Semiannual

Report

Office of

Inspector General

October 1, 1995 - March 31, 1996

June Gibbs Brown

Inspector General
 YourStrongestWeaponto 
FightHealthCareFraud... 
800-HHS-TIPS 
1-800-HHS-TIPS 
(1-800-447-8477) 
Every year, millions of dollars are lost to health care fraud. 
Everyone can play a role in putting an end to this by calling the 
Health and Human Services Confidential Tip Line: 1-800-HHS-TIPS. 
Please call Monday through Friday, 9 a.m. to 8 p.m., anytime you 
believe you have information about fraud.  You do not have to 
give your name to make a real difference. 
To report fraud, write to:  Office of Inspector General 
U.S. Department of Health and Human Services 
HHS-TIPS Hot Line 
P.O. Box 23489 
Washington, DC  20026   
 
A MESSAGE FROM THE SECRETARY 
The 6-month period ending March 31, 1996 was a frustrating time in many sectors of the 
Federal Government. Amid the constraints imposed by the budget impasse and two 
consequent furloughs, the Department of Health and Human Services (HHS) strove to meet 
its overriding commitment to provide efficient and effective services to the American people. 
I am pleased to note that, despite the difficulties, the Office of Inspector General (OIG) did 
a remarkable job in executing its oversight responsibilities. The OIG focused its energies on 
the most critical areas within HHS and worked to promote the highest level of integrity 
and accountability in the Departments programs and operations. 
Among OIGs most significant accomplishments during this period were its successes 
under Operation Restore Trust. A 2-year partnership of Federal and State agencies 
announced by the President in May 1995, the project was designed to protect the health care 
trust funds more effectively through shared intelligence and coordinated enforcement, and 
to enhance the quality of care for Medicare and Medicaid beneficiaries. This 
interdisciplinary initiative, targeting fraud, waste and abuse in nursing homes, home health 
agencies and durable medical equipment suppliers, is underway in the five States which 
together account for about 40 percent of the Nations Medicare and Medicaid beneficiaries. 
This semiannual report marks the partnerships 1-year anniversary. The OIGs fraud and 
abuse hotline (1-800-HHS-TIPS), established in June 1995, has received thousands of calls 
related to the initiative since its inception. Investigations have led to numerous convictions, 
indictments, civil judgments and exclusions during the projects first year of operation, as 
well as significant fines, recoveries, settlements and civil monetary penalties. Audits and 
inspections have identified investigative targets, and made recommendations for recoveries 
and program and policy changes intended to render the Medicare and Medicaid programs 
less vulnerable to abuse. In addition, OIG has issued several special fraud alerts to educate 
the public and the health care industry about fraudulent and abusive health care practices. 
The President and I are very pleased with the progress made by OIG and its partners in 
Operation Restore Trusts first year. We hope to see the knowledge and experience gained 
from this fruitful undertaking extended to other areas in the future. I commend the efforts 
of the Inspector General and her staff and applaud their accomplishments in these 
challenging times. 
Donna E. Shalala  FOREWORD

I  am  pleased  to  present  this  semiannual  report  describing  the  accomplishments  of  the 
Department of Health and Human Services (HHS) Office of Inspector General (OIG) for the 
6-month period ending March 31, 1996. 
As noted in the Message from the Secretary, this first half of Fiscal Year (FY) 1996 was a 
challenging time in the Federal Government.  The budget deadlock caused many of OIGs 
critical antifraud and abuse activities to be seriously curtailed.  We were forced to suspend 
several enforcement efforts, audits and inspections, and were unable to launch many planned 
initiatives.  In addition, OIGs statistical results for the 6-month period showed the initial 
impact of the Social Security Administrations departure and the consequent transfer of 
approximately one-quarter of OIGs staff to the newly independent agency. 
Nevertheless, we enjoyed many notable successes during this semiannual period.  These 
successes followed from our commitment to developing innovative ways of leveraging our 
limited  resources  and  supplementing  those  resources  through  collaboration  with  other 
Federal, State and local agencies in areas of mutual interest. 
One of our most noteworthy achievements during this semiannual period underscores that 
commitment.  Operation Restore Trust, a multidisciplinary approach to reducing fraud, 
waste and abuse in specific sectors of the health care industry, is well underway. Despite the 
projects limited scope, much has already been accomplished.  The benefits gained from this 
experience, both in the reduction of fraud and abuse and the collaboration by numerous 
agencies in an effort to attack these problems in a comprehensive way, will have an impact 
for many years to come. 
In another cooperative effort, described in Chapter II, OIG formed partnerships with State 
auditors and evaluators, as well as the Health Care Financing Administration, to identify 
opportunities for curbing Medicaid costs and to produce savings at both the Federal and 
State levels. 
By targeting our resources to the most crucial issues within HHS and collaborating with 
others to our common benefit, we have worked to maximize the return to the American 
taxpayer.  In FY 1995, we reported over $10 billion in savings, or $115 for each dollar 
invested in OIG and an average of $9.7 million per OIG employee.  These savings resulted 
from implementation of OIG recommendations by the Congress or management through 
legislation, regulations or administrative action, as well as investigative receivables and  audit disallowances. Moreover, as detailed in OIGs Red Book, we have identified billions 
of dollars in potential savings through recommendations which are being considered for 
implementation. A summary of our accomplishments during this 6-month period is included 
in the Highlights section of this semiannual report. 
We will continue to seek creative ways of fulfilling our mission to protect the integrity of 
HHS programs and the health and welfare of the beneficiaries served by those programs. 
With the support of the Department and the Congress, we are confident of success in 
meeting the challenges that lay ahead. 
June Gibbs Brown 
Inspector General  HIGHLIGHTS

Introduction 
In these times of fiscal austerity, the Office of Inspector General (OIG) has maximized its 
impact by targeting its  resources  to promoting improved  service delivery and program 
effectiveness;  addressing  systemic  problems  of  fraud,  waste  and  abuse;  and  devising 
innovative ways to fulfill its mission.  Within its own organization, OIG has reengineered 
basic  work  processes  and  instituted  team  approaches.  The  OIGs  components  have 
heightened their collaboration, initiating joint audits, evaluations and investigations in the 
fight against fraud in health care and other areas.  On the Department level, OIG has 
intensified  its  efforts  to  develop  more  effective  working  relationships  with  program 
managers,  and  assisted  them  in  formulating  performance  measures  for  assessing  the 
achievement of program goals. 
To  further  extend  its  reach,  OIG  has  identified  opportunities  for  mutually  beneficial 
coordination with other Federal, State and local agencies.  The results of these cooperative 
ventures have been impressive and are reflected throughout this semiannual report.  The 
single best example of such a partnership is Operation Restore Trust, discussed in Chapter I. 
Operation Restore Trust 
A  major  program  integrity  project,  Operation  Restore  Trust  models  an  approach  for 
attacking health care fraud through focused intergovernmental teams.  New and innovative 
methods are being utilized in this concerted effort, including the application of advanced 
computer technology and data gathering techniques; personal contact with beneficiaries in 
the  course  of  health  care  provider  audits;  and  collaboration  with  State  long-term  care 
ombudsmen and quality assurance specialists from the State surveyors offices. 
The OIG and its partners have much to be proud of at the projects one year anniversary. 
Even greater achievements are anticipated for the coming year.  At the conclusion of this 
project, OIG expects that its investment in the detection and pursuit of fraud, waste and 
abuse in these areas will be returned many times over in recoveries, fines, penalties and 
savings to the Medicare trust fund. 
Within  the  text  of  this  semiannual  report,  summaries  of  audits,  evaluations  and 
investigations related to Operation Restore Trust which were finalized during this 6-month 
period are labeled with the symbol  for ready identification.  The labeled summaries 
are listed in Appendix G. 
i  Some of OIGs most significant accomplishments under Operation Restore Trust in this 
6-month period were: 
	 A former nursing home owner/operator was sentenced in California to 11 
years and 3 months in prison and ordered to pay more than $3.5 million in 
fines, restitution and assessments for filing fraudulent Medicare reports. 
(See page 19) 
	 Five nursing homes paid a total of $2.9 million to settle civil allegations that 
they entered into a scheme with a billing company to submit claims for 
medical supplies not covered by Medicare.  (See page 14) 
	 Four of nineteen persons were sentenced for participating in a scheme that 
cost Medicare more than $13 million which included filing false statements, 
conspiracy and accepting kickbacks from a New York durable medical 
equipment (DME) company. (See page 23) 
	 As part of the project, 21 DME companies and DME owners, as well as 
skilled nursing facility employees, were excluded from Medicare and State 
health care program participation for engaging in fraud or abuse of the 
Medicare and Medicaid programs and/or their beneficiaries. (See page 11) 
	 An OIG inspection that surveyed beneficiary satisfaction with home health 
services recommended that HCFA improve upon opportunities to explain 
the home health benefit to Medicare beneficiaries to correct a weakness 
disclosed by the survey. (See page 16) 
	 The  OIG  found  that  questionable  billing  practices  in  Medicare  for 
incontinence supplies were mirrored in the Medicaid program, and noted 
problems with recoveries of overpayments associated with dually eligible 
beneficiaries, prompting HCFA to take corrective action.  (See page 27) 
	 In a series of reports on Medicare reimbursement for wound care supplies, 
OIG  found  that  questionable  payments  may  account  for  as  much  as 
two-thirds of the $98 million in allowances from June 1994 to February 
1995. (See page 24) 
Other OIG Achievements 
The following examples  reflect  other  major OIG accomplishments  realized during this 
semiannual period: 
	 A Pennsylvania teaching hospital and a physician group at the hospital 
agreed  to  pay  $30  million  to  resolve  their  civil  liability  because  the 
ii  physician group billed for a higher level of service than what was in fact 
provided. (See page 13) 
	 The  owner/chief  executive  officer,  former  vice  president  and  former 
manager of Georgias largest home health agency were sentenced to serve 
lengthy prison terms and ordered to pay close to $38 million in fines and 
restitution for a wide-range of crimes related to Medicare and Medicaid 
fraud. (See page 19) 
	 An  Ohio  hospital  paid  $1.17  million  to  settle  allegations  that  it  billed 
Medicare and Medicaid for blood specimen collections when in fact it was 
performing other nonreimbursable services. (See page 14) 
	 The  owner  of  six  Pennsylvania  DME  companies  was  sentenced  to  78 
months  imprisonment,  and  he  and  his  company  assessed  $88,400,  for 
soliciting  Medicare  beneficiaries  by  telephone  to  accept  items  their 
physicians said were not medically necessary. (See page 25) 
	 The  OIG  identified  $35.7  million  in  overpayments  made  to  health 
maintenance  organizations  and  competitive  medical  plans  for  Medicare 
beneficiaries inappropriately identified as having end stage renal disease. 
(See page 7) 
	 In an inspection of unused Medicare provider numbers, OIG found that 
vulnerabilities still existed in the system because numbers were deactivated 
after 3 years of nonuse rather than annually, as OIG recommended.  (See 
page 18) 
	 Partnerships  with  State  auditors  are  identifying  opportunities  to  curb 
Medicaid  costs.   Five  States  have  produced  eight  reports  during  this 
semiannual  period  uncovering  several  million  dollars  in  potential 
recoveries.  Audits are underway in another five States and OIG is working 
with another four States to develop partnership arrangements. (See page 28) 
	 From 1991 to 1994 emergency assistance expenditures increased by 400 
percent to $782 million and they are expected to increase to over $1 billion 
in 1996.  The OIG recommended options to the Administration for Children 
and Families to curb the growth of this program.  (See page 42) 
	 The OIG identified best practices and opportunities for States to increase 
specialized  transportation  services  to  the  elderly  and  disabled  without 
increasing Federal expenditures.  (See page 46) 
iii  OIG Work in Performance Measurement 
In order to identify work done in the area of performance measurement, OIG has labeled 
some  items  throughout  this  report  as  performance  measures  with  the  symbol 
. Performance measures are used to evaluate the achievement of a program 
goal, such as the efficiency of an immunization program which is measured by the number 
of inoculations provided per dollar of cost.  In OIGs opinion, the audits, inspections and 
investigations  identified  with  the  performance  measure  symbol  offer  management 
information about whether some aspect or all of the programs or activities reviewed are 
achieving their missions and goals.  These proposals are provided to management for their 
consideration as they develop their performance measures. (See Appendix F) 
Internet Address 
This semiannual report and other OIG materials may be accessed 
on the Internet at the following address: 
http://www.sbaonline.sba.gov/ignet/internal/hhs/hhs.html 
iv  TABLE OF CONTENTS

Page 
Chapter I  OPERATION RESTORE TRUST  . . . . . . . . . . . . . . . . . . . . . . . .1

Chapter II  HEALTH CARE FINANCING ADMINISTRATION 
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .  5

Medicare Risk Health Maintenance Organization Performance

Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6

Medicare Beneficiary Interest in Health Maintenance Organizations . . . . . . . . . . . . . . .  6

Medicare Payments to Health Maintenance Organizations for End Stage

Renal Disease Beneficiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7

Hospital Closure: 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7

Medicare Part B Billings atTeaching Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Medicare Transaction System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

Medicare Peer Review Organizations Role in Identifying and

Responding to PoorPerformers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

Beneficiary Complaint Process of the Peer Review Organizations  . . . . . . . . . . . . . . .  10

Medicare Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

A.  Aetna Life Insurance Company  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B.  Blue Cross and Blue Shield Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Fraud and Abuse Sanctions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

B.  Civil Penalties forFalse Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Medicare Beneficiary Satisfaction with and Understanding of Home

Health Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

Geographical Variation in Visits Provided by Home Health Agencies . . . . . . . . . . . . .  17
 CarriersNeed to Purge Unused ProviderNumbers  . . . . . . . . . . . . . . . . . . . . . . . . . . .  18

Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19

Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22

Medicare Payments forClinical Laboratory Tests  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23

Payments forPrescription Drugs Used with Nebulizers . . . . . . . . . . . . . . . . . . . . . . . .  23

Wound Care Supplies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

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

Vulnerabilitiesin Medicaid Asset Verification  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

Medicaid Drug Rebate Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27

Medicaid PaymentsforIncontinence Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27

Medicaid Reimbursement for Clinical Laboratory Services . . . . . . . . . . . . . . . . . . . . .  28

Federal and State Partnership: Joint AuditsofMedicaid . . . . . . . . . . . . . . . . . . . . . . .  28

A.  PartnershipswithState Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

1.  Louisiana  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

2.  North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

3.  Texas  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

4.  Massachusetts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

5.  Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

B.  Partnering with the National State Auditors Association  . . . . . . . . . . . . . . . . 30

Medicaid Inpatient Alcoholism Claims: New YorkState . . . . . . . . . . . . . . . . . . . . . . .  31

State Medicaid Fraud Control Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31

Chapter III  PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . .  33

Reimbursable Patient Care Costs at the National Institutes of Healths

ClinicalCenter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

National Institutes of Healths Use of Heart Surgery Contracts with

Private Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
 Audits of the National Institutes of Healths Trust Funds, the

Cooperative Research and Development Agreements, and Royalties for

Fiscal Year1994  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

Attempted Bribery of Food and Drug Administration Inspector  . . . . . . . . . . . . . . . . .  35

Ryan White Comprehensive AIDS Resource Emergency Act: Boston

Metropolitan Area forFiscal Year1994  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . .  36

Guidelines Sponsored by the

Agency forHealth CarePolicy and Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37

Superfund Financial Activities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37

A.  Agency forToxic Substances and Disease Registry  . . . . . . . . . . . . . . . . . . .  38

B.  National Institute of Environmental Health Sciences . . . . . . . . . . . . . . . . . . . 38

Fraud and Abuse ofGrant and ContractFunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38

Chapter IV  ADMINISTRATION FOR CHILDREN AND 
FAMILIES, AND ADMINISTRATION ON AGING 
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . .  41

Emergency Assistance Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42

A.  Rising Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

B.  Eligibility Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

C.  KansasEmergency Assistance Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43

Job Opportunities and Basic Skills Program Literacy Training Contract:

Mississippi  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43

Fraud in the Aid to Families with Dependent Children Program  . . . . . . . . . . . . . . . . .  44

Systematic Alien Verification forEntitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44

A.  Cost-Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

B.  System Processes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

FeesRetained by Child Placing Agenciesin Texas  . . . . . . . . . . . . . . . . . . . . . . . . . . .  45

Retroactive TitleIV-EFosterCareClaims: Missouri  . . . . . . . . . . . . . . . . . . . . . . . . .  45

RecoveryofFederalPayments in Canceled Checks . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
 Head StartFraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46

Coordination ofSpecialized Transportation Services . . . . . . . . . . . . . . . . . . . . . . . . . .  46

Chapter V  GENERAL OVERSIGHT 
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47

Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47

A.  Office ofInspectorGenerals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . .  48

B.  Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49

Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . .  50

A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

B.  Funds Putto BetterUse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . .  52

A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

B.  Legislative and Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . 52

C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Training ContractPractices: New York  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53

Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53

APPENDIX A -Implemented Office of Inspector General 
Recommendations to Put Funds to Better Use 
October1995 throughMarch 1996  . . . . . . . . . . . . . . . . . . . . . . . A-1 
APPENDIX B -Unimplemented Office of Inspector General

RecommendationstoPutFunds toBetter Use . . . . . . . . . . . . . .  B-1

APPENDIX C -Unimplemented Office of Inspector General

Program and Management Improvement

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

APPENDIX D -Notes to Tables Iand II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

