The  Department of Health and  Human  Services
 
And 

The  Department of Justice
 
Health Care Fraud and  Abuse Control Program
 
Annual Report For FY 2008
 
September 2009  TABLE  OF CONTENTS
 
Page 
Executive Summary  1
 
Introduction  3
 
Monetary Results  5
 
Program Accomplishments  7
 
Department of Health and Human Services
 
Office of Inspector General  23
 
Centers for Medicare & Medicaid Services  35
 
Administration on Aging  36
 
Office of the General Counsel  37
 
Department of Justice
              
United States Attorneys  41
 
Civil Division  42
 
Criminal Division  43
 
Civil Rights Division  45
 
Appendix: Federal Bureau of Investigation - Mandatory Funding  49
 
Glossary  of Terms  51
 
GENERAL NOTE
 
All years are fiscal years unless
 
otherwise noted  in the text.
  EXECUTIVE SUMMARY
 
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national 
Health Care Fraud and Abuse Control  Program (HCFAC or the Program), under the joint 
direction of the Attorney General and the Secretary of the Department of Health and Human 
Services (HHS)1, acting through the Departments Inspector General (HHS/OIG), designed to 
coordinate Federal, state and local law enforcement activities with respect to health care fraud 
and abuse.  In its twelfth year of operation, the Programs continued success again confirms the 
soundness of a collaborative approach to identify and prosecute the most egregious instances of 
health care fraud, to prevent future fraud or abuse, and to protect program beneficiaries. 
Moreover, the Programs investment in criminal and civil health care fraud enforcement efforts 
has yielded an impressive return on investment for the American taxpayer: for every HIPPA 
dollar spent by DOJ and HHS on federal health care fraud enforcement, approximately $4 has 
been recovered and returned. 
Monetary Results 
During FY 2008, the Federal Government won or negotiated  approximately $1 billion in 
judgments and settlements2, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Fund received transfers of approximately 
$1.94 billion during this period as a result of these efforts, as well as those of preceding years, in 
addition to over $344 million in Federal Medicaid money similarly transferred separately to the 
Treasury as a result of these efforts.  The HCFAC account has  returned over $13.1 billion to the 
Medicare Trust Fund since the inception of the Program in 1997. 
Enforcement Actions 
In FY 2008, U.S. Attorneys' Offices opened 957 new criminal health care fraud investigations 
involving 1,641 potential defendants.  Federal prosecutors had 1,600 health care fraud criminal 
investigations pending, involving 2,580 potential defendants, and filed criminal charges  in 502 
cases involving 797 defendants.  A total of 588 defendants were convicted for health care 
fraud-related crimes during the year.  Also in FY 2008, the Department of Justice (DOJ) opened 
843 new civil health care fraud investigations and had 1,311 civil health care fraud matters 
pending. 
1Hereafter, referred  to as the Secretary. 
2The amount reported as won or negotiated only reflects federal recoveries and therefore 
does not reflect state Medicaid monies  recovered as part of any global, federal-state settlements. 
Measures have been put into place to track such related state Medicaid recoveries. 
1
  2
  INTRODUCTION
 
ANNUAL REPORT OF 
 
THE ATTORNEY GENERAL  AND THE SECRETARY
 
DETAILING EXPENDITURES AND REVENUES
 
UNDER THE HEALTH CARE FRAUD  AND ABUSE CONTROL PROGRAM
 
FOR FISCAL YEAR 2008
 
As Required by
  
Section 1817(k)(5) of the Social Security Act
 
STATUTORY BACKGROUND
 
The Social Security Act Section 1128C(a), as established by the Health Insurance Portability and 
Accountability Act  of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud and 
Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, 
including both public and private health plans.  
The Act requires that an amount equaling recoveries from health care investigations -- including 
criminal fines, forfeitures, civil settlements and judgments, and administrative penalties, but 
excluding restitution, compensation to the victim agency, and relators shares -- be deposited in 
the Medicare Trust Fund.3  All funds deposited in the Trust Fund as a result of the Act are 
available for the operations of the Trust Fund.  
The Act appropriates monies from the Medicare Trust Fund to an expenditure account, called the 
Health Care Fraud and Abuse Control  Account (the Account), in amounts that the Secretary and 
Attorney General jointly certify  as necessary to finance anti-fraud activities.  The maximum 
amounts available for certification are specified  in the Act.  Certain of these sums are to be used 
only for activities of the HHS/OIG,  with respect to Medicare and Medicaid programs.  In FY 
2006, the Tax Relief and Health Care Act or TRHCA (P.L 109-432, 303) amended the Act so 
that funds allotted from the Account are available until expended.  TRHCA also allowed  for 
yearly increases to the Account based on the change in the consumer price index for all urban 
consumers (all items; United States city  average) or CPI-U over the previous fiscal year for fiscal 
years for 2007 through 2010.  After 2010, the amount available in the Account will remain fixed 
at the 2010 level.  
In FY 2008, the Secretary and the Attorney General certified $255,196,557 for appropriation to 
the Account.  A detailed breakdown of the allocation of these funds is set forth later  in this 
report.  HCFAC appropriations generally supplement the direct appropriations of HHS and DOJ 
3Also known as the Hospital Insurance (HI) Trust Fund.  All further  references to the 
Medicare Trust Fund refer to the HI Trust Fund. 
3  that are devoted to health care fraud enforcement and funded approximately two-thirds of the 
HHS/OIGs appropriated budget in FY 2008.  (Separately, the Federal Bureau of Investigation 
(FBI) received $120.9 million from HIPAA which is discussed in the Appendix.) 
Under  the joint direction of the Attorney General and the Secretary, the Programs goals are: 
(1)	  to coordinate federal, state and local law enforcement efforts relating to health care fraud 
and abuse with respect to health plans; 
(2)	  to conduct investigations, audits, inspections, and evaluations relating to the delivery of 
and payment for health care in the United States; 
(3)	  to facilitate enforcement of all applicable remedies for  such fraud; 
(4)	  to provide guidance  to the health care industry regarding fraudulent practices; and 
(5)	  to establish a national data bank to receive and report final adverse actions against health 
care providers, and suppliers. 
The Act requires the Attorney General and the Secretary to submit a joint annual report to the 
Congress which identifies both: 
(1)	  the amounts appropriated to the Trust Fund for the previous fiscal year under various 
categories and the source of such amounts; and 
(2)	  the amounts appropriated from the Trust Fund for such year for use by the Attorney 
General and the Secretary and the justification for the expenditure of such amounts. 
This annual  report fulfills the above statutory requirements.  
4
  MONETARY RESULTS
 
As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited 
and appropriated  to the Medicare Trust Fund, and the source of such deposits.  In FY 2008, $2.14 
billion was deposited with the Department of the Treasury and the Centers for Medicare and 
Medicaid Services (CMS), transferred to other Federal agencies administering  health care 
programs, or paid to private persons during the fiscal year.  The following chart provides a 
breakdown of the transfers/deposits: 
Total Transfers/Deposits  by Recipient FY 2008 
Department of the Treasury  
  HIPAA Deposits to the Medicare Trust Fund             
            Gifts and Bequests $25,847 
            Amount  Equal to Criminal Fines $5,339,906 
            Civil Monetary  Penalties $11,410,238 
            Asset Forfeiture * 0 
            Penalties  and Multiple Damages  $559,566,833 
Subtotal  $576,342,824 
Centers for Medicare & Medicaid Services 
  HHS/OIG Audit Disallowances  - Recovered $662,456,511 
  Restitution/Compensatory Damages  $703,493,134 
Subtotal  $1,365,949,645
Total 
    $1,942,292,469 
Restitution/Compensatory Damages to Federal Agencies 
TRICARE  $14,499,978 
Veterans Administration  $8,820,832 
HHS/OIG Cost of  Audits, Investigations  and Compliance      
       Monitoring  $5,902,896 
Office of  Personnel Management  $5,977,301 
Other Agencies  $6,105,516 
Subtotal  $41,306,523 
Relators Payments**  $157,281,122 
GRAND TOTAL  ***  $2,140,880,114 
*This includes  only forfeitures  under 18 U.S.C.  1347, a Federal health  care fraud offense that became effective on 
August 21, 1996.  Not included are forfeitures  obtained in numerous health  care fraud cases prosecuted under  
Federal mail and wire fraud and other offenses. 
**These are funds awarded to private persons  who file suits on  behalf of the Federal Government under the  qui tam 
provisions of  the False Claims Act, 31 U.S.C.  3730(b). 
***Funds are also collected on behalf  of state Medicaid programs  and private insurance companies; these funds are 
not represented here. 
5
  The above transfers include certain collections, or amounts equal to certain collections, required 
by HIPAA to be deposited directly into the Medicare Trust Fund.  These amounts include: 
(1)	  Gifts and bequests made unconditionally to the Trust Fund, for the benefit of the Account 
or any  activity financed through the Account; 
(2)	  Criminal fines recovered in cases involving a Federal health care offense, including 
collections under section 24(a) of Title 18, United States Code (relating to health care 
fraud); 
(3)	  Civil monetary penalties in cases involving a Federal health care offense; 
(4)	  Amounts resulting from the forfeiture of property  by reason of a Federal health care 
offense, including collections under section 982(a)(7) of Title 18, United States Code; 
and 
(5)	  Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the 
general fund of the Treasury obtained under sections 3729 through 3733 of Title 31, 
United States Code (known as the False Claims Act, or FCA), in cases involving claims 
related to the provision of health care items and services (other than funds awarded to a 
relator, for restitution or otherwise authorized by  law). 
6
  PROGRAM ACCOMPLISHMENTS
 
EXPENDITURES 
In the twelfth year of operation, the Secretary and the Attorney General certified $255.197 
million as necessary for the Program.  The following chart gives the allocation by recipient: 
FY 2008 ALLOCATION OF HCFAC APPROPRIATION4 
(Dollars in thousands) 
Organization  Allocation 
Department of Health and Human Services
   Office of Inspector General5 $169,736 
   Office of the General Counsel 5,714 
   Administration on Aging 3,128
   Centers for Medicare & Medicaid Services (CMS)  22,997
  
Subtotal  $201,575 
Department of Justice
    United States Attorneys $30,400 
    Civil Division $14,539 
    Criminal Division $3,080 
    Civil Rights Division  $2,376 
    Nursing Home and Elder Justice Initiative $1,000 
    Departmental Health Care Initiatives  $2,227
Subtotal  $53,622 
Total  $255,197 
4In FY 2007, funds became available until expended. 
5In addition, HHS/OIG obligated $5.1 million in funds  received  as reimbursement for 
the costs of conducting investigations and audits and for monitoring compliance plans as 
authorized by section 1128C(b) of the Social Security Act, 42 U.S.C.  1320a-7c(b).   
7  ACCOMPLISHMENTS 
Overall Recoveries 
During this fiscal year, the Federal Government won or negotiated approximately $1 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Fund received transfers of approximately $1.94 
billion during this period as a result of these efforts, as well as those of preceding years, in 
addition to over $344 million in Federal Medicaid money similarly transferred to the Treasury 
separately as a result of these efforts6. 
In addition to these enforcement actions, numerous audits, evaluations and other coordinated 
efforts yielded recoveries of overpaid funds, and prompted changes in Federal health care 
programs that reduce vulnerability to fraud.  In FY 2008, HHS collected approximately $662.5 
million in HHS/OIG recommended recoveries. 
Departmental Collaboration 
The Attorney General and the Secretary  maintain regular consultation at both senior and staff 
levels to facilitate, coordinate and accomplish the goals of the Program.  HHS and DOJ hold 
senior level meetings on a quarterly  basis.  These meetings provide a forum for the leadership of 
both Departments to ensure that the Program operates effectively, in coordination across various 
administrative, civil and criminal activities, and that any  impediments to effective operation of the 
HCFAC program are minimized. 
Similarly, the quarterly  meetings between CMS and law enforcement entities (representatives 
include members of the Criminal Division, the Executive Office for the United States Attorneys 
(EOUSA), the Federal Bureau of Investigation (FBI), and HHS/OIG), provide an opportunity for 
staff from each agency to discuss and resolve operational issues which arise in the identification 
and prosecution of health care fraud schemes, as well as to provide timely updates on operational 
initiatives and programmatic changes which impact the Government's anti-fraud efforts.  
In addition to the quarterly interagency meetings at the Departmental senior management and staff 
levels, EOUSA and CMS host a monthly national conference  call during which Assistant United 
States Attorneys from all districts have the opportunity to interact directly with CMS 
representatives, receive timely reports on CMS operations, and obtain answers to questions related 
to specific issues regarding current investigations.  The Departments also convene interagency 
staff-level working groups as needed to develop mutual proposals for improving our health care 
fraud fighting capabilities.  
6 Note that  some of the judgments, settlements, and administrative actions that occurred 
in FY 2008 will result in transfers in future  years, just as some of the transfers in FY 2008 are 
attributable to actions from prior years. 
8  Each Department routinely enlists senior staff from the other to participate in staff training 
programs, thereby encouraging the free-flow of shared expertise and accessibility.  The 
Department of Justice's Criminal Division and HHS/OIG initiated a special program in 2007, 
which provides an opportunity  for HHS/OIG counsel to serve 6 month details to gain experience 
managing criminal health care fraud investigations and trial experience in Federal court with 
Criminal Division colleagues. That program continues. 
During FY 2008, the many significant HCFAC Program accomplishments included the following: 
Medicare Fraud Strike Force  
The Medicare Fraud Strike Force (Strike Force) was launched in March 2007 as part of the South 
Florida Initiative, a joint investigative and prosecutive effort against health care fraud in South 
Florida.  The Strike Force builds upon earlier phases of the multiagency and multidisciplinary 
initiative to combat Medicare fraud and abuse among  durable medical equipment (DME) 
suppliers and HIV infusion therapy providers.  In its initial  phase, HIV infusion therapy  clinics 
and DME companies suspected of fraud were identified, investigated, and pursued for civil 
violations.  Providers identified through these efforts were also investigated and pursued for 
criminal violations.  The Strike Force is using real-time analysis of Medicare billing data, as well 
as findings from investigations, in its ongoing efforts to identify, investigate, and prosecute 
individuals and companies that have committed DME fraud.  Based on the success of these 
efforts, a second phase of Strike Force operations began in Los Angeles in March 2008.  Strike 
Force accomplishments from cases prosecuted in both phases during FY 2008 follow7: 
30 cases indicted involving charges filed against 65 defendants who collectively  billed the 
Medicare program more than $140 million 
67 guilty pleas negotiated and seven jury trials litigated, winning guilty verdicts on all 
charges filed against eight defendants 8 
Imprisonment for 71 defendants sentenced during the fiscal year, averaging more than 40 
months of incarceration, and sentences to probation for another seven defendants ranging 
from 12 to 60 months. 
In the year and a half since its inception, Strike Force prosecutors filed 104 cases charging 185 
defendants who collectively  billed the Medicare program more than half a billion dollars; 106 
7 Figures for guilty pleas and imprisonment sentences include defendants who may have 
been charged in Strike Force  cases filed the previous year but whose plea negotiations or 
sentences occurred in FY 2008. 
8Two other defendants were acquitted at trial.
 
