  of  and  implementing  policy  provisions  applicable  to
claiming  Federal  funds  for  routine  prenatal  and/or  postpartum  services.    Also,  OIG
suggested that HCFA continue to monitor and support Department of Justice efforts to have
the Federal Court in New York vacate its order to continue such benefits.  The HCFA agreed
with OIGs recommendations and will take appropriate action.  (OEI-07-96-00310)
Calculation of Medicaid Drug Rebates and Medicaid Drug
Reimbursement
This report points out the disparity between how Medicaid drug rebates are based and
calculated, and how the Medicaid program reimburses pharmacies for prescription drug
purchases.  The OIG believes that the current program of basing rebates on a manufacturer
calculated average manufacturers price (AMP) should be changed to calculating rebates
based on average wholesale price (AWP).
Requiring manufacturers to pay Medicaid drug rebates based on AWP would: eliminate
inconsistencies  in  the  present methods  used  by  drug  manufacturers  to calculate AMP;
establish a much needed connection between the calculation of Medicaid drug rebates and
the calculation of Medicaids reimbursement for drugs at the pharmacy level; and reduce the
burden  of  administering  the  Medicaid  drug  rebate  program  at  the  Federal,  State  and
manufacturer levels.  
32 The  OIG  recommended  that  HCFA  develop  and  submit  a  legislative  proposal  to  the
Congress that would require drug manufacturers participating in the Medicaid outpatient
prescription drug program to pay Medicaid drug rebates based on AWP.  While HCFA does
not believe that such legislation is feasible at this time, it is planning a comprehensive study
of AWP.  (CIN: A-06-97-00052)
Medicaid Fraud
At present, 47 States have Medicaid fraud control units (MFCUs).  Three States, Nebraska,
North Dakota and Idaho, have received waivers from establishing MFCUs as required by the
Omnibus  Budget  Reconciliation  Act  of  1993.    The  District  of  Columbia  MFCU  was
decertified in 1983; the District of Columbia has neither applied for Federal assistance to be
recertified as a MFCU, nor received a waiver.  The MFCUs conduct investigations and
prosecute providers charged with defrauding the Medicaid program or persons charged with
patient abuse and neglect.
During FY 1997, OIG provided oversight and administered approximately $82 million in
funds granted by HCFA to the MFCUs to facilitate their mission.
Although most Medicaid fraud cases are investigated by the MFCUs, OIG occasionally
works with them and/or other law enforcement agencies on such cases.
Following is an example of a settlement that was reached in a significant case of misconduct
in the use of Medicaid funds:
 The  OIG, the U.S. Attorneys Office  in southern Illinois and the State
Medicaid agency obtained a global settlement in a qui tam case for $5.3
million.  A pharmacy which serves nursing homes failed to properly credit
the State Medicaid program for unused medications that were returned from
the  nursing  homes.   When  the  pharmacy  was purchased  in  1992 by  a
pharmacy company, the company failed to identify the fraudulent conduct
before or after the purchase.  The pharmacy and the company agreed to pay
$2  million  in  restitution,  $2  million  to  a  crime  victim  fund  and  the
remainder to Federal and State agencies involved.   The settlement included
a corporate integrity agreement.
33 Public Health Service
Operating Divisions Chapter II
PUBLIC HEALTH SERVICE OPERATING
DIVISIONS
Overview of Program Area and Office of Inspector General
Activities
The  activities  conducted  and supported  by the  Public  Health  Service  (PHS)  operating
divisions represent this countrys primary defense against acute and chronic diseases and
disabilities.  These programs provide the foundation for the Nations efforts in promoting
and enhancing the continued good health of the American people.  These independent
operating divisions within the Department include: National Institutes of Health (NIH), to
advance our knowledge through research; Food and Drug Administration (FDA), to assure
the safety and efficacy of marketed drugs, biological products and medical devices; Centers
for Disease Control and Prevention (CDC), to combat preventable diseases and protect the
public  health;  Health  Resources  and  Services  Administration  (HRSA),  to  support  the
development, distribution and management of health care personnel, other health resources
and services; Indian Health Service (IHS), to improve the health status of Native Americans;
Agency for Toxic Substances and Disease Registry (ATSDR), to address issues related to
Superfund toxic waste sites; the Agency for Health Care Policy and Research (AHCPR), to
enhance the quality and appropriateness of health care services and access to services
through scientific research and the promotion of improvements in clinical practice, and in
the organization, financing and delivery of services; and the Substance Abuse and Mental
Health Services  Administration (SAMHSA),  to  assist States in refining and expanding
treatment and prevention services.
The Office of Inspector General (OIG) has concentrated on a variety of public health
programs and issues such as biomedical research funding, substance abuse, Indian health
services, drug approval processes and community health center programs.  The OIG has
looked  at  the  regulation  of  drugs,  foods  and  devices,  and  explored  the  potential  for
improving these activities through user fees.  The OIG has conducted audits of colleges and
universities which annually receive substantial research funding from the Department, as
well as audits of the financial statements and operations of the PHS operating divisions.  The
OIG continues to examine policies and procedures throughout the agencies to determine
whether proper controls are in place to guard against fraud, waste and abuse.  These
activities  include  preaward  and  recipient  capability  audits.    This  oversight  work  has
35 provided valuable recommendations to program managers for strengthening the integrity of
agency policies and procedures.
Institutional Review Boards
Institutional review boards  (IRBs)  play  a vital role  in protecting human  subjects who
participate in research funded by HHS or carried out on products regulated by FDA.  In a
broad-based inquiry, OIG concluded that the system of protections provided by IRBs in a
rapidly changing research environment is in jeopardy.  The OIG determined that IRBs are
reviewing too much, too quickly, with too little expertise; conducting minimal oversight of
approved research; facing conflicts that threaten their independence; and providing little
training for clinical investigators and board members.  Moreover, neither the IRBs nor the
Department devotes much attention to evaluating IRBs effectiveness.
While OIG does not claim that there are widespread abuses of human research subjects, the
system  does  have  some  significant  vulnerabilities.    The  OIGs  recommendations  were
directed jointly to FDA and NIH (through the Office for Protection from Research Risks).
The OIG urged FDA and NIH to grant more flexibility to IRBs while holding them more
accountable for results; strengthen continuing protections for human subjects; establish
requirements for educating investigators and IRB members about human subject protections;
help insulate IRBs from conflicts that  can compromise their mission; and address the
seriousness of the workload pressures facing many IRBs.  In addition, OIG proposed that
FDA  and  NIH  reexamine  and  reengineer  their  practices  in  overseeing  IRBs.
(OEI-01-97-00190; OEI-01-97-00191; OEI-01-97-00192; OEI-01-97-00193)
Food and Drug Administrations 
Citizen Petition Process
The FDA regulations permit any person to submit a citizen petition to FDA requesting the
Commissioner to issue, amend or revoke a regulation or order, or take or refrain from taking
any other form of administrative action.
The OIG determined that FDA does not have an effective process for handling such petitions
in a timely manner, as evidenced by a backlog of approximately 250 petitions that had not
been fully answered, some dating to the 1970s and early 1980s.  The FDA regulations
require tentative or final responses to citizen petitions within 180 days.  Because this has not
been  a  high  priority  among  FDAs  responsibilities,  the  agency  has  provided  limited
resources to the process and there has been little central oversight of the process across FDA
program areas. In the early 1990s, FDA developed options to improve the process and, since
the start of OIGs review, closed out slightly more petitions than it received.  The OIG made
specific recommendations to reduce the backlog, many of which were agreed to by FDA.
(CIN: A-15-97-50002)
36 Annual Reporting Process for Investigational New Drugs
The FDA is responsible for overseeing biological products that sponsors develop under
investigational  new  drug  applications  (INDs).    As  of  September  30,  1997,  FDA  was
overseeing 2,748 active INDs, which allow drug sponsors to conduct research on the safety
and effectiveness of promising new drugs.  Federal regulations require drug sponsors to
submit annual reports to FDA for all active INDs.
The OIG determined that FDAs process for obtaining IND annual reports does not ensure
that the reports are consistently received on time or at all.  From March 1996 to July 1997,
FDA significantly reduced the number of outstanding reports from 454 (21 percent) to 267
(13 percent).  However, OIG made several recommendations to improve the process so as to
further reduce the number of annual reports awaiting review, ensure that a new backlog does
not develop and improve efficiency in obtaining reports not yet submitted.  The FDA
generally concurred with OIGs proposals.  (CIN: A-15-96-50001)
Cancer Information Service
These reports discuss the Cancer Information Services (CISs) toll-free telephone service.
The  OIG  found  that  this  telephone  service  provides  the  public  and  national  cancer
organizations with an invaluable resource for information about cancer.  However, the
service routinely experiences high busy signal and abandonment rates.  These are due, in
part, to the telephone technology now being used by CIS and data gathering requirements
that adversely affect contractors call efficiency.  Further, the information specialists who
answer the telephones could be more efficient if their resources were more readily accessible
and  user-friendly.    The  OIG  also  identified  issues  related  to  the  current  regional
configuration, the lack of customer service standards and benchmarks, and the need for CIS
or its contractors to collect and maintain local community service information.
The OIG recommended upgrading technology; establishing performance standards; reducing
data  gathering  requirements;  improving,  modernizing  and  computerizing  reference
materials;  reevaluating  the  regional  structure;  discontinuing  efforts  to  collect  and
disseminate information on community services; and encouraging contractors to enhance
staff  training.    The  National  Cancer  Institute  generally  concurred  with  OIGs
recommendations  and  has  already  taken  some  action  on  these  proposals.
(OEI-09-97-00360; OEI-09-97-000361)
Racial and Geographic Disparity in the 
Distribution of Organs for Transplantation
At  the request  of  the  Congress,  OIG  updated  its 1991  inspection  report  entitled "The
Distribution of Organs for Transplantation: Expectations and Practices."  This follow-up
looked at racial and geographic disparities in waiting times for cadaver kidneys and livers.
The findings of this report indicated that both racial and geographic disparities in waiting
37 times still exist and, in some cases, seem to be growing.  Black recipients still wait longer
than white recipients for kidney transplants and the difference in waiting times has grown.
The OIG reemphasized the thrust of the 1991 report:  that the national organ allocation
system  should  focus  on  equity  among  patients,  not  among  transplant centers; and  on
common medical criteria, not the circumstances of a patients residence or transplant center
affiliation.  (OEI-01-98-00360)
Health Centers Access to the 
National Practitioner Data Bank
A number of  health centers funded by HRSA do not have access to the National Practitioner
Data Bank.  The inability of health centers to query the Data Bank places patients at risk for
possible substandard care and the Federal Government at risk since many health centers are
covered under the Federal Tort Claims Act.  The OIG recommended that  HRSA take
appropriate action to allow all health centers to query the Data Bank.   The HRSA agreed
with this recommendation and indicated that it will advise community health centers to have
an appropriate system for querying the Data Bank.  (OEI-12-98-00190)
Use of the 340B Drug Pricing Program
The section 340B drug pricing program of the PHS Act was intended to provide an effective
means of lowering drug prices for covered entities.  Although the program provides access
to  drugs  at  discounted  prices,  covered  entity  participation  is  voluntary.    The  HRSAs
database indicated that approximately 66 percent of eligible grantees did not participate and
therefore did not purchase covered outpatient drugs at the best prices. 
Recognizing  the  potential  savings  available,  HRSA  drafted  a  Federal  Register  notice
requesting  comments  on  a  proposed  condition  of  grant  award  that  would  require
participation in the 340B program for all eligible entities.  The OIG believes that this
requirement  could  result  in  savings  to  be  used  for  additional  patient  services.    (CIN:
A-01-98-01500)
Exclusions for Health Education Assistance Loan Defaults
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees
commercial loans to students seeking an education in a health-related field of study.  The
students are allowed to defer repayment of these loans until after they have graduated.  The
Departments Program Support Center (PSC) takes all steps that it can to ensure repayment.
However, some loan recipients ignore their indebtedness.
After PSC has exhausted all efforts to secure repayment of these debts, it declares the
individual in default.  Once the individual has been declared in default, the Social Security
Act permits, and in some instances mandates, exclusion from Medicare and State health care
38 programs for nonpayment of these loans.  During this 6-month period, 119 individuals were
excluded as a result of PSC referral of their cases to OIG.
Individuals who have been excluded as a result of their default may enter into settlement
agreements and have the exclusion stayed while they pay specified amounts each month to
satisfy their debt.  If they default on these settlement agreements they are then excluded until
their entire debt is repaid.  Some of the health professionals, upon being notified of their
exclusion, immediately repay their HEAL debt.
At the conclusion of this reporting period, 970 individuals had taken advantage of the
opportunity and entered into settlement agreements or completely repaid their HEALs.  The
amount  of  money  being  repaid,  through  settlement  agreements  or  through  complete
repayment,  totals  over  $60.6  million.    The  following  are  examples  of  some  of  these
settlements:
 A dentist and a physician in New York signed settlement agreements to
repay  their  HEAL  debts  after  being  excluded  for  defaulting  on  their
obligations.  One agreed to repay over $117,500, and the other agreed to
repay almost $250,000.
 After being notified that she was excluded as a result of her failure to repay
her HEAL, a California psychologist entered into a settlement agreement to
repay over $111,000.
 A settlement agreement was signed by a Hawaii osteopath who agreed to
repay her debt of over $171,000.
 A Pennsylvania pharmacist entered into a settlement agreement to repay a
HEAL debt of over $139,000.
 Shortly after being notified of his exclusion for defaulting on his HEAL, a
Mississippi  dentist  entered  into  a  settlement  agreement  to  repay  over
$128,000.
Substance Abuse and Mental Health Services 
Administrations Treatment Improvement Protocols
Treatment Improvement Protocols (TIPs) are consensus-based "best practice" guidelines
developed for SAMHSA for use in the treatment of individuals with alcohol and other drug
problems.  Since 1993, 23 TIPs have been developed and issued.  To determine the extent of
dissemination and practitioners awareness and use of TIPs, OIG surveyed a broad range of
39 provider types regarding five specific TIPs.  The sample included SAMHSA-funded grantee
service providers, the "target audience" for whom TIPs are developed.
The OIG concluded that SAMHSA should take a more proactive approach to advertising the
availability of all past and future TIPs.  Less than half the SAMHSA-funded grantees that
responded were aware of TIPs.  However, 84 percent of the survey respondents that were
aware of any of the five TIPS were using them in their practices.  In expanding efforts to
advertise  TIPs,  OIG  proposed  that  SAMHSA  look  beyond  its  "target  audience."
Specifically, it should consider including community mental health centers (CMHCs); 81
percent of CMHCs that were unaware of any of the 5 TIPs showed an interest in using them
in  their  practices.    The  SAMHSA  generally  agreed  with  OIGs  findings  and
recommendations.  The SAMHSA is in the second year of a 4-year, $3.2 million TIPS Field
Evaluation  Study  to  assist  in  expanding  and  improving  its  dissemination  activities.
(OEI-07-96-00130)
Fiscal Year 1997 Financial Statement Audits
As required by the Government Management Reform Act of 1994, OIG audited, through
contracts with independent accounting firms, the financial statements of the major PHS
agencies.  This work was undertaken as part of OIGs audit of the consolidated HHS-wide
financial statements discussed on page 54.  
A.  Food and Drug Administration 
The accounting firm qualified its opinion on FDAs FY 1997 financial statements, primarily
because it was unable to conclude on the reasonableness of estimated unreported grantee
expenses or to determine if an adjustment to grant advances was necessary or reasonable.
Additionally,  records  did  not  adequately  support  the amounts  shown  for  property  and
equipment, accumulated depreciation and related depreciation expenses.  The FDA did not
concur with the firmss findings.  (CIN: A-17-97-00003)
B.  National Institutes of Health 
The accounting firm qualified its opinion on NIHs FY 1997 financial statements, primarily
because it was unable to conclude on the reasonableness of estimated unreported grantee
expenses and because NIH could not provide supporting documentation for the value of its
fixed assets.  The NIH concurred with the accounting firms recommendations and is in the
process of taking corrective action.  (CIN: A-17-97-00008)
C.  Centers for Disease Control and Prevention and Agency for Toxic Substances
and Disease Registry
The accounting firm issued a qualified opinion on the consolidated FY 1997 financial
statements  of  CDC  and  ATSDR,  primarily  because  it  was  unable  to  conclude  on  the
reasonableness of estimated unreported grantee expenses.  Also, the accounts payable and
40 deferred  revenue  yearend  balances  pertaining  to  reimbursable  agreements  were  not
determinable in this first-year audit.  Agency officials agreed with the accounting firms
recommendations and are taking corrective action.  (CIN: A-17-97-00007)
D.  Health Resources and Services Administration 
The accounting firm qualified its opinion on HRSAs financial statements, primarily because
of its inability to conclude on the reasonableness of estimated unreported grantee expenses
and questions as to the composition of net position balances.  The HRSA concurred and is
taking corrective action. (CIN: A-17-97-00005)
E.  Substance Abuse and Mental Health Services Administration
A qualified opinion was also issued on SAMHSAs financial statements, essentially for the
same reasons as noted above for HRSA.  The SAMHSA agreed with the accounting firms
recommendations and is taking corrective action.  (CIN: A-17-97-00006)
F.  Indian Health Service 
The accounting firm qualified its opinion on the IHS financial statements due to questions
about  the  composition of net position  balances and because  an adequate loss was not
established for certain claims and lawsuits that were subsequently settled or near settlement
after yearend.  The IHS agreed and is taking corrective action.   (CIN: A-17-97-00004)
41 Administration 
for Children
and Families,
and Administration 
on Aging Chapter III
ADMINISTRATION FOR CHILDREN AND
FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General
Activities
The Administration for Children and Families (ACF) provides direction and funding for
programs designed to promote stability, economic security, responsibility and self-support
for the Nations families.  The major programs include: Temporary Assistance for Needy
Families (TANF), Child Support Enforcement (CSE), Foster Care, Family Preservation and
Support, Head Start, and the Child Care and Development Block Grant program. 
The Personal Responsibility and Work Opportunity Act of 1996 eliminated the Aid to
Families with Dependent Children, Emergency Assistance and Job Opportunities and Basic
Skills Training programs as of FY 1997 and created the TANF block grant, which was
designed to reduce dependency on welfare programs.  The block grant eliminated individual
entitlement  to  assistance,  established  time  limits  on  benefits  and  set  strong  work
participation requirements.  However, the Act gave States and tribal governments greater
flexibility to establish and operate programs structured to their needs.  While the Federal
role  in  TANF  has  changed,  OIG  will  continue  to  ensure  program  integrity,  identify
opportunities for program improvement, and provide Federal and State management with
useful information regarding the goal of moving individuals and families from welfare
dependency to self-sufficiency.