APPENDIX E -Reporting Requirements of the Inspector General

Actof1978,asAmended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  E-1

APPENDIX F-Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-1
 APPENDIX G -Audits, Inspections and Investigations Related to 
Operation Restore Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1  Operation 
Restore 
Trust  Chapter I 
OPERATION RESTORE TRUST 
Operation Restore Trust targets fraud, waste and abuse in home health 
agencies, nursing homes and durable medical equipment suppliers in five 
States:  New York, Florida, Illinois, Texas and California. 
This semiannual report marks the 1-year anniversary of Operation Restore Trust.  Initiated 
by the Office of Inspector General (OIG) in March 1995, and publicly announced by the 
President on May 3, 1995, Operation Restore Trust is an ambitious interdisciplinary project 
in which Federal and State agencies join to fight fraud, waste and abuse in home health 
agencies, nursing homes, and the medical equipment and supply industry.  The 2-year 
project is an expansion of the team concept OIG has found fruitful over the years, based on 
collaboration and sharing of resources among multiple law enforcement agencies. It initially 
has targeted five States which account for 40 percent of the Nations Medicare and Medicaid 
beneficiaries:  New York, Florida, Illinois, Texas and California.  Funds available under the 
demonstration authority of Operation Restore Trust support only Operation Restore Trust 
projects during the 2-year demonstration period. 
As the projects coordinator, OIG assembled teams that include investigators from its Office 
of Investigations and the States Medicaid Fraud Control Units; auditors and evaluators from 
both OIG and HCFA; quality assurance specialists from the State surveyors and durable 
medical equipment regional coordinators; State long-term care ombudsmen through the 
Administration on Aging; and prosecutors from the Department of Justice and the State 
Attorneys  General.   These  teams  have  been  conducting  financial  audits  of  providers, 
criminal  investigations  and  referrals  to  Federal  and  State  prosecutors,  civil  and 
administrative  sanctions  and  recovery  actions,  and  surveys  and  inspections  of  nursing 
facilities.  The collective experience of these teams also is used to recommend to HCFA and 
the Congress program adjustments to prevent future fraud and to reduce waste and abuse. 
The OIG also enlisted the support and participation of the public and the industries that the 
initiative targets.  A hotline (1-800-HHS-TIPS) was established to receive allegations of 
fraud and abuse on a confidential basis.  To further educate the public and health care 
providers, OIG will continue its practice of issuing special fraud alerts to identify and 
describe fraudulent and abusive health care practices.  Moreover, a voluntary disclosure 
1  program was initiated on a pilot basis under the auspices of Operation Restore Trust. 
Through this pilot program, OIG and the Department of Justice established procedures by 
which home health and nursing home suppliers and providers in the five States may come 
forward with full disclosure of potential fraud and abuse.  By doing so, self-disclosing 
providers may minimize the cost and disruption of an investigation, negotiate a monetary 
settlement in lieu of prosecution, and possibly avoid exclusion from Medicare and Medicaid 
program  participation  when  appropriate.   The  disclosure  program  also  benefits  the 
Government by exposing schemes that might otherwise go undetected, and expediting the 
investigation and resolution of program abuses. 
All OIG ongoing and new investigations, audits and inspections related to fraud and abuse 
in the targeted areas of the five States were gathered into the project, that they might benefit 
from its focused attention, expertise and energies.  Since that time, 117 other investigations 
have been initiated, for a total of 252 cases involving more than 1,340 subjects.  Fifty-nine 
are joint investigations with other law enforcement agencies, including the Federal Bureau 
of Investigation, the United States Postal Service, the Railroad Retirement Board OIG, the 
Defense Criminal Investigation Service and State Attorneys General offices. 
Since the special hotline was established in June 1995, it has received more than 23,600 
calls and letters, of which well over 6,600 were related to Department programs.  Of the 780 
calls or letters related to Operation Restore Trust during that time, about 560 were related to 
nursing homes and related medical services, and 220 to home health agencies. 
The distribution of all Operation Restore Trust cases among the target States mirrors the 
beneficiary population of each State.  New York, California and Florida have 75 percent of 
the investigations. The remaining 25 percent are equally divided between Illinois and Texas. 
Nursing home facilities and related medical services comprise approximately 80 percent of 
the cases, home health agencies the remaining 20 percent. 
During its first year of operation, 32 criminal convictions, 10 civil judgments and 18 
indictments  were  obtained  under  Operation  Restore  Trust.   Twenty-eight  criminal 
convictions, 9 civil settlements and 18 indictments involved nursing facilities and related 
medical services cases, and 4 convictions and 1 settlement concerned home health agencies. 
In  addition,  OIG  has  collected  a  total  of  more  than  $37  million  in  fines,  recoveries, 
settlements and civil monetary penalties during this same period.  Thirty-six exclusions of 
Operation  Restore  Trust  providers  from  the  Medicare  and  Medicaid  programs  for 
convictions of health care fraud have been processed. 
Numerous audit and inspection reports related to Operation Restore Trust have already been 
issued and work continued during this semiannual period.  In reviews involving claims by 
home health agencies, OIG continued to find instances in which Medicare patients were not 
homebound, or the services were not necessary or not rendered. In these cases, auditors kept 
2
 in constant communication with OIG investigators so that they could intervene if warranted. 
The OIG also continued its audits at hospices and identified additional people who appeared 
to be ineligible based upon their medical condition at the time they entered the hospices. 
The OIG is working closely with the Office of General Counsel in adjudicating these cases. 
Further, OIG completed a pilot review in Florida on evaluating skilled nursing facility care 
at individual providers.  The OIG modified the audit protocol and will use it during its 
expanded reviews of other nursing facilities. 
Within the text of the semiannual report, summaries of audits, evaluations and investigations 
related to Operation Restore Trust which were finalized during this 6-month period have 
been labeled with the symbol  for ready identification.  The labeled summaries are 
listed in Appendix G. 
The project will take 2 years for completion and evaluation.  If it continues to prove to be 
both effective and efficient, other areas may be singled out for similar treatment. Employing 
these and other initiatives, OIG is working to ensure the integrity and efficiency of the 
Medicare and Medicaid programs and to protect the beneficiaries of those programs. 
3  Health Care 
Financing 
Administration  Chapter II 
HEALTH CARE FINANCING ADMINISTRATION