9
  defendants pleaded guilty and 12 others were convicted  in jury trials; and 104 defendants were 
sentenced to imprisonment for an average term of 43 months. 
Examples of successful initiatives of the South Florida Initiative and the Strike Force include the 
following: 
Durable Medical Equipment Fraud in South Florida 
	  DME company owners were sentenced for conspiring to defraud the Medicare program by 
submitting false claims for medically unnecessary  DME items and supplies, including 
aerosol medications and oxygen concentrators.  The companies paid kickbacks to a 
physician previously investigated by HHS/OIG, and to several Medicare beneficiaries in 
order to use their Medicare numbers to submit the fraudulent claims.  The 13 convicted 
DME company owners involved in the scheme were ordered to pay a total of more than 
$6.4 million in restitution and $132,000 in fines and assessments.  The 13 subjects were 
also sentenced to various terms of imprisonment, probation, and/or home detention, the 
longest prison sentence  for the case being 6 years and 6 months. 
	  After a five-week trial, a Federal jury in Miami convicted three owners of two DME 
companies, a home health agency and an assisted living facility which conspired to 
defraud Medicare of more than $14 million for unnecessary medicine, DME, and home 
health care services.  Two defendants were sentenced to 51-month terms of imprisonment, 
and the third was sentenced to a 31-month prison term.  Patients testified at  trial that they 
took kickbacks, were  falsely diagnosed with chronic obstructive pulmonary disease and 
prescribed unnecessary aerosol medications, including commercially unavailable 
compounds. A fourth co-defendant who was a dermatologist, was also convicted  in a 
separate jury trial and was sentenced to prison for 41 months. 
	  The owner of a DME company was sentenced to 151 months in prison and ordered to pay 
over $3.4 million in restitution.  The owner was convicted by a Federal jury for his scheme 
involving fraudulent prescriptions for non-commercially-available aerosol medications so 
that they could be illegally compounded.  The unapproved medications were then billed 
to the Medicare program.  Pharmacy owners involved in the scheme returned half of the 
Medicare reimbursement to the DME company owner for  each fraudulent prescription. 
Patients and physicians  involved in the fraud scheme were also paid cash kickbacks. 
	  A Federal jury in Miami convicted the owner of two DME companies for his role in a $4.6 
million Medicare fraud scheme and for money laundering.  The owner billed the Medicare 
program for negative pressure pumps, wound care supplies, and other  DME. Physicians 
testified at trial that they never prescribed the types of equipment for which Medicare was 
billed in the scheme.  Other witnesses testified that the defendant opened DME companies 
in the names of nominee owners and brokered the purchase and sale of DME companies 
for the purpose of burning Medicare by submitting high volumes of fraudulent claims 
submitted  within a two- to three-week time period.   The defendant was sentenced to a 
10  130-month term of imprisonment and ordered to pay restitution of nearly $2 million. 
After being placed on home confinement with electronic monitoring, the defendant 
violated the terms of his post-trial release and fled the country.  Another co-defendant also 
remains a fugitive.   
	  The owner of a DME company was sentenced to 30 months incarceration and ordered to 
pay $1.4 million in restitution for health care fraud.  From April 2006 through October 
2006, the owner billed  Medicare for DME that was never ordered by physicians or never 
provided to beneficiaries.       
	  The owner of a DME company was sentenced to 51 months in prison and ordered to pay 
$853,000 in restitution.  The owner billed  the Medicare program for diabetic supplies, 
pressure-reducing air mattresses, and other health care supplies purportedly provided to 
beneficiaries. 
HIV Infusion Clinic Fraud in South Florida 
	  A physicians assistant pleaded guilty and was sentenced to 14 years of imprisonment for 
his part in $119 million HIV infusion fraud conspiracy; three other co-defendants remain 
fugitives.  The physicians assistant admitted to training physicians at eleven  fraudulent 
HIV infusion clinics to prepare and submit medically unnecessary HIV infusion services 
that were allegedly administered to Medicare patients.  He also admitted to overseeing the 
documentation of fraudulent services to make it appear that the clinics provided  legitimate 
services, and to knowing that the infusion treatments billed at the clinics were medically 
unnecessary and/or were never provided. 
	  A physician and the administrator of an HIV infusion clinic pleaded guilty for their roles 
in a $37 million infusion fraud scheme.  The physician, who was sentenced to 84 months 
in prison, admitted to approving approximately $26 million worth of fraudulent medical 
bills, signing documents containing false information about treatments purportedly 
provided to HIV patients, and approving medically unnecessary treatments.  The clinic 
administrator, who was sentenced to serve 70 months in prison, admitted to causing the 
submission of approximately $11 million in false claims to the Medicare program, paying 
health care kickbacks, and committing health care fraud. 
	  A former owner of a Miami pharmacy, who is currently serving a 63-month prison 
sentence for a previous Medicare fraud conviction, pleaded guilty to participating in a 
conspiracy to launder approximately $3.8 million in proceeds from several other  health 
care fraud schemes.  The defendant assisted others in laundering the proceeds of Medicare 
fraud obtained through two Miami medical clinics purporting to specialize in the treatment 
of HIV patients.  The defendant admitted to knowing that  the clinics  submitted fraudulent 
claims to the Medicare program for HIV services purportedly provided to Medicare 
beneficiaries, and admitted to assisting others in concealing their control  of the clinics 
fraudulently-obtained Medicare funds.  In the previous case, the defendant pleaded guilty 
to charges that he conspired to pay kickbacks to 72 owners of DME companies in 
11  exchange for prescriptions for compounded  aerosol medications and related DME for 
which he received more than $4.5 million in payments from Medicare 
	  An individual was sentenced to 54 months in jail and ordered to pay  more than $3.3 
million in restitution for  her involvement in a health care fraud scheme.  The defendant, 
who owned and operated a clinic, billed Medicare for fraudulent infusion therapy services 
and paid kickbacks to beneficiaries for the use of their Medicare number in order to 
fraudulently bill Medicare. 
	  Two owners of a billing company and an employee were sentenced for conspiracy to 
commit health care fraud.  The two owners were each sentenced to 14 years incarceration 
and the employee was sentenced to 11 years.  The three conspired to bill Medicare nearly 
$420 million in DME purported to have been provided to Medicare beneficiaries by  85 
DME companies.  These claims were for equipment that had not been ordered by 
physicians or delivered to the beneficiaries as  claimed. 
Other Durable Medical Equipment Fraud 
	  A Texas physician was sentenced to 78 months in prison and ordered to pay more than 
$6.5 million in restitution for  participating in a fraud scheme involving DME.  The 
physician and three other defendants were convicted after a 6-week trial, and a fifth 
defendant pleaded guilty.  The defendant and another physician  were paid by DME 
company owners to authorize motorized wheelchairs for beneficiaries who had no medical 
necessity for them.  The DME company owners  in turn billed Medicare for motorized 
wheelchairs, but delivered significantly less expensive scooters to the beneficiaries.  In 
total, the five defendants were sentenced to a total of more than 380 months 
imprisonment and ordered to pay more than $18 million in restitution. 
	  In Texas, the owner of a medical equipment supplier was sentenced to 24 months in prison 
and ordered to pay $4.4 million in restitution for her role in a health care fraud kickback 
scheme.  The owner paid runners between $800 and $1,000 for each certificate of medical 
necessity (CMN) that physicians signed.  The owner then used the fraudulent CMNs to bill 
Medicare and Medicaid for power wheelchairs  provided to beneficiaries that were not 
medically necessary. 
	  In West Virginia, Group II Medical Supports, LLC, a local durable medical equipment 
supplier, along with owners and officers, agreed to pay the United States in excess of $2.5 
million to resolve allegations that defendants routinely supplied high cost mattresses 
developed to treat the most advanced and serious forms of pressure ulcers or bed sores, to 
Medicare and Medicaid patients who did not have the required ulcers and otherwise did 
not qualify.  To facilitate this scheme, defendants misrepresented  individual patients' 
conditions and diagnoses and created false documents that were used to support Medicare 
and Medicaid claims for payment.   
12
  	  In Georgia, a respiratory therapist was sentenced to 5 years in prison and ordered to pay 
$2.7 million in restitution for  conspiracy to commit health care fraud.  The respiratory 
therapist, who worked in a hospital, provided false blood test results for patients so a DME 
provider could in turn bill Medicare and Medicaid for unnecessary  oxygen treatments. 
Fraud by Physicians 
	  A Florida physician was sentenced to 18 months in prison and ordered to pay more than 
$5.1 million in restitution after pleading guilty to one count of conspiracy to commit 
health care fraud.  The physician, while serving as  the medical director of an HIV clinic, 
authorized and approved the use of the drug WinRho, along with a mix of various vitamin 
supplements, for each HIV patient he was seeing, knowing that the HIV patients did not 
need WinRho and that the drug could actually harm them.  The physician approved over 
$7 million worth of fraudulent medical bills for submission to Medicare. 
	  A Texas orthopedic surgeon agreed to pay more than $3.1 million and enter  into a 5-year 
CIA to resolve allegations of Medicare and Medicaid fraud brought against him and 
hospitals with which he was affiliated and in which he had an ownership interest.  The 
Governments investigation, initiated with information presented in a qui tam suit, found 
that the surgeon and an affiliated hospital billed Medicare and Medicaid programs for 
services not rendered as represented.  Also, the Government alleged that the surgeon and 
another affiliated hospital obtained inflated  payments from the Medicare program by 
billing postsurgical  patients as though they had been discharged to home, when, in fact, 
they had been discharged to a rehabilitation facility for continuing treatment. 
	  A Michigan dermatologist was sentenced to 10 years and 6 months in prison and ordered 
to pay $1.3 million in restitution and a $175,000 fine following a jury trial conviction for 
health care fraud.  The dermatologist falsely informed patients that they had cancer and 
performed unnecessary procedures when, in fact, laboratory results indicated that their 
tissue specimens were benign.  In addition, the defendant billed for unnecessary follow-up 
office visits, claiming that beneficiaries had developed postoperative infections, such as 
impetigo,  a disease rarely seen in adults.  Finally, the dermatologist reused single-use 
needles and sutures without proper sterilization and failed to properly sterilize surgical 
equipment used in procedures.  HHS/OIG assisted the local health department in 
informing patients of their possible risk of contracting a blood-borne pathogen, such as 
hepatitis B or C or HIV, because of his unsanitary medical practices. 
	  An Ohio physician was sentenced to 37 months in prison after  pleading guilty to 
conspiring to engage in a scheme to defraud Medicare and other health care benefit 
programs by performing medically unnecessary  nuclear  stress tests that involved injecting 
nuclear medicine into patients.  During the conspiracy, the physician received at least $1.8 
million in reimbursement for  the medically unnecessary tests.  As part of his guilty plea, 
the physician agreed to give up his medical license, to forfeit more than $1.8 million, and 
to be permanently excluded from participation in all federal health care programs. 
13
    In Oregon four cardiac surgeons specializing in complex heart bypass and transplant 
surgeries have agreed to pay the United States $2.5 million to settle claims that the 
practice submitted false claims to federally-funded  health programs, including Medicare 
and Medicaid, for the services of additional surgeons. During the period in question, the 
four surgeons submitted claims for assistant  surgeons regardless of whether a second 
surgeon provided any assistance during the surgery  or was even present for the operation. 
As a part of a global resolution of all criminal, civil and administrative claims against the 
doctors, the United States and the State of Oregon agreed to defer prosecution of the four 
surgeons for a period of eighteen months in return for the doctors agreement to enter into 
a Diversion Agreement with the District of Oregon Office of Pretrial Services. 
Fraud by Dentists 
	  Medicaid Dental  Center (MDC), a privately-owned chain of dental clinics in North 
Carolina, has agreed to pay  more than $10 million to resolve allegations that it billed the 
State Medicaid program for medically unnecessary dental services performed on indigent 
children.  The United States and the State alleged that MDC and its owners were liable for 
submitting claims for reimbursement for performing pulpotomies that were not medically 
necessary.  Pulpotomies are considered medically necessary  in pediatric dental cases when 
an infection in a tooth spreads into the pulp chamber of the tooth, requiring the pulps 
removal. 
Fraud by Other Practitioners 
	  A Pennsylvania physical therapist was sentenced to 6 months incarceration and ordered to 
pay more than $1.2 million in restitution for billing Medicare for work that was not 
performed.  From January 1, 2000, through December 31, 2002, the physical therapist 
submitted  claims that would have required working more than 15 hours a day, and often 
more than  24 hours a day, for more than 600 days. 
	  A Maryland podiatrist agreed to pay the Government more than $534,000 plus interest, 
and entered into a 5-year integrity agreement with HHS/OIG, to resolve allegations of false 
Medicare and Medicaid billing.  The podiatrist allegedly billed Medicare and Maryland 
Medicaid for evaluation and management services not provided and for non-covered 
services.  The Maryland State Board of Podiatric Medical Examiners, after conducting its 
own investigation, suspended the podiatrists medical license in Maryland for 2 years 
(with 1 year stayed). 
	  In New Jersey, a podiatrist was sentenced to 24 months in prison and ordered to pay 
$350,000 in restitution for performing routine foot care on residents in community rooms 
of low-income buildings then billing  the Medicare program as if he performed more 
complex procedures. In fact, residents were only getting their nails clipped.  At the height 
of the podiatrists fraudulent activities, he was the highest paid podiatrist in the New York 
and New Jersey area, being paid as much as $1.6 million in 2005.  In August 2007, the 
podiatrist agreed to pay $868,000 to resolve his False Claims Act liability for  the same 
conduct. 
14
  	  In Illinois, a psychologist was sentenced to 22 months in prison and ordered to pay 
$170,000 in restitution for billing Medicare for group and individual psychotherapy 
services that he did not provide.  The psychologist, who visited facilities once or twice a 
week to conduct assessments, billed Medicare for psychotherapy services provided to 
patients 4 to 5 days a week that were either not performed as billed or were for dates of 
service when he was not actually present at the facilities.  In 2005, the psychologist fled 
the U.S. to Israel.  In April 2007, he was arrested by Israeli authorities and in September he 
was  extradited back to the U.S. where he pled guilty. 
Pharmaceutical Fraud 
	  Cephalon, Inc., entered a global criminal, civil, and administrative settlement under which 
the company  agreed to pay a total of $425 million plus interest; plead guilty to a 
misdemeanor violation of the Federal Food, Drug and Cosmetic Act; and enter into a 
comprehensive 5-year CIA with HHS/OIG.  The civil settlement resolves allegations filed 
in four separate qui tam cases, which alleged that Cephalon promoted the drugs Actiq, 
Gabitril, and Provigil for off-label uses (that is, uses other than those approved by  FDA). 
Cephalons off-label  promotional practices involved a variety of techniques, including 
training its sales force to disregard restrictions of the FDA-approved label and promote the 
drugs for off-label uses.  In addition to the $375 million civil settlement, Cephalon entered 
into a criminal plea agreement with the United States under which it will pay $50 million. 
	  Merck and Company (Merck), Inc., agreed to pay  $399 million plus interest to resolve 
allegations that Merck failed to properly include discounts on Vioxx (no longer marketed), 
Zocor,  and Mevacorin in the best prices reported to CMS under the Medicaid drug 
rebate program and, as a result, underpaid rebates owed to the States and overcharged 
entities that purchased Merck products under the 340B Drug  Pricing Program.  The United 
States alleged that Merck sales representatives induced physicians to use its drug products 
by making, among other forms of illegal remuneration, payments that were disguised as 
fees for training, consultation, or market research.  Merck agreed to this settlement at the 
same time it settled a matter in Louisiana, involving similar discounted pricing programs 
offered to hospitals for another Merck drug, Pepcid.  Through both settlements, Merck 
agreed to pay  a total of $649 million plus interest.  Merck further agreed to enter into a 
5-year CIA with HHS/OIG that includes  corrective measures to address its conduct in both 
cases. 
Fraud by Pharmacies 
  CVS Caremark Corporation (CVS) agreed to pay $36.7 million and enter into a 5-year 
CIA with HHS/OIG to resolve its liability based on allegations that it fraudulently 
overcharged Medicaid programs in 23 States by improperly switching drugs it dispensed. 
Specifically, the Government and relator alleged that CVS dispensed ranitidine (generic 
Zantac) capsules  rather than tablets in order to increase its reimbursement from Medicaid. 
As a result of dispensing and billing Medicaid for capsules, CVS was  reimbursed, on 
average, four times what it would have been reimbursed had it dispensed tablets. 
15  	  Walgreens Co. (Walgreens) agreed to pay the United States, 42 States, and Puerto Rico 
more than  $35 million to settle Medicaid prescription drug fraud claims.  The qui tam 
complaint alleged that Walgreens substituted different forms of generic prescription drugs 
for others (such as tablets for capsules) solely to increase its reimbursement rate rather 
than for any legitimate medical reason.  The drugs at issue were ranitidine (generic 
Zantac), fluoxetine (generic Prozac), and selegiline (generic Eldepryl).  The Government 
further alleged that  Walgreens systematic substitution of more expensive forms of these 
drugs for less expensive, prescribed forms was motivated by its intent to avoid CMS 
Federal Upper Limit (FUL) on prices for the drugs and States maximum allowable costs 
(MAC) for the drugs.  In addition to the monetary settlement, Walgreens entered into a 
5-year CIA that requires an  independent review organization to review its Medicaid 
reimbursement for generic drugs for which Government reimbursement is limited by FUL 
and MAC lists. 
	  In another matter, Walgreens paid the United States and four participating  states $9.9 
million to resolve False Claims Act allegations that it falsely billed the Medicaid program. 
Walgreens submitted claims to Medicaid agencies in four states for prescription drugs 
dispensed to persons covered for such claims both by Medicaid and by private third-party 
insurance. Walgreens was reimbursed  by Medicaid in an amount equal to the difference 
between what the third-party insurance paid when the claims were submitted and what the 
states' Medicaid programs would have paid in the absence of third-party insurance. The 