In addition, OIG reviews the Departments programs that serve children, and has issued a
number of reports in this area.  The OIG reports have focused on ways to increase the
efficient use of the program dollar, more effective program implementation, and how to
better coordinate program implementation among the Federal, State and local governments. 
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants
to  States  for  establishment of  comprehensive  community-based  systems  that  assist the
elderly in maintaining their independence and in remaining in their homes as long as
possible.    The  assistance  is  targeted  to  the  socially  and  economically  disadvantaged,
especially  the  low-income  minority  elderly, and  includes supportive  services,  nutrition
services, education and training, low-cost transportation and housing, and health services.
The OIG has reported opportunities for program improvements to target the neediest for
43 services; expand available financial resources; upgrade data collection and reporting; and
enhance program oversight.
State Child Support Satisfaction Survey
A.  Survey Results
According to this OIG survey, most States were satisfied overall with both the central and
regional Office of Child Support Enforcement (OCSE), although they rated some regional
offices  higher  than  others.    States  rated  OCSE  high  in  the  areas  of  communication,
coordination, recent contacts and program support.  They also believed that the Federal
offices  worked with them as partners.   States offered  suggestions for  improving their
relationship with OCSE, including improving the timeliness of communications to States
and strengthening the role of regional offices.  They would also like OCSE to provide more
systems and practical support and training, continue to improve the audit process and
improve the timeliness of the Annual Report to Congress.  The OIG concluded that States
gave OCSE high marks for its performance, particularly in recent years.  But opportunities
to improve remain, and the office should consider the suggestions cited by States to further
improve its performance.   (OEI-02-97-00310)
B.  Case Studies
Case  studies  for  programs  in  Colorado,  Massachusetts,  Minnesota,  New  York,  South
Carolina and Texas were developed by OIG to supplement a related report on States
satisfaction with the services provided to them by the Federal OCSE.  The report discusses
each  States  program  highlights,  working  relationships  with  the  Federal  OCSE  and
suggestions for support.  The OIG also conducted a cross-case analysis on four issues of
common concern to respondents in all six States:  Federal and State roles, interstate cases,
State innovative practices and the future of the program.  (OEI-02-97-00311)
Availability of Health Insurance for Children under 
the Child Support Enforcement Program:  Connecticut
Despite recent initiatives, significant numbers of children under the States CSE (IV-D)
program still do not receive medical support from their noncustodial parents.  The OIG
conducted a review to determine whether children under the CSE program are receiving
Medicaid  benefits  because  private  health  insurance  is  unavailable  or  unaffordable  to
noncustodial parents.  
The OIG found that Connecticut has an opportunity to increase the number of noncustodial
parents providing medical support for their children and reduce Medicaid costs.  These goals
could be achieved by either requiring the parents to pay for all or part of the Medicaid
premiums or establishing a new comprehensive health insurance plan for children with
premiums paid by the parents.  The OIG determined that taxpayers, rather than noncustodial
44 parents, provided medical support to nearly 14,000 title IV-D children through the Medicaid
program in Connecticut between April 1996 and March 1997.  While these parents were
required by court order to provide health coverage to their children, they were unable to
meet  their  obligation  because  either  their  employers  did  not  offer  health insurance  or
available health insurance was not reasonably priced.  Using premium information from the
States current Medicaid managed care program, OIG determined that the State could save
an estimated $11.4 million (Federal and State combined) in annual Medicaid costs if it
required noncustodial parents to offset Medicaid premiums paid by the State on behalf of
their children.
Both  ACF  and  the  Health  Care  Financing  Administration  agreed  with  OIGs
recommendations, and the State agreed to require noncustodial parents to pay all or part of
the  insurance  premiums  for  their  dependent  children enrolled  in  Medicaid.   The  OIG
suggested  that  ACF  make  this  report  available  to  other  States  to  apprise  them  of the
alternatives for increasing the number of noncustodial parents providing medical support for
their children and reducing Medicaid costs.  (CIN: A-01-97-02506)
Automated Data Processing Expenditure Reporting:  Missouri 
This review of Missouris automated child support system disclosed a clerical error in
reporting  automated  data  processing  expenditures.      Because  of  this  error,  the  State
inadvertently  reported  $2  million  (Federal  share  $1.8  million)  more  than  the  amount
supported by accounting records.   The OIG recommended that the State correct this error
and add a review step to ensure the accuracy of figures.  As a result, the State made
adjusting  entries  and  indicated  that  it  had  established  quality  control  reviews.    (CIN:
A-07-98-01034)
Child Support Enforcement
The United States Attorney General has placed enforcement of the Child Support Recovery
Act of 1992 as a top Department of Justice (DOJ) priority.  The Act made it a Federal
misdemeanor crime for a parent in one State to refuse to pay past due support for a child in
another State, when the support has been owed for more than 1 year or exceeds $5,000.  Any
subsequent offense is a felony violation.  A recent amendment to this Act has created two
other felony provisions for the most egregious first time violations.
The OIG has made the investigation of these matters a high priority.  The OIG and OCSE
are the sponsors of a multiagency, multijurisdictional investigative task force headquartered
in  Columbus,  Ohio,  whose  mission  is  to  identify,  investigate  and  prosecute  the  most
egregious violators of the Federal and State child support laws in the States of Illinois,
Michigan and Ohio.  The task force is comprised of personnel from the OIG Office of
Investigations, U.S. Marshals Service, U.S. Attorneys Offices, the Department of Justice,
State and local child support offices, State and local law enforcement, State and local
45 prosecutors, representatives from the judiciary (both State and Federal), and representatives
from the corrections and probation offices at both the Federal and State levels.
The task force is structured to identify, investigate and prosecute criminal nonsupport cases
both on the Federal and State levels through the coordination of law enforcement, criminal
justice and child support office resources.  There are three investigative units -- one each in
Illinois, Michigan and Ohio -- which conduct the actual investigations.  The units work with
the State child support offices to identify the cases that the States then refer to the task force.
The units also work with prosecutors at State and Federal levels to ensure that the cases
worked are those that will be prosecuted in a volume consistent with the resources of those
offices.
Central to the task force is a screening unit in Columbus, Ohio which is manned by analysts
and auditors from both OIG and OCSE.  This unit  receives the child support cases from the
States, conducts preinvestigative analyses of these cases through the use of information
databases and then forwards the cases to the investigative task force units where they are
assigned and investigated.  This will streamline the process by which the cases best suited
for criminal prosecution are identified, investigated and brought to fruition.  As the task
forces bring in more law enforcement partners on the State level, the number of cases
adjudicated  will  rise  dramatically.    At  this  point,  the  task  force  units  have  actively
investigated over 250 cases at the Federal and State levels with another 40 cases being
evaluated at the screening unit.  Currently, 25 Federal arrests have been executed and 5
individuals already sentenced.  The total arrearage amount related to the Federal convictions
is $147,000.  There have been 162 arrests on the State level.
The Federal arrests, convictions and sentencings during this reporting period include the
following: 
 A computer consultant was sentenced in Michigan to 30 months probation
for failure to pay legal child support obligations.  He was ordered to pay
$1,200 a month in support until the balance of $32,900 in arrearages is paid.
The consultant earned approximately $70,000 a year.
 In Ohio, a man was sentenced after pleading guilty to refusing to pay child
support.  He was sentenced to pay full restitution of $19,000 and placed on
probation for 5 years.
 Another man pled guilty and was sentenced in Ohio for failing to pay past
due child support.  He agreed to pay the total amount of $19,580 for all
outstanding child support arrearages and $1,225 for his childs medical bills.
A fine of $50 was also imposed and probation was waived.
46 The following cases are examples of child support cases successfully prosecuted outside the
task force area:
 In Iowa, a woman pled guilty and was sentenced for failing to pay child
support for her 10-year-old child who resides in Minnesota with her father.
The womans arrearage amounted to $16,990 which she failed to pay even
though she was employed and aware of her obligation.  She was sentenced
to 5 years probation and ordered to pay restitution of $16,050 over the
course of the probation period.  This is OIGs first successful investigation
and prosecution of a woman in the context of child support enforcement.
 A truck driver was sentenced in Iowa to 5 years probation and ordered to
pay full restitution for failure to pay child support.  His arrearages totaled
approximately $23,178.  He made only sporadic payments for his four
children since 1990.  He frequently moved to avoid support payments, and
was finally arrested in Ohio.
 A man was sentenced in Florida for failing to pay nearly $145,000 for past
child support for his two sons.  Since he stopped payments in 1993, the man
lived in New York, Texas, Georgia, Louisiana and Pennsylvania.  When he
was found in Pennsylvania, he had remarried and was living in a $600,000
house bought under his new wifes name.  While he lived in high-priced
homes  and  drove  Rolls  Royce,  Porsche,  BMW,  Mercedes  and  Infiniti
automobiles, his two sons had to get financial aid to attend college.  The
man was sentenced to 3 years probation and fined $5,000.  As part of his
sentence,  the  man  agreed  to  pay  total  restitution  for  arrearages  and
approximately $190,000 for his sons school tuition and legal fees.
 In Virginia, a former Immigration and Naturalization Service agent was
sentenced for refusing to pay child support for his two children.  He was
sentenced to 5 years probation and was ordered to pay $16,440 in restitution
for arrearages.  Although he was ordered to pay $440 per month at the time
of his divorce, he only made 2 payments.  He frequently moved from State
to State to avoid support payments.  
 In California, a man was sentenced to 5 years of supervised probation and
250 hours of community service for failure to pay child support.  The
individual must make full restitution of $48,324 and pay the mandatory
court ordered special assessment.  This was the first child support case to
come to trial in the Central District of California.
47 To date, OIG has investigated 378 child support cases nationwide.  During this period, these
cases  resulted  in  25  convictions  and  court-ordered  restitution  of  over  $1  million.
Prosecutions in this area are unique in that sentences ordered by a judge take into account
the need for the defendant to continue to be able to pay.  Therefore, alternative sentencing
options -- such as work release, home detention and probation where nonpayment is a
violation -- are ordered.
In addition to its work in enforcing the Child Support Recovery Act, OIG has supported and
assisted OCSE in implementing its law enforcement initiative, the goal of which is to get
local and State law enforcement more involved in investigating criminal nonsupport matters.
The initiative aims to demonstrate to local law enforcement that there is a strong connection
between the lack of child support and juvenile crime.  A highlight of this effort was three
symposia at which over 200 chiefs of police and sheriffs were given an overview of the
child support program and shown how their resources could be an invaluable tool in this
arena.  The OIG attended and made presentations at each of the conferences.  One of the
by-products of the symposia was the idea for the child support multiagency task force
described above.
Identifying and Reporting Cases of Statutory Rape
This review examined whether cases of suspected statutory rape in Connecticut were being
identified, reported  and  targeted  for  intervening services.  It also  assessed the related
implications, including social costs.  While the State has taken steps toward addressing the
problem of statutory rape, the effectiveness of these steps could be improved.  Many of the
teenaged girls and boys in OIGs sample were pursued by adults over the age of 21, and over
half these adults had histories of reported domestic violence and/or abuse of their children.
The OIG recommended that the State identify ways to pursue criminal action against alleged
perpetrators and ensure that appropriate services are provided to victims and others, as
needed.  However, the State should consult with ACF to prevent any possible negative
consequence in the area of voluntary paternity acknowledgment.  The State indicated it
would continue to work to resolve the problems and develop an acceptable protocol. (CIN:
A-01-97-02504)
Contract Administration for Head Start Grantee Reviews 
The ACF contracts with a corporation to arrange and coordinate reviews of Head Start
grantees throughout the country.  This OIG review was undertaken to determine the validity
of an anonymous allegation of improprieties in contract administration.  While the allegation
was not substantiated, the review disclosed other weaknesses in contract administration.
Specifically, ACF did not adequately maintain and account for official contract files or
ensure compliance with contract terms and conditions.  The OIG recommended that ACF
improve accountability over contract files, closely monitor and enforce compliance with
contract terms, and require the contractor to take advantage of opportunities to minimize
48 travel costs.  The ACF generally concurred with the recommendations and has initiated
corrective actions.  (CIN:  A-12-97-00002)
Emergency Assistance Program Costs:  Pennsylvania
The OIG reviewed $46.8 million in costs claimed by Pennsylvania for title IV-A Emergency
Assistance services provided to children in the Philadelphia juvenile justice system for the 6
months ended June 30, 1996.  According to ACF policy, effective January 1, 1996, Federal
funding was not available for juvenile justice services provided to alleged, charged or
adjudicated delinquents.  However, the State did not follow this policy and, as a result,
inappropriately claimed about $13 million.  The OIG recommended that the State refund this
amount to the Federal Government and ensure that all adjustments or supplemental claims
were  properly  identified  and  reported  to  ACF.    The  OIG  also  recommended  that
Pennsylvania  conduct  similar  reviews  in  other  counties  and  refund  to  the  Federal
Government all costs inappropriately claimed.  The State generally agreed with the findings,
but has not agreed to make any refunds.  Also, the State has appealed ACFs prohibition on
claiming delinquent-related costs and the matter is in litigation.  (CIN:  A-03-98-00590)
Payments under the Refugee Resettlement Program:  Florida
During this reporting period, OIG reviewed both cash and medical assistance payments to
refugees  in  Florida  to  determine  whether  payments  were  made  within  the  allowable
eligibility period.
A.  Cash Assistance Payments
The OIG estimated that Florida made refugee cash assistance (RCA) payments of nearly
$1.9 million to refugees who were not eligible for such assistance for the period July 1991 to
February 1997.  Federal regulations limit the period for which refugees are eligible for cash
assistance under the Refugee Resettlement Program.  The OIG recommended that the State
make a financial adjustment of $1.9 million; implement an edit in its computer system to
identify and automatically terminate recipients from the program when their eligibility
expires;  and  determine  the  amount  of  RCA  payments  made  to  ineligible  recipients
subsequent to the period covered by OIGs review and make the appropriate financial
adjustment.
In response to the draft report, the State agreed with the recommendation to refund RCA
overpayments, but disagreed with the procedural recommendations.  (CIN: A-04-96-00104)
B.  Medical Assistance Payments
The Federal Government reimburses States for medical assistance to refugees for 8 months
following their entry into the United States.  The OIG made this review to determine if
Florida had controls in place to prevent medical assistance payments after a refugees period
of eligibility had expired.  The review disclosed that Floridas computerized payment system
49 did not have such controls.  Instead, the State relied on its district offices to terminate
medical benefits, and these terminations were not always timely.  For the period October
1991 through February 1997, OIG estimated that almost $410,000 was paid for ineligible
refugees.  The State agreed to make a financial adjustment for this amount and to change its
computerized  system  to  prevent  payments  beyond  the  eligibility  period.    (CIN:
A-04-98-00119)
Financial Statement Audit of the 
Administration for Children and Families
As part of its departmentwide financial statement audit, OIG contracted for an audit of
ACFs FY 1997 financial statements.  The independent accounting firm qualified its opinion
on the statements for several reasons.  For instance, a $500 million adjustment was made to
bring the general ledger balance for Treasury funds into agreement with Treasury records.
However, the Program Support Center (PSC), which maintains the accounting records for
ACF, did not have adequate documentation to support this adjustment.
The firm also noted that grant expenses could be overstated by as much as $454 million and
that  documentation  was  not  adequate  to  determine  the  reasonableness  of  estimated
unreported grantee expenses or to support nongrant advance liabilities and nongrant assets.
The  ACF  and  PSC  concurred  with  OIGs  recommendations,  and  corrective  action  is
underway.  (CIN: A-17-97-00002)
Business Process Reengineering Pilot
The OIG and the Assistant Secretary for Management and Budget (ASMB) conducted a
joint review of ACFs  business process reengineering pilot, an  alternative process for
managing grants.   The objectives were to evaluate the effectiveness of the pilot and to
determine whether ACF should be permitted continued use of deviations from established
departmental policy.  The review showed that the pilot failed to achieve its goals and did not
significantly  contribute  to overcoming grant management  deficiencies cited in a  1994
ASMB report. In one critical area, audit resolution, requirements were not followed, and
audits remained open for inordinate periods beyond the 6-month due dates.  As of April
1998,  337  Head  Start  open  audits  with  $27.4  million  in  questionable  costs  needed
resolution.  The ACF concurred with OIGs recommendation to discontinue the pilot and to
implement a corrective action plan addressing grant management deficiencies.    (CIN:
A-12-97-00006)
Safeguards Against Elder Abuse
During  this  reporting  period,  OIG  completed  two  reviews  on  current  safeguards  for
preventing elder abuse and neglect in nursing homes and other long-term-care facilities. 
50 A.  Safeguarding Long-Term-Care Residents
This report, which consolidated information gathered during reviews of two States and
surveys of State and nursing home officials, described the various measures used to identify
persons  posing  a  possible  threat  of  elder  abuse.    While  33  States  required  criminal
background checks, the checks were usually limited to Statewide records and generally
covered nurse aides seeking employment but not other prospective employees or current
staff.  The OIG also found some shortcomings in State nurse aide registries, which are
required to record findings of abuse, neglect and misappropriation of property involving the
elderly.  Convictions for crimes committed outside nursing facilities were not systematically
reported to the registries, and Marylands registry did not include all findings of abuse and
convictions.    
The  OIG  recommended,  among  other  things,  that  HCFA  consider  establishing  Federal
requirements and criteria for criminal background checks, assisting in the development of a
national abuse registry and expanding current State registries to include all workers who
have abused or neglected residents in facilities receiving Federal reimbursement.  The OIG
also suggested that legislation be enacted to allow the inclusion of the national abuse
registry in an expanded version of the current Healthcare Integrity and Protection Data Bank
(HIPDB),  which  OIG  developed  pursuant  to  the  Health  Insurance  Portability  and
Accountability  Act  of  1996.    The  HCFA  and  AoA  generally  agreed  with  the
recommendations in the draft report.  The HCFA indicated, however, that it planned to
further examine whether an expanded HIPDB is the appropriate vehicle for a national
registry.  (CIN:  A-12-97-00003)
B.  Elder Abuse Safeguards in Illinois 
The Illinois nurse aide registry properly recorded almost all substantiated cases of elder
abuse, but the State did not fully investigate some alleged abuse cases reported by long-term
care facilities.  While 13 of 88 alleged abusers in OIGs sample were terminated from
employment  or  disciplined,  the  State  did  not  determine  whether  these  abuses  were
substantiated and did not record the incidents in the registry.  The OIG also noted that
Illinois  required  background  checks  on current  as  well as  prospective  employees  and
recorded the results in the registry.  The results of background checks that did not find
criminal histories, however, were not recorded in a timely manner.  The OIG made various
recommendations to strengthen safeguards against elder abuse, and State officials generally
agreed.  (CIN:  A-05-97-00010) 
Health Care Antifraud Volunteer Project 
Performance Measures
The Congress authorized the Health Care Antifraud, Waste and Abuse Community Volunteer
Demonstration Program in 1997 to help curb losses to the Medicare program.  Two million
dollars was transferred to AoA from the Health Care Financing Administrations research
51 and  demonstration  budget  to  support  different  approaches  to  recruit  and  train  retired
professionals  as  local,  volunteer  resources  and  educators  on  detecting  and  reporting
Medicare fraud.  The Congress directed AoA to consult with OIG to develop outcome
measures to test the effectiveness of these different approaches.  In May 1997, AoA awarded
funds to implement these projects to 12 organizations:  two area agencies on aging, six State
units on aging and four private aging organizations.