Overview of Program Area and Office of 
Inspector General Activities 
The Health Care Financing Administration (HCFA) is responsible for administering the 
Medicare and Medicaid programs.  Medicare Part A provides hospital and other institutional 
insurance for persons age 65 or older and for certain disabled persons, and is financed by the 
Federal Hospital Insurance Trust Fund. Medicare Part B (Supplementary Medical Insurance) 
is an optional program which covers most of the costs of medically necessary physician and 
other services, and is financed by participants and general revenues. 
The Medicaid program provides grants to States for medical care for approximately 37 
million low-income people.  Eligibility for Medicaid is, in general, based on a persons 
eligibility for cash assistance programs, typically Aid to Families with Dependent Children 
or Supplemental Security Income.  State expenditures for medical assistance are matched by 
the Federal Government using a formula that measures per capita income in each State 
relative to the national average. 
The Office of Inspector General (OIG) has devoted significant resources to investigating and 
monitoring the Medicare and Medicaid programs. These activities have often led to criminal, 
civil and/or administrative actions against perpetrators of fraud and abuse.  They also have 
helped ensure the cost-effective delivery of health care, improved the quality of health care 
and reduced the potential for fraud, waste and abuse. 
Over the years, OIG findings and recommendations have contributed to many significant 
reforms in the Medicare program.  Such reforms include implementation of the prospective 
payment system (PPS) for inpatient hospital services and a fee schedule for physician 
services; the Clinical Laboratory Improvement Amendments of 1988; regional consolidation 
of claims processing for durable medical equipment (DME); establishment of fraud units at 
Medicare contractors; prohibition on Medicare payment for physician self-referrals; and new 
payment methodologies for graduate medical education. 
The  OIG  has  documented  excessive  payments  for  hospital  services,  indirect  medical 
education, DME and laboratory services, which led to statutory changes to reduce payments 
in those areas. To ensure quality of patient care, OIG has assessed clinical and physiological 
laboratories; evaluated the medical necessity of certain services and medical equipment; 
5  analyzed various State licensure and discipline issues; reviewed several aspects of medical 
necessity and quality of care under PPS, including the risk of early discharge; and evaluated 
the care rendered by itinerant surgeons and the treatment provided by physicians performing 
in-office surgery. 
The OIG also plays a role in the Departments Federal Managers Financial Integrity Act 
process designed to detect and correct systemic weaknesses, and reviews HCFAs financial 
statements under the Chief Financial Officers Act. 
Medicare Risk Health Maintenance 
Organization Performance Indicators 
The rapidly increasing participation of Medicare and Medicaid beneficiaries in managed 
care has heightened the need to find valid measures and performance indicators for health 
maintenance  organizations  (HMOs).   Two  measures  which  have  been  considered  by 
researchers and policy analysts are HMO disenrollment rates and direct surveys of HMO 
members.   In an analysis  of  data from a previous OIG survey of 2,882 enrolled and 
disenrolled  beneficiaries  in  45  Medicare  risk  HMOs,  OIG  determined  that  HMO 
disenrollment rates may provide an early alert of possible problems among Medicare risk 
HMOs. 
The OIG recommended that HCFA use systematically developed HMO disenrollment rates 
and beneficiary survey data to improve its monitoring activities. Specifically, OIG proposed 
that HCFA:  track disenrollment rates over time to detect potential problems among HMOs; 
use adjusted disenrollment rates along with other available HMO information to target 
reviews of HMOs; conduct disenrollment surveys that fully capture beneficiaries reasons 
for leaving risk HMOs.; survey enrollees systematically and routinely on key questions and 
on their desire to leave/remain with their HMOs as a complement to disenrollment data; 
monitor Medicare risk HMOs with high disenrollment rates and reported service access 
problems,  and  work  with  HMOs  to  respond  to  the  needs  of  beneficiaries  at  risk  of 
disenrolling. 
The HCFA concurred with OIGs recommendations and noted several projects underway by 
the  Office  of  Managed  Care  and  other  work  groups  addressing  many  of  them. 
(OEI-06-91-00734) 
Medicare Beneficiary Interest in 
Health Maintenance Organizations 
This report concerned Medicare beneficiary awareness of and interest in joining HMOs. 
Although most of the 1,000 beneficiaries who responded to OIGs survey had heard of 
HMOs, 64 percent said they would like more information about them.  The OIG found that 
HCFA has a potentially receptive population for increasing the use of HMOs:  27 percent of 
6  the respondents expressed an interest in joining an HMO and an additional 34 percent said 
they did not know if they would be interested in joining. Only 39 percent said they were not 
interested, mainly because they could not select their own physicians.  The HCFA concurred 
with OIGs recommendation that it continue efforts to educate Medicare beneficiaries on 
managed care options and HMOs. (OEI-04-93-00142) 
Medicare Payments to Health Maintenance Organizations for End 
Stage Renal Disease Beneficiaries 
The OIG found that between October 1990 and February 1995 approximately $35.7 million 
in  overpayments  were  made  to  HMOs  and  competitive  medical  plans  for  Medicare 
beneficiaries inappropriately identified as having end stage renal disease (ESRD).  This was 
due to systems weaknesses at HCFA.  The OIG found that when an HMO or competitive 
medical plan advised HCFA that a beneficiary no longer met the ESRD definition, HCFAs 
systems did not recognize ESRD termination.  This resulted in the HMO or competitive 
medical plan continuing to receive an enhanced ESRD capitation payment.  The enhanced 
monthly ESRD capitation rate is approximately $3,000 per beneficiary. 
The OIG recommended that HCFA advise all risk-based HMOs and competitive medical 
plans that ESRD capitation rates are only effective for beneficiaries who currently are 
diagnosed as having ESRD, recover the $35.7 million in overpayments identified through 
February 1995 as well as subsequent overpayments that have occurred, and make systemic 
and procedural changes to prevent future overpayments.  The HCFA agreed with OIGs 
findings and recommendations. (CIN: A-04-94-01090) 
Hospital Closure:  1994 
The  closure  of  general,  acute  care  hospitals  in  recent  years  has  generated  public  and 
congressional concern.  In response, OIG has released annual reports describing the extent, 
characteristics  and  impact  of  hospital  closure  from  1987  through  1993.  This  report 
continues that analysis. 
As illustrated in the following chart, 16 hospitals closed in 1994, the lowest number of 
yearly closings since OIG began these inspections. 
7
 HOSPITAL CLOSURE 
Number of closures in the United States 
100 
88 
80  76 
69 
60  56  57 
50 
42 
40 
20  16 
0 
1987  1988  1989  1990  1991  1992  1993  1994 
Year 
While 16 hospitals closed in 1994, 13 hospitals opened.  Most of the hospitals that closed 
were small and had low occupancy.  The average daily patient load in the year prior to 
closure was about 5 in rural hospitals and about 39 in urban hospitals.  Rural hospitals that 
closed had an average occupancy rate of 28 percent; urban hospitals that closed had an 
average occupancy rate of 41 percent.  Although residents of a few communities had to 
travel greater distances for hospital care, most had emergency and inpatient medical care 
available within 10 miles of a closed hospital. (OEI-04-95-00100) 
Medicare Part B Billings at Teaching Hospitals 
The OIG reported to HCFA on the status of a nationwide project involving a review of 
Medicare Part B billings by physician group practices at teaching hospitals.  This two-stage 
project is being conducted jointly by OIG and the Department of Justice (DOJ) and is a good 
example of the successful use of audit resources in investigative work. 
The OIG/DOJ project emanated from an OIG audit of Medicare billings by the Clinical 
Practices of the University of Pennsylvania (CPUP).  The OIG/DOJ review found that, for a 
significant number of Medicare Part B bills, the medical records had no documentation to 
show that a CPUP physician was present when residents of the teaching hospital performed 
a  service.  Without  such  documentation,  these  bills  were  ineligible  for  Medicare 
reimbursement. In addition, a significant number of services were billed at a higher level of 
care than the level supported by the medical records.  While most of the upcoding involved 
just one level of care, many services were upcoded two levels and some were upcoded three 
8  levels.   Generally,  the  higher  the  level  of  care  provided,  the  higher  the  Medicare 
reimbursement. 
Negotiations between CPUP and OIG/DOJ culminated in a signed agreement under which 
CPUP will pay over $30 million to the Federal Government as full and final settlement for 
claims submitted during the years 1989 through 1994.  A summary of the settlement is 
reported on page 13.  Because of the success of phase one, OIG and DOJ are expanding the 
project  to  physician  group  practices  at  other  teaching  hospitals  nationally.   (CIN: 
A-03-94-00016) 
Medicare Transaction System 
This report summarizes the results through December 1994 of OIGs monitoring of HCFAs 
Medicare  transaction  system  (MTS)  initiative    a  major  effort  on  HCFAs  part  to 
implement a single, integrated national claims processing system. The system is expected to 
be phased in at a small number of sites beginning in 1997 with full implementation before 
the end of 1999.  The OIG found that HCFA had taken a number of steps to include a broad 
range of functions related to Medicare benefits administration within the scope of the new 
system and also to improve internal and financial management controls over Medicare 
benefit payments.  However, OIG found that HCFA needed to identify and share with its 
MTS design contractor the full range of possible Medicare program changes so that the 
contractor could build an adaptable system design.  Also, OIG found that HCFA needed to 
cover certain previously identified weaknesses and limitations in current Medicare claims 
processing. 
In response to OIGs findings, HCFA noted that it had provided its design contractor with 
program and operations planning scenarios addressing issues that could have a major impact 
on MTS over its useful life for the contractors use in evaluating alternative systems design. 
The HCFA also identified a number of actions already taken to address previously identified 
weaknesses and limitations in claims processing. (CIN: A-14-93-02543) 
Medicare Peer Review Organizations Role 
in Identifying and Responding to Poor Performers 
The OIG found that, as the peer review organization (PRO) program becomes increasingly 
committed to improving the overall practice of medicine, its ability to find and take action 
on poorly performing physicians and hospitals is questionable.  The PROs have very limited 
leads with which to identify poor performers, and they are unlikely, under their current 
contracts, to determine if leads are isolated events or part of a pattern of poor care.  In 
addition, PROs rarely follow up on poor care by initiating improvement plans that compel 
poor performers to address the quality of care problems.  Further, as OIG has reported 
previously, the sanction referral authority continues in its moribund state and PROs continue 
to make minimal referrals to State medical boards.  While some expressed reservations 
9  about their impact on protecting beneficiaries from poor performers, PROs themselves find 
much that is positive about the current direction of the program. 
The OIG recommended that HCFA reconsider the PROs function to identify and respond 
effectively to poorly performing physicians and hospitals.  Toward that end, this report 
presented HCFA with two options:  proceed toward directing the PROs to focus exclusively 
on improving the mainstream of care and consider other ways in which to identify and 
respond to poor performers, or devote further inquiry to determine if and how these two 
functions can be performed simultaneously by the PROs.  The HCFA concurred with the 
recommendation. (OEI-01-93-00251) 
Beneficiary Complaint Process of 
the Peer Review Organizations 
The PROs aim to improve the overall practice of medicine by analyzing patterns of care and 
outcomes,  and  by  sharing  information  with  the  medical  community.   The  Medicare 
beneficiary complaint process is a primary vehicle through which the PROs are able to 
identify and respond to individual instances of poor medical care.  The OIG found that 
complaints to  PROs are  an important source  for  identifying quality of care problems. 
Between 10 and 15 percent of the complaints to all 53 PROs led to confirmed quality of care 
problems.  Half the PROs in OIGs sample identified health systems problems through 
complaints.  However, OIG found that Medicare beneficiaries are often unaware of their 
opportunity to complain to PROs about the quality of their medical care.  Moreover, OIG 
determined that the complaint process has some flaws that undermine its effectiveness.  To 
remedy  these,  OIG  recommended  that  HCFA:   require  the  PROs  to  respond  more 
substantively to complainants; identify cost-effective ways to enhance beneficiary awareness 
of the PROs and the complaint process; and streamline the complaint process.  While HCFA 
agreed with some of the recommendations, it expressed concerns about preserving the due 
process rights of providers and the completeness of the PRO reviews. (OEI-01-93-00250) 
Medicare Administrative Costs 
The  HCFA  contracts  with  private insurance companies (fiscal  intermediaries  [FIs]  and 
carriers) to process and pay Medicare claims.  The OIG reviews the allowability of costs 
claimed for reimbursement by these contractors. 
A.  Aetna Life Insurance Company 
The  OIG  determined  that  the  Aetna  Life  Insurance  Company  charged  unallowable 
administrative costs to Medicare Parts A and B for Fiscal Years (FYs) 1990 through 1994, 
and recommended a financial adjustment totaling nearly $2.94 million.  Aetna concurred 
with this adjustment except for $512,330 related to facilities and occupancy costs.  The 
HCFA is currently negotiating a settlement. (CIN: A-01-95-00504) 
10  B.  Blue Cross and Blue Shield Association 
An OIG audit of Blue Cross and Blue Shield Association (BCBSA) for FYs 1990 through 
1993 determined that unallowable administrative costs were charged to Medicare Part A. 
The OIG recommended a financial adjustment totaling over $1.3 million.  The BCBSA 
concurred with portions of the amounts questioned for travel and entertainment and other 
costs. The HCFA is currently negotiating a settlement. (CIN: A-05-95-00042) 
Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 786 sanctions, in the form of exclusions or 
monetary  penalties,  on  individuals  and  entities  for  engaging  in  fraud  or  abuse  of the 
Medicare and Medicaid programs and/or their beneficiaries.  About three-fourths of the 
exclusions were based on conviction of program-related crimes, conviction of controlled 
substance manufacture or distribution, conviction related to patient abuse or loss of license 
to practice health care.  Monetary penalties can be assessed under several civil monetary 
penalty (CMP) authorities which have been delegated to OIG. 
The  OIG  has  continued  to  leverage  its  resources  by  forming  multidisciplinary  teams 
composed of its own auditors and investigators, as well as outside investigative groups when 
appropriate, to increase its focus on combating fraud, waste and abuse in departmental 
programs. 
A.  Program Exclusions 
Title  XI  of  the  Social  Security  Act  provides  a  wide  range  of  authorities  to  exclude 
individuals and entities from the Medicare, Medicaid, Maternal and Child Health Services 
Block Grant, and Block Grants to States for Social Services programs.  Exclusions can be 
imposed  for  conviction  of  fraud  against  a  private  health  insurer,  obstruction  of  an 
investigation, distribution of a controlled substance, revocation or surrender of a health care 
license,  or  failure  to  repay  health  education  assistance  loans  (HEALs).   Exclusion  is 
mandatory for those convicted of program-related crimes or crimes relating to patient abuse. 
A significant number of OIG exclusions involve failure to repay HEALs, as discussed in 
more detail in the chapter on the Public Health Service.  During this reporting period, OIG 
imposed exclusions on 615 individuals and entities in all. 
The OIG reviews all factors  involved  in  a case to determine  whether an  exclusion is 
appropriate  and,  if  so,  the  proper  length  of  the  exclusion.  Factors  reviewed  include 
information solicited directly from the provider and information obtained from outside 
sources  such  as  courts,  licensing  agencies,  or  other  Federal  or  State  programs.   The 
following exclusions are examples of some imposed during this reporting period: 
	 To date, 14 of the 23 social workers and HMO representatives involved in 
an elaborate scheme to defraud the Medicaid program have each  been 
11
 excluded for 5 years.  The remaining individuals are in the process of being 
excluded.  As part of the scheme, they used such tactics as forgery and 
bribery to obtain confidential information on Maryland medical assistance 
recipients to enroll them in HMOs without their knowledge. 
  A 15-year exclusion was imposed on a West Virginia dentist convicted of 
receiving over $600,000 in Medicaid reimbursement for services he did not 
perform.  In addition, he was convicted of using a medical device from a 
foreign country for which approval had not been given by the Food and 
Drug Administration. 
  After being convicted of three counts of indecent assault on patients, a 
Pennsylvania gynecologist was excluded for 10 years. 
  Two Texas nurses aides were excluded for 5 years after being convicted, in 
separate instances, of nursing home patient abuse.  Another Texas nurses 
aide was excluded for 5 years after being convicted of failure to report the 
abuse or neglect of a nursing home patient. 
  A 20-year exclusion was imposed on a Pennsylvania physician convicted of 
defrauding  the Civilian  Health  and Medical Program  of the Uniformed 
Services (CHAMPUS) program of over $4.4 million.  He had previously 
been excluded in 1982 as a result of his conviction for fraud against the 
Medicaid program. 
  An Ohio physician was excluded for an indefinite period after his license 
was revoked for failure to provide care that met minimum standards. 
  A physician was excluded from program participation indefinitely after the 
Indiana Medical Licensing Board revoked his license for engaging in a 
course  of  repeated  conduct  which  demonstrated  a  failure  to  exercise 
reasonable care and diligence as is ordinarily exercised by practitioners. 
  An individual wishing to work as a certified nursing assistant was barred 
from  receiving  Medicaid  reimbursement  by  the  Maine  Department  of 
Human Services as a result of his conviction for tampering with public 
records or information.  Based on the debarment, he was excluded for 15 
years. 
  After being convicted of conspiracy to defraud, filing false and fraudulent 
claims,  and  paying kickbacks  for  the referral  of  Medicare  patients,  the 
owner and operator of eight Florida DME companies was excluded for 30 
12  years.  In addition, one of his employees was also convicted of conspiracy 
and has been excluded for 10 years. 
The actions taken by OIG to exclude individuals and entities have made it a focal point in 
the credentialing of health care providers.  As a means of safeguarding the provision of 
health care in the private sector, a number of hospitals and others in the health care industry 
have established a routine practice of querying OIG to ensure that individuals they are 
considering hiring have not been excluded from Medicare and State health care program 
participation. In fact, the National Committee on Quality Assurance (NCQA) has mandated 
that  any  HMO  seeking  accreditation  by  it  must  credential  all  of  their  health  care 
professionals. The NCQA has included in this credentialing process the requirement that the 
Department of Health and Human Services OIG specifically be queried to determine if any 
of the HMOs health professionals have been excluded from program participation. 
As more and more HMOs have sought accreditation and the practice of credentialing has 
grown in the health care arena, the number of queries to OIG for exclusion information has 
increased  substantially.   During  this  6-month  period,  OIG  responded  to  credentialing 
requests from HMOs, hospitals, medical societies, licensing boards, etc., to certify the 
exclusion status of over 11,000 individuals. 
B.  Civil Penalties for False Claims 
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and 
assessments against  health care  providers  who submit  false or  improper claims  to the 
Medicare and State health care programs.  The CMP law allows recoupment of monies lost 
through illegitimate claims, and it also protects health care providers by affording them due 
process  rights.   Many  providers  elect  to  settle  their  cases  prior  to  litigation.   The 
Government, with the assistance of OIG, recouped more than $50.5 million through both 
CMP and False Claims Act civil settlements related to health care during this reporting 
period. Some examples of these cases include: 
	 In Pennsylvania, a component of a university health system agreed to pay 
the Federal Government $30 million in settlement of charges of defrauding 
the  Medicare  program.   An  audit  and  investigation  revealed  that  false 
Medicare bills were submitted for physician services.  Many of the claims 
improperly  reported  the  level  of  care  provided  or  falsely  reported  the 
involvement of attending physicians, in addition to residents, rendering the 
service.  The resulting overpayment was approximately $10 million.  The 
civil settlement also requires that the component institute a compliance 
program  to  assure  correct  billing  practices  in  the  future.  See  page  8 
regarding the audit findings. 
13
   A New Jersey corporation agreed to pay $2.1 million to settle the civil 
aspects  of  a  scheme  to  defraud  Medicare.   The  corporation  used  its 
subsidiaries  in  Pennsylvania  and  Massachusetts  to  bill  carriers  in  each 
others  areas  to  obtain  the  best  reimbursement  for  x-ray  and 
electrocardiographic  services.   Approximately  6,000  false  claims  were 
submitted  in  violation  of  point-of-sale  regulations.   The  Pennsylvania 
subsidiary, its president and its vice president agreed to plead guilty to 
criminal charges for their involvement in the scheme. 
  Five nursing homes in the States of Florida and Washington agreed to pay 
nearly $2.9 million to  resolve their  civil liability for complicity in the 
submission of false claims to the Medicare program as a result of a joint 
audit and investigation.  The nursing homes entered into contracts with a 
billing agent, under the terms of which the agent reviewed medical records 
and then billed Medicare for so called lost charges.  These charges were 
for medical supplies for which the nursing homes had initially not filed 
claims.  The billing agent induced Medicare to pay these claims by putting 
false diagnoses on the claims forms.  In fact, the supplies which were billed 
were not reimbursable by Medicare. Under the contracts, the nursing homes 
kept  50  percent  of  all  reimbursement  by  Medicare.   As  part  of  the 
settlements, the nursing homes were required to enter into compliance plans 
designed to ensure the accuracy and validity of future billings and cost 
reports. 
  A California hospital paid nearly $1.3 million to resolve its civil liability for 
allegedly submitting false claims to the Medicare and Medicaid programs. 
The hospital submitted claims for experimental cardiac devices that had not 
received  final  approval  by  the  Food  and  Drug  Administration,  in 
contravention of Medicare rules and policies. 
  A medical center in Ohio agreed to pay $1.17 million to settle allegations of 
Medicare  and  Medicaid  fraud.   The  hospital  submitted  duplicate  and 
multiple billings for venipuncture (blood specimen collection) and claims 
for  venipunctures  when  other,  nonreimbursable  services  were  actually 
provided.   The  claims  were  submitted  through  a  computerized  billing 
system designed by consultants who are also under investigation. Estimated 
damages amounted to $390,000.  The hospital has agreed to an independent 
audit  of  other  billings,  back  to  1989,  and  to  reporting  any  improper 
payments.  In addition it will set up a compliance program  to educate 
employees  on  accurate  and  valid  filing  of  claims  with  Government 
programs. 
14  	 A 48-bed psychiatric hospital for children and adolescents in Nebraska and 
its Tennessee parent corporation agreed to pay close to $554,700 to settle 
allegations it filed false Medicaid claims as a result of a joint audit and 
investigation.  The hospital inflated the time its psychiatric doctors spent 
with patients by 35 to 60 minutes.  The hospital also allegedly billed for 
some psychiatric services that were never delivered.  Under the settlement, 
the companies also entered into an agreement to assure proper Medicaid 
training of employees and to audit all Medicaid billings for the next 5 years. 
	 A Philadelphia psychiatrist, his wife and their nonprofit corporation agreed 
to pay $500,000 in settlement for defrauding the Medicare and Medicaid 
programs of $300,000.  In addition, the corporation agreed to enter into a 
compliance program to ensure that false billings would not recur.  From 
1991 to 1993, the psychiatrist and his wife filed numerous false Medicare 
and Medicaid claims by billing for more therapy units than were provided to 
beneficiaries, billing for unsupervised treatments and billing for therapy 
which was not provided.  When agents conducted a search in January 1994, 
the psychiatrist attempted to remove records from the corporate office to 
prevent the Government from seizing them.  The records were recovered 
before he could destroy or alter them.  The psychiatrist has agreed to plead 
guilty to criminal charges of mail fraud and making false statements. 
	 An Ohio physician agreed to pay $300,000 in civil damages and penalties 
for  defrauding  Medicare,  Medicaid,  CHAMPUS,  and  the  Railroad 
Retirement Board.  The physician billed for laboratory services that were 
unnecessary  or  not  performed,  and  double-billed  by  fragmenting  and 
unbundling services.  He was convicted earlier of Medicaid fraud in State 
court and pled guilty to mail fraud and money laundering in Federal court. 
In the plea he agreed to cooperate with the Government in exchange for 
dismissal of charges under pretrial agreements against his corporation and 
his sister, a corporation employee. 
	 A Pennsylvania gynecologist/obstetrician agreed to pay $98,000 to settle 
allegations that he filed false claims with Medicare, the Federal Employees 
Health Benefits program and a private insurer.  Among other fraudulent 
claims,  the  physician  billed  Medicare  for  Pap  smears  which  were  not 
provided,  and  for  services  provided  to  his  parents,  which  are  not 
reimbursable  under  Medicare.   He  also  billed  routine  office  visits  by 
pregnant women as emergency visits and billed for hospital services which 
had already been paid to the hospital. 
15
   An Illinois physician agreed to pay $43,700 to resolve civil liabilities under 
the False Claims Act and the CMP law.  Investigation showed that between 
1990 and 1993 the physician submitted Medicare claims under his own 
name for an unlicensed physical therapist.  He retained 20 percent of the 
Medicare reimbursement and the therapist got the remainder. The physician 
surrendered his license. The therapist negotiated a settlement of $50,000 for 
his part in the scheme. 
Medicare Beneficiary Satisfaction with 
and Understanding of Home Health Services 
As part of a recurring nationwide Medicare beneficiary satisfaction survey, OIG found that 
most beneficiaries were satisfied with home health care:  91 percent said home health 
agency (HHA) personnel did an adequate job, 86 percent said they received the number of 
home health care visits they thought they needed, and 76 percent reported that a physician or 
HHA employee had explained how their medical condition should improve as a result of 
care received from an HHA.  However, as illustrated in the following chart, about half the 
beneficiaries in OIGs survey did not understand what Medicare paid for. 
BENEFICIARY UNDERSTANDING OF WHAT 
MEDICARE PAID FOR HOME HEALTH SERVICES 
Not Clear  29% 
Dont Know  15% 
Not Paid  3% 
Clear  53% 
Home health beneficiaries do not receive an Explanation of Medicare Benefits (EOMB), as 
do hospital beneficiaries. 
16  The OIG strongly supports HCFAs efforts to improve beneficiary understanding of the 
home  health  benefit.   The  OIG  recommended  that  HCFA  improve  upon  existing 
opportunities to explain the home health benefit to beneficiaries, including:  developing a 
plan to increase understanding of the home health benefit by physicians and discharge 
planners, and encouraging them to explain the benefit to patients receiving home health 
services; and stressing the requirement that HHAs explain the benefit as well as patients 
rights to beneficiaries when they start home health services.  In addition, HCFA should 
pursue new methods, such as providing an EOMB to home health beneficiaries and issuing a 
description of the home health benefit directly to Medicare beneficiaries. 
The HCFA concurred with OIGs recommendations, and is currently testing an EOMB for 
home health services and a pamphlet on the home health benefit that they plan to distribute 
to home health beneficiaries. (OEI-04-93-00143) 
Geographical Variation in Visits 
Provided by Home Health Agencies 
This OIG report, which identifies geographic locations of high-visit HHAs, should prove 
useful  to  HCFA,  State  survey  agencies,  regional  home  health  intermediaries,  and law 
enforcement agencies in targeting resources for detection and prevention of fraud and abuse. 
The OIG found that 19 States had a larger concentration of high-visit HHAs than the 34 
other States (including the District of Columbia, the Virgin Islands and Puerto Rico).  The 
HHAs in the southeastern region averaged the most visits per beneficiary and HHAs in four 
of those States averaged twice as many visits per beneficiary as HHAs in all other States, as 
illustrated below. 
17  AVERAGE NUMBER OF VISITS PER BENEFICIARY 
120 
100  94.9  94.7 
92.6 
88.4 
80 
60 
45.7 
40 
20 
0 
Tennesee  Alabama  Mississppi  Georgia  All Others 
States 
96SSEMI1 
Further, OIG determined that regardless of their location, HHAs serviced by regional home 
health  intermediaries  located  in  the  southeast  had  the  highest  number  of  visits  per 
beneficiary. 
In a previous report, OIG recommended that HCFA take action to eliminate inappropriate 
variation in Medicare reimbursement among HHAs, targeting high-visit HHAS for further 
review.   The  information  in  this  report  should  assist  HCFA  in  implementing  that 
recommendation.  The OIG believes that the variation in average number of visits by State 
and regions raises questions about the uniformity of oversight among State survey agencies, 
HCFA  regional  officials  and  regional  home  health  intermediaries.   The  OIG  plans  to 
continue  its  analysis  of  these  and  related  questions  under  Operation  Restore  Trust. 
(OEI-04-93-00262) 
Carriers Need to Purge Unused Provider Numbers 
In 1991, OIG reported that most Medicare carriers did not systematically update provider 
files and recommended that HCFA require deactivation of all provider numbers without 
current billing history.  In October 1994, HCFA instructed the carriers to deactivate provider 
numbers if no claims were submitted over a 3-year period.  The deactivation was completed 
by February 1995. 
In a review of Medicare carrier data obtained during May and June 1995, OIG found that the 
vulnerabilities remain.  For physicians who filed only paper rather than electronic claims, 
OIG determined that 65 percent of the active provider numbers in carrier files were not 
18  being used for submitting claims.  Because the large number of active but unused numbers 
raised significant concerns regarding integrity and efficiency, OIG recommended that HCFA 
require carriers to deactivate all provider numbers without current billing history annually 
and to update provider records periodically. The HCFA agreed with the finding, but thought 
that the 3-year deactivation threshold was adequate.  Since OIGs data showed that the 
deactivation completed in February 1995 left many unused provider numbers active in their 
files, OIG believes that more aggressive corrective action is necessary. (OEI-01-94-00231) 
Criminal Fraud 
The most common fraud investigated by OIG against health care providers is the filing of 
false claims or statements in connection with the Medicare and Medicaid programs, as 
illustrated in the following cases: 
  The owner and chief executive officer of Georgias largest home health 
agency, who pled guilty to charging Medicare and Medicaid for campaign 
contributions, ghost employees and personal vacation trips, was sentenced 
to 33 months incarceration followed by 3 years supervised work release, 
during which she is to perform 200 hours of community service.  She was 
fined $25 million and ordered to pay $11.5 million in restitution.  The 
companys former vice president was sentenced to 151 months incarceration 
and 3 years probation, fined $75,000 and ordered to repay $710,100.  He 
was  convicted  of  making  false  statements  about  salaries  for  ghost 
employees and a related organization, converting workers compensation 