claims were false because Walgreens was entitled to reimbursement from the Medicaid 
programs in an amount equal only to the amount the insured would have been obligated to 
pay had the claims been submitted solely to the third party  insurer providing coverage, i.e. 
the co-payment amount, yet it knowingly submitted claims in excess of that amount. As a 
result of this improper billing, Walgreens received reimbursement amounts from the states 
Medicaid programs that were higher than it was entitled to receive. 
	  Four institutional pharmacies  owned by Omnicare, Inc., agreed to pay  nearly $3.5 million 
and enter into an amendment to a preexisting CIA to settle allegations of improper 
Medicaid billing.  The pharmacies allegedly double-billed  the Michigan Medicaid program 
for drugs provided to hospice patients.  In Michigan, Medicaid pays hospice providers a 
flat fee that includes all medications that are related to a hospice patients terminal 
diagnosis.  Drugs not related to the terminal diagnosis are not included in this flat fee, and 
the pharmacy must bill Medicaid directly for  these other drugs.  The underlying qui tam 
complaint alleged that the pharmacies knowingly billed Medicaid for all drugs that  it 
dispensed to hospice patients, including those drugs already reimbursed through the flat 
fee paid by Medicaid to the hospice, thus causing Medicaid to pay twice for the same 
drugsone payment to the hospice provider and another payment to the pharmacy. 
Hospital Fraud 
	  Staten Island University Hospital (SIUH) paid nearly $89 million in a global settlement 
resolving allegations that it defrauded Medicare, Medicaid, and TRICARE.  The global 
16
  settlement resolves two separate qui tam lawsuits and two Government investigations.  As 
part of the global settlement, SIUH also entered into a 5-year CIA with HHS/OIG. 
	  In the first lawsuit, the Governments investigation alleged that SIUH submitted 
claims for  payment for treatment provided to patients in beds for which SIUH had 
received no certificate of operation from the New York State Office of Alcoholism 
and Substance Abuse Services and concealed the existence of those beds from that 
office.  SIUH paid nearly $12 million to the United States and nearly $15 million 
to the State of New York.  
	  In the second lawsuit, the investigation alleged that SIUH knowingly used incorrect 
billing codes for certain cancer  treatments performed at the hospital, and thus 
obtained reimbursement for treatment that was not covered by Medicare or 
TRICARE.  SIUH will pay $25 million to settle this lawsuit. 
	  Additional conduct  self-disclosed by SIUH was resolved prior to the filing of the 
lawsuits. Pursuant to HHS/OIGs Self-Disclosure Protocol, SIUH agreed to nearly 
$36 million for reporting inflated counts of medical residents in its cost reports for 
1996 through 2003. 
	  Saint Josephs Hospital of Atlanta, Inc., and St. Josephs Health System, Inc.  (collectively, 
SJHS), paid $26 million, including interest, and enter into a 5-year CIA with HHS/OIG 
to resolve allegations raised in a qui tam complaint that from 2000 through 2005, the 
hospital improperly billed Medicare for inpatient admissions and other services.  The 
allegations concerned primarily the submission of claims that should have been billed  as 
outpatient visits but were instead billed  at the higher rate as inpatient admissions.  In 
addition, under a separate agreement, SJHS will pay the Government an amount expected 
to be between $3 million and $4 million (the precise figure to be determined by an 
independent auditor) to cover Medicare overpayments for admissions in 2006 that it 
improperly billed as inpatient stays. 
	  In Connecticut, Yale-New Haven Hospital entered into a civil settlement agreement with 
the Government in which it will pay approximately $3.8 million to resolve allegations that 
it violated the FCA.  These allegations involved charges to Medicare for infusion therapy, 
chemotherapy administration and blood transfusion services.  During the time-period at 
issue, Medicare only allowed payment for one unit of infusion therapy and chemotherapy 
administration per patient visit, and one unit of blood transfusion services per day. 
	  The University of Pennsylvania Health System (UPHS) paid $3.5 million to resolve 
allegations that UPHS had erroneously submitted separate and distinct Medicaid payment 
claims for  blood transfusions on bills that had more than one unit per day.  Further, UPHS 
allegedly submitted fraudulent claims associated  with office visits for new patients, as well 
as fraudulent claims for infusion therapy.  UPHS is the 20th hospital to settle under the 
3-year-long Operation Vampire project, aimed at uncovering hospitals' erroneous 
Medicare claims associated with blood transfusions.  Including this case, Operation 
Vampire recoveries total approximately $12.5 million. 
17
  	  In Connecticut, Yale-New Haven Hospital entered into a civil settlement agreement with 
the Government in which it will pay approximately $3.8 million to resolve allegations that 
it violated the FCA.  These allegations involved charges to Medicare for infusion therapy, 
chemotherapy administration and blood transfusion services.  During the time-period at 
issue, Medicare only allowed payment for one unit of infusion therapy and chemotherapy 
administration per patient visit, and one unit of blood transfusion services per day. 
However, on many occasions, Yale-New Haven Hospital billed Medicare for multiple 
units of these services.  Instead of billing for one unit per patient visit or one unit per day, 
Medicare was often billed for between two and five units.  The allegations also involved 
claims for  services provided in Yale-New Haven Hospitals Oncology Infusion Service 
that were not adequately documented in the patients medical records, including 
dispensing medication and conducting laboratory studies without written orders signed by 
a physician.  
	  Henrietta Goodall Hospital paid $1.15 million to resolve allegations that the hospital 
overbilled Medicare by improperly coding for the drugs Herceptin, Tenecteplase, and 
Paclitaxel.  The Government also alleged that the hospitals prior management knew or 
should have known the billing was improper  because the billing  irregularities had been 
identified by certain former employees, but the hospital failed to take the necessary 
corrective action. 
	  Tomball Regional Hospital (Tomball) and a physician co-defendant paid over $816,000 to 
resolve their liability for allegedly submitting false or fraudulent Medicare and Medicaid 
claims for  hyperbaric oxygen (HBO) therapy.  Tomball also entered into a 5-year CIA with 
HHS/OIG.  The investigation was predicated on information received from a qui tam 
complaint filed by a former hospital employee, who alleged that Tomball submitted claims 
for HBO therapy when the patients conditions did not warrant payment  by Medicare and 
Medicaid, the documentation failed to support the diagnosis code billed, and/or the 
services were not rendered. 
Cost Report Fraud 
	  Cooper University Hospital in Camden, N.J., has paid the United States $3.85 million, 
plus interest, to settle allegations that it improperly increased charges to Medicare patients 
to obtain enhanced reimbursement for care that is extraordinarily costly, called outlier 
payments. 
	  Besler & Company, Inc., a health care consulting firm; its principal; and related entities 
(collectively, Besler)  paid $2.87 million to resolve allegations arising from two qui tam 
lawsuits, which alleged that Besler caused hospitals to falsely bill Medicare for excessive 
inpatient and outpatient outlier payments.  The Government alleged that Besler advised 
hospitals to artificially inflate their cost-to-charge ratios, triggering outlier payments to 
which they were not entitled. 
18
  	  The buyer of Bayonne Medical Center in New Jersey has agreed to settle for $2.5 million, 
plus interest, allegations made in a qui tam complaint that it defrauded the Medicare 
program by improperly increasing charges to Medicare patients in order to obtain 
enhanced outlier payment reimbursement from Medicare.  In 2007, Bayonne Medical 
Center filed for bankruptcy under Chapter 11 of the Bankruptcy Code.  As part of the 
proposed  reorganization, IJKG, LLC agreed to purchase the hospitals assets and to settle 
the United States claims against the hospital. 
	  BlueCross BlueShield of Tennessee (BCBS-T) has paid the United States $2.1 million to 
settle allegations that it violated the False Claims Act when it, with deliberate ignorance or 
reckless disregard of available information, failed to adjust the cost-to-charge ratios for 
many New  Jersey hospitals in a timely manner.  This resulted in the payment of excessive 
outlier payments by Medicare program to those medical facilities. 
Kickbacks 
	  Lester E. Cox Medical Centers, a health care system headquartered in Missouri, has paid 
$60 million and entered into a 5-year CIA with HHS/OIG to settle allegations that it paid 
doctors at a local physician group for referrals, and billed Medicare for the services 
resulting from those referrals, in violation of the Anti-Kickback and Physician Self-
Referral statutes. 
	  HealthSouth and two physicians paid $14.9 million to settle allegations that they submitted 
false claims to Medicare and paid illegal kickbacks to physicians who referred patients for 
care in HealthSouth hospitals, outpatient rehabilitation clinics, and ambulatory surgery 
centers.  HealthSouth paid $14.2 million and agreed to amend its CIA with the HHS/OIG 
to address kickback issues.  Two orthopedic surgeons paid $450,000 and $250,000 
respectively to resolve the Governments claims against them.  The settlement resolves 
claims made by HealthSouth to Medicare for patients referred by the two surgeons when 
the company  had financial relationships with the physicians, their former sports medicine 
and orthopaedic clinic, and their research and training foundation, that violated the Anti-
Kickback and Physician Self-Referral Statutes.  The HealthSouth settlement  also resolves 
allegations that the company paid kickbacks to and entered into improper financial 
relationships with other physicians, including a group in Los Angeles, California, in an 
apparent attempt to induce the referral of patients.  The Governments investigation of 
certain of the other physicians is continuing.  The underlying conduct was disclosed by 
HealthSouth under the HHS/OIGs Self-Disclosure Protocol. 
	  Touro Infirmary, a New Orleans Hospital, paid $1.75 million to settle allegations that it 
made unlawful payments, through consultant and medical directorship contracts, to a 
psychiatrist to induce her to refer patients to the hospital.  The Government pursued 
criminal charges against the psychiatrist, and a jury returned guilty verdicts on 39 counts 
of health care fraud, including 13 counts arising from her contractual relationship with 
Touro. 
19
  	  A New Jersey  cardiologist paid more than $1.4 million to settle allegations of taking a 
salary from the University of Medicine and Dentistry of New Jersey (UMDNJ) in 
exchange for making referrals.  The payments were ostensibly for clinical faculty services, 
services that the cardiologist admittedly did not perform.  In exchange for the salary, the 
cardiologist would refer patients to UMDNJs University Hospital for cardiac services. 
	  A California man was sentenced to 1 year and 1 week in prison and ordered to pay more 
than $1.3 million in restitution following his guilty plea to allegations that, as a capper 
he was paid to recruit Medicare beneficiaries who were transported to a fraudulent  medical 
clinic. The individual would then pay the beneficiaries following the provision of 
medically unnecessary services.  A second capper in the scheme was sentenced to 3 
months home detention and ordered to pay approximately $5,500 in restitution for  a 
guilty plea.  Additionally, the mans mother was sentenced to 6 months home detention 
and ordered to pay more than $2,800 in restitution for lying to Federal agents during the 
investigation. 
Prohibition on Self Referrals 
	  A Florida physician and his wholly owned imaging centers and related entities paid $7 
million plus interest to resolve several allegations that, among other improper conduct, the 
physician and the imaging centers  entered into financial relationships or arrangements with 
certain referring physicians in violation of the Physician Self-Referral Law and the 
Anti-Kickback Statute, and billed Medicare for several diagnostic studies that were not 
performed, not ordered, or not medically necessary.  The physician, individually and on 
behalf of the affiliated imaging centers and related entities, entered into a 5-year CIA with 
HHS/OIG that includes an Arrangements Review. 
	  Memorial  Health, Inc., Memorial Health University Medical Center, Inc., Provident Eye 
Physicians, Inc., and Georgia Eye Institute, Inc. (collectively, Memorial), paid $5.08 
million to resolve allegations that the Georgia-based entities violated the Physician 
Self-Referral law through excessive payments made to its employee ophthalmologists. 
Memorial  disguised such payments as teaching stipends or payments for indigent care. 
Medicaid Fraud 
	  Amerigroup Corporation paid $225 million, and entered into a 5-year CIA with HHS/OIG, 
to resolve False Claims Act claims that it systematically avoided enrolling pregnant 
women and unhealthy patients in their Medicaid managed care program in Illinois. 
Amerigroup was paid by the United States and the State of Illinois to operate a Medicaid 
managed care health plan to provide health care to low income people.  Amerigroup was 
required by law to enroll all eligible beneficiaries.  As reported last year, a federal Court  in 
Chicago entered a judgment in 2007 against Amerigroup for $144 million in damages and 
$190 million in penalties.  Amerigroup appealed that judgment and this settlement 
resolves that appeal.  
20
  	  The owner of a Wisconsin company  that provided pre-natal and child care coordination 
services was sentenced to 5 years in prison and ordered to pay more than $320,000 in 
restitution for billing the Medicaid program for services never rendered or for non-covered 
services.  In 2005, the Wisconsin Medicaid program reimbursed the company in excess of 
$2 million.  Four co-defendants were previously sentenced related  to their role in 
fabricating documents. 
Other Fraud 
	  Medtronic Spine LLC, the corporate successor to Kyphon Inc., paid the United States $75 
million and entered into a 5-year CIA with HHS/OIG to settle FCA allegations that it, 
through a seven-year marketing scheme, caused hospitals to bill Medicare for certain 
kyphoplasties performed on an inpatient basis rather than less costly and clinically 
appropriate outpatient kyphoplasty treatment.  The kyphoplasty procedure is a 
minimally-invasive surgery used to treat compression fractures of the spine caused by 
osteoporosis, cancer or benign lesions. 
	  The Government secured a default judgment of more than $6.2 million against an 
ambulance service and its owner following allegations that the defendants submitted false 
or fraudulent claims to Medicare for non-emergency ambulance services.  The case was 
predicated on an HHS/OIG audit of ambulance transport services in Puerto Rico that had 
identified potential false claims by the company and its owner.  
	  In California, Greybor Medical Transportation, Inc. agreed to pay approximately $7 
million in settlement of alleged violations of the FCA by the ambulance provider and its 
owners.  Defendants billed for ambulance transportation (1) that did not occur, (2) that did 
occur but was not provided to eligible Medicare beneficiaries, and (3) that did occur, but 
was  provided to patients as a group and then billed for patients individually at a higher 
rate.  In addition to a $6 million cash payment, defendants waived their right to 
approximately $1 million in approved Medicare payments being held in a suspense 
account.  
	  The two owners of a physical therapy provider were  sentenced to 37 and 48 months in 
prison, respectively, and ordered to pay restitution in excess of $4.5 million, for submitting 
false physical therapy claims to Medicare and Medicaid.  The scheme involved  the 
Mississippi provider of physical therapy services submitting claims for services provided 
by unlicensed, untrained, and unsupervised individuals, rather than by a physician or a 
licensed physical therapist.  The two individuals also owned  and operated another facility, 
which was operated in the same manner. 
	  Dianon Systems, Inc. (Dianon), paid $1.5 million to resolve allegations that the 
Connecticut company improperly  billed Medicare and the Department of Defenses 
TRICARE program for certain tests that it performed.  Dianon is a reference laboratory 
that specializes in conducting tests to detect and stage various types of cancer.  A qui tam 
21
  complaint alleged that Dianon billed Medicare and TRICARE for 26 flow cytometry tests 
on every sample sent to the company for diagnosis regardless of whether all 26 were 
medically necessary for a particular patient. 
  Martin Luther Memorial Homes, Inc. (MLMH), paid $550,000 to resolve its allegations 
that the Michigan nursing home operator violated the FCA by creating another entity, 
Lutheran Ancillary Services (LAS), to provide physical, occupational, and speech therapy 
services, as well as pharmacy supplies, to the residents of MLMHs nursing homes and 
failing to disclose this relationship to Medicare.  LAS billed MLMH for the therapy 
services at inflated rates, which MLMH then incorporated into its 1997 and 1998 Medicare 
cost reports, and then failed to adjust the amounts paid to LAS as  required for transactions 
among related parties.  MLMH currently operates only private-pay facilities, and a 5-year 
CIA with the OIG will become operative if it bills any Federal health care program. 
	  In Pennsylvania, the Court approved a Consent Order resolving a Complaint for Injunctive 
Relief against Holland Glen, a residential treatment nursing facility for respirator 
dependent children.   In that  complaint, the United States alleged that Holland Glen, which 
was  licensed only as a community group home for mentally disabled persons, not as a 
nursing facility, defrauded the United States by providing substandard nursing care or 
failing to provide nursing care, including failure  to respond to respiratory alarms, failure to 
comply with physician orders for pulse oximeters, failure to prevent severe bed sores, and 
failure  to administer medications properly.  According to the complaint, Holland-Glens 
services substantially departed from generally accepted professional standards of care, 
thereby exposing patients to significant risk and, in some cases, to actual harm. Many of 
the 20 to 30 residents at the facility require ventilators and are fed through feeding tubes. 
Most of the child-residents require around-the-clock medical attention.  The Consent 
Order granted  permanent injunctive relief including: the appointment of an independent 
manager of all facilities owned  by Holland Glen; that Holland Glen will comply with the 
quality of care standards contained in the federal nursing home facility regulations (never 
before applicable to a childrens facility);  and that the temporary monitors would continue 
to monitor the care.  The Consent Order also barred Holland Glens President/CEO and 
Board of Directors from any management or oversight roles. 
	  In Michigan, Ciena Healthcare Management, Inc., a corporation that  manages thirty 
long-term care/skilled  nursing facilities, its owner,  its Chief Financial Officer, and Chief 
Operating Officer, paid $1.2 million to settle allegations that they improperly billed 
Medicaid and Medicare for inadequate care of, and services to, residents at four  of its 
metro Detroit nursing homes.  Several of the Ciena facilities failed to meet the needs of 
residents in: (1) nutrition and hydration, (2) the assessment and evaluation of needs, (3) 
care planning and nursing interventions, (4) medication management, (5) fall prevention, 
and (6) pressure ulcer care, including the prevention and treatment of wounds.  The 
defendants also collectively entered into a five-year corporate integrity agreement, at an 
estimated cost of $2.5 million, that requires the company to undertake certain measures to 
promote compliance with the requirements of Medicare, Medicaid, and all other Federal 
health care programs in each of the thirty Ciena managed facilities. 
22
  FUNDING FOR THE DEPARTMENT OF HEALTH  AND
 