The  OIG  reviewed  the  funded  grant  applications  to  identify  commonly  proposed
performance measures and activities and developed a set of draft performance measures.
These measures were revised based on grantees experiences and their assessments of the
appropriateness and feasibility of collecting data.  The OIG and AoA will now develop a
reporting format, which OIG will pretest by asking grantees to supply performance data.
Subsequently, OIG will issue further reports which track implementation and report on
outcomes.  (OEI-02-97-00520)
52 General Oversight Chapter IV
GENERAL OVERSIGHT
Introduction
This chapter addresses the Office of Inspector Generals (OIGs) departmental management
and Governmentwide oversight responsibilities.
The Program Support Center (PSC), a separate operating division within the Department of
Health  and  Human  Services  (HHS),  provides  overall  direction  for  departmental
administrative activities as well as common services such as human resources, financial
management, administrative operations and information technology.  The Office of the
Assistant Secretary for Management and Budget (ASMB) is responsible for the development
of the HHS budget and its execution, as well as the related activities of establishing and
monitoring departmental policy for debt collection, cash management, and payment of HHS
grants and contracts.  The Department also has the responsibility, by virtue of the magnitude
of its funding, to negotiate the payment rates and methods that outside entities, such as State
and local governments, charge for administering HHS and other Federal programs.
The OIG has oversight responsibility for these activities at the departmental level.  A related
major responsibility flows from  Office of Management and Budget (OMB) Circular A-133,
which designates HHS as cognizant agency to audit the majority of the Federal funds
awarded to major research schools, State and local government cost allocation plans, and
separate indirect cost plans of State agencies and local governments.  Also, OIG oversees the
work of nonfederal auditors of Federal money at some 6,700 entities, such as community
health centers and Head Start grantees, as well as at State and local governments, colleges
and universities, and other nonprofit organizations.  In addition, OIG is responsible for
auditing the Departments financial statements beginning with the FY 1996 statements.
The OIGs work in departmental administrative activities and Governmentwide oversight
focuses principally on financial statement audits, financial management and managers
accountability  for  resources  entrusted,  standards  of  conduct  and  ethics,  and
Governmentwide audit oversight, including recommending necessary revisions to OMB
guidance.
53 Year 2000 System Compliance
This report, the first in a series, discusses the Departments progress in making its identified
mission-critical application systems Year 2000 compliant.  The report focuses principally on
OIGs work at Medicare contractors as of  the end of April 1998.
The Department established an accelerated compliance date of December 31, 1998 to allow
adequate time for dealing with unanticipated problems that may hamper compliance by
December 31, 1999.  The OIGs initial review indicated that Medicare Parts A and B
contractors, particularly Part B contractors, were at risk of not meeting the Departments
accelerated compliance date, thereby reducing the amount of time available to resolve
problems.    The  OIG  also  identified  several  other  issues  that  needed  to  be  addressed
immediately.  Many of these issues related to Medicare Part A and/or Part B, while others,
such as problems with contingency plans, certification and payroll, had departmentwide
impact.  Since these issues are so closely linked, particularly the Medicare contractor issues,
failure to adequately address one could have a corresponding negative impact on the others.
The OIG made specific recommendations to deal with these issues and will continue to
monitor and report on the Departments progress in these areas.  (CIN:  A-17-98-00003)
Financial Statement Audit of the 
Department for Fiscal Year 1997
As  required  by  the  Government  Management  Reform  Act  of  1994,  OIG  audited  the
departmentwide consolidated financial statements for FY 1997.  This audit encompassed
individual audits of eight operating agencies financial statements, which are summarized in
previous chapters, along with reviews of departmental service organizations,  which are
discussed below.
The audit report, which appears in the Departments Accountability Report for FY 1997,
indicates  a  qualified  opinion  on  the  FY  1997  statements,  an  improvement  over  the
disclaimer of opinion for FY 1996.  However, due to continuing documentation problems,
OIG was unable to determine whether several balances and estimates were fairly presented.
Medicare contractors, for instance, did not maintain adequate documentation to support $2.5
billion in accounts receivable.  In addition, the report noted five material internal control
weaknesses -- those problems that are systemic across a number of operating divisions, as
well as significant dollar issues affecting only one division:
 HCFAs  oversight  of  the  Medicare  program  continues  to  fall  short  of
providing  reasonable  assurance  of  detecting  and  preventing  improper
fee-for-service payments. 
 Significant  improvements  are  still  needed  in  HCFAs  methodology  for
estimating Medicare accounts payable.
54  The  HHS  and  its  operating  divisions  do  not  have  a  fully  functioning,
integrated financial reporting system capable of producing complete and
reliable financial statements in a timely manner.  
 Although significant progress has been made in resolving grant accounting
issues, additional effort is needed to ensure that Payment Management
System advance balances reconcile with operating divisions records.
 Improvements  are  needed  in  electronic  data  processing  controls  at  the
HCFA central office, HCFA contractors and the HHS payroll system.
The  Department  agreed  with  some  of  OIGs  recommendations  to  strengthen  internal
controls.  (CIN: A-17-98-00001)
Reviews of Departmental Service Organizations
To support its departmentwide FY 1997 financial statement audits, OIG contracted for
reviews  of  four  HHS  service  organizations  which  provide  common  accounting  and
administrative services to the individual operating agencies.  During this reporting period,
two of these reviews were completed by an independent public accountant, as discussed
below. 
A. Departmentwide Payroll System
The accounting firm noted a number of major problems with the payroll system.  For
instance, a system control feature that limits pay corrections to 25 percent of base pay had
been turned off, so that employees with passwords could make corrections to their pay and
that of others that would result in a pay increase of 100 percent or more.  The system also
accepted duplicate corrections and did not flag unusual transactions or trends.  In OIGs
view, this constitutes a material internal control weakness.  (CIN: A-17-97-00010)
B. Division of Financial Operations 
In assessing accounting operations at the Division of Financial Operations (DFO), the
accounting firm noted several problems with the financial systems.  For example, DFO did
not have a system that produced timely financial statements or the reports necessary for
financial statement audits.  Instead of an integrated financial system, DFO relied on two
accounting systems, an offline database program and numerous manual adjustments; these
conditions were a contributing factor in OIGs finding of a material weakness in financial
reporting at the Department level.  Moreover, the firm found that DFO did not always
comply with the requirements of the Federal Financial Management Improvement Act.  The
Program Support Center concurred with most of OIGs recommendations and is in the
process of taking corrective action.  (CIN: A-17-97-00009)
55 Nonfederal Audits
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
awards.  Under this circular, these entities are required to have an annual organizationwide
audit which includes all Federal money they receive.
These annual audits are conducted by nonfederal auditors, such as public accounting firms
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and
assesses the adequacy of the entitys management of Federal funds.  In the second half of FY
1998, OIGs National External Audit Review Center (located in Kansas City) reviewed over
1,000 reports that covered over $151.3 billion in audited costs.  Federal dollars covered by
these audits totaled $35.5 billion, about $20.6 billion of which was HHS money.
The OIGs oversight of the nonfederal audit activity not only provides Department managers
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any
significant areas of internal control weakness, noncompliance and questioned costs that
require formal resolution by Federal officials.
The OIG has developed a strategy to interrelate the work performed by nonfederal auditors
under the Single Audit Act with that required for financial statement audits.  Reliance on
nonfederal audits wherever possible, such as use of single audits for coverage of Medicaid
program expenditures, has the potential to maximize benefit from the audit effort expended
by the public and private sectors.
A.  Office of Inspector Generals Proactive Role
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of
the Departments programs and provide for greater utilization of the data obtained: 
 Through evaluation of reported data, OIG is able to provide basic audit
coverage and analyze reports to identify entities for high-risk monitoring
and trends that could indicate  problems within  HHS  programs.  These
problems  are  brought  to  the  attention  of  departmental  management  to
improve program administration.  In addition, OIG profiles nonfederal audit
findings of a particular program or activity over a period of time to identify
systemic problems.
 To ensure audit quality, OIG maintains a quality control program (discussed
below) and has taken steps to ensure that adequate guidance is available to
the nonfederal auditor.  The OIG actively assists the National Association of
State Auditors, Controllers and Treasurers in performing peer reviews of
State auditors.
56  As a further enhancement of audit quality, OIG provides technical assistance
to  grantees  and  the  auditing  profession  through  its  toll  free  number
(800-732-0679) and through training.  In addition, formal training was
provided to certified public accountant societies and State auditor staff on
issues related to Circular A-133.
 The OIG is also very much involved with OMB and the American Institute
of Certified Public Accountants in developing authoritative guidance for
nonfederal auditors.
B.  Quality Control
To rely on the work of nonfederal auditors, OIG maintains a quality control review process
which  assesses  the  quality  of  the  nonfederal  reports  received  and  the  audit work  that
supports selected reports. 
Uniform procedures are used to review nonfederal audit reports to determine compliance
with Federal audit requirements and Government auditing standards.  During this reporting
period, OIG reviewed and issued 1,021 nonfederal audit reports.  The following table
summarizes those results:
Reports issued without changes or with minor changes 896
Reports issued with major changes 12
Reports with significant inadequacies       113
Total audit reports processed 1,021
The  1,021  audit  reports  discussed  above included  recommendations  for  HHS program
officials  to  take  action  on  cost  recoveries  totaling  $2  million  as  well  as  1,961
recommendations for improving management operations.  In addition, these audit reports
provided information for 42 special memoranda which identified concerns for increased
monitoring by departmental management.
57 Resolving Office of Inspector General Recommendations
The tables and schedules below summarize actions taken on OIG recommendations to
recover funds or to put them to better use.
A.  Questioned Costs
The following chart summarizes the Departments responses to OIGs recommendations for
the recovery or redirection of questioned and unsupported costs.  Questioned costs are those
costs which are challenged because of a violation of law, regulation, grant, etc.  Unsupported
costs are those costs questioned because they are not supported by adequate documentation.
This information is  provided in accordance with the Supplemental Appropriations and
Rescissions Act of 1980 (Public Law 96-304) and the Inspector General Act Amendments of
1988.  These costs are separate from the amount ordered or returned as a result of OIG
investigations (see page 62).
TABLE  I
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS
Number  Dollar Value 
Questioned Unsupported
A.For which no management
decision had been made by
the commencement of the
reporting period1 420 $364,375,000 $49,710,000
B.Which were issued during
the reporting period   84                 $71,043,000 $14,064,000
Subtotals (A + B) 504 $435,418,000 $63,774,000
Less:
C.For which a management
decision was made during 
the reporting period2: 158 $87,687,000 $2,036,000
(i) dollar value of
disallowed costs3 $68,824,000 $410,000
(ii)dollar value of
costs not disallowed $18,863,000 $1,626,000
D.For which no management 
decision had been made by the 
end of the reporting period 346 $347,731,000 $61,738,000
E. For which no
management decision was
made within 6 months
of issuance4 260 $270,925,000 $47,783,000
See Appendix D for footnotes.
58 B.  Funds Put to Better Use
The following chart summarizes reports which include recommendations that funds be put
to better use through cost avoidances, budget savings, etc.
TABLE  II
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT
TO BETTER USE
Number  Dollar Value 
A.For which no management
decision had been made by
the commencement of the
reporting period1 36 $34,381,000
B.Which were issued during
the reporting period  7 $1,229,882,000
Subtotals (A + B) 43 $1,264,263,000
Less:
C.For which a management
decision was made during 
the reporting period:
(i) dollar value of
recommendations that
were agreed to by
management
(a)  based on proposed
       management action2 5 $14,367,000
(b)  based on proposed
       legislative action
Subtotals (a+b) 5 $14,367,000
  (ii)dollar value of
recommendations that
were not agreed to
by management  4  $5,378,000
Subtotals (i + ii) 9 $19,745,000
D.For which no management 
decision had been made by
the end of the reporting 
period3 34 $1,244,518,000
See Appendix D for footnotes.
59 Legislative and Regulatory Review and Regulatory Development
A.  Review Functions
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review
existing and proposed legislation and regulations, and to make recommendations in the
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the
administration of the Departments programs and on the prevention of fraud and abuse.  In
reviewing  regulations  and  legislative  proposals,  OIG  uses  as  the primary  basis  for its
comments the audits, inspections, investigations and other activities highlighted in this and
previous semiannual reports.  Recommendations made by OIG for legislative and regulatory
change can be found throughout this semiannual report. 
B.  Regulatory Development Functions
The OIG is responsible for developing a variety of sanction regulations addressing civil
monetary penalty (CMP) and program exclusion authorities administered by the Inspector
General, as well as advisory opinion and safe harbor regulations related to the anti-kickback
statute.
Among the regulatory initiatives promulgated during the reporting period were:
OIG Final Rule: Issuance of Advisory Opinions by OIG
The OIG issued final regulations addressing its advisory opinion process, in accordance with
section 205 of the Health Insurance Portability and Accountability Act (HIPAA) of 1996.
This final rule addressed the various public comments received as a result of OIGs interim
final rule published in February 1997, and serves to revise, refine and clarify various aspects
of the advisory opinion process consistent with public comments and OIGs own experience
in the issuance of advisory opinions.  As a result, OIG has accommodated these concerns by
revising the rule to provide greater flexibility for requesters in the submission of advisory
opinion requests. 
OIG Proposed Rulemaking:  Revised CMPs Resulting From Public Law 104-191
The  OIG  issued  proposed  rulemaking  addressing  revised  OIG  CMP  authorities,  in
conjunction with new and revised provisions set forth in HIPAA.  The proposed rule is
designed to codify, among other provisions, new CMPs for excluded individuals retaining
ownership or control interest in an entity; upcoding and claims for medically unnecessary
services; offering inducements to beneficiaries; and false certification of eligibility for home
health services.
Additional Regulatory Activities
The OIG continued its development and promulgation of final regulations addressing new
HIPAA exclusion authorities, and the issuance of proposed regulations addressing both the
60 health care fraud and abuse data bank collection program for reporting final actions and
expanded and revised exclusion and CMP authorities resulting from Public Law 105-33, the
Balanced Budget Act of 1997.  All three rules are expected to be published in the Federal
Register shortly.
The OIG also continued to develop interim final regulations addressing the shared risk
exception to the anti-kickback statute, in accordance with section 216 of HIPAA, and the
final regulations for promulgating new and revised safe harbors to the anti-kickback statute.
Further, during this period, OIG developed and published three Federal Register notices
setting forth the OIG special fraud alert concerning fraud and abuse practices involving
nursing home arrangements with hospices, the OIG compliance program guidance for home
health agencies and the OIG compliance program guidance for clinical laboratories.
C.  Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process.  For
example, OIG testified at 11 hearings during this 6-month period, principally on health care
fraud  and  abuse  issues.    On  several  occasions,  the  testimony  concerned  OIG
recommendations which, if implemented, could produce significant annual savings to the
Government.  These recommendations are contained in the OIG Cost Saver Handbook, also
known as the Red Book.  The hearing process offers OIG the opportunity to meet its
statutory  obligation of  keeping the Congress informed of its  work  with  regard to the
effective and efficient operation of Department programs.  The OIG continues to track all
relevant congressional hearings and pending legislation relative to a wide range of issues.
Governmental Accounting
Each year, State and local government entities receive over $200 billion for administration
of Federal grants and associated activities.  As part of its Governmentwide cognizance
responsibilities, as defined in OMB Circular A-87, OIG assesses whether charges to Federal
programs  are  in  accordance  with  the  appropriate  Statewide  cost  allocation  plans  and
identifies cost containment areas and/or areas where costs are being inappropriately charged.
During this reporting period, OIG conducted two reviews of State funds. 
A.  Tennessee Consolidated Retirement System
The OIG found that the Tennessee consolidated retirement system fund contained over $538
million ($49 million Federal share) in excess funds as of June 30, 1997.  The excess balance
occurred  because  actual  results  from  the  funds  operations  significantly  deviated  from
actuarial estimates.  Specifically, returns on investments exceeded expectations, and salary
increases for participants were less than expected.  The OIG recommended that the State
consider adjusting future pension contribution rates charged to Federal programs to reduce
61 the excess fund balance.  In response to the draft report, the State agreed and said that it was
in the process of reducing contribution rates.  (CIN:  A-04-98-00118)
B.  Virginia Internal Service Funds
At the Departments request, OIG reviewed the Commonwealth of Virginias internal service
fund balances for State FYs 1993 through 1997 to determine the Federal share of profits
earned  by  the  funds  and  transfers  made  from  the  funds.    The  review  found  that  the
Commonwealth overrecovered $15.3 million in Federal funds during the 5-year period.  The
OIG recommended that the Department require Virginia to refund that amount to the Federal
Government, and the Department concurred.  (CIN:  A-03-98-00457)
Employee Fraud and Misconduct
The OIG has oversight responsibility for the investigation of allegations of Department
employee wrongdoing where it affects internal programs.  Most of the persons employed
full time by HHS are dedicated, honest civil servants.  Occasionally, however, individuals
violate their fiduciary responsibilities.  The following actions came to OIGs attention as a
result of a joint investigation with the Food and Drug Administrations (FDAs) Office of
Internal Affairs. 
 A former FDA employee was sentenced in Washington, D.C. for theft of
Government property.  He was sentenced to 5 years probation and ordered
to pay $11,350 in restitution.  He made long-distance calls for which FDA
was billed more than $36,500.  During an earlier interview, the employee
admitted that he made calls to both a phone sex line and to numerous
women  around  the  country  whom  he  met  through  the  sex  line.    The
employee was terminated from his job after being convicted of the charge.