premiums to his own use, using Medicare funds to support a consulting 
business, embezzling employee health insurance and benefit plan funds, 
committing bank fraud and laundering money.  In addition, the former 
agency risk manager was sentenced to 97 months incarceration and 3 years 
probation, and ordered to repay $710,000 after being convicted of mail 
fraud and conspiracy to defraud the Medicare and Medicaid programs.  The 
consulting business of which the risk manager had been president was 
sentenced  to  5  years  probation,  fined  $250,000  and  ordered  to  pay 
restitution of $710,000.  This case is an excellent example of a successful 
joint audit and investigative effort. 
  A former nursing home owner and operator was sentenced in California for 
filing over 7,000 fraudulent Medicare claims.  He was sentenced to 11 years 
and 3 months imprisonment and ordered to pay fines, restitution and special 
assessments of more than $3.5 million.  A joint audit and investigation 
revealed that the nursing home owner had billed Medicare for nonexistent 
medical supplies for his nursing home, and filed cost reports with false 
expenses.  He attempted to conceal the scheme by submitting false cost 
reports to Medicare supported by falsified medical records and fabricated 
19  invoices.   Two  of  his  employees  and  two  former  Medicare  carrier 
employees who testified against him pled guilty and were sentenced earlier. 
  A Virginia chiropractor, his brother and his corporation were sentenced for a 
scheme to defraud Medicare, Medicaid, the Civilian Health and Medical 
Program of the Uniformed Services and Blue Cross Blue Shield of Virginia. 
The chiropractor had been convicted on 44 counts of false claims, mail 
fraud, obstruction of justice, money laundering and structuring. He used the 
provider number of a doctor he hired to bill for services by chiropractors in 
his office.  His brother, a stock broker, helped him liquidate his stock 
portfolio in which the proceeds of the scheme were invested.  The two then 
withdraw funds in less than $10,000 increments from the bank account in 
which  the  stock  funds  were  invested.   The  brother  was  convicted  of 
structuring, and the corporation on 32 counts of false claims and mail fraud. 
The chiropractor was sentenced to 51 months of incarceration and 5 years 
probation, and ordered to pay $100,000 restitution and a $2,200 special 
assessment.  His brother was sentenced to 7 months incarceration, and his 
corporation was fined $32,000 and given a $6,400 special assessment.  The 
chiropractors wife/office manager entered an agreement earlier to pay civil 
and criminal penalties, as did two other chiropractors who used the same 
physicians number in similar schemes. 
  An Illinois physician was sentenced to 24 months in prison and ordered to 
pay a $25,000 fine and $41,460 in restitution for defrauding Medicare and 
private insurers.  Unable to recruit physicians and sufficient referrals for a 
multi-million dollar diagnostic clinic he had built, the physician billed for 
every patient who visited the clinic $4,000 to $6,000 in unnecessary tests. 
He entered false symptoms in the patients records to justify the billings. 
The case involved the difficult issue of proving lack of medical necessity. 
The sentencing culminated a lengthy investigation and a 5-month trial, the 
longest in the southern district of Illinois. 
  A former co-owner of an Ohio ambulance service company was sentenced 
to  14  months  imprisonment,  2  months  home  confinement  and  3  years 
supervised release for mail fraud in relation to false Medicare, Medicaid and 
Railroad Retirement Board claims.  He was also ordered to pay $65,895 in 
restitution,  plus  a  $150  special  assessment,  and  to  perform  100  hours 
community service. He and his former business partner and co-owner of the 
ambulance service company had been charged with filing Medicare and 
Medicaid claims through the company for transporting dialysis patients to 
the  hospital  when  they  were  really  transported  to  dialysis  centers,  a 
noncovered  service.   They  also  billed  Medicare  for  oxygen  not 
20  administered,  to  reinforce  charges  for  the  emergency  trips,  and  forged 
physicians signatures and diagnoses.  Identified Medicare and Medicaid 
losses amounted to about  $65,000.   The other co-owner was acquitted 
earlier. 
	 A former billing clerk for a diagnostic laboratory was sentenced in Florida 
to 9 months imprisonment and 2 years supervised release, and ordered to 
pay $50 special assessment for submitting false Medicare claims.  The clerk 
and her husband, who was president of the laboratory, used a fraudulent 
passport  in  setting  it  up  and  falsified  Medicare  claims.   Investigation 
showed that the company had submitted 717 claims for 416 beneficiaries, 
many of whom were already dead, and had been paid $330,000 over a 
60-day period.  In addition, one of the referring physicians had been dead 
for 2 years.  A survey of 150 patients showed that 40 had never received 
services from the company or had not known the referring physicians.  The 
husband had been arrested after trying to withdraw $200,000 from the 
corporate account.  He was sentenced earlier to 10 months in prison and 3 
years probation, ordered to make restitution of $115,800 and fined $100. 
	 In Pennsylvania, a pharmacist was sentenced to 8 months imprisonment for 
defrauding  Medicaid  and  Medicare.   The  pharmacist  routinely  billed 
Medicaid for brand name drugs while supplying generic brands.  He also 
was a partner in a DME company, which paid kickbacks to his brother for 
referrals.  The pharmacist was ordered to pay restitution and assessment of 
$167,200, and the holding company for his pharmacy had to pay a $600 
assessment.  The companys owner and two employees were sentenced 
earlier  for  fabricating  test  results  and  forging  physician  signatures  for 
equipment.  The pharmacists brother is to be sentenced in November. 
	 The owner of two Pennsylvania HHAs was sentenced to 2 years probation, 
assessed $50 and ordered to perform 100 hours of community service.  She 
submitted Medicare reimbursement claims for personal expenses, such as 
placing  her  husband  and  nanny  on  the  companys  payroll,  and  for 
non-Medicare expenses such as hotel stays, meals, flowers and clothing. 
Because  of  her  financial  situation,  she  will  not  be  prosecuted  civilly. 
However, on the basis of a Medicare carrier review, $300,000 was withheld 
and will be retained by the Medicare program. 
	 In  Louisiana,  an  employee  of  the  Medicare  carrier  was  sentenced  for 
embezzling more than $6,470 from the Medicare program. The employee, a 
claims adjuster, caused four checks to be repaid to an account of a relative. 
After they were cashed, she deleted them from the payment history record. 
21
 She was sentenced to 1 year probation, assessed $50 and ordered to make 
full restitution. 
Kickbacks 
Many businesses engage in referrals to meet the needs of customers or clients for expertise, 
services or items which are not part of their own regular operations or products.  The 
medical  profession relies heavily upon referrals  because  of  the myriad  specialties and 
technologies associated with health care.  If referrals of Medicare or Medicaid patients are 
made in exchange for anything of value, however, both the giver and receiver may violate 
the Federal anti-kickback statute. 
Among  its  provisions,  the  anti-kickback  statute  penalizes  anyone  who  knowingly  and 
willfully solicits, receives, offers or pays remuneration in cash or in kind to induce or in 
return for: 
  referring an individual to a person or entity for the furnishing, or arranging 
for the furnishing, of any item or service payable under the Medicare or 
Medicaid programs; or 
  purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the 
purchasing, leasing or ordering of any good, facility, service or item payable 
under the Medicare or Medicaid programs. 
Violators are subject to criminal penalties, or exclusion from participation in the Medicare 
and Medicaid programs, or both.  Almost all of the convictions for paying or accepting 
kickbacks during this reporting period happened to be related to the DME industry in New 
York. The following cases are some of the examples of the sentencings for this crime: 
  A  New  York  jury  returned  a  guilty  verdict  against  two  brothers  for 
conspiracy related to fraudulent Medicare claims.  The two visited senior 
citizen high rises and conducted health fairs where they coaxed beneficiaries 
into giving them their Medicare numbers.  They furnished these numbers, 
along with forged certificates of medical necessity (CMNs), to two DME 
companies.  The companies then billed for equipment, much of which was 
never supplied, causing Medicare to pay more than $750,000.  The brothers 
were paid commissions depending on the cost of each piece of equipment. 
The two had formerly worked for two other New York DME companies 
which  were  convicted  and  sentenced  earlier  as  a  result  of  OIG 
investigations. 
22    A former salesman for another DME company in New York was sentenced 
to 4 months imprisonment and 2 years probation and was ordered to pay 
restitution of $13,500 for Medicare fraud conspiracy. The salesman and his 
father, a semi-retired podiatrist, participated in a scheme which involved 
billing Medicare for services not rendered.  The salesman recruited patients 
for his father, and in return the father gave him the Medicare numbers of his 
patients and signed CMNs. The salesman sold the CMNs to his employer. 
The father, who billed Medicare and private health insurance companies for 
treatments not done and visits not made, was sentenced earlier to 3 years 
probation  and  4  months  home  confinement.   The  owner  of  the  DME 
company pled guilty and is awaiting sentencing. 
  Four sales representatives for yet another New York DME company were 
sentenced  for  their  part  in  a  conspiracy  which  resulted  in  Medicare 
overpayments of $13 million.  The scheme involved at least 19 persons, 
including company officials and physicians as well as sales representatives. 
The sales representatives collected names and numbers of beneficiaries, for 
which they were paid by the company.  Physicians signed certificates of 
medical necessity for the beneficiaries, and were paid kickbacks as well, and 
the company filed claims for equipment never supplied.  Other conspiracy 
participants await sentencing or trial. 
Medicare Payments for Clinical Laboratory Tests 
In a prior review, OIG had determined that Medicare, which pays for laboratory tests based 
on fee schedules, was paying nearly twice as much as physicians for the same tests.  Much 
of the difference was attributable to the way in which Medicare reimbursed groups of tests 
ordered as a package by physicians. While laboratories offered groups of tests to physicians 
at greatly reduced prices, Medicare usually paid the fee schedule rates for the individual 
tests. 
Although a follow-up audit showed that Medicare continues to pay clinical laboratories 
more than physicians pay for the same tests, recent legislation will reduce Medicare fees for 
clinical laboratory tests to 76 percent of the national average by 1996.  Accordingly, OIG 
recommended that HCFA periodically evaluate the national fee schedule to ensure that it is 
in  line  with  the  prices  physicians  pay  for  clinical  laboratory  services.   (CIN: 
A-09-93-00056) 
Payments for Prescription Drugs Used with Nebulizers 
In this report, one of a series, OIG concluded that in 1994 Medicare allowed $37 million 
more than Medicaid would have paid for three commonly prescribed nebulizer drugs used in 
inhalation  therapy.   Prescription  drugs  used  with  nebulizers  are  reimbursed  under  the 
23  Medicare Part B program as necessary for the effective use of the equipment.  Many States 
also pay for prescription drugs, including nebulizer drugs, under the Medicaid program. 
(OEI-03-94-00390) 
Wound Care Supplies 
In a review of claims selected for a 1 percent sample of beneficiaries who received wound 
care supplies between June 1994 and February 1995, OIG found that questionable payments 
may account for as much as two-thirds of the $98 million in Medicare allowances during 
this period.  Many of the excessive payments were concentrated in 8 States, 48 suppliers and 
1  carrier.   Less  than 40  percent  of  beneficiaries  resided  in skilled  nursing  or  nursing 
facilities, yet these beneficiaries received over 70 percent of wound care benefits. 
The OIG also found that, although nursing homes and physicians determine which patients 
need supplies, some suppliers determine the amount provided.  Wound care supplies are 
frequently  provided  in  standard  kit  form  to  beneficiaries,  and  some  suppliers  provide 
inducements  to  nursing  homes  and  beneficiaries  to  accept  their  products.   Further, 
beneficiaries may not be receiving or using all of the wound care supplies reimbursed by 
Medicare. 
In an accompanying report, OIG identified questionable billing practices and supplier and 
nursing home practices leading to questionable payments in the five States targeted by 
Operation Restore Trust. 
The HCFA and the DME regional carriers have taken corrective actions to address wound 
care abuses and continue to explore others. A long term solution would require the bundling 
of services in nursing homes.  Previous OIG studies involving payments on behalf of 
Medicare beneficiaries in nursing homes and the current findings on wound care products 
provide  continued  support  for  HCFAs  effort  to  implement  this  requirement. 
(OEI-03-94-00790; OEI-03-94-00791; OEI-03-94-00792) 
Fraud Involving Durable Medical Equipment Suppliers 
The DME industry has consistently suffered from waves of fraudulent schemes in which 
Medicare or Medicaid is billed for equipment never delivered, higher-cost equipment than 
that actually delivered, totally unnecessary equipment or supplies, or equipment delivered in 
a different State from that billed in order to obtain higher reimbursement.  Two years ago, 
HCFA published new regulations addressing reimbursement problems that have recurred 
over the years, especially those created by telemarketing and carrier shopping.  It is hoped 
that consolidation of claims processing into four regional jurisdictions, as specified in the 
regulations, will resolve many of these problems.  In the meantime, OIG continues to obtain 
settlements and convictions of unscrupulous suppliers for other schemes, as shown in the 
following examples: 
24  	 A Maryland DME company agreed to pay $1.5 million to resolve liabilities 
under the CMP law.  Over a years time the company submitted claims for 
lymphedema  pumps  under  a  code  for  which  the  pumps  did  not  meet 
specifications.   As  a  result,  the  company  was  overpaid  approximately 
$690,000.  As  part  of  the  settlement  it  was  required  to  enter  into  a 
compliance plan to prevent  improper billing.  The case was the fourth 
settled  in a national  project focusing on manufacturers and retailers of 
lymphedema pumps. 
	 The owner of six DME companies, his companies and his general manager 
were  sentenced  in  Pennsylvania  for  mail  fraud  and  submitting  false 
Medicare  claims.   The  companies  contacted  Medicare  beneficiaries  by 
telephone and solicited them to accept items which their physicians said 
were not medically necessary.  The owner was sentenced to 78 months 
imprisonment and ordered to pay a special assessment of $10,200.  The 
companies were assessed a total of $78,200, and the general manager was 
sentenced to 8 months home confinement and 5 years probation.  The total 
estimated loss to the Government was $2.5 million. 
	 Also in Pennsylvania, a man who owned two companies, along with one of 
the companies, was sentenced after pleading guilty to mail fraud related to 
Medicare.  The man was sentenced to 6 months home confinement with 
electronic  monitoring,  5  years  probation  and  250  hours  of  community 
service.  He was  ordered to pay a $5,000 fine, and the company was 
assessed $200 in court costs.  Both of his companies had been billing for 
DME although they were not DME suppliers.  Moreover, they billed the 
Pennsylvania  carrier  because  it  paid  a  higher  reimbursement  than  the 
carriers for the beneficiaries areas.  Earlier the man, his wife and son, and 
the two companies settled a civil case by agreeing to make restitution of 
$1.5 million.  The companies also gave up more than $465,000 held in 
escrow by the carrier. 
	 Another owner of a Pennsylvania DME company was also sentenced to 10 
months home detention, 5 years probation and 500 hours of community 
service for Medicare fraud.  He was fined $25,000 and ordered to pay a 
$150  special  assessment.   His  company  filed  false  claims  for  surgical 
dressings and for incontinence, ostomy and urostomy supplies.  The owner 
ordered employees to forge doctors signatures on certificates of medical 
necessity and beneficiaries signatures on benefits assignment forms.  He 
also violated point of sale regulations by accepting orders from independent 
sales representatives.  He received a significant downward departure from 
sentencing guidelines because of his cooperation in investigations of several 
25
 companies and his testimony before a congressional subcommittee hearing 
on Medicare fraud.  His companys parent company entered a $3.4 million 
civil agreement last year. 
  Under the terms of a civil agreement, an Illinois DME company and its 
owner paid the Government $474,730 to settle liabilities for misrepresenting 
products  billed  to  Medicare.   The  company  billed  for  female  urinary 
collection devices, which cost $10 each, when it actually supplied diapers 
costing 30 cents each. 
  The former owner of a New Hampshire DME supplier agreed to pay the 
Government $100,000 for submitting false claims to Medicare.  Between 
1990 and 1991, he billed Medicare for prosthetic and orthotic devices not 
provided to customers, either to compensate for copayment charges not 
collected from beneficiaries or to compensate for equipment not covered by 
Medicare.  As a result, his company was overpaid $11,720.  As part of the 
settlement,  he  agreed  to  refrain  from  performing,  participating  in  or 
overseeing any billing activities relating to Medicare or any State-funded 
health care program for 5 years. 
  A DME company in Texas was sentenced to 1 year of probation for filing 
false  Medicaid  claims  for  services  not  rendered.  As  part  of  the  plea 
agreement the company was also ordered to pay restitution of $450,000. 
The DME company supplied wheel chair pads to nursing home patients and 
then fraudulently billed Medicare under the code for a lumbar sacral support 
system, also known as a body jacket.  Earlier, the former owner of the 
DME company pled guilty to mail fraud. 
  The manager of a now-bankrupt DME company was sentenced in Hawaii to 
6 months in a community correctional institution for Medicare fraud.  He 
had submitted claims for purchase of equipment which patients had actually 
leased on long-term rentals or which had never been purchased or delivered. 
He was also placed on 5 years probation and ordered to pay restitution of 
$12,000. 
Vulnerabilities in Medicaid Asset Verification 
In a study of States Medicaid long term care eligibility systems, asset verification processes 
and fraud referral techniques, OIG found that most States rely only on readily available 
sources  for  asset  verification.   Medicaid  eligibility  staff  allege  that  they  do  not  have 
adequate  time  to  effectively  ascertain  the  extent  of  all  potential  assets  of  Medicaid 
applicants.  Thirty States have Medicaid fraud hotlines and 38 States have specific Medicaid 
long  term  care  fraud  penalties  for  the  nonreporting  of  resources,  although  in  general 
26  prosecution of  medical assistance fraud was a  low priority  for  States.  The OIG also 
determined that HCFA has worked in partnership with State Medicaid agencies to improve 
asset verification, actively monitoring States activities and progress in identifying assets and 
sharing best practices of asset verification. 
The OIG recommended that States enhance investigative skills and request more detailed 
applicant information.  The HCFA should continue to promote the sharing of technical 
assistance  among  States,  especially  asset  verification  processes,  fraud  identification 
techniques, and other effective practices that have proven to be predictable and reliable 
indicators for States in identifying undisclosed, concealed or transferred assets.  The HCFA 
concurred with OIGs recommendations. (OEI-07-92-00882) 
Medicaid Drug Rebate Program 
Based on a congressional request, OIG conducted a study to determine the changes in best 
prices available to the Medicaid prescription drug rebate program. Specifically, OIG sought 
to determine the extent to which best prices have increased over and above the consumer 
price index-urban (CPI-U) and the monetary impact of indexing best price to the CPI-U on 
the  Medicaid  drug  rebate  program.  The  OIG  found  that  drug  manufacturers  have 
consistently increased best prices in excess of inflation, as measured by the CPI-U, for a 
large number of the drug products reviewed.  The number of drug products with best price 
increases in excess of the CPI-U rose almost every quarter since the inception of the rebate 
program.  For example, in the first quarter (April through June 1991) 94 of 363 products 
reviewed had an average price increase of 38.3 percent over the CPI-U.  Five quarters later, 
225 of 401 drug products reviewed had an average price increase  of 59.7 percent over the 
CPI-U.  The OIG calculated that rebates to the States would have been increased by about 
$123 million in 1993 had the best prices been indexed to the CPI-U based on the quarter 
ending December 1992. (CIN: A-06-94-00039) 
Medicaid Payments for Incontinence Supplies 
In an earlier review, OIG found that questionable billing practices may account for almost 
$100 million or one half of Medicare incontinence allowances in 1993. The OIG also found 
that  suppliers  engage  in  questionable  marketing  practices  to  nursing  homes  and  that 
Medicare beneficiaries may be receiving unnecessary or noncovered supplies.  The current 
review was undertaken to determine if similar practices exist in the Medicaid program. 
The OIG found that 7 of the 14 sampled States identified a wide variety of improper claims 
such as billings for recipients who were not incontinent, for supplies that were never 
delivered and for excessive quantities of diapers for nursing home patients.  Further, OIG 
determined  that  States  do  not  generally  review  the  appropriateness  or  necessity  of 
incontinence services paid by them on crossover (payments for the recipients premium, 
deductible and coinsurance made by Medicaid for individuals also entitled to Medicare), and 
27  Medicare does not require carriers to notify Medicaid State agencies of improper payments 
made on behalf of Medicaid beneficiaries. 
The OIG recommended that HCFA alert Medicaid State agencies about this vulnerability 
and take appropriate steps to ensure that they are notified of improper Medicare payments 
which contractors discover have been made on behalf of a Medicaid beneficiary.  The 
second  recommendation  is  applicable  to  all  Medicare  services  provided  to  Medicaid 
recipients, not just incontinence supplies.  The HCFA concurred with the recommendations 
and plans to take corrective action. (OEI-03-94-00771) 
Medicaid Reimbursement for Clinical Laboratory Services 
As part of a nationwide review of the adequacy of State procedures and controls over 
Medicaid payments for claims involving clinical laboratory services, OIG determined that 
the States of Alabama, New Hampshire, Iowa and Kansas were reimbursing providers for 
services that were not properly grouped together (bundled into a panel) or were duplicated 
for payment purposes.  The OIG determined that overpayments were due to the States not 
having adequate edits in place to prevent the payment of unbundled or duplicated claims for 
certain laboratory services. 
Based on its audits, OIG estimated the following recoveries for Calendar Years (CYs) 1993 
and 1994:  Alabama, $1.1 million (Federal share $813,000); New Hampshire, $160,000 
(Federal share $80,000); Iowa, $171,000 (Federal share $107,000); and Kansas, $344,000 
(Federal share $202,000).  The OIG recommended that the States install edits to detect and 
prevent  payments  for  unbundled  services  and  billings  which  contain  duplicative  tests, 
recover overpayments for clinical laboratory services identified in the review, and make 
adjustments for the Federal share of the amounts recovered by the State in its quarterly 
report of expenditures to HCFA.  The OIG estimates that, if the States implement its 
recommendations,  approximately  $935,000  ($615,000  Federal  share)  could  be  saved 
annually. New Hampshire and Iowa concurred with the recommendations. Alabama agreed 
with the programmatic recommendation but disagreed that the amounts identified should be 
recovered as overpayments.  Kansas did not concur with the recommendations.  (CIN: 
A-04-95-01108; CIN: A-01-95-00005; CIN: A-07-95-01139; CIN: A-07-95-01147) 
Federal and State Partnership:  Joint Audits of Medicaid 
The OIG has formed partnerships with State auditors and other interested State groups, as 
well as HCFA staff, to identify opportunities for curbing Medicaid costs and to produce 
savings at both the Federal and State levels.  These partnerships which provide broader 
coverage of the Medicaid program with limited resources have produced a number of reports 
during this semiannual period. 
28
 A.  Partnerships with State Auditors 
Under these partnership arrangements, OIG works jointly with State auditors providing 
technical  assistance  and  focusing  State  attention  on  issues  that  will  result  in  program 
improvements and reduce the cost of providing needed services to Medicaid recipients. 
These partnerships are producing results: five States have produced eight reports to date and 
audits are underway in another five States.  In addition, OIG is working with another four 
States to develop partnership arrangements. 
1.  Louisiana 
The Louisiana legislative auditor has issued two reports under the partnership plan. The first 
report was on Louisianas Medicaid prescription drug rebate program. Louisiana found that 
an adequate control structure was not established to record, process, summarize and report 
financial data of the drug rebate program.  Louisiana also found that a hearing mechanism 
had not been established for drug manufacturers to resolve disputes and the rebates posted to 
accounts receivable records were not reconciled to amounts in the States financial system. 
Recommendations were made for the State agency to establish an adequate control structure, 
develop a hearing process to resolve drug manufacturers disputes and initiate a timely 
reconciliation process.  The State agency concurred with the findings and implemented 
corrective actions. (No CIN assigned) 
The second Louisiana report was a joint audit on Medicaid payments for laboratory services 
for the 2-year period ending December 1994.  Louisiana estimated that the State Medicaid 
agency may have overpaid providers by about $1 million (Federal share over $792,000) for 
tests that should have been grouped together and billed as one test.  Louisiana also noted 
that over $324,000 (Federal share nearly $239,000) could be saved if the State agency 
required two individual automated chemistry test to be bundled and paid as a single test. 
The State agency generally concurred with the recommendations. (CIN: A-06-95-00031) 
2.  North Carolina 
The North Carolina State auditor issued two joint audit reports through partnering with OIG. 
The first report was on the States drug rebate program.  This review did not disclose any 
major problems with the internal controls over rebate funds collected or in the remitting of 
the Federal share of rebates.  However, the report indicated that the State agency needs to 
strengthen its accountability and internal controls over reporting Medicaid rebate funds and 
resolving drug rebate disputes.  Through implementation of these recommendations, over 
$12.2 million in drug rebates could be collected. (No CIN assigned) 
The second North Carolina report was on Medicaid payments for selected clinical laboratory 
services.  Similar to the Louisiana review, North Carolina found that the State agency did 
not have adequate edits in place to prevent payment of unbundled or duplicated claims for 
certain laboratory services.  The auditors estimated that the State overpaid providers by 
nearly  $1.3  million  (Federal  share)  for  certain  tests  for  CYs  1993  and  1994. 
29
 Recommendations called for appropriate recovery, and for the State agency to install edits to 
detect and prevent payments for unbundled services and billings which contain duplicate 
tests. State officials generally concurred with the recommendations. (CIN: A-04-95-01113) 
3.  Texas 
The Texas State auditor issued two reports to date as part of the partnership plan efforts. In a 
review of the Medicaid drug rebate program, Texas identified over $4 million in revenue and 
cost savings opportunities which would result from timely mailing of invoices, timely 
resolution of disputes and timely deposit of rebate checks received. (No CIN assigned) 
The second Texas report involved three Medicaid issues:  hospital transfers, laboratory 
services and nonphysician services.  Texas found that the State could save approximately 
$1.9 million annually for these three distinct payment issues.  These savings could be 
realized by correcting ineffective postpayment and prepayment automated controls, refining 
other  controls  and  broadening  payment  policy  to  reflect  the  Medicare  reimbursement 
policies for hospitals. (CIN: A-06-95-00078) 
4.  Massachusetts 
The Massachusetts State auditor issued a report on an audit of Medicaid payments for 
laboratory services for the period January 1, 1992 through December 31, 1993.  As in 
Louisiana and North Carolina, Massachusetts found that the State agency did not have 
adequate  controls  to  preclude  payments  of  unbundled  or  duplicated  claims  for  certain 
laboratory services. 
Massachusetts  estimated  a  potential  overpayment  of  $3.4  million  (Federal  share  $1.7 
million) for the period covered by the audit.  Recommendations called for installation of 
appropriate edits and recovery of overpayments. (CIN: A-01-96-00001) 
5.  Ohio 
The Ohio State auditor issued a joint report on selected clinical laboratory services for CYs 
1993 and 1994.  Ohio determined that the State agency was reimbursing providers for 
services that were  not properly grouped together or that were duplicated for payment 
purposes.  Based on its review, Ohio estimated that the State agency overpaid providers by 
$5.2 million in CYs 1993 and 1994.  Appropriate corrective action was recommended. 
(CIN: A-05-96-00019) 
B.  Partnering with the National State Auditors Association 
The OIG also worked with the National State Auditors Association (NSAA) on a nationwide 
review  of  the  Medicaid  prescription  drug  program  in  eight  States:  Delaware,  Iowa, 
Maryland, Michigan, Missouri, Ohio, Texas and Utah.  The OIG provided training during 
the initial planning of the reviews to NSAA and technical assistance to the individual States 
30
 during the course of the fieldwork.  The reviews included the drug rebate program, ulcer 
treatment usage, and the use of generic drugs and mail order pharmacies.  Numerous 
problems were noted with respect to drug rebates and potential cost savings were identified 
regarding ulcer treatment drugs, generic drugs and mail order pharmacies.  Each State 
auditor issued separate reports to its respective State and NSAA issued a roll-up report 
during 1995. 
Medicaid Inpatient Alcoholism Claims:  New York State 
In two prior reports, OIG had recommended that New York State (NYS) refund $3.9 million 
in improper payments identified during two audit periods; cease claiming Federal financial 
participation for such services at free-standing inpatient alcoholism facilities; develop edits 
or controls to prevent future improper claims; and identify and return unallowable amounts 
claimed subsequent to the audit cut-off date of October 31, 1990. 
In a follow-up review, OIG found that HCFA had properly closed the first recommendation, 
sustaining and recovering the $3.9 million, and properly cleared but did not close the second 
and  third  recommendations  because  it  was  still  working  with  NYS  on  a  State  plan 
amendment.   However,  OIG  determined  that  HCFA  improperly  closed  the  fourth 
recommendation after  receiving a  voluntary refund of nearly $655,000 from NYS for 
periods after October 31, 1990. 
The OIG recommended that HCFA:  recover an additional $5.7 million not returned by NYS 
through its voluntary refund computations; strengthen its resolution procedures to ensure 
that proper testing is done to validate the reasonableness of future refund amounts computed 
by NYS; and make appropriate provisions to obtain the necessary expertise to resolve 
recommendations  involving  computer  programming  and  systems  issues.   The  HCFA 
concurred with OIGs recommendations. (CIN: A-02-94-01026) 
State Medicaid Fraud Control Units 
In FY 1995, payments by both the Federal and State Governments to Medicaid health care 
providers were approximately $155 billion.  The Medicaid fraud control units (MFCUs) are 
responsible for investigating fraud in more than 98 percent of all Medicaid health care 
provider payments. Forty-seven States now have units and are receiving funds and technical 
assistance from OIG.  Three States have received waivers from establishing MFCUs as 
required  by  the  Omnibus  Budget  Reconciliation  Act  of  1993.   The  MFCUs  conduct 
investigations, and bring to prosecution persons charged with defrauding the Medicaid 
program or with patient abuse and neglect. 
During FY 1995, OIG administered approximately $110 million in appropriated grants to 
the MFCUs.  The MFCUs reported 308 convictions and $19.76 million in fines, restitutions 
and overpayments collected for the period July 1, 1995 through December 31, 1995. 
31
 Public Health Service 
Operating Divisions  Chapter III