HUMAN SERVICES
 
Office of Inspector General 
Certain of the funds appropriated under  HIPAA are, by law, set aside for Medicare and Medicaid 
activities of the HHS/OIG9. In FY 2008, The Secretary and the Attorney  General jointly allotted 
$169.736 million to the HHS/OIG.  
The HHS/OIG participated  in investigations or other inquiries that  resulted in 917 prosecutions or 
settlements in FY 2008, of which 792, or 86 percent, were health care cases.  A number of these 
are highlighted in the Accomplishments section.  During FY 2008, the HHS/OIG also excluded a 
total of 3,129 individuals and entities, barring them from participating in Medicare, Medicaid, and 
other Federal and state health care programs.  In addition, the Department of Health and Human 
Services collected approximately $662.5 million in disallowances of improperly paid health care 
funds, based on HHS/OIG recommendations. 
Program Savings 
Frequently, investigations, audits and evaluations reveal vulnerabilities or incentives for 
questionable or fraudulent financial practices in agency programs or administrative processes.  As 
required by the Inspector General Act, the HHS/OIG makes recommendations to agency managers 
to address these vulnerabilities.  In turn, agency managers recommend legislative proposals or 
other corrective actions that, when enacted or implemented, close loopholes and reduce improper 
payments or conduct.  The net savings from these joint efforts toward program improvements can 
be substantial. During FY 2008, HHS/OIG reported that legislative and administrative actions to 
make funds available for better use resulted in an estimated $16.7 billion in health care savings 
attributable to FY 2008 -- $6.7 billion in Medicare savings and $10 billion in savings to the 
Federal share of Medicaid.  Additional information about savings achieved through such policy 
and procedural changes may be found in the HHS/OIG Semiannual Report, on-line at 
http://oig.hhs.gov/reading/semiannual.html. 
9In addition to the funds made available to HHS/OIG from the HCFAC account under 
HIPAA, Congress also provided funds to HHS/OIG on a temporary basis specifically for 
oversight of the Medicaid program.  The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) 
appropriated $25 million to the HHS/OIG for Medicaid fraud and abuse control  activities for 
each of fiscal years 2006 through 2010.  After FY 2010, that funding will no longer be available.  
Therefore, HHS/OIGs FY 2008 Medicaid-related activities cited throughout this report, 
including the activities discussed below, may draw on funding from both the HCFAC and DRA 
sources. 
23  Exclusions 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in the abuse or neglect of patients or 
fraud.  During FY 2008, the HHS/OIG excluded a total of 3,129 individuals and entities.  Among 
these were exclusions based on criminal convictions for crimes related to Medicare or Medicaid 
(692), or to other  health care programs (257);  for patient abuse or neglect (234); or as a result of 
licensure revocations, suspensions or surrenders (1,575).  This list of conduct is not meant to be 
exhaustive, but identifies the most prevalent causes underlying HHS/OIGs  exclusions of 
individuals or entities in FY 2008.  Among those excluded by HHS/OIG from participation in 
Medicare, Medicaid, and other Federal health care programs were the following: 
	  Eight doctors, located throughout the country, were each excluded for the minimum period 
of 5 years based on their convictions for conspiracy  to distribute controlled substances 
over the Internet.  The doctors dispensed, or caused to be dispensed, various controlled 
substances by means of electronic prescriptions that were issued outside the usual course 
of medical practice and without a legitimate medical purpose.  The doctors were sentenced 
to various prison or home detention terms, ranging from 8 to 41 months. 
	  A California anesthesiologist was excluded indefinitely based on the Medical  Board of the 
State of Californias revocation of his license to practice medicine.  The anesthesiologists 
license was revoked based on his unlawful  use of controlled substances, gross negligence, 
repeated negligent acts, incompetence, and unprofessional conduct.  It was discovered that 
over a 4-year period, he frequently used marijuana and cocaine; left  the operating room to 
get food while a patient was under general anesthesia;  and made sexual, offensive, and/or 
inappropriate remarks to staff. 
	  A California acupuncturist was excluded indefinitely based on the surrender of her license 
to the State Acupuncture Board for unprofessional conduct and acts involving dishonesty 
or corruption. The acupuncturist used her acupuncture license as part of a scheme to own 
and operate a massage parlor where employees solicited for prostitution. 
	  A caregiver at an Oregon long term care facility for disabled individuals was excluded for 
a minimum of 25 years based  on a conviction for attempting to engage in sexual 
intercourse with persons incapable of consent by reason of mental defect.  The caregiver 
was  sentenced to 303 months of incarceration. 
Other Administrative Enforcement Actions  Civil Monetary Penalties 
The Office of Inspector General has authority to impose civil monetary penalties (CMPs) against 
providers and suppliers who knowingly  submit false claims to the Government, who participate in 
unlawful patient referral or kickback schemes, who fail to appropriately treat or refer patients who 
present at hospital emergency rooms, or who engage in other activities prescribed in statute. 
24  HHS/OIG has  continued to pursue its affirmative enforcement actions under these authorities.  
Examples include:   
	  Cape Fear Valley Medical Center paid $42,500 to resolve allegations that it failed to 
provide an appropriate medical or psychiatric examination for a 13-year-old girl who 
presented to its emergency department.  The girl had reportedly taken a knife to school  and 
threatened to harm herself and others.  Without conducting  either a medical or psychiatric 
exam, Cape Fear  discharged the girl after a 5-minute meeting  with an emergency 
department physician and provided no discharge instructions.  Within the hour, the patient 
returned to Cape Fear after jumping from a car moving at approximately 40 miles per 
hour, sustaining a skull fracture, subdural hematoma, possible splenic laceration, and skin 
abrasions. 
	  Sparks Health System, Sparks Medical Foundation, and Sparks Regional Medical Center 
(collectively, Sparks) agreed to pay  more than $1.1 million to resolve allegations, 
self-disclosed by Sparks, that it billed Medicare for medically unnecessary hospital 
services and upcoded physician services generated by an internal medicine physician. 
	  Spartanburg Regional Healthcare System (Spartanburg) agreed to pay $780,000 to settle 
its liability under HHS/OIGs CMP authorities for physician referral and anti-kickback 
violations.  Spartanburg disclosed that it provided IT resources to non-employee physician 
groups without written contracts in place, while failing to bill for the use of those 
resources. 
	  Americas Health Choice Medical Plans, Inc. (AHC), agreed to pay $100,000 to resolve 
allegations that as a participating provider in Medicare Advantage (formerly known as a 
Medicare+Choice organization), AHC misrepresented information furnished to HHS  on at 
least 10 occasions.  Specifically, on at least three occasions, AHC submitted expansion 
applications that allegedly misrepresented  the academic credentials of an AHC employee. 
In addition, AHC submitted at least seven effectuation notices  to the Center for Health 
Care Dispute Resolution (CHCDR) in which  dates of submission were allegedly falsified 
to appear in compliance with CHCDRs request for claims data. 
Studies, Audits, and Evaluations 
HHS/OIG conducts numerous studies, audits, and evaluations that disclose questionable or 
improper conduct in Medicare and Medicaid, and recommends corrective actions that, when 
implemented, correct program vulnerabilities and save program funds.  Among these were: 
Medicaid Targeted Case Management Services.   
	  The Federal Government reimburses the costs of targeted case management (TCM) 
services, which are services that help Medicaid beneficiaries gain access to needed 
medical, social, educational, and other services.  HHS/OIG issued five reports on States 
claims for  Medicaid TCM services.  HHS/OIG estimated that for FYs 2003 and 2004 
25
  Georgia claimed $4.7 million ($2.8 million Federal share) in claims for TCM services for 
individuals deemed at risk of incarceration that were unallowable because, among other 
reasons, the services were provided to ineligible incarcerated juveniles; that for  FYs  2003 
and 2004 Iowa improperly claimed $2.5 million ($1.5 million Federal share) in costs that 
were unallowable because they lacked sufficient documentation or were for services that 
did not meet the definition of TCM services; that for FYs 2002 and 2003 Maine overstated 
by a total of $44.2 million ($29.8 million Federal share) the cost of TCM services 
provided to recipients of family services because the State did not have procedures for 
ensuring that Medicaid TCM costs were reasonable, allowable, and allocable, in 
accordance with Federal requirements; and that for fiscal years 2003 and 2004 Minnesota 
claimed $7.3 million ($3.8 million Federal share) for various services for which the claims 
did not meet Federal and State documentation requirements.  HHS/OIG recommended to 
these States that they, among  taking other steps, refund the questioned costs to the Federal 
Government.  In a fifth report, HHS/OIG estimated that for State FYs 2001 and 2003 
Kansas did not ensure that its $62 million ($37.2 million Federal share) in TCM claims for 
recipients of child welfare services was within the limit specified in the States Medicaid 
plan. Because the State could not produce the rate and cost data necessary to apply the 
limit, HHS/OIG was unable to express an opinion on the reasonableness of the claim, and 
recommended that the State work with CMS to determine the allowability of the $62 
million claimed for the audit period. 
Medicaid Disproportionate Hospital Eligibility 
	  In a study of Indianas compliance with Medicaid disproportionate share hospital (DSH) 
payment requirements, HHS/OIG found that from July 2000 through June 2003, the State 
paid $142.3 million ($88.2 million Federal share) to three State-owned psychiatric 
hospitals that were not eligible to receive DSH payments.  States are required to make 
DSH payments to hospitals that serve disproportionate numbers  of low-income patients, 
but psychiatric hospitals qualify for such payments only if they meet  special Medicare 
conditions of participation.  The three hospitals did not meet these conditions.  HHS/OIG 
recommended that the State refund $88.2 million and ensure that Medicaid DSH payments 
are made only to eligible hospitals. 
Medicaid Drug Costs 
	  In an audit of the Medicaid drug rebate program, HHS/OIG found that the program could 
have received $966 million in additional rebates for the top 200 generic drugs in 
19912004 had a rebate provision that applies to brand-name drugs been extended to 
generic drugs.  For covered outpatient drugs to be eligible for Federal Medicaid funding, 
manufacturers must enter into rebate agreements with CMS and pay quarterly rebates to 
the States.  Manufacturers are required to pay an additional rebate when the average 
manufacturer price for a brand-name drug increases more than a specified inflation factor.  
There is no similar inflation-based rebate provision for generic drugs.  HHS/OIG 
recommended that CMS consider seeking legislative authority to extend the additional 
rebate provisions to generic drugs. 
26
  	  In a study of the impact of unit of measure inconsistencies on Medicaid rebate claims, 
HHS/OIG identified $11.8 million in inappropriately claimed Medicaid rebates during the 
first 6 months of 2006.  The method for defining units determines the number  of units in a 
package, or package size; the unit of measure and package size are used together to 
calculate the per unit reimbursement that Medicaid makes to retail pharmacies and per unit 
rebate amounts that prescription drug manufacturers pay to States.  HHS/OIG 
recommended that CMS improve its guidance to States regarding detecting and correcting 
unit of measure inconsistencies. 
	  In audits of the Medicaid outpatient prescription drug expenditures in two States, 
HHS/OIG found that both States had claimed Federal Medicaid reimbursement for 
prescription drug expenditures that did not fully comply with Federal requirements. 
Medicaid generally covers outpatient drugs if the drug manufacturers have rebate 
agreements with CMS and pay rebates to the States.  For FYs 2004 and 2005, Illinois 
claimed $108,000 in unallowable expenditures for prescription drugs that were no longer 
eligible for reimbursement.  The State claimed an additional $3.5 million for drugs that 
were not listed on CMS quarterly tape of covered outpatient drugs.  For FYs 2003 and 
2004, Missouri claimed $2.9 million in unallowable expenditures for prescription drugs 
that were no longer eligible for reimbursement or were inadequately documented.  In 
addition, the State claimed $1.9 million for drugs that were not listed  on the quarterly drug 
tapes and therefore may not be allowable.  In both audits, HHS/OIG recommended that the 
States refund the questioned costs, and work with CMS to resolve those costs which were 
identified as  potentially unallowable. 
Medicaid Home-and-Community-Based Mental Retardation Services 
	  Based on an audit of Tennessees claims for home-and community-based services (HCBS) 
provided to Medicaid beneficiaries with mental  retardation and developmental disabilities 
during State FY 2003, HHS/OIG estimated that the State claimed approximately $11 
million ($7 million Federal share) for HCBS that were not supported by provider  records. 
HHS/OIG recommended that the State refund the excess Federal reimbursement, establish 
certain HCBS controls and procedures, and review claims after the audit period and refund 
any overpayments. 
Medicaid School-Based Services 
	  HHS/OIG found that Utahs claims for Medicaid reimbursement of school-based services 
provided in FYs 20012005 generally did not comply with Federal requirements or the 
States Medicaid plan.  It was not possible to determine what portion of the $36.8 million 
Federal share claimed was allowable as final payments.  The State had not, as required by 
its plan, performed a cost settlement reconciling interim payments to actual costs to 
determine final payments.  HHS/OIG recommended that the State work with CMS to 
determine the portion of the $36.8 million that was allowable and to perform cost 
settlements to ensure that final payments for school-based services are based on actual costs.
27
   