 In Maryland, another former FDA employee was also sentenced for theft of
Government property.  She used a Government charge card to obtain funds
for personal gain.  She charged $9,640 on the card to operate a residential
facility for mentally retarded adults from her residence.  She was sentenced
to 5 years probation and ordered to pay restitution of $7,160.
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 132 successful
criminal actions.  Also during this period, 788 cases were presented for criminal prosecution
to DOJ and, in some instances, to State and local prosecutors.  Criminal charges were
brought by prosecutors against 159 individuals and entities.
In addition to terms of imprisonment and probation imposed in the judicial processes, nearly
$392.3  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this
62 semiannual period.  Civil settlements from investigations resulting from audit findings are
included in this figure.
Program Fraud Civil Remedies Act
The Program Fraud Civil Remedies Act (PFCRA), passed in October 1986, established
administrative penalties for anyone who makes a false claim or written false statements to a
Federal agency.  It was modeled after the civil monetary penalty law for the Medicare and
Medicaid programs, which OIG is responsible for enforcing.  Under PFCRA, any person
who makes a claim or statement to the Department, knowing, or having reason to know, that
it is false, fictitious or fraudulent, may be held liable in an administrative proceeding for a
penalty of up to $5,000 per claim or statement.  In addition, that person may be subject to an
assessment of up to double the amount of each claim falsely made.  The OIG is responsible
for investigating allegations of false claims or statements, and for reporting at the end of
each fiscal year investigations completed under PFCRA and referred for administrative
action.
During FY 1998, no settlements were made under PFCRA.  While all cases are routinely
analyzed for potential action under PFCRA, the availability of OIGs CMP authorities in
health care matters often renders PFCRA unnecessary.  Also, PFCRA cannot comfortably be
applied to many of the grants and contracts issued and administered by HHS, since these
grants often exceed the financial limits of PCFRA. 
63 Appendices APPENDIX A
Savings Achieved Through Policy and Procedural Changes Resulting from
Office of Inspector General
Audits, Investigations and Inspections
April 1998 through September 1998
The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary
obligations for expenditures of agency funds or to improve agency systems and operations.  These achievements depend
greatly on the contributions of others, such as OIGs partners within the Department and elsewhere.  The amounts shown
represent funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or
by management in response to OIG audits, investigations and inspections, including:  actual reductions in unnecessary
budget outlays; deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or
operations; and reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or
insurance or bonds.
Legislative savings are annualized amounts based on Congressional Budget Office (CBO) estimates for a 5-year budget
cycle.  Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the
change is effected or for multiple years, if applicable.  Total savings from these sources amount to $7,187 million for this
period.
Note that implementation of certain legislative changes may be delayed as a result of Year 2000 readiness priorities (i.e.,
prospective  payment  system  for  hospital  outpatient  services  and  consolidated  billing  for  skilled  nursing  facilities).
Nonetheless, it is expected that these savings will be realized when the Year 2000 moratorium is lifted.  Accordingly, OIG
has not reduced the CBO estimates.
      OIG Recommendation Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
 Hospital Outpatient Policy:
Extend congressionally mandated reductions in Section 13521 of the Omnibus Budget $1,444
hospital costs.  Hospitals should limit outpatient Reconciliation Act (OBRA) of 1993
department (OPD) facility fees to the applicable mandated a reduction of 10 percent for
ambulatory surgical center (ASC) rate or reduce outpatient capital costs.  Sections
payments for OPD services to bring them in line 4521-4523 of the Balanced Budget Act
with ASC payments. (CIN:  A-14-89-00221; (BBA) of 1997 eliminated formula-driven
CIN: A-09-91-00070; OAI-85-09-0046; overpayments in fiscal year (FY) 1998,
OEI-09-88-01003)   extended reductions in payments for costs
of hospital outpatient services, and
established a prospective payment system
(PPS) for hospital outpatient services for
FY 1999.
Capital-Related Costs of Hospital Services:
Extend congressionally mandated reductions in Section 13501(a)(3) of OBRA 1993 1,335
hospital costs.  The Health Care Financing mandated a reduction of 7.4 percent for
Administration (HCFA) should seek legislative inpatient capital costs.  Section 4402 of the
authority to continue mandated reductions in BBA of 1997 provided for rebasing of
capital payments; excess capacity was not capital payment rates for an additional
considered in the capital cost policy. (CIN: reduction in the rates.
A-09-91-00070; CIN: A-07-95-01127)
A-1       OIG Recommendation Implementing Action Savings  
      in Millions   
Medicare Laboratory Reimbursements:
In July 1989, OIG recommended that HCFA Section 13551 of OBRA 1993 reduced the $1,184
take advantage of economies of scale present in national cap to 76 percent of the median of
the laboratory industry by considering all fee schedules, and froze the annual
competitive bidding or making reductions to the update for 1994 and 1995.  Section 4553 of
fee schedule amounts.  In January 1990, OIG the BBA provided for reducing fee schedule
recommended that HCFA seek legislation to payments by lowering the cap to 74 percent
allow across the board adjustments in Medicare of median for payment amounts, with no
laboratory fee schedules, bringing them in line inflation update for 1998 through 2002.
with the prices which laboratories charge
physicians in a competitive marketplace.  In a
January 1996 follow-up, OIG found that
Medicare continued to pay more to clinical
laboratories than physicians for the same tests.
Although OBRA 1993 reduced the fee schedule
to 76 percent of the average in 1996, OIG
recommended that HCFA periodically evaluate
the national fee schedule to ensure that it is in
line with the prices physicians pay for the same
clinical laboratory services. (OAI-02-89-01910;
CIN:  A-09-89-00031; CIN:  A-09-93-00056)
Reforming Medicaid Disproportionate
Share Payments:
Disproportionate share payments to hospitals Section 13621 of OBRA 1993 prohibited 910
should be related to costs incurred in treating designation of a hospital as a
Medicaid and indigent patients to correct the disproportionate share hospital (DSH) for
inequities and abuses in current payment purposes of Medicaid reimbursement unless
methodologies.  (CIN:  A-06-90-00073; CIN: the hospital had a Medicaid inpatient
A-04-92-01025) utilization rate of at least one percent.  It
also limited DSH payment adjustments to
no more than the costs of providing
inpatient and outpatient services to
Medicaid and uninsured patients less
payments received from Medicaid (other
than DSH payment adjustments) and
uninsured patients.  Section 4721 of the
BBA reformed disproportionate share
payments under State Medicaid programs
by placing limitations on Federal financial
participation.
Medicare Secondary Payer - Initial
Enrollment Questionnaire:
The HCFA should take steps to collect primary Since 1995, all Medicare beneficiaries are 425
insurance information in a more timely and being asked to complete the Initial
accurate manner, requiring beneficiaries to Enrollment Questionnaire and list any other
disclose other health insurance information, and health insurance they have.  The HCFA has
should revise all Medicare claims forms to reported that two-thirds of all new
require spousal information before claims can beneficiaries are voluntarily completing the
be paid.  (CIN:  A-09-89-00100; questionnaire and this has helped HCFA
OEI-07-90-00760) document 110,000 cases each year in which
new beneficiaries have other coverage.
A-2       OIG Recommendation Implementing Action Savings  
      in Millions   
Medicare Indirect Medical Education:
The HCFA should base the indirect medical Section 4621 of the BBA reduced the $380
education adjustment factor on the level indirect teaching adjustment factor from 7.7
supported by HCFAs empirical data.  (CIN: percent in FY 1997 to 7.0 percent in FY
A-07-88-00111) 1998; 6.5 percent in FY 1999; 6.0 percent
in FY 2000; 5.5 percent in FY 2001 and
thereafter. 
Medicare Secondary Payer Extensions:
Establish a centralized database of information The database capacity was achieved 345
about private insurance coverage of Medicare through the authorization of a data
beneficiaries.   Extend the Medicare secondary exchange between the Social Security
payer (MSP) provision to include end stage Administration (SSA) and HCFA and
renal disease (ESRD) beneficiaries as long as between the Internal Revenue Service (IRS)
the individual has employer based coverage and HCFA.  Section 13561(a) of OBRA
available. (OEI-07-90-00760; 1993 extended the MSP data match through
OEI-03-90-00763; CIN: A-10-86-62016; CIN: 1998.  Section 4631 of the BBA
A-09-89-00100; CIN:  A-09-91-00103; CIN: permanently authorized the SSA and IRS
A-14-94-00391; CIN:  A-14-94-00392)  data match programs.  Section 4631 of the
BBA also permanently extended current
MSP policies for beneficiaries who are
disabled and have ESRD.  For ESRD
beneficiaries, the statute also increased the
time period Medicare is secondary payer
from 18 to 30 months.
Medicaid Transfer of Assets:
Strengthen the transfer of asset rules so that Section 13611 of OBRA 1993 provided for 225
people cannot give away property to qualify for a delay in Medicaid eligibility for
Medicaid.  Assets and income from special institutionalized individuals or their
needs trusts should be counted for Medicaid spouses who dispose of assets for less than
qualifying purposes and be subject to third party fair market value on or after a specified
liability recovery.  (OAI-09-86-00078; CIN: look-back date; set forth rules under which
A-09-93-00072) funds and other assets of an individual
placed in trust by or on behalf of an
individual or the spouse are treated, for
purposes of Medicaid eligibility, as
resources available to the individual, and
under which payments from the trust are to
be considered assets disposed of by the
individual; and specified that, for purposes
of applying the transfer of asset
prohibitions, the look-back period with
respect to trusts is 60 months.  
Medicare Payments for Oxygen:
The HCFA should reduce Medicare payments Section 4552(a) of the BBA reduced 200
for oxygen concentrators and ensure that Medicare reimbursement for oxygen 25
beneficiaries receive necessary care and support percent until 1999 and by 30 percent for
in connection with their oxygen therapy. each subsequent year; section 4552(c)
(OEI-03-91-00711, OEI-03-91-001710) mandated that the Secretary develop service
standards for oxygen provided in the home.
A-3       OIG Recommendation Implementing Action Savings  
      in Millions   
Medicare Secondary Payer - Blue Cross and
Blue Shield Association:
The HCFA should negotiate a reasonable The Blue Cross and Blue Shield $100
settlement to recover the sums improperly paid Association agreed to a global settlement
by HCFA contractors for which Medicare with the Department of Justice and HCFA
should have been the secondary payer.  (CIN: to settle disputes over MSP claims.  In
A-02-93-01006) addition to the $115 million the Blue Cross
Association immediately refunded HCFA,
as part of the settlement, the Association
implemented a 3-year data exchange
agreement with HCFA that is expected to
result in savings of $100 million in Fiscal
Year 1998 for a 3-year total savings of $920
million.
Medicare Part A Payments for Skilled
Nursing Facilities:
Services should be bundled into Medicare and Section 4432 of the BBA phased in a PPS 90
Medicaids payments to nursing homes; Part B for SNF care.  Covered services include
payments for services normally included in the Part A SNF benefits and all services for
extended care benefit should continue to be which payment may be made under Part B
examined for appropriateness; and a legislative (except physician and certain other
recommendation should be developed to professional services) during the period
prohibit entities other than the skilled nursing when the beneficiary is provided covered
facility (SNF) from seeking coverage on behalf SNF care. 
of persons in Part A covered SNF stays for
enteral nutrition, incontinence care, and surgical
dressings, and limit Medicare coverage of these
services to Part A. In 1997 congressional
testimony, OIG supported establishing a PPS
and consolidated billing.  (OEI-03-94-00790;
OEI-06-92-00863; OEI-06-92-00864; CIN:
A-17-95-00096; CIN: A-14-98-00350)
Medicare Payments for Prescription Drugs:
The HCFA should reexamine its Medicare drug Section 4556 of the BBA reduced Medicare 80
reimbursement methodologies, with a goal of payments for drugs, which are paid based
reducing payments as appropriate. on the average wholesale price, by five
(OEI-03-95-00420; OEI-03-94-00390; percent.
OEI-03-97-00290)
Graduate Medical Education Payments:
The HCFA should reevaluate Medicares policy Sections 4623 and 4626 of the BBA 70
of paying graduate medical education (GME) provided for limits in the number of
costs for all physician specialities and should residents and offered payments for
consider submitting legislation to reduce voluntary reductions in the number of
Medicares investment in GME to arrive at a residents to limit Medicares share of GME
more representative and accurate sharing of costs.
GME costs.  (CIN: A-06-92-00020)
Ambulance Services for Medicare End Stage
Renal Disease Beneficiaries:
The HCFA should ensure fairer payment for A set of proposed national codes for use by 55.4
services rendered, and ensure that claims meet carriers was developed in January 1994,
Medicare coverage guidelines. and a program memorandum was finalized
(OEI-03-90-02130; OEI-03-90-02131) and distributed a year later for January
1995 implementation.
A-4       OIG Recommendation Implementing Action Savings  
      in Millions   
Fraud and Abuse Provisions of the Balanced
Budget Act:
Require durable medical equipment (DME) Subtitle D of the BBA contained a number $40
suppliers and home health agencies (HHAs) to of provisions that corresponded to and were
provide Social Security numbers (SSNs) and supported by OIG work: for example, the
employer identification numbers BBA authorized the Secretary to collect
(OEI-04-96-00240; OEI-09-96-00110); refuse SSNs and employer identification numbers
to enter into a provider agreement with any from entities under Medicare, Medicaid and
HHA whose owners or principals have prior title V; authorized the Secretary to refuse to
criminal records or are the relatives of the enter into contracts with physicians or
owner of a provider who had defrauded the suppliers that have been convicted of
Medicare program (OEI-09-96-00110); allow felonies; authorized the exclusion of
HCFA to apply "inherent reasonableness" entities owned or controlled by the family
provisions when assessing the appropriateness or household members of excluded
of Medicare payments (OEI-03-94-00392); individuals; authorized HCFA to make
authorize competitive bidding as a means of inherent reasonableness adjustments up to
providing Medicare services (OEI-03-94-00021; 15 percent to all Part B services except
OEI-06-92-00866; OEI-03-96-00230); and physician services; authorized up to 5
require DME suppliers and HHAs to post surety demonstration projects to be completed by
bonds as a condition of participation December 31, 2002 (one must be oxygen
(OEI-04-96-00240; OEI-09-96-00110).  Also, and oxygen equipment), which can have
clarify which general and administrative and multiple sites, to allow competitive
fringe benefits costs at hospitals and HHAs are bidding; and prohibited "reasonable cost"
related to patient care; specifically, distinguish payments for items such as entertainment,
between employee benefits and/or perquisites to gifts and donations, education expenses and
entertainment and patient care, and specify that personal use of automobiles.  The BBA also
cost of entertainment, goods or services for required DME suppliers, HHAs and others
personal use, alcohol, all fines and penalties and to post a surety bond of a minimum of
associated interest, dues, and membership costs $50,000.*
associated with civic and community
organizations are unallowable.  (CIN:
A-03-92-00017; CIN:  A-04-93-02067)
Medicare Payments to Hospitals for Bad
Debt:
The HCFA should seek legislative authority to Section 4451 of the BBA reduced bad debt 40
modify the bad debt payment policy.  (CIN: payment to providers to 75 percent during
A-14-90-00039) FY 1998, 60 percent during FY 1999 and
55 percent in later years.
*This latter provision will be implemented upon completion of a congressionally mandated review by the General Accounting Office.
A-5       OIG Recommendation Implementing Action Savings  
      in Millions   
Rural Health Clinics:
The oversight and functioning of the current Section 4205 of the BBA extended the $30
cost reimbursement system should be improved per-visit payment limits to provider-based
by implementing caps on provider-based rural clinics and stipulated that the shortage area
health clinics (RHCs) and allowing States to do requirements designation be reviewed
so, or finding other ways to make triennially.
reimbursement between provider-based and
independent RHCs more equitable.  In addition,
the certification process should be modified to
increase State involvement and ensure more
strategic placement of RHCs.  Recertification
should be required of RHCs within a specific
time limit (for example 5 years), applying new
criteria to document the need and impact on
access.  (OEI-05-94-00040)  
Medicare Disproportionate Share:
The disproportionate share adjustment should Section 4403 of the BBA provided for 30
be reduced, if not eliminated, without reducing DSH payments by 1 percent in FY
redistribution of the funds to PPS hospitals. 1998, 2 percent in FY 1999, 3 percent in
(CIN: A-04-87-01004) FY 2000, 4 percent in FY 2001, 5 percent
in FY 2002 and 0 percent thereafter.
Hospital Sales:
The HCFA should eliminate the requirement Section 4404 of the BBA eliminated the 30
that Medicare make adjustments for gains and requirement that Medicare make
losses when hospitals undergo changes of adjustments by setting the Medicare capital
ownership.  (OEI-03-96-00170)  asset sales price equal to the net book value.
Hospice Certification:
The HCFA should restructure hospice benefit Sections 4441-4449 of the BBA of 1997 10
policies to curb inappropriate growth in the contained provisions to control hospice
program, particularly with regard to the fourth payments and practices, such as replacing
benefit period.  (OEI-05-95-00250; CIN: the current unlimited fourth benefit period
A-05-96-00023) with an unlimited number of 60 day benefit
periods (each requiring recertification).
Medicare Payments for Home Blood
Glucose Monitors:
The HCFA should ensure that Medicare The HCFA issued final regulations on the 5
payments for monitors are net of any available fee schedule for home blood glucose
rebates.  (CIN:  A-09-92-00034) monitors.  These regulations refer to the
OIG report for support of fee schedule
changes.
Recoupment of Home Health Overpayment:
The HCFA should recover an estimated $9.8 On appeal, $4.7 million of the estimated 1.8
million Medicare overpayment made to a large $9.8 million was upheld.  Of the $4.7
home health firm as identified in an OIG audit million, $1.8 million was recouped by the
of claims filed.   (CIN:  A-06-95-000092 - local Medicare contractor.  The other $2.9
internal memorandum, no report issued) million remains in bankruptcy court. 
A-6       Other Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Incontinence Supplies:
Information from OIG inspections indicated that The DMERCs issued single national $108
suppliers engaged in questionable marketing coverage guidelines in October 1995 and
practices and that beneficiaries were receiving educated providers about proper billing.
unnecessary or noncovered incontinence Since the initiative began in 1994,
supplies.  A joint OIG/HCFA effort to address Medicare payments dropped by $110
this problem resulted in the initiation of an OIG million a year, of which $104 million in
review of this area and a national investigation 1996 was directly attributable to the
examining potentially fraudulent practices by problems discussed in the OIG reports.
specific suppliers.  In addition to issuing
reports, OIG dramatized the problem in
speeches and congressional testimony.  The
OIG issued fraud alerts on this topic in
December 1994 and August 1995.  As a result of
OIG investigations, approximately $50.2
million was recovered through seizures and
restitutions from abusive providers, further
highlighting the intensity of the OIG/HCFA
initiative.  In these ways, OIG supported
ongoing activity in HCFA and the durable
medical equipment regional carriers (DMERCs)
to control Medicare outlays for these supplies
and equipment.  (OEI-03-94-00770;
OEI-03-94-00772; OEI-03-94-00773)
VARIOUS OPERATING DIVISIONS
Results of Investigations:
In addition to any restitution, fines, settlements The Operating Division takes action based 48.8
or judgments, or other monetary amounts on the results of the OIG investigation to
resulting from successful investigations, suspend or terminate payments to the
additional monetary losses are avoided through offending individual or entity.
timely communication of the investigative
results to the Operating Division.