PUBLIC HEALTH SERVICE OPERATING

DIVISIONS

Overview of Program Area and Office of 
Inspector General Activities 
The  activities  conducted  and supported  by the  Public  Health  Service  (PHS)  operating 
divisions represent this countrys primary defense against acute and chronic diseases and 
disabilities.  These programs provide the foundation for the Nations efforts in promoting 
and  enhancing  the  continued  good  health  of  the  American  people.  These  currently 
independent  operating divisions within the Department include:  National Institutes of 
Health (NIH), to advance our knowledge through research; Food and Drug Administration 
(FDA), to assure the safety and efficacy of marketed drugs, biological products and medical 
devices;  Centers for Disease Control and Prevention (CDC), to combat preventable diseases 
and protect the public health; Health Resources and Services Administration (HRSA), to 
support the development, distribution and management of health care personnel, other health 
resources and services; Indian Health Service (IHS), to improve the health status of Native 
Americans; Agency for Toxic Substances and Disease Registry (ATSDR), to address issues 
related to Superfund toxic waste sites; the Agency for Health Care Policy and Research 
(AHCPR), to enhance the quality and appropriateness of health care services and access to 
services through scientific research and the promotion of improvements in clinical practice, 
and in the organization, financing and delivery of services; and the Substance Abuse and 
Mental  Health  Services  Administration  (SAMHSA),  to  assist  States  in  refining  and 
expanding treatment and prevention services. 
In the past 5 years, the Office of Inspector General (OIG) has significantly increased its 
oversight of public health programs and activities. The OIG has concentrated on a variety of 
issues such as biomedical research funding, substance abuse, Indian health services, drug 
approval processes and community health center programs.  The OIG has also looked at the 
regulation of drugs, foods and devices, and explored the potential for improving these 
activities through user fees.  The OIG has conducted audits of colleges and universities 
which  annually  receive  substantial  research  funding  from  the  Department.   The  OIG 
continues to examine policies and procedures throughout the agencies to determine whether 
proper controls are in place to guard against fraud, waste and abuse. These activities include 
preaward  and  recipient  capability  audits.   This  oversight  work  has  provided  valuable 
33
 recommendations to program managers for strengthening the integrity of agency policies 
and procedures. 
Reimbursable Patient Care Costs at 
the National Institutes of Healths Clinical Center 
At the request of the former NIH Director, OIG conducted a review addressing the potential 
for charging for standard care provided to research patients at NIHs Clinical Center.  The 
OIG found that standard medical care is provided at no charge to research patients at NIH 
when patients are admitted to controlled studies at the Clinical Center and to others when 
they are treated for medical conditions unrelated to the research.  The OIG believes that, 
because of the nature of the medical procedures reviewed, if these patients were not at NIH 
participating in research, they would be receiving the same or similar care at community 
hospitals or in doctors offices, and that this care would be billed to medical insurers. 
The OIG recommended that NIH modify its accounting and information systems to collect 
the full cost of treating patients at NIH; segregate research costs from nonresearch care costs 
by patient; collect insurance and financial information from patients; seek authority to 
charge  for  nonresearch  care  provided  under  controlled  studies  and  to  other  patients 
participating in research protocols; and develop a plan for using the authority to charge that 
includes meeting with representatives of major insurers to discuss potential reimbursement 
procedures. 
The  Assistant Secretary  for  Health  forwarded the  OIG  report  to  a  work  group which 
reviewed  departmental  activities  under  "Reinventing  Government  II,"  which  included 
operations of the Clinical Center.  The work group has completed its review and agreed that 
the Department should seek the right to retain donations and income for Clinical Center 
services.  However, they suggested that charging arrangements should avoid the complexity 
and  cost  of  fee-for-service  systems  and  recommended  several  innovative  methods  for 
charging, such as the use of flat fees and capitation contracts. (CIN: A-15-92-00011) 
National Institutes of Healths Use of 
Heart Surgery Contracts with Private Hospitals 
In an audit of how the National Heart, Lung, and Blood Institute used contract surgery to 
support its research mission, OIG found that from 1990 through July 1994 the Institute 
expended about $9 million on surgeries for 346 patients.  About $5.1 million was spent on 
surgery for 221 patients as an incentive to have them volunteer for research.  However, the 
Institute had no formal patient recruitment policies and some of these patients were not 
involved in research at the time they received surgery.  The remaining $3.9 million was 
spent on providing surgery to 125 former surgical patients who also were not participating in 
current research projects.  Finally, OIG found that 39 of the 346 patients were foreign 
34  nationals and that NIH had no policy regarding their admission to the program of free 
surgery. 
Primary  recommendations  called  for  NIH  to  conduct  a  formal  study  of  the  Institutes 
recruitment practices and develop a formal patient recruitment strategy based on the results 
of the study, and to eliminate the provision of routine surgery to patients not on research 
protocols.  The NIH generally agreed with all but one of OIGs recommendations. The NIH 
wanted to continue to treat former surgery patients who were not currently on research 
protocols for humanitarian reasons and to provide clinical training opportunities for its staff. 
The NIH stated that it will consult with a bioethics group before making a final decision on 
this issue. (CIN: A-15-94-00022) 
Audits of the National Institutes of Healths Trust 
Funds, the Cooperative Research and Development 
Agreements, and Royalties for Fiscal Year 1994 
A  certified  public  accounting  firm,  under  contract  to  OIG,  audited  the  consolidated 
statements of financial position for NIH administered funds.  The funds audited were trust 
funds, cooperative research and development agreements, and royalties.  The auditors were 
unable to express an opinion on consolidated statements of each of the three funds because 
NIH  was unable to provide  support  for  material account balances.   The auditors also 
reported several significant deficiencies in the design and operation of the internal control 
structure.   The  auditors  recommended that a fund manager  be selected to oversee the 
maintenance and preparation of financial statements, drafting of an accounting policies and 
procedures document, preparation of client assistance supporting schedules, and timely and 
accurate recording of the funds transactions. The NIH concurred. (CIN: A-17-95-00044) 
Attempted Bribery of Food and Drug Administration Inspector 
A New York food importer was sentenced to two concurrent 10-month jail terms, 3 years 
probation  and  200  hours  of  community  service  for  trying  to  bribe  a  Food  and  Drug 
Administration  inspector.   After  the  importer  realized  the  inspectors  tests  for  lead  in 
imported foodstuffs were positive, he offered the inspector $1,000 and airline tickets to 
Mecca for his family of four if he would overlook the violations.  The importer was fined 
$25,000 and assessed $100.  His sentencing had been delayed after OIG became aware that 
the U.S. Customs Service was investigating him for customs violations and bribery.  The 
OIG assisted Customs in its investigation and the execution of warrants at his warehouse. 
Ryan White Comprehensive AIDS Resource Emergency Act: 
Boston Metropolitan Area for Fiscal Year 1994 
The OIG conducted a study to determine whether the Boston Eligible Metropolitan Area 
(EMA)  and  its  Ryan  White  Comprehensive  AIDS  Resource  Act  (CARE  Act)  service 
35  providers  ensure  that  all  CARE  Act  clients  are  individuals  with  the  human 
immunodeficiency virus (HIV) disease and their families. 
The  OIG  found  that  two  of  the  three  service  providers  visited  did  not  have  proper 
documentation for 102 of the 113 CARE Act case files reviewed.  The third provider had 
documentation for all clients reviewed.  The OIG recommended that the Boston EMA: 
provide  guidance  to  CARE  Act  service  providers  as  to  what  constitutes  adequate 
documentation that CARE Act clients are individuals with HIV disease or their families; 
visit both deficient providers to ensure that documentation of HIV disease is obtained for the 
102 clients identified and that systems are implemented to obtain documentation for further 
clients; finalize the site visit monitoring program; and fulfill its obligation to make at least 
one site visit annually to every CARE Act service provider. Further, OIG recommended that 
HRSA follow up to ensure that the recommendations are implemented.  The City of Boston 
generally concurred with the recommendations and indicated that corrective action has been 
or will be taken. (CIN: A-01-95-01504) 
Exclusions for Health Education Assistance Loan Defaults 
Through the Health Education Assistance Loan (HEAL) program, HRSA provides money to 
students seeking an education in a health-related field of study.  Repayment of these loans is 
deferred  until  they  have  graduated  and  begun  to  earn  some  money.   Although  the 
Departments Program Support Center (PSC) makes every effort to secure repayment, some 
loan recipients ignore their indebtedness. 
The Social Security Act permits and, in some instances, mandates exclusion from Medicare 
and  State  health  care  programs  for  nonpayment  of  these  loans.   During  this  6-month 
semiannual period, 164 individuals were excluded as a result of PSC referral of their cases 
to OIG. 
Individuals who default may enter into settlement agreements whereby the exclusion is 
stayed while they pay specified amounts each month to satisfy their debt.  If they default on 
these settlement agreements, they are then excluded until their entire debt is repaid and they 
have no right to appeal these exclusions.  Some of these health professionals, upon being 
notified of their exclusion, immediately repay their HEAL debt. 
At the conclusion of this reporting period, 483 individuals had taken advantage of the 
opportunity and entered into settlement agreements or completely repaid their HEALs.  The 
amount  of  money  being  repaid,  through  settlement  agreements  or  through  complete 
repayment,  totals  almost  $30  million.   The  following  are  examples  of  some  of  these 
settlements: 
36
   The exclusion of an Ohio osteopath was stayed after he entered into a 
settlement agreement to repay his outstanding debt of almost $123,000. 
  After  entering  into  a  settlement  agreement  to  repay  over  $102,000,  an 
Illinois physicians exclusion was stayed. 
  After  repaying  his  entire  past  due  debt  of  over  $90,000,  an  Ohio 
chiropractor was reinstated to program participation. 
Guidelines Sponsored by the 
Agency for Health Care Policy and Research 
As a result of AHCPRs interest in gaining a better understanding of the extent to which, and 
the manner in which, health care organizations have been using its guidelines, OIG surveyed 
380 key health care organizations. 
Twenty percent of the survey respondents reported that they have used one or more of the 
six AHCPR guidelines about which OIG inquired, and an additional 12 percent reported that 
they plan to do so. Ninety-six percent of respondents using the guidelines reported that their 
efforts  to  do  so  focused  on  clinicians,  and  36  percent  reported  that  they  directed 
guideline-implementation efforts towards patients.  At this point in the implementation 
process,  only  eight  percent  of  respondents  that  used  the guidelines  reported  that they 
measured the effects of their guideline use.  Sixty-three percent of respondents who used the 
guidelines reported encountering obstacles in doing so.  Clinician resistance was the second 
most frequently cited obstacle; some physicians were concerned about what they perceived 
to be cookbook medicine, and some nurses were concerned about the possibility of 
increased administrative and patient care workloads. 
The OIG recommended that AHCPR: determine more effective ways to promote familiarity 
with and use of guidelines; make increased technical support available to guideline users; 
and develop and implement systematic mechanisms for obtaining objective feedback about 
guideline use, including the sponsoring of regular surveys of health care organizations. 
(OEI-01-94-00250; OEI-01-94-00251) 
Superfund Financial Activities 
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as 
amended,  requires  the  Inspector  General  of  each  Federal  organization  with  Superfund 
responsibilities to conduct audits of payments, obligations, reimbursements and other uses of 
the Superfund monies. 
37  A.  Agency for Toxic Substances and Disease Registry 
The ATSDR obligated $66.7 million and disbursed $58.2 million in Superfund resources 
during Fiscal Year (FY) 1994.  The OIG found that ATSDR generally administered the fund 
according to Superfund legislation.  However, OIG again recommended that CDC and 
ATSDR establish procedures to ensure that all Superfund grantees submit audit reports. The 
OIG also recommended that CDC and ATSDR improve accounting for administrative costs 
incurred  by  CDC  on  ATSDRs  behalf.   The  ATSDR  and  CDC  agreed  with  the 
recommendations. (CIN: A-04-95-04550) 
B.  National Institute of Environmental Health Sciences 
In FY 1994, the National Institute of Environmental Health Sciences (NIEHS) obligated $53 
million and disbursed $57 million in Superfund resources obligated during and prior to FY 
1994.  The OIG found that NIEHS generally administered the fund according to Superfund 
legislation.  The NIEHS agreed with an OIG recommendation to improve accounting for 
intramural billings. (CIN: A-04-95-04551) 
Fraud and Abuse of Grant and Contract Funds 
The following cases concluded during this period dealt with fraud and abuse of  PHS 
operating division grant funds: 
	 Two Connecticut research companies and their owners were debarred for 5 
years  from  receiving  Government  contracts  after  being  convicted  of 
overbilling NIH and the Air Force for $155,000 and $130,000, respectively. 
As a result of an investigation by agents from OIG and the Department of 
Defense,  the  individuals  and  their  companies  have  been  convicted  for 
submitting false applications for NIH research funding as small businesses, 
as well as false financial documents and expense reports for research in 
support of the Strategic Defense Initiative.  Each has been sentenced to 6 
months in jail and ordered to pay restitution and fines totaling $52,250. 
	 A former administrative assistant employed by a contractor with the Indian 
Health Service was sentenced for embezzlement and altering checks.  She 
signed checks for payroll advances totaling more than $45,270, which she 
had various people countersign, to satisfy her gambling habit.  When she 
was discovered and the agency began deductions from her payroll, she 
altered checks issued as payment for services. She was sentenced to 5 years 
probation, 6 months of which are to be home confinement with electronic 
monitoring and for which she must pay the monitoring and related costs. 
She was ordered to pay restitution of $24,570.  The agency for which she 
worked is funded by grants and contracts through IHS.  Its primary purpose 
38
 is  making  available  low-cost  health  care  to  Native  Americans  residing 
outside the reservation. 
	 A former director of the St. Croix Tribal Health Department in Wisconsin 
entered into an 18-month deferred prosecution program, during which she 
agreed  to  repay  the  Government  $12,000  she  embezzled  or  face 
prosecution.  Most of her thefts are beyond the State statute of limitations, 
and all of them are beyond the Federal statute.  She had been accused of 
claiming travel expenses for trips she did not take, using department funds 
for gambling trips to Las Vegas and using a department van as her personal 
vehicle.  This case is the last in a series of investigations involving the St. 
Croix  Tribal  Health  Department  which  began  in  1990  with  an  OIG 
investigation of the department bookkeeper.  The bookkeeper served 1 year 
in  Federal  prison  for  embezzling  almost  $63,000.   The  department  is 
supported by IHS funds. 
	 The  executive  director  of  a  Wisconsin  drug  and  alcohol  rehabilitation 
agency was sentenced after pleading guilty in State court to fraud and intent 
to defraud.  She embezzled more than $38,000 from the agency through 
various schemes, including kickbacks, false billings, fraudulent cost reports 
and insurance fraud. She was sentenced to 2 years probation and ordered to 
make restitution of $10,000. 
	 A Florida nonprofit alcohol and drug treatment provider and its holding 
company  paid  $500,000  to  settle  allegations  they  submitted  false 
information to obtain Federal funds for a drug abuse program.  In applying 
for funds under a program designed to reduce treatment waiting periods, the 
provider certified that at least 356 persons waited at least a month for 
treatment  at  its  facilities.   Investigation  showed  that  no  more  than  40 
persons actually  were waiting for drug treatment and that the provider 
falsified more than 316 names on the waiting list.  Under the settlement, the 
provider agreed to liquidate its major assets and give the proceeds to the 
Government. 
39
 Administration 
for Children 
and Families, 
and Administration 
on Aging  Chapter IV