Substance Abuse Treatment Facilities 
	  In audits of two States claims for Federal Medicaid reimbursement for services provided 
in inpatient substance abuse treatment facilities, HHS/OIG found that both States had 
made improper claims.  Federal Medicaid funding generally does not cover substance 
abuse treatment when it is provided to residents of institutions for mental diseases (IMD) 
who are between the ages of 22 and 64.  From April 2001 through March 2006, New York 
improperly claimed $21.5 million in Federal Medicaid reimbursement for services 
provided to beneficiaries within this age group who resided in IMDs.  From January 2002 
through December  2006, New Jersey improperly claimed $1.7 million in Federal Medicaid 
reimbursement for substance abuse services that were provided to such beneficiaries or to 
beneficiaries residing in nonparticipating institutional Medicaid facilities or non-accredited 
psychiatric facilities. 
Medicaid Management Information System Expenditures 
	  In a review of costs claimed by California for operating its Medicaid Management 
Information System (MMIS) from July 1, 2003, to June 30, 2005, HHS/OIG found that 
$2.3 million was improperly claimed, mostly because the costs were  not equitably 
allocated to all benefitting programs, were not related to the Medicaid program, or were 
claimed twice.  An MMIS is a system of software and hardware used to process Medicaid 
claims and manage information about beneficiaries and services, and its costs are 
reimbursed by the Federal government at an enhanced rate of 75 percent.  HHS/OIG 
recommended that, among taking other steps, the State refund the improperly claimed 
costs. 
Reconciling Payments to Medicare Part D Sponsors 
	  In a review of costs claimed by California for operating its Medicaid Management 
Information System (MMIS) from July 1, 2003, to June 30, 2005, HHS/OIG found that 
$2.3 million was improperly claimed, mostly because the costs were  not equitably 
allocated to all benefitting programs, were not related to the Medicaid program, or were 
claimed twice.  In a study of the Medicare Part  D preliminary reconciliation data estimates 
(as of August 2007) and data from 16 sponsors with high enrollments, HHS/OIG estimated 
that Part D sponsors owed  Medicare a net total of $4.4 billion for the 2006 program year. 
Eighty percent  of the sponsors owed CMS money and 20 percent  were due money. 
HHS/OIG also found that CMS had no mechanism to collect funds or adjust prospective 
payments prior to the reconciliation that is conducted after the close of the plan  year.  As a 
result, sponsors had the use of billions of dollars for a significant length of time. 
HHS/OIG recommended that, among other steps, CMS ensure that sponsors bids 
accurately reflect the cost of providing the benefit to Medicare beneficiaries and that it 
consider implementing an  interim reconciliation process to reduce the amounts owed to 
Medicare.  
28
  Medicare Part D Payments to Local, Community Pharmacies 
	  In a study of the relationship between Medicare Part D payments to local, community 
pharmacies and the pharmacies drug acquisition costs HHS/OIG found that in September 
2006, pharmacies almost always (97 percent of the time) acquired drugs for less than the 
reimbursement amounts.  HHS/OIG performed this review at the request of 33 Senators 
who raised concerns about the sufficiency  of reimbursement to local, community 
pharmacies.  HHS/OIG estimated that, excluding dispensing fees and including rebates 
that drug wholesalers paid to pharmacies, Medicare Part D payments to local, community 
pharmacies exceeded the pharmacies drug  acquisition costs by 18.1 percent, and 
recommended that Congress and CMS consider the results of the review in deliberations 
regarding Medicare Part D reimbursement. 
Medicare Part D Beneficiaries True Out-of-Pocket Costs 
	  In a review of Medicare Part  D plans tracking of True Out-of-Pocket (TrOOP) costs, 
HHS/OIG found that in 2006, 29 percent of Part D plans did not, as required, submit their 
enrollees additional prescription drug coverage information to Coordination of Benefits 
Contractors (COBC).  Accurate tracking of beneficiaries TrOOP costs is critical  to 
ensuring appropriate cost sharing under the Part D program.  To track TrOOP  costs 
accurately, Part D plans must have information on any prescription drug  coverage that 
enrollees have in addition to Part D coverage.  HHS/OIG also found that 34 percent of Part 
D plans had not submitted prescription drug event data to CMS, 63 percent of the plans 
cited problems with transferring TrOOP balances when enrollees changed plans, and CMS 
had conducted limited oversight of Part D plans tracking of TrOOP  costs.  HHS/OIG 
recommendations addressed collecting and submitting data to track costs, increasing the 
number of COBC agreements, and expanding data collections and oversight authorities.  
Marketing Materials for Medicare Part D Drug Plans 
	  In a review of marketing materials developed by stand-alone Medicare prescription drug 
plans (PDP) in 2007, HHS/OIG found that  CMS provided limited oversight of the 
materials and that 85 percent of the materials failed to meet at least one element of the 
agencys guidelines.  HHS/OIG found that, among other problems, CMS model 
documents were not fully consistent with the agencys own guidelines, which in turn 
resulted in problems with PDP marketing  materials.  HHS/OIG recommended that CMS, 
among other steps, ensure that its model documents are consistent with the guidelines, 
develop protocols for reviewing marketing materials, and conduct more frequent 
retrospective reviews  of file-and-use materials. 
29
  Medicare Part D Contracting 
	  In a congressionally requested review of contracting issues  related to local, community 
pharmacies participation in the Medicare Part D program, HHS/OIG found that 78 of the 
100 local, community pharmacies in its sample relied on third-party contractors known as 
pharmacy services administrative organizations (PSAO) to contract with Medicare Part D 
PDP sponsors. The pharmacies were generally  satisfied with the services that their PSAOs 
provided. The review also found that almost all of the 100 sampled pharmacies and all of 
their PSAOs reported that they had experienced problems when contracting with PDP 
sponsors. These problems related to PDP sponsors network development methods, 
standard terms and conditions, extended-day supply terms, negotiations, and network 
requirements and contracting deadlines.  HHS/OIG recommended that  Congress and CMS 
consider the results of our review in deliberations about Medicare Part D contracting. 
Outpatient Services in Skilled Nursing Facility Stays 
	  HHS/OIG found that Medicare Part B made a total of $106.9 million in potential 
overpayments to suppliers  of outpatient hospital, laboratory, and radiology services on 
behalf of beneficiaries in Part A-covered skilled nursing facilities during CYs 2001 and 
2002. These potential overpayments occurred because CMS did not have system edits in 
place during most of this period.  For CY 2003, when the edits were fully implemented, 
potential overpayments were reduced  to $22.7 million.  HHS/OIG estimated that the fiscal 
intermediaries and carriers had not recovered $17.9 million of these potential 
overpayments.  HHS/OIG recommended that CMS direct the contractors to review the 
$106.9 million in potential overpayments for CYs 20012002 and make appropriate 
recoveries, direct the contractors to initiate recovery of the estimated $17.9 million in 
unrecovered overpayments for CY 2003, continue to test and refine the system edits to 
ensure  that they properly identify claims subject to consolidated  billing, and ensure that all 
fiscal intermediaries and carriers have established proper controls to recover overpayments 
that the system edits identify. 
History and Recertification of Medicare Home Health Agencies 
	  In a review of the deficiency history of more than 5,000 Medicare-certified home health 
agencies (HHA) as of January 2007, HHS/OIG found that 15 percent of HHAs were cited 
for the same deficiency on three consecutive surveys and concluded that CMS could 
improve its oversight of HHAs.  HHAs, which provide a range of services to Medicare 
beneficiaries who are confined to their homes, must meet specific Medicare conditions of 
participation (CoPs) and health and safety standards.  CMS contracts with State agencies 
to conduct  initial HHA certification and recertification surveys of CoP compliance.  States 
cite deficiencies when HHAs are found to be noncompliant with the Medicare CoPs and 
health and safety  standards.  HHS/OIG recommended that CMS use existing survey data to 
identify patterns  of deficiency citations and at-risk HHAs and, as directed by Congress in 
the Omnibus Budget Reconciliation Act of 1987, implement intermediate sanctions 
against HHAs which are out of compliance with Federal requirements. 
30
  Medical Review of Claims in the Comprehensive Error Rate Testing Program 
	  In a review of CMS Comprehensive Error Rate Testing (CERT) program, HHS/OIG 
estimated the error rate in the FY 2006 CERT durable medical equipment (DME) sample 
to be 17.3 percent or 28.9 percent, depending on the extent of documentation reviewed. 
CMS established the CERT program to produce a Medicare fee-for-service  paid claim 
error rate, which it reports annually to Congress pursuant to the Improper Payments Act of 
2002. HHS/OIGs two-part review, performed by an independent medical review 
contractor, initially used the same procedures and limited medical records as CMS CERT 
contractor and produced an error rate of 17.3 percent.  The second part of the review, 
which used additional medical records from physicians and other health care providers and 
information from beneficiaries and providers, produced the higher error rate of 28.9 
percent.  HHS/OIG recommended that CMS require the CERT contractor to review  all 
available supplier documentation and all medical records necessary to determine 
compliance with applicable requirements on medical necessity and contact the 
beneficiaries named on high-risk claims to determine whether the DME items were 
received and were medically necessary. 
Medicare Payments for Facet  Joint Injection Services 
	  In a medical review of Medicare payments in 2006 for facet joint injections, which  are 
used to diagnose or treat back pain, HHS/OIG found that 63 percent  of facet joint 
injections service claims allowed did not meet program requirements, resulting in 
approximately $96 million in improper payments to physicians and $33 million in 
associated  facility claims.  Among other billing errors, HHS/OIG found that 38 percent  of 
the reviewed claims contained documentation errors, and just over 60 percent of the claims 
were overpaid because physicians incorrectly billed add-on codes for bilateral injections 
instead of using the required modifier code.  Among other recommendations, HHS/OIG 
recommended that CMS strengthen program safeguards to prevent improper payment for 
facet joint services and clarify billing instructions for bilateral services. 
DMEPOS Suppliers' Compliance With Medicare Standards in Los Angeles County 
	  In a review of suppliers of durable medical equipment, prosthetics, orthotics, and supplies 
(DMEPOS) in Los Angeles County in September and October 2007, HHS/OIG found that 
194 of 905 suppliers (22 percent) did not meet  one or both of the two Medicare enrollment 
standards that we selected for review.  DMEPOS, which include items such as hospital 
beds, wheelchairs, respirators, walkers, and artificial limbs, are provided to Medicare 
beneficiaries by commercial suppliers, that are reimbursed  by Medicare.  At the time of 
our review, suppliers had to comply with 21 Medicare DMEPOS enrollment standards. 
During our unannounced site visits in Los Angeles County, where Medicare allowed $245 
million for these suppliers' claims in the 12-month period beginning July 1, 2006, we 
found that, among other things, 13 percent of suppliers did not maintain physical  facilities 
or were not open during posted business hours, and that another  9 percent  were open but 
did not post hours of operation or their business names, as required.  HHS/OIG 
recommended that CMS strengthen the Medicare DMEPOS supplier enrollment process 
and ensure that suppliers meet Medicare supplier standards. 
31
  A Comparison of Medicare Program and Consumer Internet Prices for Power Wheelchairs 
	  In a review of power wheelchairs, for which  Medicare and its beneficiaries spent over 
$900 million in 2006, HHS/OIG found that the Medicare fee schedule amounts were 45 
percent higher than median Internet prices available to consumers in the first quarter of 
2007. Medicare beneficiaries are eligible to receive power wheelchairs under Part  B 
coverage of durable medical equipment. Medicare will pay up to 80 percent of the cost of 
a power wheelchair, up to the fee schedule amount, and beneficiaries are responsible for 
paying the remaining amounts.  For the period studied during this review, HHS/OIG 
determined that had suppliers been reimbursed for the same power wheelchairs at median 
Internet prices, Medicare and its beneficiaries would have spent 28 percent ($39 million) 
less than actual payments; on average, each beneficiary could have saved $233 in a power 
wheelchair copayment.  HHS/OIG recommended that CMS consider performing 
additional reviews to determine whether current power wheelchair schedule amounts are 
appropriate.  
Medicare Administrative Law  Judge Hearings 
	  In a congressionally requested study of the Office of Medicare Hearings and Appeals 
(OMHA) use of telephone, video teleconference, and in-person hearings to decide 
Medicare cases, HHS/OIG found that in its first 13 months of operation (July 1, 2005, to 
July 31, 2006), a substantial share of hearings (78 percent) were conducted by telephone.  
In addition, OMHAs ability to manage its caseload was  limited by incomplete and 
inaccurate data in the appeals system.  OMHA did not meet the 90-day decision 
requirement for 15 percent of the cases with such a requirement and a decision date 
recorded in the appeals system.  HHS/OIG recommended that, among other things, 
OMHA improve the timeliness of deciding cases with the 90-day decision requirement, 
and improve the quality of data in the appeals system. 
Medicare Contractor Pensions 
	  Medicare reimburses a portion of the annual contributions that contractors make to their 
pension plans. HHS/OIG issued three reports examining  pension costs claimed by one 
Medicare contractor.  HHS/OIG found that the contractor applied the incorrect accounting 
principles to a nonqualified pension plan and, as a result, overclaimed $1.8 million for FYs 
1996 to 2004, and that it also overclaimed postretirement benefit costs by $1.6 million for 
FYs 2000 to 2004 because it did not compute the costs in accordance with its agreement 
with CMS.  HHS/OIG recommended that the contractor adjust its cost proposals to reduce 
these overstated costs.  In the third report, HHS/OIG found that for FYs 1999 to 2004 the 
contractor paid executive salaries in excess  of the executive compensation limits 
established in Federal regulations, and recommended that the contractor work with CMS 
to determine the allowability of $5.9 million in costs relating to its supplemental executive 
retirement plan. 
32
  Medicare Payment  for Outpatient Services 
	  HHS/OIG reviewed 45 high-dollar payments (of $50,000 or more) that a Medicare fiscal 
intermediary made to hospitals for outpatient services for CYs 2004 and 2005, identifying 
overpayments totaling more than $2.7 million that the hospitals had not refunded by the 
beginning of the audit in May 2007.  HHS/OIG found that this fiscal intermediary 
incorrectly adjusted some claims and that the hospitals reported excessive units of service 
on other claims.  HHS/OIG also found that neither the Fiscal Intermediary Standard 
System, used to process claims, nor CMS system  had sufficient edits in place during CYs 
2004 and 2005 to detect and prevent excessive payments. 
Nursing Home Denial of Medicare Payment Enforcement Actions 
	  In its review of denials of payment for new admissions (DPNA), a CMS enforcement 
action imposed on SNFs that have been found to be noncompliant with Federal program 
participation standards, HHS/OIG found that in FY 2004 CMS and its fiscal intermediaries 
(FIs) incorrectly processed 74 percent of such actions, with 40 percent of the DPNA cases 
resulting in a total of over $5 million of overpayments to SNFs.  CMS is responsible for 
imposing denial of payment remedies  but relies on its FIs to identify and reject the relevant 
Medicare claims.  HHS/OIG identified various processing errors, including CMS not 
providing the FIs with the instructions on a timely basis or at all, CMS providing 
information to the wrong FIs, and FIs misinterpreting CMS instructions.  HHS/OIG 
recommended, among other things, that CMS update guidance on coding readmissions and 
verifying  readmission status for DPNA claims. 
Industry  Outreach and Guidance 
	  Advisory Opinions. Central  to the HIPAA  guidance initiatives is an advisory opinion 
process through which parties may obtain binding legal guidance as to whether their 
existing or proposed health care business transactions run afoul of the Federal anti-
kickback statute, the CMP laws, or the exclusion provisions.  During FY 2008, the 
HHS/OIG, in consultation with DOJ, issued 26 advisory opinions.  A total of 192 advisory 
opinions have been issued during the 12 years of the HCFAC program. 
	  Corporate and Other Integrity Agreements. Many health care providers that enter 
agreements with the Government to settle potential liabilities for violations of the FCA 
also agree to adhere to a separate CIA, Integrity Agreement or other similar agreement. 
Under these agreements, the provider commits to establishing a program or taking other 
specified steps to ensure its future compliance with Medicare and Medicaid rules.  At the 
close of FY 2008, HHS/OIG was monitoring compliance with 370 such agreements. 
33
   