A-7 APPENDIX B
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory
action, or policy determinations by management.  (In many cases, these recommendations are beyond the direct authority of
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as
some of the proposals could have interactive effects if enacted together.
      OIG Recommendation Status  Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Modify Formula for Costs Charged to the
Medicaid Program:
The Health Care Financing Administration The HCFA did not agree with the $4,100
(HCFA) should consult with the Congress on recommendation, and no legislative
modification of the Federal medical assistance proposal was included in the Presidents
percentage formula used to determine the current budget.
Federal share of costs for the Medicaid and
other programs which would result in
distributions of Federal funds that more closely
reflect per capita income relationships.  (CIN:
A-06-89-00041)
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital Although HCFA included a proposal to 1,559
insurance contributions for all State and local mandate Medicare coverage for all State
employees, including those hired prior to April and local government employees in the FY
1, 1986.  If this proposal is not enacted, seek 1990 budget submission, no legislative
legislation making Medicare the secondary proposal was included in the Presidents
payer for retirees of exempt State and local current budget.  Also, HCFA did not agree
government agencies.  (CIN:  A-09-88-00072) with the recommendation to make Medicare
the secondary payer.
Clinical Laboratory Tests:
Develop a methodology and legislative proposal The HCFA agreed with the first 1,130*
to pay for tests ordered as custom panels at recommendation but not the second.  The
substantially less than the full price for Balanced Budget Act of 1997 reduces
individual tests, and study reinstating the Medicare fee schedule payments by
beneficiary coinsurance and deductible lowering the cap to 74 percent of the
provisions for laboratory services as a means of median for payment amounts beginning in
controlling utilization.  (CIN:  A-09-89-00031; 1998.  Also, there will be no inflation
CIN:  A-09-93-00056) update between 1998 and 2002.
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined.
B-1       OIG Recommendation Status  Savings
in Millions
Laboratory Roll-In:
Fees for laboratory services should be included The HCFA disagreed with the $1,100
in Medicare recognized charges for physician recommendation.  The OIG continues to
office visits.  (OEI-05-89-89150; believe that it should be implemented. 
OEI-05-89-89151)
Reduce Hospital Capital Costs:
Determine the extent that capital reductions are The HCFA did not agree with the 820
needed to fully account for hospitals excess recommendation.  Although the Balanced
bed capacity and report the percentage to the Budget Act of 1997 reduces capital
Congress.  (CIN:  A-09-91-00070; CIN: payments, it does not include the effect of
A-14-93-00380) excess bed capacity and other elements
included in the base year historical costs.
Medicaid Payments to Institutions for
Mentally Retarded:
The HCFA should take action to reduce The HCFA nonconcurred with OIGs 683
excessive spending of Medicaid funds for recommendation.  The HCFA believes
intermediate care facilities for the mentally Medicaid statutory provisions allow States
retarded (ICF/MRs) by one or more of the to establish their own payment systems.
following:  take administrative action to control This flexibility allows for the variations
ICF/MR reimbursement by encouraging States found among States in their payment rates
to adopt controls; seek legislation to control and the methods and standards used in
ICF/MR reimbursement, such as mandatory cost determining these rates.  The HCFA and
controls, Federal per capita limits, flat per OIG negotiated an agreement for HCFA to
capita payment, case-mix reimbursement or send the report to all State Medicaid
national ceiling for ICF/MR reimbursements; directors.  This action has been taken.
and seek comprehensive legislation to However, pursuant to section 4711 of the
restructure Medicaid reimbursement for both Balanced Budget Act of 1997, the Secretary
ICF/MR and home and community-based shall conduct a study on the effect on
waiver service for developmentally disabled access to, and the quality of services
people via global budgeting, block grants or provided to beneficiaries of the rate-setting
financial incentive programs. methods used by States.
(OEI-04-91-01010)
Flexible Benefit Plans:
The value of flexible benefit plans should be While HCFA agreed with the 291
included in the definition of wages for the recommendation and has submitted a
hospital insurance portion of the Federal legislative proposal to subject flexible
Insurance Contributions Act.  (CIN: benefit plans to the Hospital Insurance tax,
A-05-93-00066) the proposal was not included in the
Presidents budget.
Hospital Admissions:
Seek legislation to pay for covered services The HCFA proposed to implement OIGs 210
related to 1-day admissions without an recommendation through administrative
overnight stay as outpatient services which are remedies that would designate whether
paid on the basis of the lower of the actual costs specific services are to be covered and paid
or the customary charges in a locality.  (CIN: for as inpatient or outpatient services.  No
A-05-89-00055; CIN:  A-05-92-00006) proposal was included in the Presidents
current budget.
B-2       OIG Recommendation Status  Savings
in Millions
Graduate Medical Education:
Revise the regulations to remove from a The HCFA did not concur with the $157.3
hospitals allowable graduate medical education recommendations.  Although the Balanced
(GME) base year costs any cost center with Budget Act of 1997 contains provisions to
little or no Medicare utilization.  Submit a slow the growth in Medicare spending on
legislative proposal to compute Medicares GME, OIG believes that its
percentage of participation under the former recommendations should be implemented
more comprehensive system.  (CIN: and that further savings can be achieved.
A-06-92-00020)
Chemistry Panel Tests:
The HCFA should update its guidelines by The HCFA agreed with 8 of the 10 tests 130
expanding the national list of chemistry panel recommended for addition to the list and
tests to include 10 tests identified by the OIG added 6 of these tests to its carrier manual.
audit.  (CIN:  A-01-93-00521) The HCFA will periodically review
applicable tests and related equipment.
Also, although a legislative proposal to add
further tests was included in the Presidents
FY 1997 budget, the Congress decided
(through the Balanced Budget Act of 1997)
to achieve savings through other means,
including freezing laboratory payments
through 2002 and reducing the national
payment cap to 74 percent of the median of
all fee schedules. 
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations and has developed a
Medicare claim filing and begin to plan now for corrective action plan.
the policy changes that will become necessary
to achieve an almost completely paperless
environment for processing Medicare claims.
(CIN:  A-05-94-00039; OEI-01-94-00230)
Medicaid Drug Rebate Program:
The best price calculation in the Medicaid drug The OIG is continuing to monitor the 123
rebate program should be indexed to the Medicaid drug rebate program.  Audits will
consumer price index-urban.  (CIN: focus on enhancing the collection of rebates
A-06-94-00039) and providing potential savings to the
rebate program.
Medicaid Cost Sharing:
The HCFA should promote the development of The HCFA provided States with program 122
effective cost sharing programs by:  allowing and administrative flexibility through
States to experiment with cost sharing programs waivers for Medicaid programs.  It plans to
that target new populations and reflect more solicit information from States
substantial cost sharing amounts; and/or implementing cost sharing and distribute it
recommending changes to Federal requirements to States that do not impose it.  Several
allowing for greater State flexibility in States have submitted waiver applications
determining exempted populations and services; to HCFA to develop demonstration projects
allowing for higher beneficiary cost sharing which include experimental cost sharing
amounts; and promoting the use of cost sharing provisions.
in States that do not currently have programs.
(OEI-03-91-01800)
B-3       OIG Recommendation Status  Savings
in Millions
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The HCFA should propose legislation to expand The HCFA agreed to recover the improper $83.5
the diagnosis related group (DRG) payment Medicare billings and to refund the
window to at least 7 days immediately prior to beneficiaries coinsurance and deductible.
the day of admission.  (CIN:  A-01-92-00521) Collection of the overpayment is being
handled by settlement agreements with the
hospitals through the Department of Justice
working with HCFA and OIG.  The HCFA
did not concur with the recommendation to
further expand the payment window.  No
legislative proposal was included in the
Presidents current budget.
Inpatient Psychiatric Care Limits:
Develop new limits to deal with the high cost The HCFA considered a proposal 47.6 
and changing utilization patterns of inpatient recommending that the Medicare 190-day
psychiatric services.  Apply a 60-day annual lifetime limit for psychiatric hospitals be
and a 190-day lifetime limit to all psychiatric extended to general hospitals; however,
care regardless of the place of service.  (CIN: such a proposal was not included as part of
A-06-86-62045) the Presidents current budget.
Medicaid Payments for Employer Group
Health Insurance:
The HCFA should continue to strongly support The HCFA concurred with the first 32
States implementing Section 1906 of the Social recommendation and has been working in
Security Act, and should propose legislation partnership with regional offices and States
that allows States to pay employer group health to promote full implementation.  The HCFA
plan (EGHP) deductibles and coinsurance using deferred comment on the second
Medicaid fee schedules rather than EGHP fee recommendation.
schedules.  (OEI-04-91-01050)
Reduce End Stage Renal Disease Payment
Rates:
The HCFA should reduce the payment rates for The HCFA agreed that the composite 22*
outpatient dialysis treatments to reflect current payment rates should reflect the costs of
efficiencies and economies in the marketplace. outpatient dialysis treatment in efficiently
(CIN:  A-14-90-00215) operated facilities.  While the Omnibus
Budget Reconciliation Act of 1990
prohibited HCFA from changing these
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatment.  A
March 1996 study by ProPAC
recommended an increase to the current
rates, but HCFA did not believe an
across-the-board increase was warranted
and intended to monitor facilities costs and
other factors to determine if a rate increase
would be appropriate.  Toward this end, the
Balanced Budget Act of 1997 requires the
Secretary to audit the cost reports of each
renal dialysis provider at least once every 3
years.  The HCFA said it plans to begin
these audits in FY 1999.
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-4       OIG Recommendation Status  Savings
in Millions
Collect Overpayments from Health
Maintenance Organizations for
Misclassified End Stage Renal Disease
Beneficiaries:
The HCFA should issue clear guidelines for the The HCFA agreed to clarify its policies for $20.5
recovery of overpayments from health collecting overpayments from HMOs.
maintenance organizations (HMOs) and recover However, it collected overpayments
all overpayments occurring at least since 1992 retroactively only to March 1995 for the
that were made to HMOs on behalf of majority of misclassified beneficiaries and
misclassified end-stage renal disease (ESRD) retroactively to October 1993 for the
beneficiaries. (CIN:  A-14-96-00203) remaining beneficiaries who were
misclassified as having ESRD before
enrollment in the HMO.  Due to this limited
recovery schedule, HCFA has not collected
$20.5 million in overpayments which
occurred since 1992.  The HCFA disagreed
with the OIG recommendation to collect the
overpayments retroactively to 1992.
Preclude Improper Medicaid
Reimbursement for Clinical Laboratory
Services:
State agencies should install edits to detect and The HCFA wrote to all State Medicaid 14
prevent payments for clinical laboratory directors on January 15, 1997, alerting them
services that exceed the Medicare limits and to the OIG review, encouraging them to use
billings that contain duplicate tests, recover Medicares bundling policies and urging
overpayments and make adjustments for the them to install appropriate payment edits in
Federal share of the amounts recovered.  (CIN: their claim processing systems.
A-01-95-00005; CIN:  A-05-95-00035; CIN:
A-01-96-00001; CIN:  A-06-95-00078; CIN:
A-06-95-00031; CIN:  A-04-95-01108; CIN:
A-04-95-01109; CIN:  A-07-95-01139; CIN:
A-07-95-01147; CIN:  A-04-95-01113; CIN:
A-07-95-01138; CIN:  A-09-95-00072; CIN:
A-05-96-00019; CIN:  A-10-95-00002; CIN:
A-01-95-00006; CIN:  A-02-95-01009; CIN:
A-03-96-00200; CIN: A-03-96-00202; CIN:
A-03-96-00203; CIN:  A-05-95-00062; CIN:
A-06-96-00002; CIN:  A-06-95-00100)
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to This policy change was included in 12.8
allow payment for nonemergency advanced life proposed regulations published by HCFA in
support ambulance service only when that level June 1997.  It will be finalized as part of a
of service is medically necessary; instruct negotiated rulemaking process for
carriers to institute controls to ensure that development of an ambulance fee schedule
payment is based on the medical need of the (as mandated by the Balanced Budget Act
beneficiary; and closely monitor carrier of 1997).
compliance.  (CIN:  A-01-91-00513; CIN:
A-01-94-00528)
B-5       OIG Recommendation Status  Savings
in Millions
High-Priced Generic Drugs:
The HCFA should not include higher priced In a program memorandum, HCFA $12
generic drugs in the median calculations to instructed contractors to recalculate the
determine Medicare allowances or propose median AWP including the brand-name
limiting Medicare allowances to brand prices product if the original median AWP was
when higher-priced generic drugs are involved. greater than the brand-name AWP.  In
Currently, Medicare determines reimbursement addition, HCFA has issued a proposed rule
for multiple-source drugs at 95 percent of the that would reimburse multiple-source drugs
median average wholesale price (AWP) for all at the lower of the median prices of the
generic versions of the drug. (OEI-03-97-00510) generic AWPs or the lowest brand-name
AWP.
Medicare Payments for Orthotic Body
Jackets:
The HCFA should require the durable medical The HCFA concurred and has instituted 10.4
equipment regional carriers (DMERCs) to several methods to detect payment trends
closely monitor claims for body jackets, and identify suppliers who have exhibited
including:  analysis of payment trends, abusive practices.  However, payments
provision of an early warning of abusive continue at high levels.  The OIG is
practices and monitoring of suppliers who have planning to continue its work on this issue
engaged in abusive practices. and is conducting a follow-up study to
(OEI-04-92-01080) determine if any progress has been made in
disallowing noncovered body jackets.
Medicare Claims for Railroad Retirement
Beneficiaries:
Discontinue use of a separate carrier to process While HCFA has supported legislation in 9.1
Medicare claims for railroad retirement the past, there is currently no legislative
beneficiaries.  (CIN:  A-14-90-02528) proposal before the Congress.
Medicare Orthotics:
Develop guidelines that better define orthotic The HCFA concurred with the 7.9
devices; develop policies for orthotic codes; recommendations.  The HCFA continues to
develop screens for billing many orthotic work with the DMERCs, the American
devices on the same day or within a short time Orthotic and Prosthetic Association to
frame; pay special attention to billing for implement the recommendations.
orthotics in nursing facilities; work with the
American Orthotic and Prosthetic Association
to develop a table of devices that should not be
used together, and consider stricter standards to
determine who is allowed to bill for orthotics.
(OEI-02-95-00380)
Limit Reimbursement for Hospital Beds:
The HCFA should develop a new approach for The HCFA awarded a demonstration project 6.2
reimbursing suppliers of hospital beds used by on this subject in 1996.  The project is
Medicare beneficiaries at home.  The new expected to run in at least three sites for
reimbursement methodology should reflect a two cycles of 2 years each which began in
hospital beds useful life and the number of January 1997.  The Balanced Budget Act of
times a bed can customarily be rented over that 1997 requires the Secretary to conduct a
period.  (CIN:  A-06-91-00080) competition among individuals and entities
supplying Part B items and services.  Even
though only oxygen and oxygen equipment
were specifically mentioned in the statute
for one of the five demonstration projects,
HCFA is planning to include hospital beds
in at least one of the sites.
B-6       OIG Recommendation Status  Savings
in Millions
Third Party Liability Settlements and
Awards:
The HCFA should develop legislative proposals The HCFA agreed that the exception in the $3
to close the loopholes in the Omnibus Budget law contains loopholes.  It indicated that
Reconciliation Act of 1993 that allow Medicaid recommendations could be made to the
beneficiaries, who receive settlements and Congress to amend the exception limiting
awards from third parties as a result of the use of trust funds to certain
accidents, to shelter the assets in irrevocable well-defined necessities (e.g., health care
trusts and retain their eligibility for Medicaid. that is not covered by Medicaid).  The
The HCFA should also develop guidelines to HCFA also agreed to take appropriate
assist States in strengthening Medicaids right action to strengthen Medicaids right to
to recover when trusts are established by third recover from trusts established from third
parties.  (CIN:  A-09-93-00033) party settlements.  In June 1996, HCFA
issued guidelines which set forth advice on
ways in which States can better recover
Medicaid expenditures from established
third-party settlements, especially for the
disabled population.
Indirect Medical Education:
Reduce the indirect medical education (IME) The HCFA agreed with the to be determined
adjustment factor to the level supported by recommendation, and the Balanced Budget
HCFAs empirical data.  Initiate further studies Act of 1997 reduces the IME adjustment
to determine whether different adjustment factor from the current 7.7 percent in Fiscal
factors are warranted for different types of Year (FY) 1997 to 5.5 percent in 2001 and
teaching hospitals.  (CIN:  A-07-88-00111) thereafter.  The OIG believes the factor
should be further reduced to eliminate any
overlap with the disproportionate share
adjustment.
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The HCFA was concerned that an indefinite to be determined
provisions to include ESRD beneficiaries MSP provision might encourage insurers to
without a time limitation.  (CIN: drop uneconomical services, namely
A-10-86-62016) facility dialysis and transplantation.  The
HCFA favored indefinitely extending the
MSP provision for all other services and
included this proposal in an earlier budget
submission.  Although the Balanced Budget
Act of 1997 extends MSP policies for
individuals with ESRD to 30 months, OIG
continues to advocate that when Medicare
eligibility is due solely to ESRD, the group
health plan should remain primary until the
beneficiary becomes entitled to Medicare
for old age or disability.  At that point,
Medicare would become the primary payer.  
B-7       OIG Recommendation Status  Savings
in Millions
Home Health Agencies:
The HCFA should revise Medicare regulations Although the Congress and the to be determined
to require the physician to examine the patient Administration included provisions to
before ordering home health services.  (CIN: restructure home health benefits in the
A-04-95-01103; CIN: A-04-95-01104; Balanced Budget Act of 1997, HCFA still
OEI-04-93-00262; OEI-04-93-00260; needs to revise Medicare regulations to
OEI-12-94-00180; OEI-02-94-00170; CIN: require that physicians examine Medicare
A-04-94-02087; CIN: A-04-94-02078; CIN: patients before ordering home health
A-04-96-02121; OEI-09-96-00110) services.  While agreeing in principle,
HCFA said it would continue to examine
both coverage rules and conditions of
participation to develop the discipline
necessary for ensuring proper certification.