ADMINISTRATION FOR CHILDREN 

AND FAMILIES, AND 

ADMINISTRATION ON AGING

Overview of Program Areas and Office of Inspector 
General Activities 
The Administration for Children and Families (ACF) provides direction and funding for 
programs designed to promote stability, economic security, responsibility and self-support 
for the Nations families.  The major programs include:  Aid to Families with Dependent 
Children (AFDC), Emergency Assistance, Child Support Enforcement (CSE), Foster Care, 
Job Opportunities and Basic Skills (JOBS) Training, Family Preservation and Support, Head 
Start, and the Child Care and Development Block Grant program. 
The Family Support Act of 1988 was the last comprehensive restructuring of the welfare 
system to reduce long term dependency on welfare programs.  The Office of Inspector 
General (OIG) reviews the cost-effectiveness of the various social services and assistance 
programs,  including  determining  whether  authorized  services  are  rendered  to  eligible 
recipients at the lowest cost.  Welfare reform currently under consideration in the Congress 
may make changes in program requirements and funding provisions.  Regardless of whether 
welfare continues as an entitlement or is administered under a block grant arrangement, OIG 
will seek to identify opportunities for program improvement. 
In addition, OIG reviews the Departments programs that serve children, and has issued 
several reports in this area. The OIG reports have focused on health and safety issues, ways 
to increase the efficient use of the program dollar, more effective program implementation, 
and how to better coordinate program implementation between the Federal and State and 
local governments. 
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants 
to  States  for  establishment  of  comprehensive  community-based  systems  that  assist  the 
elderly in maintaining their independence and in remaining in their homes as long as 
possible.   The  assistance  is  targeted  to  the  socially  and  economically  disadvantaged, 
especially  the  low-income  minority  elderly,  and  includes  supportive  services,  nutrition 
services, education and training, low-cost transportation and housing, and health services. 
41
 The OIG has reported opportunities for program improvements to target the neediest for 
services; expand available financial resources; upgrade data collection and reporting; and 
enhance program oversight. 
Emergency Assistance Program 
The Emergency Assistance (EA) program is an optional supplement to the AFDC program. 
Each State may decide whether to implement the EA program.  The purpose of the program 
is to provide temporary financial assistance and supportive services to eligible families 
experiencing an emergency. 
A.  Rising Costs 
From 1991 to 1994, EA expenditures claimed by the States increased by about 400 percent, 
rising from $153 million to $782 million.  The EA expenditures are expected to reach over 
$1 billion in 1996.  The OIG found that States, in order to maximize Federal revenue, 
amended their respective EA programs to obtain funding for services traditionally State 
funded, such as juvenile justice, tuition, foster care and child welfare.  One State in OIGs 
review claimed EA for hospital care services; under this States EA program, hospital care is 
reimbursed at total charges, whereas in other Federal health care programs similar hospital 
care is reimbursed at amounts less than total charges. 
The OIG recommended that ACF support legislation that would either cap the Federal share 
of EA expenditures or include the programs as part of a block grant; revise or rescind its 
current policies allowing the shifting of costs to the EA program especially where such costs 
have been borne traditionally by the States (in this regard, the eligibility period should be 
limited); and issue policy guidelines requiring States to reimburse hospital care at amounts 
less than total charges. 
The ACF agreed to support capping EA expenditures and stated that it fully intends to take 
action to address inappropriate State practices.  Further, ACF notified States that payments 
for juvenile justice services will be eliminated beginning in 1996 -- resulting in annual 
savings of over $240 million for three of the States reviewed. However, ACF disagreed with 
OIGs recommendation to revise or rescind EA policies regarding foster care and child 
welfare costs. (CIN: A-01-95-02503) 
B.  Eligibility Determinations 
The regulations require that each decision regarding eligibility or ineligibility be supported 
by  facts  in  the  applicants  or  recipients  case  record.  In  its  review  of  EA eligibility 
determination policies and procedures and limited tests of their application, OIG found that 
four of six States were not verifying all eligibility information.  The policies and procedures 
of three States did not require either gathering and/or verifying eligibility information, and 
those in the fourth State were not followed in 56 percent of the cases tested.  Consequently, 
42  ACF could not be assured that all recipients were eligible for EA and that EA claims and 
resulting expenditures were appropriate. 
The  OIG  recommended  that  ACF  notify  the  States  involved  to  ensure  that  eligibility 
determinations are made in accordance with Federal regulations. The ACF agreed to discuss 
these concerns with the States having problems and to conduct reviews to determine the 
appropriate verification methods for EA. However, ACF stated that the method and process 
of verifying information are left entirely to the States. (CIN: A-01-95-02507) 
C.  Kansas Emergency Assistance Program 
In a review of the Kansas EA program, OIG sought to determine whether the State complied 
with Federal requirements.  The EA costs increased from $800,000 in 1991 to $18 million in 
1994.  The OIG found practices which were not in compliance with Federal requirements 
and contributed to the escalating costs.  Further, OIG identified over $630,000 (Federal 
share) in unallowable costs resulting from the States failure to prepare EA applications or 
other evidence of eligibility determinations, and erroneous charges for costs related to 
income maintenance staff and vendor payments. 
The OIG recommended that the State implement controls to ensure costs charged to EA 
comply with Federal regulation, and to make financial adjustments for costs improperly 
claimed.  The State disagreed with the recommendations except for approximately $17,000 
related to income maintenance and vendor payments. (CIN: A-07-95-01009) 
Job Opportunities and Basic Skills Program Literacy Training 
Contract:  Mississippi 
The State contracted with the University of Mississippi to operate its Learn, Earn and 
Prosper (LEAP) program designed to help JOBS participants increase their literacy, earn a 
High School Equivalency Diploma (GED) and prepare for employment. The OIG conducted 
a limited review to determine if LEAP established and met performance goals and whether 
costs claimed were allowable. 
The OIG found that the contract scope did not include criteria to measure outcomes and hold 
the University accountable under the contract. Between February 1993 and December 1994, 
LEAP served about 4,300 JOBS participants at a cost of $15.3 million.  The University 
calculated the average daily attendance at 53 percent. Of the 720 LEAP participants who sat 
for the GED exam, 377 obtained a diploma.  The OIGs review of expenditures found that 
more than $747,000 (nearly $666,000 Federal share) in contract expenditures did not meet 
Federal requirements and over $1 million of the expenditures warranted further review. 
The OIG proposed that the State include performance indicators and measures in future 
contracts,  refund  unallowable  costs  and  undertake  a  review  to  determine  if  there  are 
43
 additional unallowable costs.  The State agreed with the recommendation to evaluate the 
LEAP contract to determine what changes are needed, including performance indicators and 
measures in future HHS funded contracts.  However, the State disagreed with the facts and 
conclusions leading to the other recommendations. (CIN: A-04-94-00078) 
Fraud in the Aid to Families with Dependent Children Program 
Two Venezuelan nationals were sentenced in California for fraud involving AFDC funds. A 
woman was sentenced to 9 years in State prison, and her son was sentenced to 8.  They were 
part of a ring of South American gypsies who used fraudulently obtained Puerto Rican birth 
certificates to establish 135 identities in 27 AFDC cases.  Over an 8-year period, they 
received more than $880,490.  Two other persons in the case are fugitives and have been 
listed with Interpol. 
Systematic Alien Verification for Entitlements 
The  Immigration  Reform  and  Control  Act  of  1986  established  the  Systematic  Alien 
Verification for Entitlements (SAVE) program to assist eligibility workers in preventing 
illegal aliens from receiving federally subsidized cash and medical benefits.  However, the 
law permits States to request a waiver if they can demonstrate that either SAVE is not 
cost-effective for them or their alternative verification system is as effective. 
A.  Cost-Effectiveness 
At ACFs request, OIG reviewed a sample of case files matched between Immigration and 
Naturalization Service (INS) and States records to determine if SAVE is cost-effective in 
verifying the immigration status of aliens applying for AFDC and Medicaid.  Based on the 
data found and the results of its review, OIG could not complete a cost benefit analysis and 
believes that until INS and States address weaknesses in the systems, such an analysis will 
not be possible.  The OIG found, however, that the SAVE program does have value in 
identifying ineligible aliens.  The OIG outlined a number of areas ACF and the Health Care 
Financing Administration (HCFA) should be attentive to in reviewing upcoming waiver 
requests. (OEI-07-91-01230) 
B.  System Processes 
In a companion report, OIG identified deficiencies in the SAVE program and related State 
processes.   The  OIG  recommended  that  ACF  and  HCFA remind  States  of  the  SAVE 
requirements and suggest minimal documentation to be included in the State case files; work 
with INS to enhance the SAVE program to make it more timely and user friendly; and 
coordinate with States and INS to identify the most efficient and effective way to designate 
matching points between their respective data base systems. (OEI-07-91-01231) 
44
 Fees Retained by Child Placing Agencies in Texas 
For certain foster care placements, the State of Texas contracts with private child placement 
agencies to recruit qualified foster homes and place children.  In this report, OIG noted that 
the child placing agencies reviewed had improperly retained an average of 38 percent of the 
foster care maintenance payments.  The retained funds were used for such services as cost of 
operations,  case  management,  therapy,  counseling,  respite  care,  psychiatrists,  training, 
transportation, day care assistance, medical needs not covered by Medicaid, recreation and 
other administrative costs  all of which are covered under other programs. 
Based on the nine child placing agencies reviewed, OIG estimated that at least $2.7 million 
($1.7 million Federal share) was retained for unallowable services.  In addition, OIG found 
instances where the State made duplicate payments and payments for services not provided 
or not billed.  The OIG recommended that the State refund payments retained by the child 
placing agencies and other identified overpayments.  Also, OIG proposed that the State 
correct procedural weaknesses in the title IV-E Foster Care program.  The State did not 
agree with the findings and recommendations related to making financial adjustments for the 
retained  maintenance  payments.  However,  ACF  agreed  with  OIGs  findings.   (CIN: 
A-06-95-00035) 
Retroactive Title IV-E Foster Care Claims:  Missouri 
At ACFs request, OIG reviewed resubmitted retroactive foster care claims paid to the State 
of Missouri.  The OIG determined that claims totaling nearly $955,000 (Federal share) for 
the first quarter of the retroactive claim period were filed beyond the 2-year time limitation. 
An  additional  $137,000  (Federal  share)  was  unallowable  because,  in  computing  the 
allocation rates used to claim foster care administrative costs, the State included counts of 
children whose age exceeded the title IV-E criteria.  While the State did not agree with the 
timeliness  finding,  they  did  agree  that  ineligible  children  should  not  be  included  in 
computations to determine allocation rates. 
The  OIG  also  believes  that  the  State  may  not  have  completely  met  the  2-year  filing 
requirement for the remaining three-quarters of the first year of retroactive claims, and has 
set aside for resolution by ACF the allowability of the related $3.2 million (Federal share). 
(CIN: A-07-95-01010) 
Recovery of Federal Payments in Canceled Checks 
The OIG found that the District of Columbia did not have adequate procedures for crediting 
to the Federal Government its share of canceled checks originally charged to the AFDC and 
Title IV-E programs.  Further, OIG determined that while the District had credited to the 
Federal Government its share of canceled Medicaid checks, the credits were often made long 
after the 180 day time frame established by Federal regulations had expired. 
45
 The District agreed that the Federal share of canceled checks had not been properly credited 
and made an adjustment for over $500,000, covering the recommended repayment and 
additional AFDC escheatments from periods subsequent to OIGs review.  Other procedural 
recommendations were also generally followed. (CIN: A-03-95-00451) 
Head Start Fraud 
In Tennessee, the former executive director of a Head Start program was sentenced to 16 
months imprisonment and 3 years probation for program fraud.  She and her husband set up 
a clinic, which her husband operated, with licensed occupational and speech therapists who 
were paid $100 a month.  The therapists supposedly supervised assistants, who were high 
school students paid minimum wages, to do work for which Head Start was billed $60 an 
hour.  The Head Start program director had rigged the bids so that the related-party clinic 
could get the Head Start therapy contract.  She was ordered to pay $29,300 in restitution, 
$28,400 for the cost of incarceration and $7,000 for probation costs after release from 
prison. Her husband was granted a pretrial diversion. 
Coordination of Specialized Transportation Services 
The OIG reviewed specialized transportation services in Ohio and Illinois to identify best 
practices and opportunities for the States to increase such services for the elderly, disabled 
and others without a corresponding increase in Federal expenditures.  Although OIG found 
that best practices exist in the two States, only a few communities in each of them have 
developed comprehensive coordinated transportation systems.  The communities having 
such systems are able to provide more services in a more economical manner.  The AoA 
agreed that there are opportunities to increase transportation services nationwide. 
The OIG recommended that AoA actively promote transportation consortiums and provide 
the assistance needed by State agencies and local transit providers to foster improvements in 
coordinated transit systems.  In addition, AoA should continue its work with other HHS 
agencies  and  Federal  Departments  to  encourage  further  development  of  coordinated 
systems.  The AoA concurred with OIGs recommendations and will work with the Joint 
Department  of  Transportation/HHS  Coordinating  Council  on  Human  Services 
Transportation to develop a strategic plan for improving coordinated transportation services. 
(CIN: A-05-95-00023) 
46  General Oversight
 Chapter V 
GENERAL OVERSIGHT