 
	  Supplemental Compliance  Program Guidance  for Nursing Facilities. HHS/OIG 
periodically publishes guidance  tailored to specific industry sectors to encourage the 
development and use of internal controls to monitor adherence to applicable statutes, 
regulations, and program requirements.  HHS/OIG originally published a compliance 
program guidance (CPG) for nursing facilities in 2000.  In FY 2008, HHS/OIG published 
a supplemental CPG for nursing facilities, building on the original 2000 CPG.  The 
supplemental CPG for nursing facilities, which contains new compliance 
recommendations and an expanded discussion of risk areas, provides voluntary guidelines 
to assist nursing facilities in identifying significant risk areas and in evaluating  and, as 
necessary, refining ongoing compliance efforts. 
34
  Centers for Medicare & Medicaid  Services
 
In FY 2008, the Centers for Medicare & Medicaid Services (CMS) was allocated approximately 
$23 million to fund a variety of projects related  to fraud, waste, and abuse in the Medicare and 
Medicaid programs.  CMS has increased its efforts to use advanced technology to detect and 
prevent fraud and abuse and to ensure that CMS pays the right  providers, the right amount, for the 
right service, on behalf of the right beneficiary.  Projects include: 
Payment Error Rate Measurement (PERM) 
The PERM program  was developed to comply with the requirements of the Improper Payments 
Information Act of 2002 (IPIA), which requires HHS to annually produce  national level error rates 
for Medicaid and the Children's Health Insurance Program (CHIP).  CMS elected to use Federal 
contractors to measure Medicaid and CHIP error rates in a subset of states every year.  In FY 
2006, CMS measured the fee-for-service component of Medicaid. Starting with FY 2007, PERM 
was  expanded  to measure error rates for fee-for-service, managed care, and eligibility in both the 
Medicaid and CHIP programs.  On November 15, 2008 CMS announced for the first time a 
national composite error rate for Medicaid and CHIP based on the PERM methodology initiated 
in FY 2006. The baseline error rates, based on FY 2007 claims data, for Medicaid and CHIP are 
10.5 percent and 14.7 percent respectively.  States participating in the FY 2007 cycles were also 
provided with their individual error rates.  Further evaluation of the error rates shows that the vast 
majority of Medicaid and CHIP errors were due to inadequate documentation.  Providers either 
did not submit information to the PERM contractor to support their sampled FFS or managed care 
claims or did not submit additional data as requested.  Other errors are  due to services provided 
under Medicaid of CHIP to beneficiaries who were not eligible for either program or who were 
not eligible for services rendered. 
CMS is currently measuring  FY 2008 cycle states and has also commenced the FY 2009 cycle. 
CMS expects the error  rates for Medicaid and CHIP will decline in future years through program 
maturation and, through corrective action initiatives implemented at the state and Federal levels. 
Medicaid/Childrens Health Insurance Plan (CHIP) Financial Management Project: 
Under  this project, funding specialists, including accountants and financial analysts, work to 
improve CMS financial oversight of the Medicaid and CHIP programs. Through the continued 
efforts of these specialists, CMS identified and resolved  $2.6 billion of approximately $8.8 billion 
in cumulative questionable costs in FY 2008.  Furthermore, an estimated $1.3 billion in 
questionable reimbursement  was actually  averted  due to the funding specialists preventive work 
with states to promote proper state Medicaid financing.  The funding specialists activities include 
reviews of proposed Medicaid state plan amendments that relate to reimbursement; development 
of financial management reviews; research regarding state Medicaid financing policy and 
practices; collaboration with states to resolve the Medicaid and CHIP portions of the A-133 
Single State audits; and identification of sources of the non-Federal share of Medicaid program 
payments to ensure proper  financing of Medicaid program costs. 
35
  Administration on Aging
 
In FY 2008, the Administration on Aging (AoA) was allocated $3.128 million in HCFAC funds to 
develop and disseminate consumer education information targeted to older Americans, with a 
particular focus on persons with low health literacy, individuals from culturally diverse 
backgrounds, persons living in rural areas, and other vulnerable populations.  AoA and its 
nationwide network of agencies support community education activities designed to assist older 
Americans and their families to recognize and report potential errors or fraudulent situations in the 
Medicare and Medicaid programs.  
The $3 million in HCFAC dollars  specifically support infrastructure, technical assistance and the 
other SMP program support and capacity-building activities designed to enhance the effectiveness 
of state-wide Senior Medicare Patrol programs (SMP) which are funded from a separate 
Congressional appropriation.  These SMP programs recruit retired  professionals to educate and 
assist Medicare beneficiaries to detect and report health care fraud, error, and abuse in the 
Medicare and Medicaid programs.  According to the most recent annual performance report from 
the Assistant Inspector General for Evaluation and Inspections dated May 9, 2008, over 10,300 
active volunteers served the 57 SMP projects during 2007.  These volunteers perform an  essential 
function of this program, contributing over 308,000 hours in efforts to share the SMP message of 
fraud awareness and prevention within the senior community. 
Outreach to senior consumers is a key element of the SMP program.  During 2007, SMP projects 
conducted over 13,700 media outreach events and held over 8,400 community education events to 
increase beneficiary awareness about issues related to Medicare and Medicaid integrity.  During 
this period, almost 131,400 one-on-one counseling sessions were held with or on behalf of a 
beneficiary on a variety of issues related to potential Medicare or Medicaid fraud, error or abuse. 
In addition, over 238,500 beneficiaries were educated through group sessions conducted by SMP 
programs in local communities.  
As a result of educating beneficiaries, the projects received  close to 70,000 inquiries  from or on 
behalf of beneficiaries and resolved 87 percent of the inquiries in 2007.  In addition, SMP projects 
received over 17,600 complex issues, requiring further research, assistance, case development 
and/or referral as a result of educational efforts.  While the SMP program staff was able to address 
the majority of these issues for beneficiaries, over 4,000 of these issues, with an estimated dollar 
value of over $1.5 million, were referred to law enforcement, CMS integrity contractors, state 
Medicaid Fraud Control Units, or other entities for further action, and over 5,000 issues were 
resolved.  During this period, over $7.4 million in healthcare expenditures  were avoided as a 
result of actions taken by the SMP program. 
Since the programs  inception, SMP projects have educated approximately 3.3 million 
beneficiaries and received over 104,000 complex issues (complaints) from beneficiaries who have 
detected billing or other discrepancies based on that information.  While it is not possible to 
directly track all of the cases reported and dollars recovered through SMP community education 
activities, or quantify the sentinel effect in fraud costs avoided due to increased consumer 
36
  awareness, over $105.65 million has been reported as  savings attributable to the program as a 
result of documented complaints since its inception in 1997.  
Office  of the General Counsel  
In FY 2008, The Office of the General Counsel (OGC) was allocated approximately $5.714 
million in HCFAC funding to supplement OGCs efforts to support program integrity activities. 
OGC provides  legal support consistent with the statutory authority of the HCFAC program. 
While a considerable portion of these funds supported  OGCs litigation activity, both 
administrative and judicial, OGC also continued to focus on program integrity review in 2008. 
False Claims Act and Qui Tam Actions: OGC assists DOJ in assessing qui tam actions filed 
under the FCA by  interpreting complex Medicare and Medicaid rules and policies  in order to help 
DOJ focus on those matters  which are most likely to result in a recovery of money for the 
government.  When DOJ files or intervenes in a FCA matter, OGC provides litigation support, 
including interviewing and preparing witnesses and responding to discovery requests.  In 2008, 
OGC participated in FCA and related matters that recovered over $1.3 billion for the Medicare 
and Medicaid programs.  The types of FCA cases in which OGC participated in 2008 include 
Medicare Part B drug pricing, off-label pharmaceutical and device promotion, Medicaid drug 
rebate, physician self-referral and anti-kickback, and upcoding cases. 
Provider/Supplier Suspensions and Revocations: OGC assists CMS in deciding whether to 
suspend payments to Medicare providers  and suppliers, or to revoke billing privileges when 
problems are discovered.  During 2008, OGC attorneys were involved in hundreds of suspension 
and revocation actions involving  millions of Medicare dollars and many different segments of the 
healthcare industry, including DME suppliers, ambulance companies, physicians, infusion clinics, 
therapists, home health agencies, and diagnostic testing facilities.  Some OGC  offices experienced 
dramatic increases in the volume of suspension and revocation work because of satellite CMS 
offices (in Los Angeles and Miami) which aggressively focused on identifying overpayments and 
curbing fraud and abuse in problem-prone areas. 
Civil Monetary Penalties (CMPs): CMS has the responsibility for administering numerous civil 
monetary penalty provisions enacted by Congress to enforce program  compliance and payment 
integrity.  For example, CMS is authorized to impose CMPs on nursing homes which fail to meet 
certification standards.  During 2008, OGC provided legal advice to CMS regarding the 
development and imposition of CMPs and defended CMS in administrative appeals and judicial 
litigation resulting from these cases.  OGC recovered or established the right to recover over $7 
million in CMPs during 2008. 
CMS is also authorized to impose CMPs on sponsors in the Medicare Part D prescription drug 
and Medicare Advantage programs.  During 2008, OGC defended CMS imposition of a CMP on 
a plan sponsor related  to allegations of marketing misconduct committed by the sponsors 
independent sales agent while selling a Medicare Advantage plan.  OGC negotiated a settlement 
of the matter in which the plan sponsor agreed to pay  a CMP of $190,000 and to engage an 
independent auditor to review key aspects of its current marketing procedures. 
37
  Nursing Home Enforcement: OGC devotes considerable resources to assist CMS in its efforts to 
assure that nursing home residents receive the high quality of care that the law requires.  OGC 
provides legal advice to CMS regarding the imposition of remedies and defends HHS in 
administrative hearings when enforcement decisions are challenged.  OGC worked very closely 
with CMS during 2008 to refine its policies  with respect to special focus facilities. These 
nursing facilities, which are habitually out of compliance with federal certification requirements, 
have become the top priority for CMS enforcement efforts as the agency tries to maximize its 
limited resources to target the nations poorest performing nursing homes.  As a result of the 
emphasis on special focus facilities, OGC saw a significant increase in administrative and court 
proceedings involving terminations of these facilities.    
Bankruptcy Litigation:   OGC protects Medicare funds by asserting CMS recoupment rights to 
collect overpayments, arguing to continue suspension or termination actions against debtors, 
seeking adequate assurances from the bankruptcy court that CMS interests in the debtor's estate 
will be protected, arguing for the assumption of the Medicare provider agreement as an executory 
contract, and petitioning for administrative costs where appropriate.  OGCs bankruptcy workload 
continues to be extensive and complex.  In 2008, OGC vigorously asserted CMS interests in 
numerous bankruptcy and receivership actions involving hospitals, nursing homes and nursing 
home chains, negotiated agreements to recover overpayments, and aggressively advanced the use 
of Medicares recoupment authority.   
Medicaid Integrity: During 2008, OGC provided wide-ranging legal advice to CMS recently-
established Medicaid Integrity Group.  OGC saw increased involvement in 2008 in Medicaid 
integrity issues as CMS devoted more  resources to financial reviews  and oversight, including 
placing CMS accountants on site at state Medicaid agencies and as states continue to present 
innovative proposals to reconfigure their programs and to draw down federal financial 
participation (FFP) at or beyond the margins of the regular Medicaid program.  OGC saw a 
significant increase in the provision of legal advice to CMS regarding proposed disallowances and 
the filing of Medicaid disallowance appeals before HHS Departmental  Appeals Board.  During 
2008, OGC was successful in obtaining  decisions upholding millions of dollars in disallowances 
of FFP.  
Regulatory  Review and Programmatic Advice: OGC has advised CMS on the management and 
implementation of its Recovery Audit Contractor (RAC) program.  The program, which ran as a 
demonstration project for 3 years, is now a permanent program pursuant to statute.  The mission 
of the RAC program is to identify Medicare underpayments and overpayments and recoup 
overpayments for claims submitted under Medicare Parts A and B.  CMS is in the process of 
implementing the permanent RAC program  (which must be up and running in all 50 states by 
January  1, 2010) and OGC has been working with the agency to address questions and concerns 
raised by the industry about the program. 
HIPAA Enforcement: During FY 2008, OGC continued to support HHS efforts to promulgate 
and interpret HIPAA regulations, notably those related to updating and streamlining transaction 
standards and national provider  identifiers.  OGC assisted the Departments enforcement efforts 
38
  by investigating and responding to complaints of failures to comply with the HIPAA rules.  OGC 
has also counseled HHS  regarding its exercise of enforcement discretion to address recognized 
industry compliance issues and assisted HHS in expanding the enforcement paradigm by adding a 
robust compliance review program.  
Denial of Claims and Payments: CMS and its contractors engage in various activities and 
initiatives to detect and prevent abusive and fraudulent billing practices.  These measures may 
include provider and beneficiary education, use of claim sampling techniques and a more rigorous 
scrutiny of claims with increased medical review.  In FY 2008, OGC played a major role in 
advising CMS regarding the development and implementation of these types of program integrity 
measures and defended CMS in litigation brought by providers and suppliers who challenge these 
efforts.  OGC continues to aggressively defend CMS and its fiscal intermediaries and carriers in 
cases seeking damages for the alleged wrongful denial of claims, for being placed on payment 
suspension, and for not being granted extended repayment plans.  
Physician Self-Referral, Electronic Prescribing and Electronic Health Records: OGC worked 
closely with CMS and HHS in the drafting of proposed rules that are designed to further refine the 
physician self-referral law and crack down on certain abusive arrangements (including  pod labs 
owned  by referring physicians).  In addition, OGC has worked with CMS and OIG on an advisory 
opinion and on a new proposed exception to the law aimed at encouraging the donation of 
technology used to access electronic health information, and promoting gainsharing and other 
incentive payment and shared savings programs that can increase the quality and cost-
effectiveness of health care services. 
39
  40
  FUNDING FOR THE DEPARTMENT OF  JUSTICE
 