Modify Payment Policy for Medicare Bad
Debts:
The OIG presented an analysis of four options The HCFA agreed with the to be determined
for HCFA to consider, including the elimination recommendation to include a bad debt
of a separate payment for bad debts, the offset factor in the DRG rates.  The Balanced
of Medicare bad debts against beneficiary Budget Act of 1997 provides for some
Social Security payments, the limitation of bad reduction of bad debt payments to
debt payments to prospective payment system providers, but additional legislative
hospitals that are profitable, and the inclusion of changes are needed to implement the
a bad debt factor in the DRG rates.  The HCFA modifications that OIG recommended.  The
should seek legislative authority to further OIG has been informed by HCFA that it
modify bad debt policies.  (CIN: submitted a legislative proposal to extend
A-14-90-00339) the application of the reduction to all
providers, to remove the moratorium on
changes to the Medicare bad debt policy
and to phase out payments for bad debts for
all providers in 5 years.
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Institute and Collect User Fees for Food and
Drug Administration Regulations:
Extend user fees to inspections of food In the absence of specific authorizing $44.3
processors and establishments. legislation, the Food and Drug
(OEI-05-90-01070) Administration is precluded by statute from
imposing user fees to cover additional
functions.  
Remove High-Priced Generic Drugs from
Medicare Drug Payment Methodology:
The HCFA should not include higher-priced In a program memorandum, HCFA 12
generic drugs in the median calculations to instructed contractors to recalculate the
determine Medicare allowances, or propose median average wholesale price (AWP)
limiting Medicare allowances to brand prices including the brand-name product if the
when higher-priced generic drugs are involved. original median AWP was greater than the
brand-name AWP.  In addition, HCFA has
issued a proposed rule that would reimburse
multiple-source drugs at the lower of the
median price of the generic AWPs or the
lowest brand-name AWP.
B-8       OIG Recommendation Status  Savings
in Millions
Medical Malpractice Coverage:
The Health Resources and Services After conferring with the Department of $10 
Administration (HRSA) should consider Justice, the Department of Health and
seeking a legislative proposal to limit to $1 Human Services has decided not to seek a
million malpractice settlements or judgments legislative change at this time.
involving community and migrant health
centers.  (CIN:  A-04-95-05018)
Recharge Center Costs:
The Assistant Secretary for Management and The Deputy Assistant Secretary for Grants 1
Budget should propose changes to OMB and Acquisition Management concurred
Circular A-21 to improve guidance on the with the recommendations.  In addition, the
financial management of recharge centers.  The Council on Government Relations generally
revision should include criteria for establishing, agreed and stated that the proposed criteria
monitoring and adjusting billing rates to should be included in the Compliance
eliminate accumulated surpluses and deficits; Supplement to OMB Circular A-133, which
preventing the use of recharge funds for provides guidance to independent auditors
unrelated purposes and excluding unallowable in conducting compliance audits of
costs from the calculation of recharge rates; educational institutions.
ensuring that Federal projects are billed
equitably; and excluding recharge costs from
the recalculation of facilities and administrative
cost rates.  (CIN: A-09-96-04003)
ADMINISTRATION FOR CHILDREN AND FAMILIES
Limit Federal Participation in States Costs
for Administering the Foster Care Program:
Limit Federal participation in foster care This proposal was not included in the 247
administrative costs through one of the Presidents current budget.  The
following actions:  limit future increases in Administration for Children and Families
administrative costs to no more than 10 percent generally agreed with the recommendation,
per year; fund administrative activities via a but recently noted that claims for
single block grant with future increases based administrative costs have leveled off in the
on the consumer price index; limit past several years.
administrative costs to a percentage of
maintenance payments; or require States to file
claims for Federal participation within 1 year
after the calendar quarter in which the
expenditure was made.  (CIN:  A-07-90-00274;
OEI-05-91-01080)
GENERAL OVERSIGHT
Simplify Administrative/Indirect Cost
Allocation Systems:
The OMB should simplify the process for Some of OIGs recommendations are cited 660
charging administrative/indirect costs to Federal in the National Performance Review report
programs through reform of the cost allocation that calls for reform of the cost allocation
plans.  Options for reform include use of block process.  The OMBs revision of Circular
grant awards, a flat percentage rate for A-87 addressed those recommendations.
administrative/indirect costs, and negotiation of However, further reform is needed to
a nonadjustable rate for a predetermined address the bulk of administrative/indirect
number of years.  (CIN:  A-12-92-00014) costs charged to the Federal Government.
B-9 APPENDIX C
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency.  More detailed information may
be found in OIGs Program and Management Improvement Recommendations (the Orange Book).
OIG Recommendation Status
HEALTH CARE FINANCING ADMINISTRATION
Improve the Health Care Financing
Administrations Implementation of the
Federal Managers Financial Integrity Act
Program:
The Health Care Financing Administration (HCFA) The HCFA still does not agree with the need to expand
should reevaluate its review of the Common Working File financial management reviews to other systems, such as the
to ensure that all functional responsibilities of the system Common Working File.
are included in Federal Managers Financial Integrity Act
reviews.  (CIN:  A-14-93-03026)
Implement Proper Accountability over Billing
and Collection of Medicaid Drug Rebates:
The HCFA should ensure that States implement The HCFA concurred with the recommendation.  States
accounting and internal control systems in accordance will now be required to maintain detailed supporting
with applicable Federal regulations for the Medicaid drug records of all rebate amounts invoiced to drug companies
rebate program.  Such systems must provide for accurate, using a formal accounts receivable system.  The HCFA
current and complete disclosure of drug rebate issued interim regulations in Fiscal Year (FY) 1996.
transactions and provide HCFA with the financial
information it needs to effectively monitor and manage
the Medicaid drug rebate program.  (CIN:
A-06-92-00029)
Ensure that the Medicare Accounts Receivable
Balance Is Fairly Presented:
The HCFA should require contractors to implement or The HCFA has established a Medicare accounts receivable
improve internal controls and systems to provide team to visit several contractors to explore ways in which
sufficient documentation to support reported accounts to strengthen controls and improve contractor reporting.
receivable.  Because of insufficient documentation, OIG
again was not able to satisfy itself as to the fair
presentation of the Medicare accounts receivable balance
($2.5 billion in FY 1997). (CIN:  A-17-95-00096; CIN:
A-17-97-00097)
Consider Recommended Safeguards over
Medicaid Managed Care Programs:
The HCFA should consider safeguards available to reduce The HCFA generally concurred with OIGs
the risk of insolvency and to ensure consistent and recommendations but felt that a broader analysis of
uniform State oversight.  (CIN:  A-03-93-00200) managed care plans was needed to support broad program
recommendations.  The OIG notes that the same concerns
raised in its report have been expressed by the Congress
and the General Accounting Office.  The OIG is continuing
reviews of Medicaid managed care plans.
C-1       OIG Recommendation Status
Provide Additional Guidance to Drug
Manufacturers to Better Implement the
Medicaid Drug Rebate Program:
The HCFA should survey manufacturers to identify the The HCFA did not concur stating that the drug law and the
various calculation methods used to determine average rebate agreements already established a methodology for
manufacturer price (AMP).  The HCFA should also computing AMP.  The OIG disagreed because the rebate
develop a more specific policy for calculating AMP law and agreement defined AMP, but did not provide
which would protect the interests of the Government and specific written methodology for computing AMP.
which would be equitable to the manufacturers.  (CIN:
A-06-91-00092) 
Physician Office Surgery:
The peer review organizations (PROs) should extend The HCFA is preparing policy guidance and manual
their review to surgery performed in physicians offices. instructions to explicitly state that PROs have the
(OEI-07-91-00680) responsibility to review all care in physicians offices.
Properly Account for Medicare Secondary
Payer Overpayments:
Although agreement was reached to relieve Blue Cross The HCFA is currently pursuing the recommended
and Blue Shield plans of past due Medicare secondary administrative action through improved information
payer (MSP) overpayments, HCFA should continue to systems to guard against making improper Medicare
implement financial management systems to ensure that payments to the Blue Cross and Blue Shield plans.  Also,
all overpayments (receivables) are accurately recorded. the Presidents FY 1999 budget includes a legislative
(CIN:  A-09-89-00100) proposal to clarify MSP requirements.
Investigate Patient Dumping Complaints:
The HCFA should improve its processes for investigating The HCFA concurred with OIGs recommendations.
and resolving complaints involving potential violations of
the Examination and Treatment for Emergency Medical
Conditions and Workmen in Labor Act, commonly
referred to as patient dumping.  (CIN:  A-06-93-00087)
Medicare Beneficiary Satisfaction with
Durable Medical Equipment Regional Carrier
Services:
The HCFA should evaluate ways to increase beneficiary The HCFA concurred.  The HCFA conducts annual
satisfaction with the one durable medical equipment evaluations to identify ways to improve performance.  The
regional carrier with a low rating, and review effective HCFA is also working to develop new outreach techniques
ways to educate beneficiaries on what constitutes fraud to increase beneficiaries knowledge on detecting fraud and
and abuse.  (OEI-02-96-00200) abuse.
Pressure Reducing Support Services:
The HCFA should establish the requirement for periodic The HCFA did not concur.
review and renewal of the medical necessity for
beneficiaries use of group 2 support surface equipment.
(OEI-02-95-00370)
Excessive Medicare Payments for Prescription
Drugs:
The HCFA should examine its Medicare drug The Balanced Budget Act of 1997 reduced Medicare
reimbursement methodologies.  (OEI-03-97-00290) payments by limiting them to 95 percent of the average
wholesale price.  Additional corrective action is warranted
and called for in the Presidents 1999 budget and
legislative program.
C-2       OIG Recommendation Status
Monitor the Validity of Medicare
Fee-for-Service Payments Made under Title
XVIII of the Social Security Act:
Stronger oversight by HCFA is needed to provide The HCFA generally concurred and is increasing the level
reasonable assurance of detecting and preventing of claims review and the number of contractor medical
improper Medicare payments and to preserve the directors, improving the use of technology and data, and
solvency of the Medicare Trust Funds.  To ensure developing and implementing a substantive testing
provider compliance with Medicare reimbursement rules program.
and regulations, HCFA should develop a national error
rate to objectively measure improper payments and
performance in reducing such payments. (CIN:
A-17-95-00096; CIN: A-17-97-00097)
Medicaid Accounts Receivable and Accounts
Payable:
The HCFA should send its annual State survey well in The HCFA sent the FY 1998 survey to the States well in
advance of the due date and include clear and complete advance of the due date. 
instructions.  Also, procedures should be implemented to
address survey problems, and trend data should be
developed. (CIN:  A-17-95-00096; CIN: A-17-97-00097)
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Require AIDS Drug Assistance Programs to
Participate in the 340B Drug Pricing Program:
To ensure that eligible entities are accessing lower priced The HRSA has drafted a Federal Register notice requesting
drugs, which enables them to provide additional services, comments on a proposed condition of grant award that
the Health Resources and Services Administration would require participation in the 340B Program for all
(HRSA) should require State AIDS drug assistance eligible entities.  
programs to participate in the 340B drug pricing program.
(CIN:  A-01-97-01501)
Strengthen Policies and Procedures for Medical
Personnel Credentialing and Privileging at the
Indian Health Service and the Health
Resources and Services Administration:
To strengthen requirements and provide more specific The IHS is continuing to advocate the use of credentialing
guidance on credentialing and privileging to and privileging procedures in tribally operated facilities.
community-based programs receiving Federal funding, The HRSA began adding Medicare/Medicaid exclusion
the Indian Health Service (IHS) should advocate quality information to an existing database which PHS agencies
and risk management programs, and the PHS agencies are required to query. 
should search the OIGs Medicare/Medicaid exclusion
list.  (CIN: A-15-94-00006)
Improve the Food and Drug Administrations
Inspection Process for Plasma Fractionators: 
The Food and Drug Administration (FDA) should ensure The FDA is implementing a plan entitled "Team
that plasma fractionator inspections are conducted Biologics--A Plan for Reinventing FDAs Ability to
uniformly, and that warning letters and reports are issued Optimize Compliance of Regulated Biologics Industries"
within established time frames.  (CIN:  A-03-97-00350) to ensure inspection consistency and reporting timeliness.
Improve Blood Establishments Error and
Accident Reporting:
The FDA should ensure that timely error and accident The FDA is taking corrective actions, including developing
reports are submitted by blood establishments currently and implementing revisions to regulations to require
required to submit such reports, and should take unlicensed blood establishments to submit error and
regulatory action to require that unlicensed blood accident reports.  The FDA is also using existing systems to
establishments submit error and accident reports.  (CIN: identify establishments that do not submit timely reports.
A-03-95-00350)
C-3       OIG Recommendation Status
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING
Improve the Federal Foster Care Program:
The OIG provided options for the Administration for The ACF concurred and has field-tested its redesigned
Children and Families (ACF) to consider in its efforts to titles IV-B and IV-E child welfare reviews.  A draft notice
improve its partnership with State and local governments of proposed rulemaking is currently in preliminary
in administering the Federal Foster Care program.  The clearance.  In addition, the child welfare waiver
options included streamlining the process; determining demonstrations are allowing several States to test
whether legislative change is needed; and determining if alternative approaches to the title IV-E requirements.
certain program requirements could be changed to
facilitate compliance.  (CIN:  A-12-93-00022)
Develop Effective Practices for Facility
Purchases by Head Start Grantees:
The ACF should work to develop effective practices for The ACF agreed with OIGs recommendations.
handling facility purchases by Head Start program
grantees, particularly in the areas of review and approval
of purchase requests, and accounting for facility
purchases.  (CIN:  A-09-94-00085)
GENERAL OVERSIGHT
Update Cost Principles for Federally
Sponsored Research Activities:
The Department should act to modernize and strengthen The Department is revising hospital cost principles to be
cost principles applicable to hospitals by either revising consistent with OMB Circulars.
existing guidelines to conform with Office of
Management and Budget (OMB) Circular A-21 or
working with OMB to extend Circular A-21 coverage to
all hospitals.  (CIN:  A-01-92-01528)
Guidelines to Reimburse Educational
Institutions and Nonprofit Organizations:
The Department should work with OMB to revise The OMB has revised Circular A-87 to limit PRB costs to
applicable cost principles to reflect the change in the amount funded, but has no plans to revise Circular
accounting for post retirement benefit (PRB) costs arising A-21.  However, the Department has instructed negotiators
from implementation of Financial Accounting Standards that PRB costs claimed under Circulars A-21 and A-122
Board Opinion 106.  It should also advise negotiators for should be treated in the same manner as the provisions of
the Departments Division of Cost Allocation to pay Circular A-87.
special attention to such costs when reviewing fringe
benefit rates for schools and nonprofit organizations.
(CIN:  A-01-93-04000)
C-4 APPENDIX D
Notes to Tables I and II
Table I
1 The opening balance was adjusted to reflect an upward revaluation of recommendations in the amount of $13.9 million.
2 During the period, revisions to previously reported management decisions included:
CIN:  A-09-97-47397 Santa Barbara County California:  Documentation was provided to support
questioned costs of $159,900.
CIN:  A-04-94-02080 Finalization of Blue Cross/Blue Shield of Florida Data Match:  Total estimated
overpayments were reduced by $83,522.
Not detailed are revisions to previously disallowed management decisions totaling $5,046.
3 Included in the management decisions during the period are $50,705 of disallowed costs attributable to audits performed by the
Defense Contract Audit Agency.