Introduction 
This chapter addresses the Office of Inspector Generals (OIGs) departmental management 
and Governmentwide oversight responsibilities.  The Program Support Center, a newly 
created operating division within the Department of Health and Human Services (HHS), 
provides overall direction for departmental administrative activities as well as common 
services such as human resources, financial management, administrative operations and 
information technology.  The Office of the Assistant Secretary for Management and Budget 
is responsible for the development of the HHS budget and its execution, as well as the 
related activities of establishing and monitoring departmental policy for debt collection, cash 
management, and payment of HHS grants and contracts.  The Department also has the 
responsibility, by virtue of the magnitude of its funding, to negotiate the payment rates and 
methods that outside entities, such as State and local governments, charge for administering 
HHS and other Federal programs. 
The OIG has oversight responsibility for these staff division activities at the departmental 
level.  A related major responsibility flows from the Office of Management and Budgets 
(OMBs) designation of HHS as cognizant agency to audit the majority of the Federal funds 
awarded to the major research schools, 104 State and local government cost allocation plans, 
and separate indirect cost plans of about 1,000 State agencies and local governments.  In 
addition, OIG oversees the work of nonfederal auditors of Federal money at some 6,700 
entities, such as community health centers and Head Start grantees, as well as at State and 
local governments, colleges and universities, and other nonprofit organizations. 
The  OIGs  Fiscal  Year  (FY)  1996  work  in  departmental  administrative  activities  and 
Governmentwide  oversight  focuses  principally  on  financial  statement  audits,  financial 
management and managers accountability for resources entrusted, standards of conduct and 
ethics, and Governmentwide audit oversight, including recommending necessary revisions 
to OMB guidance. 
Nonfederal Audits 
The OMB Circulars A-128 and A-133 establish the audit requirements for State and local 
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal 
47
 awards.   Under  the  two  circulars,  these  entities  are  required  to  have  an  annual 
organizationwide audit which includes all Federal money they receive. 
These annual audits are conducted by nonfederal auditors, such as public accounting firms 
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and 
assesses the adequacy of the entitys management of Federal funds.  In the first half of FY 
1996, OIGs National External Audit Review Center (located in Kansas City) reviewed over 
2,100 reports that covered over $470 billion in audited costs.  Federal dollars covered by 
these audits totaled $104 billion, about $41 billion of which was HHS money. 
The OIGs oversight of the nonfederal audit activity not only provides Department managers 
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any 
significant areas of internal control weakness, noncompliance and questioned costs that 
require formal resolution by Federal officials. 
The OIG is developing a strategy to interrelate the work performed by nonfederal auditors 
under the Single Audit Act with that required for financial statement audits.  Reliance on 
nonfederal audits wherever possible, such as use of single audits for coverage of Medicaid 
expenditures, has the potential to maximize benefit from the audit effort expended by the 
public and private sectors. 
A.  Office of Inspector Generals Proactive Role 
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of 
the Departments programs and provide for greater utilization of the data provided: 
	 Through evaluation of reported data, OIG is able to provide basic audit 
coverage and analyze reports to identify entities for high-risk monitoring 
and trends that could indicate problems within HHS programs.  These 
problems  are  brought  to  the  attention  of  departmental  management  to 
improve program administration.  In addition, OIG profiles nonfederal audit 
findings of a particular program or activity over a period of time to identify 
systemic problems. 
	 To ensure audit quality, OIG maintains a quality control program (discussed 
below) and has taken steps to ensure that adequate guidance is available to 
the nonfederal auditor.  The OIG has been heavily involved in assisting the 
National  Association  of  State  Auditors,  Controllers  and  Treasurers  in 
performing peer reviews of State auditors. 
	 As a further enhancement of audit quality, OIG provides technical assistance 
to  grantees  and  the  auditing  profession  through  its  toll  free  number 
(800-732-0679)  and  through  training.  During  the  past  6  months,  484 
48
 individuals were provided with technical assistance through OIGs toll free 
number.   In  addition,  formal  training  was  provided  to  certified  public 
accountant societies and State auditor staff on issues related to Circulars 
A-128 and A-133. 
	 The OIG also has been heavily involved with OMB and the American 
Institute  of  Certified  Public  Accountants  in  developing  authoritative 
guidance. 
B.  Quality Control 
In order to rely on the work of the nonfederal auditors, OIG maintains a quality control 
review process which assesses the quality of the nonfederal reports received and the audit 
work that supports selected reports. 
Uniform procedures are used to review nonfederal audit reports to determine compliance 
with Federal audit requirements and Government auditing standards.  During this reporting 
period, OIG  reviewed and  issued 2,111 nonfederal audit reports.   The  following table 
summarizes those results: 
Reports issued without changes or with minor changes  1,706 
Reports issued with major changes  14 
Reports with significant inadequacies  391 
Total audit reports processed  2,111 
The  2,111  audit  reports  discussed  above included  recommendations  for  HHS program 
officials  to  take  action  on  cost  recoveries  totaling  $5.2  million  as  well  as  3,668 
recommendations for improving management operations.  In addition, these audit reports 
provided information for 76 special memoranda which identified concerns for increased 
monitoring by departmental management.  The reports were also used to develop four areas 
for follow-up by OIG auditors. 
49
 Resolving Office of Inspector General Recommendations 
The tables and schedules below summarize actions  taken on OIG recommendations to 
recover funds or to put them to better use. 
A.  Questioned Costs 
The following chart summarizes the Departments responses to OIGs recommendations for 
the recovery or redirection of questioned and unsupported costs.  Questioned costs are those 
costs which are challenged because of a violation of law, regulation, grant, etc. Unsupported 
costs are those costs questioned because they are not supported by adequate documentation. 
This information is  provided in accordance with the Supplemental Appropriations and 
Rescissions Act of 1980 (Public Law 96-304) and the Inspector General Act Amendments of 
1988. 
TABLE  I 
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS 
Number  Dollar Value 
(in thousands) 
Questioned  Unsupported 
A. For which no management 
decision had been made by 
the commencement of the 
reporting period1  357  $204,729  $12,531 
B. Which were issued during 
the reporting period  154  $161,123  $16,268 
Subtotals (A + B)  511  $365,852  $28,799 
Less: 
C. For which a management 
decision was made during 
the reporting period2:  210  $115,827  $887 
(i) dollar value of 
disallowed costs  $110,129  $649 
(ii) dollar value of 
costs not disallowed  $5,698  $238 
D. For which no management 
decision had been made by the 
end of the reporting period  301  $250,025  $27,912 
E. For which no 
management decision was 
made within 6 months 
of issuance3  139  $85,262  $11,674 
See Appendix D for footnotes. 
50
 B.  Funds Put to Better Use 
The following chart summarizes reports which include recommendations that funds be put 
to better use through cost avoidances, budget savings, etc. 
TABLE  II 
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT 
TO BETTER USE 
Number  Dollar Value 
(in thousands) 
A. For which no management 
decision had been made by 
the commencement of the 
reporting period1  39  $5,031,989 
B. Which were issued during 
the reporting period  12  $489,940 
Subtotals (A + B)  51  $5,521,929 
Less: 
C. For which a management 
decision was made during 
the reporting period: 
(i) dollar value of 
recommendations that 
were agreed to by 
management 
(a) based on proposed 
management action2  25  $354,350 
(b) based on proposed 
legislative action  0  $0 
Subtotals (a+b)  25  $354,350 
(ii) dollar value of 
recommendations that 
were not agreed to 
by management  1  $65,577 
Subtotals (i + ii)  26  $419,927 
D. For which no management 
decision had been made by 
the end of the reporting 
period3  25  $5,102,002 
See Appendix D for footnotes. 
51  Legislative and Regulatory Review and Regulatory Development 
A.  Review Functions 
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review 
existing and proposed legislation and regulations, and to make recommendations in the 
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the 
administration of the Departments programs and on the prevention of fraud and abuse. 
During  this  reporting  period,  OIG  reviewed  33  of  the Departments  regulations  under 
development and 100 departmental legislative proposals. 
In reviewing regulations and legislative proposals, OIG uses as the primary basis for its 
comments the audits, inspections, investigations and other activities highlighted in this and 
previous semiannual reports. Recommendations made by OIG for legislative and regulatory 
change can be found throughout this semiannual report. 
B.  Legislative and Regulatory Development Functions 
The  OIG  is  responsible for  developing a  variety of  legislative  proposals  and sanction 
regulations for civil money penalty (CMP) and program exclusion authorities that are 
administered by the Inspector General. 
During this reporting period, OIG published three final regulations related to the safe harbor 
provisions  under  the  anti-kickback  statute,  the  expansion  and  revision  of  the  CMP 
authorities, and OIGs peer review organization (PRO) sanctioning authorities.  Among 
those regulatory initiatives promulgated during this period were: 
	 final OIG regulations addressing revisions to the CMP provisions for the 
misuse of certain departmental and program names, symbols and emblems 
(November 27, 1995, 60 FR 58239); 
	 a comprehensive rewrite of 42 CFR part 1004, governing the imposition and 
adjudication of sanctions against practitioners or other persons resulting 
from recommendations by a State PRO (December 12, 1995, 60 FR 63634); 
	 OIG final regulations setting forth and revising the standards and guidelines 
for safe harbor provisions for protecting certain health plans, such as health 
maintenance and preferred provider organizations, that offer incentives to 
enrollees  or  that  enter  into  negotiated  price  reduction  agreements  with 
health care providers (January 25, 1996, 61 FR 2122). 
All three final rules met with OIG goals set forth in accordance with the Presidents National 
Performance  Review  initiative  to  revise  or  eliminate  burdensome  or  unnecessary 
52
 regulations.   The  OIG  is  continuing  work  on  regulatory  initiatives  involving  CMP 
authorities, and safe harbors under the antikickback statute. 
In addition, during this period, OIG published a separate Federal Register notice (November 
2, 1995, 60 FR 55721) setting forth the OIG Medicare Advisory Bulletin on eligibility and 
other  information  on  current  hospice  benefits  that  was  developed  in  conjunction  with 
Operation Restore Trust. 
C.  Congressional Testimony and Hearings 
The OIG also maintains an active involvement in the congressional hearing process.  For 
example, OIG testified at three hearings during this 6-month period, principally on health 
care  fraud  and  abuse  issues.  On  several  occasions,  the  testimony  concerned  OIG 
recommendations which, if implemented, could produce billions of dollars in annual savings 
to  the  Government.  These  recommendations  are  contained  in  the  OIG  Cost  Savers 
Handbook, also known as the Red Book.  The hearing process offers OIG the opportunity to 
meet its statutory obligation of keeping the Congress informed of its work with regard to the 
effective and efficient operation of Department programs.  The OIG continues to track all 
relevant congressional hearings and pending legislation relative to a wide range of issues. 
Training Contract Practices:  New York 
In a joint review of training contract costs claimed by New York State (NYS), OIG and the 
Department of Justice concluded that several components of the State University of New 
York knowingly and willfully schemed to overbill the Federal Government for the training 
of social service workers.  The review, which covered a 10-year period, was conducted in 
response to allegations made by a former NYS Department of Social Services employee 
under the qui tam provisions of the False Claims Act.  The training contract costs reviewed 
were claimed under programs administered by the Administration for Children and Families, 
the Health Care Financing Administration, the Department of Agriculture and the Social 
Security Administration. 
The States December 1994 settlement agreement with the Federal Government included a 
cash refund of nearly $27 million.  In addition to the cash refund, the State agreed to: 
exclude from its current expenditure report any costs similar to those described in the 
review; amend its procedures to preclude recurrence of such claims; and not claim any 
Federal  reimbursement  for  costs  incurred  in  the  settlement  of  these  matters.   (CIN: 
A-02-93-02006) 
Investigative Prosecutions and Receivables 
During  this  semiannual  reporting  period,  OIG  investigations  resulted  in 72  successful 
criminal actions.  Also during this period, 227 cases were presented for prosecution to the 
53
 Department of Justice and, in some instances, to State and local prosecutors.  Criminal 
charges were brought by prosecutors against 79 individuals and entities. 
The number of convictions in this period declined because of the departure of the Social 
Security Administration.  In keeping with its commitment to Operation Restore Trust, OIG 
has concentrated on the five States where most of the Departments health care dollars are 
spent. 
In addition to terms of imprisonment and probation imposed in the judicial processes, more 
than $108.2 million was ordered or returned as a result of OIG investigations during this 
semiannual period. 
54
 Appendices
 APPENDIX A 
Implemented Office of Inspector General Recommendations to 
Put Funds to Better Use 
October 1995 through March 1996 
The following schedule is a quantification of actions taken in response to OIG recommendations to prevent unnecessary 
obligations for expenditures of agency funds or to improve agency systems and operations.  The amounts shown represent 
funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or by 
management  to  implement  OIG  recommendations,  including:   actual  reductions  in  unnecessary  budget  outlays; 
deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or operations; and 
reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or insurance or 
bonds. 
Legislative savings are annualized amounts based on Congressional Budget Office estimates for a 5-year budget cycle. 
Administrative savings are calculated by OIG using departmental figures for the year in which the change is effected. Total 
savings from these sources amount to $1,959.3 million for this period. 
OIG Recommendation  Status  Savings 
in Millions 
HEALTH CARE FINANCING ADMINISTRATION 
Personal Care Services: 
Reinstate personal care services as a State  Section 13601 of the Omnibus Budget  $980 
optional service. (CIN: A-02-93-01022)  Reconciliation Act (OBRA) of 1993 repeals 
the mandate for coverage of personal care 
services and allows the States to cover 
personal care services furnished outside the 
home, effective October 1, 1994. 
Reimbursement for Outpatient Facility 
Services: 
The Health Care Financing Administration  Section 13522 of OBRA 1993 extended the  437 
(HCFA) should limit hospital outpatient  5.8 percent reduction in payment for OPDs 
department (OPD) facility fees to the applicable  through 1998. 
ambulatory surgical center (ASC) rate or reduce 
payments for OPD services to bring them in line 
with ASC payments. (OAI-85-IX-00046; CIN: 
A-14-89-00221) 
Medicare Home Health Care Services: 
The HCFA should revise Medicare regulations  Effective February 1995, Medicare  199.2

to require that the treating physician establish  regulations require that a beneficiary be 
the plan of care and specifically prescribe the  under the care of a physician who 
type and frequency of home health services  establishes the plan of care and that the 
needed.(CIN: A-04-94-02087)  physicians orders for services in the plan 
of care specify the medical treatments to be 
furnished, the discipline to furnish the 
services and their frequency. 
Medicare Secondary Payer Period for End 
Stage Renal Disease Beneficiaries: 
Extend the Medicare secondary payer (MSP)  Section 13561(c) of OBRA 1993  84

provision to the period of time that end stage  maintained the provision to extend the MSP

renal disease (ESRD) beneficiaries have  period for ESRD beneficiaries from 12 to

employer group health insurance. (CIN:  18 months through Fiscal Year 1998.

A-10-86-62016)

A-1
   OIG Recommendation  Status  Savings 
in Millions 
Modifications to Medicaid Drug Rebate 
Program: 
Establish State-specific cost reduction targets  Section 13602 of OBRA 1993 permitted  $64

based on the comparison of individual State  States to operate prescription drug 
drug prices with national and international drug  formularies meeting certain requirements; 
price data; set specific drug price limits for  removed current law prohibition on the 
brand name drugs similar to those in place for  imposition of prior authorization controls 
multi-source drugs; or negotiate directly with  with respect to new drugs during the first 6 
manufacturers for prescription drug discounts  months following Food and Drug 
and rebates. The HCFA should support  Administration approval; and repealed the 
legislation to retain the current procedures for  weighted average manufacturer price 
computing additional rebates. (CIN:  inflation formula for calculating the 
A-06-93-00070; OEI-12-90-00800)  additional rebate under current law. 
Payment Rates for the Drug Epogen: 
The HCFA should reduce the reimbursement  Section 13566 of OBRA 1993 reduced the  56 
rate not to exceed $10.10 per 1,000 units  reimbursement rate for Epogen to $10 per 
administered. (CIN: A-01-92-00506)  thousand units. 
Medicare Payments for Unnecessary and 
Poor Quality Endoscopies: 
The HCFA should reduce the incidence of  The OIG accepted the PROs Fourth Scope  54.8 
payments for unnecessary and poor quality  of Work as an acceptable corrective action 
gastrointestinal endoscopies. (OEI-09-88-01006)  plan for HCFA to address OIGs 
recommendation and reduce payments for 
unnecessary and poor quality endoscopies. 
Medicaid Estate Recoveries: 
The HCFA should make stronger programmatic  Section 13612 of OBRA 1993 required  52

initiatives on estate recoveries and encourage  States to recover the costs of nursing 
statutory changes to enhance asset control and  facility and other long-term care services 
recovery activities, such as making liens (or  furnished to Medicaid beneficiaries from 
some other form of encumbrance) a condition of  the estates of such beneficiaries, and 
eligibility. States should be required to recover  establish hardship procedures for waiver of 
Medicaid personal needs allowance funds from  recovery in cases where undue hardship 
a deceased individuals estate to offset the cost  would result. 
of care. (OAI-09-86-00078; CIN: 
A-01-93-00002) 
Intraocular Lenses in Ambulatory Surgical 
Centers and Hospitals: 
Reduce payments for intraocular lenses (IOLs)  Section 13533 of OBRA 1993 reduced  18 
to current acquisition costs. (OEI-05-92-01030)  payments for IOLs in ASCs to $150. 
Short/Doyle Medicaid Payment Rates: 
The State of California should ensure that  The HCFA approved a California State plan  5.7

Short/Doyle payments are limited in accordance  amendment that modified and clarified the

with the States Medicaid plan and Federal  Statess reimbursement policy for

requirements. (CIN: A-09-91-00076; CIN:  Short/Doyle Medicaid mental health

A-09-92-00094)  services.