United States Attorneys 
In FY 2008, the United States Attorneys Offices (USAOs) were allocated approximately $30.4 
million in HCFAC funding to support civil and criminal health care fraud and abuse litigation as 
exemplified in the Program Accomplishments section.  The USAOs dedicated substantial district 
resources to combating health care fraud and abuse in 2008, and HCFAC allocations have 
supplemented those resources by providing funding for attorneys, paralegals, auditors and 
investigators, as well as funds for litigation of resource-intensive health care fraud cases. 
The 93 United States Attorneys and their assistants, or AUSAs, are the nations  principal 
prosecutors of Federal crimes, including health care fraud, and each district has a designated 
Criminal Health Care Fraud Coordinator and a Civil Health Care Fraud Coordinator.  Civil and 
criminal  health care fraud referrals are often made to USAOs through the law enforcement 
network described herein, and these cases are usually handled primarily by the USAOs, although 
civil cases are sometimes handled jointly with the Civil Division.  The other principal source of 
referrals of civil cases for USAOs is through the filing of qui tam (or whistleblower) complaints.  
These cases are often handled jointly with trial attorneys within the Civil Division, but may  be 
handled solely by the USAO.  USAOs also handle most criminal and civil appeals at the Federal 
appellate level. 
In addition to the positions funded by HCFAC, the Executive Office for United States Attorneys 
Office of Legal Education (OLE) uses HCFAC funds to train AUSAs and other DOJ attorneys, as 
well as paralegals, investigators, and auditors  in the investigation and prosecution of health care 
fraud.  In 2008, OLE offered a Health Care Fraud Seminar for AUSAs and DOJ attorneys, which 
was  attended by over 100 attorneys, as well as, an Affirmative Civil Enforcement Conference, 
including health care fraud issues, for paralegals, auditors and investigators. 
Criminal Prosecutions 
In FY 2008, the USAOs received 957 new criminal matters involving 1,641 defendants, and had 
1,600 health care fraud criminal matters pending,10 involving 2,580 defendants.  The USAOs  filed 
criminal charges in 502 cases involving 797 defendants, and obtained 588 federal health care 
fraud related convictions.  
Civil Matters and Cases 
USAOs play a major role in health care fraud enforcement by bringing affirmative civil cases to 
recover funds  wrongfully taken from the Medicare Trust Fund and other taxpayer-funded health 
care systems as a result of fraud, waste, and abuse.  Civil AUSAs, similar to their criminal 
counterparts, litigate a wide variety of health care fraud matters including false billings by doctors 
10When a USAO accepts a criminal referral for consideration, the office opens it as a 
matter pending in the district.  A referral remains a pending matter until an  indictment or 
information is filed or it is declined for prosecution. 
41  and other providers  of medical services, overcharges by hospitals, Medicaid fraud, kickbacks to 
induce referrals of Medicare or Medicaid patients, fraud by  pharmaceutical companies, and failure 
of care allegations against nursing home owners.  
In FY 2008, USAOs opened 843 new civil health care fraud investigations.  At the end of FY 
2008, the USAOs had 1311 civil health care fraud investigations pending. 
Civil Division 
In FY 2008, the Civil Division was allocated approximately $15.5 million in HCFAC funding to 
support civil health care fraud litigation (this amount includes $1 million allotted for the  Elder 
Justice and Nursing Home Initiative).  Civil Division attorneys pursue civil and criminal remedies 
in health care fraud matters, working closely with the USAOs, the FBI, the HHS/OIG and the 
Department of Defense,  CMS, and other federal and state law enforcement agencies.  Cases 
involve providers  of health care services, supplies and equipment, as well as carriers and fiscal 
intermediaries, that defraud Medicare, Medicaid, TRICARE, the Federal Employees Health 
Benefits Program (FEHB), and other government health care programs. 
Civil Division attorneys investigate and litigate a wide range of health care fraud matters.  These 
matters include allegations of overcharging by Part A providers (e.g., hospitals, skilled nursing 
facilities, hospices), Part B providers and suppliers (e.g., physicians, durable medical equipment 
manufacturers), and Medicaid providers.  These matters  also include allegations that providers 
billed for  services that were  either not provided or not medically necessary.  The Civil Division 
investigates claims that doctors and others were paid kickbacks or other remuneration to induce 
referrals of Medicare or Medicaid patients in violation of the Anti-Kickback Act and Physician 
Self-Referral laws.  The Civil Division also investigates a wide range of pharmaceutical and 
device fraud, including allegations of drug price manipulation and illegal marketing  activity that 
causes the Medicare and Medicaid to pay for drug uses that either were not approved by the FDA 
or were not supported by medical literature.  The Civil Division also investigates claims that 
skilled nursing facilities bill the Government for care that was so substandard as to be worthless. 
In addition to its recovery efforts, the Civil Division remains active in providing training and 
guidance in connection with pharmaceutical and device fraud matters.  Given the nationwide 
scope of the defendants conduct, as well as the complex legal and factual issues raised in these 
cases, the Civil Division plays a critical role in coordinating both investigative efforts and the 
legal positions taken by the Department.  For example, in May 2008, the Commercial Litigation 
Branch hosted its fourth Pharmaceutical and Device  Fraud Conference.  This two day conference 
provided training and guidance to over 100 participants regarding cutting edge issues involving 
drug and device fraud.  The conference was attended by representatives from DOJ, the USAO 
community, the Food and Drug Administration, the Department of Health and Human Services 
Office of Inspector General, TRICARE, and the National Association of Medicaid Fraud Control 
Units. 
Lastly, the Elder Justice and Nursing Home Initiative, which is housed within the Civil Division, 
continues to coordinate and support law enforcement efforts to combat elder abuse, neglect, and 
42
  financial exploitation.  As the Civil Division does with pharmaceutical fraud cases, the Initiative 
coordinates and provides  guidance on elder abuse cases through the Elder Justice database which 
is available to DOJ and USAOs, as well as by hosting quarterly teleconferences for attorneys 
working on failure of care cases to share investigative strategies, discuss recent settlements or 
regulatory developments, and to identify concerns that may affect attorneys working on these 
cases.  In addition to coordinating law enforcement efforts, the Initiative also makes grants to 
promote prevention, detection, intervention, investigation and prosecution of elder abuse and 
neglect, and to improve the scare forensic knowledge in the field. 
Criminal Division 
In FY 2008, the Criminal Division was allocated $3.08 million in HCFAC funding to support 
criminal health care fraud litigation, prevention and interagency coordination.  The Criminal 
Divisions Fraud Section supports the federal white collar crime enforcement community through 
litigation, coordinating investigations and initiatives, implementing white collar crime policy, and 
conducting policy and legislative work.  The Fraud Section initiates and coordinates complex 
health care fraud litigation and supports the USAOs with legal and investigative guidance, 
training, and, in certain instances, provides trial attorneys to prosecute health care fraud cases. 
During FY 2008, the Fraud Section, opened or filed 30 new health care fraud cases involving 
charges against 67 defendants; obtained 69 guilty pleas; and litigated seven jury trials, winning 
guilty verdicts against eight defendants on all counts charged.  Prison sentences imposed in the 
Sections health care fraud cases during the year averaged more than 40 months, including two 
sentences that met or exceeded 120 months of imprisonment; and court-ordered restitution, 
forfeiture and fines that exceeded $240 million.  Fraud Section attorneys staffed and coordinated 
most of the Divisions health care fraud litigation through the Medicare Fraud Strike Force 
prosecution teams in the Southern District of Florida (Phase One) and in Central District of 
California (Phase Two).  
In Phase Two of the Strike Force, Fraud Section attorneys, working with federal prosecutors  from 
the U.S. Attorneys Office for the Central District of California, and FBI and HHS/OIG agents, 
executed six search warrants and charged eleven  defendants in nine indictments involving more 
than $13 million in fraudulent claims to Medicare that were unsealed  in May 2008, and arrested 
another 18 defendants who were charged with submitting more than $33 million in fraudulent 
claims to Medicare in eight indictments during a second coordinated  arrest round up during 
September 2008.    
Fraud Section attorneys also obtained a guilty plea in the Northern District  of Ohio from a 
physician who defrauded Medicare, Medicaid, and  other health care benefit programs by  causing 
medically  unnecessary  cardiology tests to be administered to patients over an eight-year period, 
1998-2006.  According  to the plea  agreement, the physician  forfeited approximately   $1.9 million 
surrendered his medical license, and was  permanently  excluded from participation in all federal 
health care programs.   In another case, in the Southern District  of California, an operator of  an 
unlawful Internet pharmacy pleaded guilty  to conspiracy to distribute Schedule II controlled 
substances, including Oxycontin, Percocet and Endocet, and other prescription drugs, to customers 
43
  without prescription or a legitimate medical use.  The defendant was not registered with the Drug 
Enforcement Administration to handle, import, distribute or dispense controlled substances, and 
shipped the drugs from Southern California to  customers throughout the  United States.  The 
defendant is awaiting  sentencing. 
In addition to health care  fraud litigation, the Fraud Section also provided legal guidance to FBI and 
HHS agents, health program agency  staff, AUSAs and other Criminal Division attorneys  on 
criminal, civil and administrative tools to combat  health care fraud;  provided advice and written 
materials on patient  medical record confidentiality and disclosure issues, and coordinated referrals 
of possible criminal  HIPAA privacy  violations from the HHS Office for Civil Rights;  monitored 
and coordinated DOJ responses to  legislative proposals, major  regulatory initiatives, and 
enforcement  policy matters;  reviewed and commented on health care provider requests to the 
HHS/OIG for advisory  opinions, and consulted with the HHS/OIG on draft advisory  opinions; 
worked with CMS to improve  Medicare contractors fraud detection, referrals to law enforcement 
for  investigation, and case development work;  and prepared and distributed to all  USAOs and FBI 
field office periodic summaries of recent  and significant health care fraud cases. 
The Criminal Divisions Organized Crime and Racketeering Section (OCRS)  supports 
investigations and prosecutions of fraud and abuse targeting the 2.5 million private sector health 
plans sponsored  by employers and/or unions, including schemes by corrupt entities that sell 
insurance products. Such private sector group health plans are the leading source of health care 
coverage for individuals not covered by Medicare or Medicaid. OCRS also provides strategic 
coordination in the identification and prosecution of domestic and international organized crime 
groups engaged in sophisticated frauds posing a threat to the health care industry. 
I.OCRS provides litigation support and guidance to AUSAs and criminal  investigative agencies  to 
combat  corruption and abuse of employment based group health plans covered by the Employee 
Retirement Income Security Act [ERISA].  OCRS attorneys provide health care fraud and abuse 
training and legal guidance to AUSAs and to criminal investigators and agents of the Department 
of Labors Employee Benefits Security Administration and Office  of Inspector General.  The 
Section drafts and coordinates criminal legislative initiatives affecting  employee health benefit 
plans and reviews  and comments on legislative proposals affecting employee  benefit plans. 
One OCRS attorney is investigating and prosecuting health care frauds perpetrated by organized 
criminal groups and is working with the Los Angeles Health Care Fraud Strike Force. In addition, 
OCRS supports health care fraud prosecutions by Organized Crime Strike Force Units located 
within various United  States Attorneys Offices.  Under the International Organized Crime 
Initiative commenced in 2008, OCRS monitors trends in the targeting of health care by 
international organized criminal groups. 
44
  Civil Rights Division
 