4 Audits on which a management decision had not been made within 6 months of issuance of the report:
A.  Due to administrative delays, many of which were beyond managements control, resolution of the following
audits was not completed within 6 months of issuance; however, based upon discussions with management
officials responsible for those audits, resolution of these outstanding recommendations is expected before the
end of the next semiannual reporting period:
CIN:  A-06-97-00031 Review of AMP-Searle, Chicago, October 1997, $28,000,000
CIN:  A-05-97-00028 Follow-up Review of Medicaid Overpayments, February 1998, $20,537,319
CIN:  A-09-97-44262 State of California, April 1997, $7,419,900
CIN:  A-09-96-00066 CA Dept of Social Services-Foster Care, September 1997, $6,611,640
CIN:  A-03-91-00552 National Independent Living Program, March 1993, $6,529,545 (Related
recommendation of $10,161,742 outstanding on Table II)
CIN:  A-10-97-48849 State of Oregon, July 1997, $6,379,395
CIN:  A-07-92-00578 Blue Cross/Blue Shield of Texas Incorporated, Unfunded Pension Costs, October
1992, $6,244,637
CIN:  A-07-97-01213 Travelers Pension Termination, February 1998, $5,624,747
CIN:  A-04-96-04575 Audit of ATSDRs Superfund Accounting, June 1997, $5,360,000
CIN:  A-07-97-01028 Review of Training Costs-Kansas, August 1997, $5,136,647
CIN:  A-04-97-04599 Audit of ATSDRs Superfund Accounting, September 1997, $4,800,000
CIN:  A-01-97-46859 State of Massachusetts, May 1997, $4,798,706
CIN:  A-04-97-02136 HCFA/OIG Joint Review-Victoria Behavioral Health Center, January 1998,
$4,510,161
CIN:  A-07-96-02001 Medicare Part B Administrative Costs at Blue Cross/Blue Shield of Colorado,
December 1996, $4,483,104
D-1 CIN:  A-05-94-00080 Associated Insurance Medicare Administrative Costs, July 1996, $3,954,632
CIN:  A-09-96-00064 California Hospice-ORT, March 1997, $3,450,000
CIN:  A-05-93-00054 Illinois Associated Insurance Group Contract Audit, October 1993, $3,355,560
CIN:  A-03-94-00029 Veritus Inc., Administrative Cost Audit, February 1998, $3,140,363
CIN:  A-07-93-00633 Pension Segmentation-AETNA Life Insurance Co., October 1993, $3,011,376
CIN:  A-05-93-00013 Michigan Blue Cross and Blue Shield Contract Medicare Audit, April 1993,
$3,010,916
CIN:  A-09-98-50183 State of California, March 1998, $3,000,000
CIN:  A-16-97-43135 State of Texas, February 1997, $2,987,053
CIN:  A-07-92-00585 Pension Segmentation Blue Cross/Blue Shield of California, January 1994,
$2,973,504
CIN:  A-01-95-00504 Medicare Parts A&B Administrative Costs-AETNA, January 1996, $2,938,223 
CIN:  A-04-98-02147 HCFA/OIG Review Health Management Network Inc., January 1998, $2,899,083 
CIN:  A-01-96-00508 Medicare Administrative Costs Parts A&B and Travelers, March 1996, $2,803,260 
CIN:  A-07-96-01185 Blue Cross/Blue Shield Rocky Mountain Pension Segmentation, June 1997,
$2,743,438
CIN:  A-05-97-00005 Administrative Costs Claimed Under Medicare Parts A&B, February 1998,
$2,569,067
CIN:  A-04-97-02137 HCFA/OIG Joint Review-Jerome Feldman CMHSs Partial Hospitalization,
$2,554,314
CIN:  A-07-92-00579 Blue Cross/Blue Shield of Michigan Inc., Unfunded Pension Costs, October 1992,
$2,535,698
CIN:  A-05-92-00026 Associated Insurance Co. Medicare Administrative Costs, February 1992,
$2,530,409
CIN:  A-04-97-02137 HCFA/OIG Joint Review Silver Spring Health Center, January 1998, $2,382,527
CIN:  A-02-91-01006 Blue Shield of Western New York Medicare Administrative Costs, September
1991, $2,379,239
CIN:  A-09-95-00074 ORT-Home Health Professionals-Pasadena, February 1997, $2,151,179
CIN:  A-06-97-46119 Arkansas Dept. of Human Services, August 1997, $2,054,508
CIN:  A-02-93-02001 Manpower Demonstration Corp., October 1994, $2,024,444
CIN:  A-05-97-00029 Follow-up Audit of Healthwin Hospital, November 1997, $2,000,000
CIN:  A-06-96-00009 New Mexico Blue Cross/Blue Shield Administrative Costs, November 1997,
$1,879,366
CIN:  A-03-97-00200 Virginia Medicaid Laboratory Fee Schedules, January 1998, $1,629,750
CIN:  A-06-96-00008 Arkansas Blue Cross/Blue Shield Administrative Costs, September 1996,
$1,442,193
CIN:  A-04-96-00105 OCS Discretionary Grants Awarded to Delta Foundation, December 1997,
$1,430,000
D-2 CIN:  A-02-96-42454 City of New York HRA Agency for Child Development, May 1996, $1,410,441
CIN:  A-10-91-00011 WPS-Keystone Computer Acquisition, October 1992, $1,346,681
CIN:  A-05-95-00042 Blue Cross/Blue Shield Administrative Costs-Contract Audit, December 1995,
$1,333,598
CIN:  A-02-98-52102 Puerto Rico Family Dept. Of Children and Families, March 1998, $1,321,656
CIN:  A-02-96-01016 Empire Administrative Costs, April 1997, $1,296,098
CIN:  A-07-93-00700 Blue Cross/Blue Shield of Massachusetts Unfunded Pension Cost Audit, May 1994,
$1,290,740
CIN:  A-04-97-02132 Florida CMHSs Partial Hospital Programs, January 1998, $1,277,591
CIN:  A-07-96-01194 Pension Community Mutual Segmentation, July 1997, $1,263,188
CIN:  A-10-97-47406 State of Idaho, April 1997, $1,262,577 (Related recommendation of $5,900,000
outstanding on Table II)
CIN:  A-07-94-00762 Health Care Service Corporation-Unfunded Pension Costs, July 1994, $1,233,337
CIN:  A-07-93-00634 Pension Segmentation-Travelers Insurance Co., October 1993, $1,218,963
CIN:  A-02-98-51817 Municipality of Ponce, Puerto Rico, March 1998, $1,155,022
CIN:  A-02-94-01029 Hospice Eligibility Review in Puerto Rico-ORT, June 1995, $1,070,814
CIN:  A-07-94-00763 Health Care Services Corporation, Pension Segmentation, August 1994, $1,055,458
CIN:  A-05-94-00047 Nationwide Insurance-Medicare Part B Administrative Costs, September 1995,
$1,049,309
CIN:  A-06-95-00035 Fees Retained by Child Placing Agencies, February 1996, $988,680
CIN:  A-09-94-01010 Closeout Audit of Stratagene, March 1994, $983,208
CIN:  A-09-98-49528  Hawaii Dept. of Human Services, October 1997, $952,016
CIN:  A-05-92-00060 Contractor Audit of Blue Cross and Blue Shield Administrative Costs, February
1993, $879,609
CIN:  A-09-96-00088 The Care Providers HHA, August 1997, $877,111
CIN:  A-02-94-01022 Blue Cross/Blue Shield NJ Administrative Cost Medicare, September 1997,
$864,851
CIN:  A-07-93-00701 Blue Cross/Blue Shield of Massachusetts-Pension Costs Charged Audit, July 1994,
$839,740
CIN:  A-04-96-02122  Review of Medical Therapy Inc., September 1997, $761,849
CIN:  A-05-91-00136 Community Mutual Insurance Company, Administrative Costs, August 1992,
$720,668
CIN:  A-07-96-01195 Pension-New Mexico Segmentation, February 1997, $700,952
CIN:  A-07-93-00699 Blue Cross/Blue Shield of Massachusetts-Pension Segmentation Audit, April 1994,
$658,471
CIN:  A-02-96-01015 Empire Administrative Costs Part A, April 1997, $652,492
CIN:  A-04-98-02148 HCFA/OIG Review Florida Behavioral Network, Inc., January 1998, $645,627
D-3 CIN:  A-07-96-01178 Medicare Pension Costs-Blue Cross/Blue Shield of Michigan, November 1996,
$631,248
CIN:  A-04-94-01078 Monitoring Administrative Cost-Medicare Part B, Blue Cross/Blue Shield of South
Carolina, July 1994, $594,092
CIN:  A-04-93-01069 Monitoring Administrative Cost Audit Medicare Part A-Blue Cross/Blue Shield of
South Carolina, July 1994, $590,844
CIN:  A-07-93-00679 AETNA-Unfunded Pension Cost Audit, May 1994, $590,207
CIN:  A-02-97-47130 Middlesex County Economic Opportunities, June 1997, $578,550
CIN:  A-07-97-01207 Unfunded Pension Community Mutual, July 1997, $571,413
CIN:  A-03-97-00009 Peer Review Systems Inc.-Ohio, March 1997, $545,405
CIN:  A-07-96-01198 Rocky Mountain Unfunded Pension, February 1997, $543,421
CIN:  A-02-91-03508 Audit of New Jersey Child Care and Supportive Services, June 1993, $506,710
CIN:  A-03-93-16229 State of Pennsylvania, March 1992, $496,876
CIN:  A-06-92-00017 IHS Creek Contract Closeout, May 1992, $468,217
CIN:  A-06-93-00042 Blue Cross /Blue Shield of Texas Administrative Costs- Medicare Parts A&B,
January 1993, $434,134
CIN:  A-07-96-01188 Pro Closeout-Doshi CPA, August 1996, $432,698 (Related recommendation of
$5,667 outstanding on Table II)
CIN:  A-07-97-01235 Doshi-Texas, June 1997, $424,255 (Related recommendation of $51,334
outstanding on Table II)
CIN:  A-09-98-49239 Hermandad Mexicana Legal Center, November 1997, $419,364
CIN:  A-05-95-00034 Blue Cross/Blue Shield-Medicare Part A Administrative Costs, February 1996,
$416,524
CIN:  A-09-96-00089 Monitoring of CPA Med Care Plus HHA, August 1997, $389,497
CIN:  A-04-96-01136 HCFA Survey Team-Savannah ORT, December 1996, $354,537
CIN:  A-04-97-02139 HCFA Review-Community Outreach, January 1998, $352,061
CIN:  A-05-92-00126 Wisconsin Westcap Head Start ACF Request, March 1993, $347,576
CIN:  A-03-97-00587 Little Neighborhood Centers, September 1997, $328,757
CIN:  A-09-96-00096 Mojave HHA Cost Report, July 1997, $327,304
CIN:  A-05-93-25697  West Central Wisconsin Community Action Agency, August 1993, $324,759
CIN:  A-04-96-01150 ORT Review of Flagship Convention Center, Newport CA., April 1997, $287,564
CIN:  A-10-97-49306 State of Alaska, September 1997, $287,125
CIN:  A-04-96-01129 Participating Part of HCFA Survey Team-American Transportation Care-ORT,
February 1997, $284,378
CIN:  A-06-97-44962 KI Bois Community Action Foundation, April 1997, $282,803
CIN:  A-05-96-00069 CPA Audit of Hooper Holmes HHS, February 1998, $280,515 (Related
recommendation of $17,555 outstanding on Table II)
D-4 CIN:  A-04-96-00107 Review of Selected Head Start Grant Costs, May 1997, $270,863
CIN:  A-09-94-30178 State of Arizona, June 1994, $267,021
CIN:  A-09-96-39178 Arizona Affiliated Tribes Inc., April 1996, $258,824
CIN:  A-07-93-00710 Blue Cross/Blue Shield of Connecticut-Unfunded Pension Cost Audit, March 1994,
$237,392
CIN:  A-04-97-01152 Closeout Audit-Michigan PRO, June 1997, $228,630
CIN:  A-04-96-01134 Participating Part of HCFA Survey Team-Colonade Medical, February 1997,
$220,483
CIN:  A-09-96-00094 Monitoring of Dynasty HHA Cost Report, July 1997, $217,720
CIN:  A-05-91-00064 Nationwide Administrative Costs Contract Audit, October 1991, $211,422
CIN:  A-09-95-34788 State of Arizona, August 1995, $209,462
CIN:  A-05-96-00052 ORT-Ancillary Costs, Northwest Community Hospital, June 1997, $206,508
CIN:  A-03-98-00014 Connecticut Pro Inc., February 1998, $202,662
CIN:  A-06-96-00064 ORT Skilled Nursing Research at Methodist Hospital, January 1997, $200,000
CIN:  A-05-97-00006 Wayne State University, NIH Request, June 1997, $195,809
CIN:  A-10-96-00007 Idaho Migrant Council Head Start, March 1997, $192,981
CIN:  A-06-97-47756 State of Louisiana, May 1997, $189,101
CIN:  A-05-94-29229 West Central Wisconsin Community Action Agency Inc., March 1994, $167,977
CIN:  A-05-96-00031 WIPRO Equipment Depreciation, August 1996, $167,033
CIN:  A-04-98-49312 State of North Carolina, November 1997, $164,792
CIN:  A-03-97-00016 Quality Improvement Pro Inc./Puerto Rico, February 1998, $158,925
CIN:  A-04-98-49312 State of North Carolina, November 1997, $153,022
CIN:  A-09-92-06850 Santa Ysabel Band of Mission Indians, September 1992, $151,081
CIN:  A-06-98-51473 Chaves County Community Action Program, March 1998, $148,751
CIN:  A-04-96-01147 ORT Review of Parker Jewish Geriatric Center, April 1997, $140,188
CIN:  A-04-98-49864 Head Start of Alamance and Caswell Counties, February 1998, $137,631
CIN:  A-05-92-00048 Wisconsin Physicians Services Pension Medicare vs. Erisa, October 1992,
$130,577 (Related recommendation of $2,068,964 outstanding on Table II)
CIN:  A-07-97-02500 Pension Segmentation BC/BS Connecticut, March 1998, $122,548
CIN:  A-07-93-00709 Blue Cross/Blue Shield of Connecticut-Pension Segmentation Audit, April 1994,
$119,472
CIN:  A-02-97-47931 Puerto Rico Administration For Families and Children, May 1997, $115,225
CIN:  A-03-95-03329 Henderson Associates, March 1997, $111,289
CIN:  A-02-96-01001 VNS of NY Home Care, September 1997, $110,841
D-5 CIN:  A-02-96-02001 International Rescue Committee-Refugee Program, January 1998, $108,604
(Related recommendation of $90,528 outstanding on Table II)
CIN:  A-06-98-50301 Community Council of Reeves County, December 1997, $107,609
CIN:  A-03-98-03300 Raymond Maria Group, March 1998, $102,476
CIN:  A-09-98-00051 Colorado Foundation for Medicare Care, January 1998, $97,858
CIN:  A-10-97-00003 BCWAAK Administrative Costs Remote Network Activities FY93&94, February
1998, $94,643
CIN:  A-06-96-43195 Pueblo of Isleta, June 1996, $92,969
CIN:  A-07-95-01164 Medicare Administrative Costs-General American, December 1995, $89,929
(Related recommendations of $16,632 outstanding on Table II)
CIN:  A-10-98-51510 State of Idaho, March 1998, $87,000
CIN:  A-02-95-34278 Puerto Rico Department of Health, June 1995, $86,064
CIN:  A-02-95-34279 Puerto Rico Department of Health, June 1995, $85,266 
CIN:  A-04-96-38655 State of North Carolina, April 1996, $83,237
CIN:  A-01-96-00505 CFO Audit of HCFA Financial Statements, July 1997, $80,236
CIN:  A-05-97-48402 Montgomery County Community Action Agency, July 1997, $79,374 
CIN:  A-04-96-01137 HCFA Survey Team-Daytona Nursing-ORT, December 1996, $76,130 
CIN:  A-05-97-48530 Jackson Vinton Community Action Inc., July 1997, $75,392
CIN:  A-07-95-01159 Unfunded Pension Costs Nebraska Blue Cross/Blue Shield, January 1996, $73,509
CIN:  A-09-98-50884 Fresno County Economic Opportunities Commission, January 1998, $70,023
CIN:  A-09-97-48489 Pascua Yaqui Tribe of Arizona, June 1997, $68,736
CIN:  A-09-93-00091 Walter McDonald Indirect Cost Rate Audit, June 1994, $68,663
CIN:  A-02-97-43765 Arizona Affiliated Tribes Inc., September 1996, $66,526
CIN:  A-02-95-34275 Puerto Rico Department of Health, June 1995, $64,841
CIN:  A-08-97-46601 Ute Indian Tribe, April 1997, $62,865
CIN:  A-09-98-52225 Nevada Indian Environmental Coalition, March 1998, $61,645
CIN:  A-05-96-00072 Michigan Department of Community Health/Medicaid Lab Services, August 1997,
$59,956
CIN:  A-05-96-00051 ORT Assist-Ancillary Costs St. Joseph, June 1997, $58,008
CIN:  A-06-92-19887 Central Tribes of the Shawnee Area Inc., July 1992, $57,944
CIN:  A-09-97-00059 Health Services Advisory Group-Arizona PRO, May 1997, $57,925
CIN:  A-04-96-01125 Participating Part of HCFA Survey Team-Rosemont-ORT, February 1997, $55,306
CIN:  A-10-97-47406 State of Idaho, April 1997, $55,012
CIN:  A-05-98-51855 Stark County Community Action Agency, March 1998, $54,933
CIN:  A-07-97-01206 Unfunded Pension-Alaska, March 1997, $54,000
D-6 CIN:  A-07-98-50741 Citizen Housing Information Council, March 1998, $52,758
CIN:  A-04-97-48932 Gaston Community Action Inc., July 1997, $52,720
CIN:  A-05-98-51302 Kootasca Community Action Inc., February 1998, $52,000
CIN:  A-09-96-41388  Fresno County Economic Opportunities Commission, February 1998, $50,040 
CIN:  A-09-95-00095 Health Services Advisory Group, Inc., December 1995, $49,585 (Related
recommendation of $1,389,723 outstanding on Table II)
CIN:  A-03-93-03306 Survey Research Association, December 1993, $48,779
CIN:  A-02-95-34276 Puerto Rico Department of Health, June 1995, $46,842
CIN:  A-05-96-40815 Two Rivers Head Start, February 1996, $44,349
CIN:  A-10-97-49011 State of Washington, July 1997, $41,772
CIN:  A-03-97-44742 Association of Teachers of Preventive Medicine, February 1998, $37,260
CIN:  A-06-95-00037 Research Training for DHHS Oklahoma, October 1996, $36,563
CIN:  A-07-98-02030 Doshi, November 1997, $35,703
CIN:  A-07-97-01218 Doshi, March 1997, $33,752
CIN:  A-06-97-47794 Gulf Coast Community Services Association, July 1997, $32,619
CIN:  A-07-97-01199 Blue Cross/Blue Shield of New Mexico Unfunded Pension Costs, February 1997,
$31,372
CIN:  A-09-96-42547 Maricopa County Arizona, April 1996, $30,766
CIN:  A-09-98-49616 State of Arizona, November 1997, $29,746
CIN:  A-05-97-48015 Hoosier Valley Economic Opportunity Corp, May 1997, $29,004
CIN:  A-10-96-41391 Klamath Family Head Start, April 1996, $26,530
CIN:  A-09-94-27868 INYO Mono Advocates for Community Action, November 1993, $22,875
CIN:  A-05-98-52065 Sokaogon Chippewa Community Mole Lake Band, March 1998, $22,029
CIN:  A-02-97-44455 Community Action Agency of Franklin Co., December 1996, $21,395
CIN:  A-05-96-39685 Michigan Family Resources, December 1995, $20,799
CIN:  A-06-97-48531 State of Texas, July 1997, $20,697
CIN:  A-05-96-43041 Hoosier Valley Economic Opportunity Corp., June 1996, $20,438
CIN:  A-04-97-01163 VIMI Medicare Pro Contract Audit, September 1997, $18,758
CIN:  A-05-93-21928 Wright State University, July 1993, $18,308
CIN:  A-03-97-00007 Nebraska Health Care Quality Foundation, March 1997, $17,045
CIN:  A-03-98-51186 Council of the Southern Mountains West Virginia, February 1998, $16,700
CIN:  A-01-97-44143 Brandeis University, January 1997, $16,602
CIN:  A-05-95-34584 Wood County Head Start, Inc., December 1994, $14,896
CIN:  A-03-97-00008 Nebraska Health Care Quality Foundation-Vermont, March 1997, $14,596
D-7 CIN:  A-09-96-00050 HCFA CFO 1996, November 1996, $13,924
CIN:  A-07-95-01175 Mutual of Omaha-Administrative Costs, August 1996, $13,564
CIN:  A-05-95-36498 Hoosier Valley Economic Opportunity Corp., April 1995, $13,116
CIN:  A-03-98-50338 National Medical Association, February 1998, $12,968
CIN:  A-01-97-45487 ABT Associates, January 1997, $12,950
CIN:  A-09-95-00091 Walter McDonald and Associates, Direct Cost Audit, September 1995, $11,812
CIN:  A-01-97-48573 New Opportunities for Waterbury Inc., July 1997, $10,675 (Related
recommendation of $122,126 outstanding on Table II)
CIN:  A-09-92-06864 San Juan Southern Paiute Tribe, September 1992, $10,433
CIN:  A-04-97-49204 State of Tennessee, September 1997, $10,269
CIN:  A-02-98-49841 Society for Seamens Children Inc, December 1997, $10,000
CIN:  A-10-97-00002 Group Health Institutionalized, November 1997, $9,769
CIN:  A-10-97-48639 Nooksack Indian Tribe, August 1997, $9,440
CIN:  A-06-97048284 East Texas Family Services, August 1997, $9,130
CIN:  A-04-97-01153 MS Foundation-Medicare Pro Audit, September 1997, $9,070
CIN:  A-04-98-49581 Mid-South Foundation for Medical Care Inc., January 1998, $8,938
CIN:  A-09-97-48966 Karidat, July 1997, $8,905
CIN:  A-02-95-34277 Puerto Rico Department of Health, June 1995, $8,486
CIN:  A-06-97-47803 Cheyenne Arapaho Tribes of Oklahoma, May 1997, $8,321
CIN:  A-04-96-04211 University of Alabama, October 1997, $8,035
CIN:  A-07-97-01231 Prowest-Doshi Washington, June 1997, $8,027 (Related recommendation of
$163,552 outstanding on Table II)
CIN:  A-06-97-47756 State of Louisiana, May 1997, $7,470
CIN:  A-10-93-22136 Confederated Tribes of the Grand Ronde Community, December 1992, $7,384
CIN:  A-03-96-38803 Skyline Government Services Corp., November 1995, $7,285
CIN:  A-07-97-01230 OFMQ-Doshi Oklahoma, June 1997, $7,168