In FY 2008, the Civil Rights Division was allocated approximately $2.37 million in HCFAC 
funding to support Civil Rights Division litigation activities related to health care fraud and abuse. 
The Civil Rights Division pursues relief affecting public, residential health care facilities.  The 
Division has also established an initiative to eliminate abuse and grossly substandard care in 
public, Medicare and Medicaid funded nursing homes and other long-term care facilities. 
The Division plays a critical role in the HCFAC Program.  The Special Litigation Section of the 
Civil Rights Division is the sole DOJ component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C.  1997 (CRIPA).  CRIPA authorizes the investigation of 
conditions of confinement at state and local residential institutions (including facilities  for persons 
with developmental disabilities or mental illness, and nursing homes) and initiation of civil action 
for injunctive relief to remedy a pattern  or practice of violations of the Constitution or federal 
statutory rights.  The review of conditions in facilities for persons who have mental illness, 
facilities for persons with developmental disabilities, and nursing homes comprises a significant 
portion of the program.  The Special Litigation Section works collaboratively with the USAOs 
and HHS. 
Fiscal Year 2008 Accomplishments 
As part of DOJs Institutional Health Care Abuse and Neglect Initiative, and as an enhancement to 
ongoing CRIPA enforcement efforts, the Special Litigation Section staff conducted preliminary 
reviews of conditions and services at 48 health care facilities in 25 states, the District of 
Columbia, and the Commonwealth of Puerto Rico during  Fiscal Year 2008.  The task in 
preliminary inquiries  is to determine whether there is sufficient information supporting allegations 
of unlawful conditions to warrant formal investigation under CRIPA.  The section reviews 
information pertaining to areas such as abuse and neglect, medical  and mental health care, use of 
restraints, fire and environmental safety, and placement in the most integrated setting appropriate 
to individual needs.  Separately, in Fiscal Year 2008, the Section opened or continued formal 
investigations, entered remedial agreements, or monitored existing remedial agreements regarding 
67 health care facilities in 23 states, the District of Columbia, the Territory of Guam, and the 
Commonwealth of Puerto Rico.  
In Fiscal Year 2008, the Section commenced investigations of three state-operated facilities for 
persons with mental illness, 14 state facilities for persons with intellectual and developmental 
disabilities, and two state veterans nursing homes.  The facilities are:  Delaware State Psychiatric 
Hospital, in Newcastle, Delaware; Kings County Hospital Center, in Brooklyn, New York; 
Ancora Psychiatric Hospital, in Winslow, New Jersey; Denton State School, in Denton, Texas; 
Abilene State School, in Abilene,  Texas; Austin State School in Austin, Texas; Brenham State 
School, in Brenham, Texas; Corpus Christi State School, in Corpus Christi, Texas; El Paso State 
Center,  in El Paso, Texas; Lufkin State School, in Lufkin, Texas; Mexia State School, in Mexia, 
Texas; Richmond State School, in Richmond, Texas; Rio Grande State Center, in Harlingen, 
Texas; San Angelo State School, in Carlsbad, Texas; San Antonio State School, in San Antonio, 
Texas; Rosewood Center, in Owings Mills, Maryland; Central Virginia Training Center, in 
Lynchburg, Virginia; William F. Green State Veterans Home, in Bay Minette, Alabama;  and 
45
  Minnesota Veterans Home, in Minneapolis, Minnesota.  
The Section found that conditions and practices at eight state facilities for  persons with mental 
illness, two state facilities for persons with intellectual and developmental  disabilities, and three 
nursing homes violate the residents' Federal constitutional and statutory rights.  Those facilities 
are:  Georgia Regional Hospital, in Atlanta, Georgia; Georgia Regional Hospital, in Savannah, 
Georgia; Northwest Georgia Regional Hospital, in Rome, Georgia; Central State Hospital, in 
Milledgeville, Georgia; Southwest State Hospital, in Thomasville, Georgia; West Central Georgia 
Regional Hospital, in Columbus, Georgia; East Central Georgia Regional Hospital, in Augusta, 
Georgia; Oregon State Hospital, in Salem, Oregon; Beatrice State Developmental Center, in 
Beatrice, Nebraska; Northwest Habilitation Center, in St. Louis, Missouri; Tennessee State 
Veterans Homes, in Murfreesboro and Humboldt, Tennessee; and C.M. Tucker Nursing Care 
Facility, in Columbia, South Carolina. 
The Section entered settlement agreements to resolve its investigations of one state-operated 
facility for persons with intellectual and developmental disabilities, and one state-operated nursing 
home. Those facilities are:  Beatrice State Developmental Center, in Beatrice, Nebraska, and 
Laguna Honda Hospital and Rehabilitation Center,  in San Francisco, California. 
The Section continued  its investigations of residential facilities for persons with developmental 
disabilities:  Agnews Developmental Center, in San Jose, California; Sonoma Developmental 
Center,  in Eldridge, California; Lanterman Developmental Center, in Pomona, California; Rainier 
Residential Rehabilitation Center, in Buckley, Washington; Frances Haddon Morgan Center, in 
Bremerton, Washington; Conway Human Development Center, in Conway, Arkansas; Lubbock 
State School, in Lubbock, Texas; Bellefontaine Developmental Center, in St. Louis, Missouri; 
Clyde L. Choate Developmental Center,  in Anna, Illinois; and Howe Developmental Center, in 
Tinley Park, Illinois.  The Division also continued its investigation of Oregon State Hospital, in 
Salem, Oregon, a facility for persons with mental illness.  In addition, the Section continued its 
investigations of three publicly-operated nursing homes:  Charlotte Hall Veterans Home, in 
Charlotte Hall, Maryland; the Laguna Honda Hospital and Rehabilitation Center, in San 
Francisco, California; and C.M. Tucker Nursing Care  Center, in Columbia, South Carolina.   In 
some of these matters, the Section is reviewing voluntary compliance to improve conditions. 
The Section monitored the implementation of remedial agreements for 11 facilities for persons 
with developmental disabilities:  Fort Wayne State Developmental Center, in Fort Wayne, 
Indiana; Clover Bottom Developmental Center, in Nashville, Tennessee; Greene Valley 
Developmental Center, in Greeneville, Tennessee; Harold Jordan Center,  in Nashville, Tennessee; 
Arlington Developmental  Center, in Arlington, Tennessee; New Lisbon Developmental Center, in 
New Lisbon, New Jersey; Southbury Training School, in Southbury, Connecticut; Woodward 
Resource Center, in Woodward, Iowa; Glenwood Resource Center, in Glenwood, Iowa; 
Woodbridge Developmental Center in Woodbridge, New Jersey; and Oakwood Community 
Center in Somerset, Kentucky.  It also monitored the implementation of remedial agreements 
regarding community placements from facilities for persons with developmental disabilities in 
Indiana, Puerto Rico, and Washington, D.C. 
46
  The Section monitored the implementation of remedial agreements for four nursing homes: 
Reginald P. White Nursing Facility, in Meridian,  Mississippi; Mercer County Geriatric Center, in 
Trenton, New Jersey; A. Holly Patterson Extended Care Facility in Uniondale,  New York; and, Ft. 
Bayard Medical Center and Nursing Home, in Ft. Bayard, New Mexico.  The Section also 
monitored the implementation of remedial agreements regarding 11 state-operated residential 
facilities for persons with mental illness:  Guam Mental Health Unit in the Territory of Guam; 
Vermont State Hospital, in Waterbury, Vermont; Dorothea Dix Hospital, in Raleigh, North 
Carolina; Broughton Hospital, in Morganton, North Carolina; Cherry Hospital, in Goldsboro, 
North Carolina; John Umstead Hospital, in Butler,  North Carolina; Metropolitan State Hospital, in 
Norwalk, California; Napa State Hospital in Napa, California; Atascadero State Hospital, in 
Atascadero, California; Patton State Hospital, in Patton, California; and St. Elizabeths Hospital, 
Washington, D.C. 
Finally, the Section monitored the implementation of a remedial agreement regarding one 
residential facility for children with visual disabilities:  New Mexico School for the Visually 
Handicapped, in Alamogordo, New Mexico. 
47
  48
  APPENDIX
 
Federal Bureau of Investigation
 
Mandatory Funding
 
AThere are hereby appropriated  from the general fund of the United States Treasury and 
hereby  appropriated to the Account for transfer to the Federal Bureau of Investigation to 
carry out the purpose described in subparagraph (c), to be available without further 
appropriation - (I) for fiscal year 2008, $120,937,000. 
In FY 2008, the FBI was allocated $120.9 million in HCFAC funds for health care fraud 
enforcement.  This yearly appropriation was used to support  769 positions (460 Agent, 309 
Support) in FY 2008, an increase of 10 positions from the positions supported in FY 2007 (6 
Agent, 4 Support).  The number of pending investigations has shown steady increase from 591 
pending cases in 1992 to 2,434 cases through 2008.  FBI-led investigations resulted in 696 
criminal health care fraud convictions and 836 indictments and informations being filed in FY 
2008.    
The FBI is the primary  investigative agency involved in the fight against health care fraud that has 
jurisdiction over both the federal and private insurance programs.  With health care expenditures 
rising at three times the rate of inflation, it is especially important to coordinate all investigative 
efforts to combat fraud within the health care system.  More than $1 trillion is spent in the private 
sector on health care and its related services and the FBI's efforts are crucial to the overall success 
of the program.  The FBI leverages its resources in both the private and public arenas through 
investigative partnerships with agencies such as the HHS/OIG, the FDA, the Drug Enforcement 
Administration (DEA), the Defense Criminal Investigative Service, the Office of Personnel 
Management, the Internal Revenue Service  and various state and local agencies.  
On the private side, the FBI is actively involved with national groups, such as the National Health 
Care Anti-Fraud Association (NHCAA), the Blue Cross and Blue Shield Association and the 
National Insurance Crime Bureau, as well as many other professional and fundamental efforts to 
expose and investigate fraud within the system.  
Health care fraud investigations are considered a priority within the White Collar Crime Program 
Plan.  In addition to being a partner in the majority of investigations listed in the body of this 
report, FBI field offices throughout the U.S. have pro-actively addressed significant health care 
fraud through coordinated initiatives, task forces, and undercover operations to identify and 
pursue investigations against the most egregious offenders which may include organized criminal 
activity and criminal enterprises.  Organized criminal activity has been identified in the operation 
of medical clinics, independent diagnostic testing facilities, durable medical equipment companies 
and other health care facilities.  The FBI is committed to addressing this criminal activity through 
disruption, dismantlement and prosecution of criminal organizations. 
The FBI initiated the Internet Pharmacy Fraud Initiative which focuses on Internet web sites and 
49
  individuals selling illegal prescription drugs and controlled substances.  The overall goal of the 
Internet Pharmacy Fraud Initiative is to identify fraudulent Internet pharmacies and target 
physicians who are willing to write prescriptions for financial gain outside of the doctor/patient 
relationship and with no legitimate medical purpose.  Also in the scope of this initiative are 
investigations involving the sale of counterfeit and diverted pharmaceuticals on the Internet.  
During FY 2008 the FBI continued its support of the South Florida Medicare Strike Force 
(SFMSF) which was initiated to combat the prodigious Medicare fraud problem endemic to South 
Florida.  Its mission was  to adapt the traditional investigative and prosecutorial methodology to 
more appropriately address the contemporary way  in which  Medicare fraud is committed.  The 
Strike Force was  a concerted  effort from the Department of Justice, the United States Attorneys 
Office in the Southern District of Florida,  the FBI, HHS/OIG, the Florida Medicaid Fraud Control 
Unit, and the Hialeah Police Department. 
In addition in FY 2008 the FBI fully supported the DOJ-led Medicare Strike Forces (MSF) 
deployment to Southern California, specifically Los Angeles.  The task force in Los Angeles is 
similar  in composition to the SFMSF with contributing agencies being the United States 
Attorneys office, Central District of California, the Internal Revenue Service  Criminal 
Investigative, HHS/OIG, the Los Angeles Police Department and other  state and local agencies. 
In FY 2009 the FBI will continue to support the MSF and will work closely with the DOJ as this 
strike force concept is expanded to other areas of the country. 
The FBI has also initiated a new and aggressive training program.  The FBI realizes that the most 
important resource for the successful investigation of health care fraud violations is that of human 
capital.  Therefore, in FY 2008, as in FY 2007 and continuing the FBI will continue its aggressive 
training curriculum to include expanding the ability of those who investigate health care fraud 
matters to attend additional training sponsored by private entities such as the NHCAA.  In 
addition, the FBI is revamping its virtual academy training sites to include specific blocks  related 
directly to health care fraud investigations.   
The majority of funding received by the FBI is used to pay personnel costs associated with the 769 
funded positions.  Funds not used directly for personnel matters are used to provide operational 
support for major health care fraud investigations and national initiatives currently focusing on 
Internet Pharmacy fraud, Training and the DOJ Strike Force.  Further, the FBI continues to 
support individual investigative needs such as the purchase of specialized equipment and expert 
witness testimony on an  as-needed basis. 
50
  Glossary Of Terms 
The Account - The Health  Care  Fraud and Abuse Control Account 
AoA  - Department of Health  and Human Services, Administration on Aging 
AUSA - Assistant United States  Attorney 
CERT  - Comprehensive Error Rate Testing 
CHIP - Childrens Health Insurance Plan 
CIA - Corporate Integrity  Agreement 
CMP - Civil Monetary Penalty 
CMPL - Civil Monetary Penalties  Law, 42 U.S.C.  1320a-7a 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid Services    
COBC - Coordination of  Benefits  Contractors 
CoP  - Conditions of Participation 
CPG  - Compliance Program Guidance 
CRIPA  - Civil Rights  of Institutionalized Persons  Act 
CY - Calendar Year 
DAB-Department of Health and Human Services, Departmental Appeals Board 
DEA - Drug Enforcement Admistration 
DME - Durable Medical  Equipment 
DMEPOS - Durable Medical  Equipment, Prosthetics, Orthotics, and Supplies 
DPNA - Denials of Payment for New Admissions 
DRA - Deficit Reduction Act of 2005 
DOJ  - The Department of Justice 
DSH - Disproportionate Share  Hospital 
EOUSA - Executive Office  for the United States  Attorneys 
FBI - Federal  Bureau of  Investigation 
FCA  - False Claims Act 
FDA - Food and Drug Administration 
FEHBP - Federal Employees  Health Benefits Program 
FFP  - Federal Financial Participation 
FFS - Fee for Service 
51
  FI - Fiscal  Intermediary 
FTE-Full-time equivalent 
HCFAC - Health Care  Fraud and Abuse Control Program  or the Program 
HHA  - Home Health Agencies  
HHS - The Department of Health and Human Services 
HHS/OIG - The Department of  Health and  Human Services - Office of  the Inspector General 
HI - Hospital Insurance  Trust Fund 
HIPAA, or the Act  - The Health Insurance Portability and Accountability Act of  1996, P.L. 104-191 
HIV  - Human Immunodeficiency Virus 
HRSA - The Department of Health and Humans Services  - Health Resources and Services Administration 
IPIA - Improper Payments Information Act  of  2002, P.L. 107-300 
MA  - Medicare  Advantage plan 
MSF - Medicare  Strike Force 
MFSF - Medicare Fraud Strike Force 
MMA - Medicare  Prescription Drug, Improvement and Modernization Act of  2003 
MMIS - Medicaid Management Information System  
NHCAA - National Health  Care Anti-Fraud Association 
OCRS- Organized Crime and Racketeering Section-Department of  Justice Criminal Division 
OGC  - Office of the General  Counsel, Department of Health  and Human Services  
OMHA -  Off-ice of Medicare  Hearings and Appeals 
PERM - Program Error Rate Measurement 
The Program  - The Health Care Fraud and Abuse Control Program 
Secretary - The Secretary of  the Department of Health  and Human Services 
SFMSF - South  Florida Medicare  Strike Force 
SMP  - Senior Medicare  Patrol 
SNF - Skilled Nursing Facility 
TCM - Targeted Case Management 
TrOOP - True Out-of-Pocket costs 
USAO - United States Attorneys Office 
52