CIN:  A-01-97-49174 Brandeis University, August 1997, $7,068
CIN:  A-09-96-00095 A Plus HHA Cost Report, July 1997, $7,062
CIN:  A-02-97-44269 Puerto Rico Dept. of Anti-Addiction Services, October 1996, $6,586
CIN:  A-06-96-40858 Caddo Community Tribe, February 1996, $6,557
CIN:  A-08-94-32795 Northern Cheyenne Tribe, September 1994, $6,548
CIN:  A-08-97-43975 Oglala Sioux Tribe, October 1996, $6,494
CIN:  A-07-95-01167 Pension Costs Claimed Nebraska Blue Cross/Blue Shield, January 1996, $6,075
CIN:  A-01-97-48251 State of Connecticut, June 1997, $6,035
D-8 CIN:  A-02-96-02001 International Rescue Committee-Refugee Program, January 1998, $6,027
CIN:  A-06-97-48062 Ser-Jobs for Progress National Inc., May 1997, $5,924
CIN:  A-10-98-50308 Coastal Community Action Program, December 1997, $5,274
CIN:  A-05-98-51316 Community Action Program Inc. of Western Indiana, February 1998, $5,202
CIN:  A-06-91-00034 Audit of Collection and Credit Activities at TDHS, January 1992, $5,081
CIN:  A-03-97-47731 State of Delaware, May 1997, $5,035
CIN:  A-05-97-48671 Stockbridge Munsee Community, July 1997, $4,968
CIN:  A-09-97-48829 Community Action Commission of Santa Barbara County, August 1997, $4,809
CIN:  A-09-97-44435 Commonwealth of Northern Mariana Islands, October 1996, $4,767
CIN:  A-07-95-01123 Review of CPA Administrative Costs-Blue Cross/Blue Shield of Kansas City, May
1995, $4,045
CIN:  A-02-93-26106 Second Street Youth Center Foundation Inc., July 1993, $3,989
CIN:  A-04-97-01162 HMSA Medicare Pro Contract Audit, September 1997, $3,871
CIN:  A-07-97-01233 Prowest Idaho, June 1997, $3,835 (Related recommendation of $41,301
outstanding on Table II)
CIN:  A-05-96-38947 American Association of Cardiovascular and Pulmonary, December 1995, $3,827
CIN:  A-09-95-39056 Hawaii Dept of Health, September 1995, $3,601
CIN:  A-05-98-50224 West Central Wisconsin Community Action Agency, January 1998, $3,389
CIN:  A-06-98-50840 St. Martin Iberia Lafayette Community Action Agency, February 1998, $3,362
CIN:  A-03-95-03318 Trans Management System, May 1996, $3,016
CIN:  A-06-98-52039 Natchitoches Outpatient Medical Center, February 1998, $2,700
CIN:  A-03-95-34716 West Virginia Medical Institute Inc., March 1995, $2,688
CIN:  A-07-98-50741 Citizen Housing Information Council, March 1998, $2,678
CIN:  A-02-97-49366 Seneca Nation of Indians, September 1997, $2,655
CIN:  A-05-95-35315 Lake County Economic Opportunity Council, January 1995, $2,650
CIN:  A-08-98-51815 Standing Rock Sioux Tribe of North Dakota, March 1998, $2,604
CIN:  A-03-97-43996 Actuarial Research Corp., October 1996, $2,561
CIN:  A-01-97-47552 State of New Hampshire, May 1997, $2,184
CIN:  A-07-97-01221 Pro Closeout-Doshi CPA, March 1997, $2,096
CIN:  A-03-96-44076 St. Pauls College, August 1996, $2,029
CIN:  A-07-97-01233 Prowest-Doshi Idaho, June 1997, $1,473 (Related recommendation of $21,218
outstanding on Table II)
CIN:  A-04-96-01161 Medicare Pro Contract, State of South Carolina, July 1997, $1,294
CIN:  A-09-94-01022 Intelligegnetics, October 1994, $-12,400
D-9 CIN:  A-09-96-00054 Blue Cross of California Administrative Costs, August 1996, $-1,653,079
B.  The following audits were resolved after September 30, 1998: 
CIN:  A-01-97-45487 ABT Associates Inc., January 1997, $2,681
C. The following audits will be closed after completion of the contractor termination audit and resolution of
pending lawsuits:
CIN:  A-05-94-00064 Michigan Blue Cross/Blue Shield, Audit of Administrative Costs, June 1996,
$15,609,718
CIN:  A-07-96-01176 Medicare Excess Pension Assets-Blue Cross/Blue Shield of Michigan, November
1996, $11,904,263
CIN:  A-05-96-00058 Closeout Audit of Blue Cross/Blue Shield of Michigan, December 1997, $5,226,443
CIN:  A-05-95-00059 Audit of Administrative Costs-Blue Cross/Blue Shield of Michigan, January 1997,
$1,787,345
CIN:  A-05-93-00057 Michigan Blue Cross and Blue Shield of Michigan Contract Audit, July 1993,
$1,409,954 
CIN:  A-03-91-02004 West Virginia Blue Cross Administrative Costs FYs 1985/1990 and Termination
Costs, November 1992, $25,200
D. Reports in Litigation:
CIN:  A-03-91-02004 West Virginia Blue Cross, November 1992, $7,556
Table II
 1 The opening balance was adjusted upward to reflect a revaluation of recommendations of $954,000.
2 Included in the total recommendations agreed to by management is $324,275 resulting from the Defense Contract Audit
Agency recommendations.
3 Management decisions have not been made within 6 months of issuance on 10 reports.
A.  Discussions with management are ongoing and it is expected that the following audits will be resolved by the
next semiannual reporting period:
CIN:  A-06-91-00089 Audit of CN B Accounts to Detect Status of IHS Cash on Hand, April 1992,
$445,890
CIN:  A-07-97-01230 OFMQ, June 1997, $203,520
CIN:  A-05-96-43154 Muskegon Community Action, June 1996, $130,993
CIN:  A-03-97-48996 North Central West Virginia Community Action, August 1997, $128,919
CIN:  A-02-95-34946 City of Caguas Puerto Rico, March 1995, $64,206
CIN:  A-06-96-43307 Nueces County Community Action Agency, June 1996, $22,667
CIN:  A-06-97-45023 Caddo Community Action Agency, November 1996, $8,880
CIN:  A-01-97-00526 Psychiatric Outpatient Services, March 1998, $7,245
CIN:  A-05-95-37812 Northeast Michigan Community Service, August 1995, $2,191
D-10 B.  One report remains open pending the resolution of contractor termination costs, termination audit and pending
lawsuits:
CIN:  A-07-96-01177 Medicare Post Retirement Claims/Blue Cross of Michigan, November 1996,
$8,978,998
D-11 APPENDIX E
Reporting Requirements of the
Inspector General Act of 1978, as Amended
The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is
being furnished to the Congress under separate cover.  Copies are available upon request.
Section of the Act Requirement Page
Section 4(a)(2) Review of legislation and regulations 60
Section 5(a)(1) Significant problems, abuses and throughout
deficiencies
Section 5(a)(2) Recommendations with respect to throughout
significant problems, abuses and
deficiencies
Section 5(a)(3) Prior significant recommendations on appendices B and C
which corrective action has not been
completed
Section 5(a)(4) Matters referred to prosecutive authorities 62
Section 5(a)(5) Summary of instances where information none
was refused
Section 5(a)(6) List of audit reports under separate cover
Section 5(a)(7) Summary of significant reports throughout
Section 5(a)(8) Statistical table I - reports with questioned 58
costs
Section 5(a)(9) Statistical table II - reports with 59
recommendations that funds be put to
better use
Section 5(a)(10) Summary of previous audit reports appendix D
without management decisions
Section 5(a)(11) Description and explanation of revised appendix D
management decisions
Section 5(a)(12) Management decisions with which the none
Inspector General is in disagreement
E-1 APPENDIX F
Performance Measures
In order to identify work done in the area of performance measurement, the Office of Inspector General (OIG) has labeled some
items throughout the semiannual report as  performance measures with the symbol                  . Performance measures
are used to evaluate the achievement of a program goal, such as the efficiency of an immunization program which is measured by
the number of inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations
finalized during this semiannual period offer management information about whether some aspect or all of the programs or
activities reviewed are achieving their missions and goals.  
Page
Financial Statement Audit of Health Care Financing Administration for Fiscal Year 1997 . . . . . . . . . . .  2
Medicare Beneficiary Satisfaction: 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Medicare Beneficiaries with Additional Medical Insurance in 1997  . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Physician Perspectives of Medicare Health Maintenance Organizations  . . . . . . . . . . . . . . . . . . . . . . . . .18
Beneficiary Perspectives of Medicare Risk Health Maintenance Organizations: 1996  . . . . . . . . . . . . . .19
Beneficiary Perspectives of Medicare Risk Health Maintenance Organizations - 1996:
Beneficiaries with Functional Limitations, Comorbidities and Disabilities  . . . . . . . . . . . . . . . . . . . . . . .19
Medicare Hospice Beneficiaries: Services and Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Independent Physiological Laboratories  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Medicaid Managed Care and HIV/AIDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Institutional Review Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Food and Drug Administrations Citizen Petition Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Cancer Information Service  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Racial and Geographic Disparity in the Distribution of Organs for Transplantation  . . . . . . . . . . . . . . . .37
Health Centers Access to the National Practitioner Data Bank  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Use of the 340B Drug Pricing Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Substance Abuse and Mental Health Services Administrations Treatment Improvement
Protocols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Fiscal Year 1997 Financial Statement Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
State Child Support Enforcement Satisfaction Survey  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Availability of Health Insurance for Children under the Child Support Enforcement
Program:  Connecticut  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Financial Statement Audit of the Administration for Children and Families  . . . . . . . . . . . . . . . . . . . . . .50
Business Process Reengineering Pilot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Safeguards against Elder Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Health Care Antifraud Volunteer Project Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Financial Statement Audit of the Department for Fiscal Year 1997  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
F-1 APPENDIX G
Status of Public Proposals for New and Modified Safe Harbors to the
Anti-Kickback Statute
 Pursuant to section 205 of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Inspector General is
required annually to solicit proposals (via Federal Register notice) for modifying existing safe harbors to the anti-kickback statute
and for developing new safe harbors and special fraud alerts.  In accordance with this requirement, on December 31, 1996, and
December 10, 1997, the Office of Inspector General (OIG) published notices in the Federal Register soliciting such proposals.
The OIG received 32 timely-filed responses to the 1996 notice and 17 timely-filed responses to the 1997 notice from a
cross-section of organizations, associations and other interested parties.  Some of these respondents commented generally on
areas of concern; others provided detailed proposals for new or modified safe harbor regulations.  
The OIG is currently drafting a comprehensive safe harbor rule that will finalize certain proposals for new and clarified safe
harbors published in the Federal Register in 1993 and 1994.  This rulemaking is in the departmental clearance process and OIG
anticipates publication of the final rule in the winter of 1999.  A number of respondents to the 1996 and 1997 annual solicitations
suggested safe harbors in subject areas already addressed by the 1993 and 1994 notices of proposed rulemaking.  Such
suggestions (received in response to the annual solicitations) included:
 Investments in ambulatory surgical centers and other facilities where physicians practice, including investment interests
held by nonsurgeon and nonphysician investors;
 Investments in facilities in underserved rural areas;
 Benefits offered by hospitals and other entities to retain physicians and other practitioners in the service area;
 Modifications to the existing discount safe harbor; 
 Modifications to the existing personal services and equipment leasing safe harbors; and
 Modifications to the existing investment interests safe harbor.
These safe harbor suggestions will be addressed (but not necessarily adopted) in the rulemaking on the 1993 and 1994 proposals.
The OIG is also in the process of promulgating the interim final rule for the shared-risk exception to the anti-kickback statute
(section 216 of HIPAA).  The parameters of this rule -- which will contain two new safe harbor regulations -- were developed
through negotiated rulemaking procedures pursuant to the requirements of HIPAA and the Federal Advisory Committee Act.  The
Joint Committee Statement of the negotiated rulemaking committee (as well as minutes of committee meetings) is available on
the Internet at: http://www.dhhs.gov/progorg/oig.  This new rule will also address (but not necessarily adopt) certain concerns
and  proposals for safe harbor protection submitted by respondents to the annual solicitations in the following subject areas:
 Provider sponsored organizations and provider service networks.
 Preferred provider organizations.
 Medicare managed care plans and Health Care Financing Administration managed care demonstration projects.
 State-licensed managed care plans.
 Relationships between managed care organizations and manufacturers relating to use of the manufacturers products by
the managed care organizations enrollees.
The OIG is continuing to study safe harbor proposals submitted in response to the annual solicitations concerning subject areas
other than those addressed in the rulemakings described above.  Of course, in crafting safe harbors for a criminal statute, it is
incumbent upon OIG to engage in a complete and careful review of the range of factual circumstances that may fall within the
G-1 proposed safe harbor subject area, so as to uncover all potential opportunities for fraud and abuse by unscrupulous providers.
Having done so, OIG must then determine, in consultation with the Department of Justice, whether OIG can develop regulatory
limitations and controls that will be effective in permitting beneficial or innocuous arrangements within the subject area, while at
the same time protecting the Federal health care programs and their beneficiaries from abusive practices.
The following safe harbor suggestions (received in response to the annual solicitations) are under review:
 Arrangements between hospitals and emergency medical transport providers pursuant to which the hospitals provide
medical supplies and equipment, drugs, and paramedic training and education to ambulance providers without charge.
(This practice has been the subject of OIG advisory opinions.)
 Referral of patients for eyeglasses and contact lenses sold by optical stores, regardless of the stores ownership, and for
intraocular lenses furnished during a surgical procedure.
 Arrangements with independent sales representatives and with companies, such as sales service companies, that use their
own employed sales force to sell another companys products.
 Continuing education programs sponsored or provided by manufacturers, commercial laboratories and other providers for
health care facilities and practitioners with whom they may have referral relationships. 
 "De minimis" gifts from a provider to a beneficiary who has recommended a new customer to the provider.
 Payments between related entities, including parent companies and wholly-owned subsidiaries. 
 Investment interests (as opposed to returns on investment interests protected by existing safe harbors) where the investor
is a potential recipient of referrals from the investment entity.
 Loans between parties who may be in a position to make referrals to one another.
 Marketing of managed care plans by independent insurance underwriters.
 Flat rate fees charged to Medicare patients for outpatient surgeries.  
 Ownership interests in hospitals held by physicians and group practices, to the extent such ownership is recognized by
section 1877 of the Social Security Act (the Stark law).
 Modification of existing safe harbors to conform to the statutory and regulatory exceptions to section 1877 of the Stark
law.
G-2 ACRONYMS
ACF Administration for Children and Families
AHCPR Agency for Health Care Policy and Research
AoA Administration on Aging
ASMB Assistant Secretary for Management and Budget
ATSDR Agency for Toxic Substances and Disease Registry
AWP average wholesale price
CDC Centers for Disease Control and Prevention
CHAMPUS Civilian Health and Medical Plan of the Uniformed Services
CHIP Childrens Health Insurance Program
CMP civil monetary penalty
CSE child support enforcement
CY calendar year
DME durable medical equipment
DMERC durable medical equipment regional carrier
DOJ Department of Justice
DRG diagnosis-related group
DSH disproportionate share hospital
EA emergency assistance
EGHP employer group health policy
ESRD end stage renal disease
FDA Food and Drug Administration
FY fiscal year
GME graduate medical education
HCFA Health Care Financing Administration
HCFAC Health Care Fraud and Abuse Control
HEAL health education assistance loan
HHA home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HIPDB Healthcare Integrity and Protection Data Bank
HMO health maintenance organization
HRSA Health Resources and Services Administration
ICF/MR intermediate care facility for the mentally retarded
IHS Indian Health Service
IME indirect medical education
IRB institutional review board
MFCU Medicaid fraud control unit
MSP Medicare secondary payer
NIH National Institutes of Health
NPRM notice of proposed rulemaking
OBRA Omnibus Budget Reconciliation Act
OCSE Office of Child Support Enforcement
OMB Office of Management and Budget
PATH physicians at teaching hospitals
PFCRA Program Fraud Civil Remedies Act
PHS Public Health Service
PPS prospective payment system
PRM provider review manual
PSC Program Support Center
SAMHSA Substance Abuse and Mental Health Services Administration
TANF Temporary Assistance for Needy Families
TIPS treatment improvement protocols PROPORTION OF PHYSICIANS SATISFIED 
WITH MEDICARE HMOS
28%
Very Satisfied
Somewhat Satisfied
Neither
15%
Somewhat Dissatisfied
39%
Very Dissatisfied
4%
14%
Click on chart to go back MEDICARE ALLOWED CHARGES FOR MOST 
EXPENSIVE LYMPHEDEMA PUMPS
$120
$100
$80
V
Q
R
$60
L
O
O
L
0
$40
$20
$0
1991 1992 1993 1994 1995 1996
Click on chart to go back DEPARTMENT OF HEALTH
AND HUMAN SERVICES
Office of Inspector General
330 Independence Avenue, S.W.
Washington, D.C. 20201
Internet Address
http://www.dhhs.gov/progorg/oig