A-2
   OIG Recommendation  Status  Savings 
in Millions 
Ambulatory Surgical Services Performed in 
Hospital Outpatient Departments: 
Implement a computer system edit to ensure  The HCFA implemented the computer edit  $2.2

that the payment amount for ambulatory  in July 1995 and revised the Hospital

surgical services is not accumulated subsequent  Manual to clarify billing requirements for

to the original claim, educate providers  outpatient ambulatory surgical services.

regarding the proper submission of claims and  The Medicare Intermediary Manual was

instruct the fiscal intermediaries to utilize data  revised to require installation of the edit. 

from OIGs computer application to determine 
if adjustments to providers cost reports are 
required. (CIN: A-01-93-00502) 
ADMINISTRATION FOR CHILDREN AND FAMILIES 
Foster Care Retroactive Claims: 
The State of Indiana should reduce Title IV-E  The OIG provided audit assistance to the  6.4

retroactive maintenance claims submitted for  Administration for Children and Families 
the quarters ending December 31, 1991 through  (ACF) in a review of Indianas Title IV-E 
December 31, 1993.  (CIN: A-05-95-00029)  Foster Care retroactive claims submitted by 
the Indiana Family and Social Services 
Administration. This joint ACF/OIG 
review of the methodology used for 
identifying retroactive claims and the 
validation of the retroactive claims data 
base resulted in the State agreeing to reduce 
the Federal financial participation by $6.4 
million. 
A-3
 APPENDIX B 
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use 
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector 
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory 
action, or policy determinations by management. (In many cases, these recommendations are beyond the direct authority of 
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a 
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and 
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as 
some of the proposals could have interactive effects if enacted together. 
OIG Recommendation  Status  Savings 
in Millions 
HEALTH CARE FINANCING ADMINISTRATION 
Modify Formula for Costs Charged to the 
Medicaid Program: 
The Health Care Financing Administration  No legislative proposal was included in the  $4,100 
(HCFA) should consult with the Congress on  Presidents Fiscal Year (FY) 1996 budget. 
modification of the Federal Medical Assistance 
Percentage formula used to determine the 
Federal share of costs for the Medicaid and 
other programs which would result in 
distributions of Federal funds that more closely 
reflect per-capita income relationships. (CIN: 
A-06-89-00041) 
Indirect Medical Education: 
Reduce the indirect medical education (IME)  The HCFA agrees that the IME factor  2,130

adjustment factor to the level supported by  should be reduced and such proposals have 
HCFAs empirical data. Initiate further studies  been included in past Presidents budgets. 
to determine whether any adjustment factor is  In its March 1995 report to the Congress, 
warranted for all teaching hospitals. (CIN:  the Prospective Payment Assessment 
A-07-88-00111)  Commission (PROPAC) recommended that, 
for FY 1996, the IME factor be reduced 
from 7.7 percent to 6.7 percent. The 
PROPAC stated that ultimately the IME 
factor should be 4.5 percent. 
Medicare Coverage of State and Local 
Government Employees: 
Require Medicare coverage and hospital  Although the Presidents FY 1995 budget  1,559 
insurance contributions for all State and local  contained a proposal to include under 
employees, including those hired prior to April  Medicare all State and local government 
1, 1988.  If this proposal is not enacted, seek  employees hired before April 1, 1988, no 
legislation making Medicare the secondary  legislative proposal was included in the 
payer for retirees of exempt State and local  Presidents FY 1996 budget. 
government agencies. (CIN: A-09-88-00072) 
B-1
   OIG Recommendation  Status  Savings 
in Millions 
Clinical Laboratory Tests: 
Require laboratories to identify and bill profiles  Although the Presidents FY 1995 budget  $1,130

(groups of related tests) at reduced rates  included a proposal to reinstitute 
whenever they are ordered, and study  coinsurance for clinical laboratory services, 
reinstating the beneficiary coinsurance and  no legislative proposal was included in the 
deductible provisions for laboratory services as  Presidents FY 1996 budget. The Omnibus 
a means of controlling utilization. (CIN:  Budget Reconciliation Act 1993, however, 
A-09-89-00031; CIN:  A-09-39-00056)  will reduce Medicare fees for clinical 
laboratory tests to 76 percent of the 
national average in 1996. The HCFA is 
profiling physicians ordering and referring 
patterns as part of focused medical review 
efforts. 
Laboratory Roll-In: 
Fees for laboratory services should be included  The HCFA disagreed with the  1,100 
in Medicare recognized charges for physician  recommendation. The OIG continues to 
office visits. (OEI-05-89-89150;  believe that it should be implemented. 
OEI-05-89-89151) 
Reduce Hospital Capital Costs: 
Seek legislative authority to continue mandated  The HCFA is seeking public comment on  820 
reductions in capital payments beyond FY 1995.  reducing prospective capital rates. 
The HCFA should determine the extent of the 
capital reductions that are needed to fully 
account for hospitals excess bed capacity and 
report the percentage to the Congress. (CIN: 
A-09-91-00070; CIN:  A-14-93-00380) 
Medicaid Payments to Institutions for 
Mentally Retarded: 
The HCFA should take action to reduce  The HCFA nonconcurred with OIGs  683

excessive spending of Medicaid funds for  recommendation. The HCFA believes 
intermediate care facilities for the mentally  Medicaid statutory provisions allow States 
retarded (ICF/MRs) by one or more of the  to establish their own payment systems. 
following: take administrative action to control  This flexibility allows for the variations 
ICF/MR reimbursement by encouraging States  found among States in their payment rates 
to adopt controls; seek legislation to control  and the methods and standards used in 
ICF/MR reimbursement, such as mandatory cost  determining these rates. The HCFA and 
controls, Federal per capita limits, flat per  OIG negotiated an agreement for HCFA to 
capita payment, case-mix reimbursement or  send the report to all State Medicaid 
national ceiling for ICF/MR reimbursements;  directors.  This action has been taken. 
and seek comprehensive legislation to 
restructure Medicaid reimbursement for both 
ICF/MR and home and community-based 
waiver service for developmentally disabled 
people via global budgeting, block grants or 
financial incentive programs. 
(OEI-04-91-01010) 
B-2
   OIG Recommendation  Status  Savings 
in Millions 
Medicare Secondary Payer -End Stage 
Renal Disease Time Limit: 
Extend the Medicare secondary payer (MSP)  The Presidents FY 1996 budget contains a  $503 
provisions to include end stage renal disease  proposal to extend the MSP provision for 
(ESRD) beneficiaries without a time limitation.  individuals with ESRD to 24 months. 
(CIN: A-10-86-62016)  Notwithstanding this proposal, OIG 
continues to advocate that Medicare should 
always be a secondary payer for ESRD 
beneficiaries. 
Modify Payment Policy for Medicare Bad 
Debts: 
Seek legislative authority to modify bad debt  This proposal was not included in the  487.7 
policy. The OIG presented an analysis of four  Presidents FY 1996 budget. 
options for HCFA to consider including the 
elimination of a separate payment for bad debts, 
the offset of Medicare bad debts against 
beneficiary Social Security payments, the 
limitation of bad debt payments to prospective 
payment system (PPS) hospitals which are 
profitable, and the inclusion of a bad debt factor 
in the diagnosis related group (DRG) rates. 
(CIN: A-14-90-00339) 
Terminate Medicare Disproportionate Share 
Adjustments: 
Terminate disproportionate share adjustment  Although the Presidents FY 1995 budget  430 
payments without redistribution of the funds to  contained a proposal to phase down 
PPS hospitals. Payments under PPS adequately  Medicare disproportionate share payments, 
compensate hospitals for services provided to  no legislative proposal was included in the 
Medicare patients, including low-income  Presidents FY 1996 budget. 
patients. (CIN: A-04-87-00111) 
Flexible Benefit Plans: 
The value of flexible benefit plans, as defined  While HCFA agreed with the report  420 
by section 125 of the Internal Revenue Code,  findings related to revenue to the Hospital 
should be included in the hospital insurance  Insurance Trust Fund, a legislative proposal 
portion of the Federal Insurance Contributions  was not included in the Presidents FY 1996 
Act taxable wage base. (CIN: A-05-93-00066)  budget. 
Hospital Admissions: 
Seek legislation to pay for covered services  The HCFA proposed to implement OIGs  210

related to 1-day admissions without an  recommendation through administrative 
overnight stay as outpatient services which are  remedies that would designate whether 
paid on the basis of the lower of the actual costs  specific services are to be covered and paid 
or the customary charges in a locality. (CIN:  for as inpatient or outpatient services. As a 
A-05-89-00055; CIN:  A-05-92-00006)  final measure, HCFA may submit a 
legislative proposal to remove these stays 
from the usual DRG payment methodology. 
No proposal was included in the Presidents 
FY 1996 budget. 
B-3
   OIG Recommendation  Status  Savings 
in Millions 
Graduate Medical Education: 
Revise the regulations to remove from a  The HCFA is studying various options for  $157.3

hospitals allowable graduate medical education  legislative changes and believes a total

(GME) base year costs any cost center with  restructuring of the GME payment system

little or no Medicare utilization. Submit a  may be necessary.  No legislative proposal

legislative proposal to compute Medicares  was included in the Presidents FY 1996

percentage of participation under the former  budget.

more comprehensive system. (CIN: 
A-06-92-00020) 
Chemistry Panel Tests: 
The HCFA should update its guidelines by  The HCFA agreed with 8 of the 10 tests  130

expanding the national list of chemistry panel  recommended for addition to the list. In 
tests to include 10 chemistry tests identified by  November 1995, HCFA updated its carrier 
the OIG audit.  (CIN: A-01-93-00521)  manual adding three of the tests 
recommended in the OIG report. A 
legislative proposal to add 11 tests 
(including those identified in OIGs review) 
was included in the Presidents December 
7, 1995 Medicare savings package. 
Eliminate Inappropriate Payments for Total 
Parenteral Nutrition: 
The HCFA should: instruct carriers to adhere to  While HCFA generally agreed with OIGs  96.8 
a strict interpretation of the coverage guidelines  recommendations, a subsequent review 
for concentrated, purified nutrients; require the  revealed that new claims were being paid 
carriers to intensify review of certificates of  for IPN contrary to Medicare coverage 
medical necessity, discuss therapeutic options  guidelines and the carriers own guidelines 
with physicians and monitor the use of nutrients  which do not provide coverage for 
over time; and review research into the clinical  supplemental nutrition. 
appropriateness of and payment methodologies 
for intradialytic parenteral nutrition (IPN). 
(OEI-12-92-00460; CIN:  A-04-93-02073) 
Reduce Medicare Payments for Hospital 
Outpatient Department Services: 
Establish a legislative initiative to reduce the  In March 1995, HCFA sent a report to the  90

current payments for services in outpatient  Congress on developing a PPS for 
departments to bring them more in line with  outpatient departments.  In addition, 
ambulatory service center (ASC) approval  although the Presidents FY 1995 budget 
payments. Pay outpatient departments the  contained a proposal to eliminate a 
ASC-approved rate or adjust hospital payments  formula-driven overpayment in hospital 
by a uniform percentage.  (CIN:  outpatient departments, no legislative 
A-14-89-00221; OEI-09-88-01003)  proposal was included in the Presidents FY 
1996 budget. 
B-4
   OIG Recommendation  Status  Savings 
in Millions 
Recover Overpayments and Expand the 
Diagnosis Related Group Payment Window: 
The fiscal intermediaries should recover  The HCFA agreed to recover the improper  $83.5

improper payments made to hospitals for  billings and to refund the beneficiaries 
nonphysician outpatient services (such as  coinsurance and deductible. Collection of 
diagnostic tests and laboratory tests) rendered  the overpayment is being handled by 
within 72 hours of the day of an inpatient  settlement agreements with the hospitals 
admission, and refund the beneficiaries  through the Department of Justice working 
coinsurance and deductible related to these  with HCFA and OIG.  The HCFA did not 
payments. The HCFA should propose  concur with the recommendation to further 
legislation to expand the DRG payment window  expand the payment window. No 
to at least 7 days immediately prior to the day  legislative proposal was included in the 
of admission. (CIN: A-01-92-00521)  Presidents FY 1996 budget. 
Generic Drugs: 
The HCFA should identify and alert States to  The HCFA has provided a copy of the OIG  49

methods which would encourage the use of  report to States and encouraged them to use 
lower priced generic drug products in the  lower priced generic products.  On 
Medicaid program.  The HCFA should also take  February 2, 1996, States were requested to 
a more active role to encourage States to use  provide a description of any policies 
generic drugs; provide stronger incentives for  adopted by States that encourage use of 
States to adopt policies that encourage use of  equivalent generic drugs. This information 
generic drugs; monitor the States efforts to  will be included in the 1995 State Drug 
encourage the use of lower priced drugs; and  Utilization Review Annual Report due to 
formally assess those activities. (CIN:  regional offices by June 30, 1996. 
A-06-93-00008) 
Inpatient Psychiatric Care Limits: 
Develop new limits to deal with the high cost  The HCFA considered a proposal  47.6 
and changing utilization patterns of inpatient  recommending that the 190-day lifetime 
psychiatric services. Apply a 60-day annual and  limit for psychiatric hospitals be extended 
a 190-day lifetime limit to all psychiatric care  to general hospitals; however, such a 
regardless of the place of service. (CIN:  proposal was not included as part of the 
A-06-86-62045)  Presidents FY 1996 budget. 
Nonemergency Advanced Life Support 
Ambulance Services: 
The HCFA should modify its Medicare policy to  The HCFA prepared a draft regulation in  47

allow payment for nonemergency advanced life  late 1995 that would shift the policy focus

support ambulance service only when that level  away from the type of vehicle used and

of service is medically necessary; instruct  towards the medical condition of the

carriers to institute controls to ensure that  beneficiary.

payment is based on the medical need of the 
beneficiary; and closely monitor carrier 
compliance. (CIN: A-01-91-00513) 
Medicaid Payments for Employer Group 
Health Insurance: 
The HCFA should continue to strongly support  The HCFA concurred with the first  32

States implementing Section 1906 of the Social  recommendation and has been working in

Security Act, and should propose legislation  partnership with regional offices and States

that allows States to pay employer group health  to promote full implementation.  The HCFA

plan (EGHP) deductibles and coinsurance using  deferred comment on the second

Medicaid fee schedules rather than EGHP fee  recommendation.

schedules. (OEI-04-91-01050)

B-5
   OIG Recommendation  Status  Savings 
in Millions 
Medicaid Cost Sharing: 
The HCFA should promote the development of  The HCFA provided States with program  $19.8

effective cost sharing programs by: allowing  and administrative flexibility through 
States to experiment with cost sharing programs  waivers for Medicaid programs. It plans to 
that target new populations and reflect more  solicit information from States 
substantial cost sharing amounts; and/or  implementing cost sharing and distribute it 
recommending changes to Federal requirements  to States that do not impose it. Several 
allowing for greater State flexibility in  States have submitted waiver applications 
determining exempted populations and services;  to HCFA to develop demonstration projects 
and allowing for higher beneficiary cost sharing  which include experimental cost sharing 
amounts; and promoting the use of cost sharing  provisions. 
in States that do not currently have programs. 
(OEI-03-91-01800) 
Monitored Anesthesia: 
The HCFA should study the appropriateness of  The HCFA does not concur with this  18 
paying the same amount for monitored  recommendation. 
anesthesia care and general anesthesia in view 
of the fact that other insurers are more 
restrictive than Medicare.  (OEI-02-89-00050) 
Establish Mandatory Prepayment Edit 
Screens for Medicare and Medicaid: 
The HCFA should move swiftly with the  The HCFA has designated the National  12.9

process of establishing mandatory prepayment  Technical Information Service (NTIS),

edit screens for the Medicare and Medicaid  Department of Commerce, as the sole

programs. (CIN: A-03-91-00019)  distributor of the Correct Coding Initiative

edits. The NTIS made the edits available in

hard copy and diskette form as of

December 31, 1995. Updates to the edits

will be made quarterly by NTIS.

Medicare Claims for Railroad Retirement 
Beneficiaries: 
Discontinue use of a separate carrier to process  While HCFA has supported legislation in  9.1 
Medicare claims for railroad retirement  the past, there is currently no legislative 
beneficiaries. (CIN:  A-14-90-02528)  proposal before the Congress. 
Medicare Payments for Orthotic Body 
Jackets: 
The HCFA should require the durable medical  The HCFA concurred and has instituted  7

equipment regional carriers (DMERCs) to  several methods to detect payment trends 
closely monitor claims for body jackets,  and identify suppliers who have exhibited 
including:  analysis of payment trends,  abusive practices. The statistical analysis 
provision of an early warning of abusive  DMERC produces quarterly reports and 
practices and monitoring of suppliers who have  monthly ad hoc reports which assist the 
engaged in abusive practices.  DMERCs in identifying potential abusive 
(OEI-04-92-01080)  practices, and monitors those suppliers that 
appear to engage in abusive practices. 
B-6
   OIG Recommendation  Status  Savings 
in Millions 
Limit Reimbursement for Hospital Beds: 
The HCFA should develop a new approach for  The HCFA awarded a demonstration project  $6.2 
reimbursing suppliers for hospital beds used by  on this subject in 1996. The project is 
Medicare beneficiaries at home. A new  expected to run in at least 3 sites for 2 
reimbursement methodology should reflect a  cycles of 2 years each beginning in January 
hospital beds useful life and the number of  1997. 
times a bed can customarily be rented over that 
period. (CIN: A-06-91-00080) 
Medicares Reimbursement for Hospital 
Emergency Room X-Rays: 
The HCFA should pay for reinterpretations of  The HCFA will revise the hospital  4 
x-rays only when attending physicians  emergency room x-ray interpretation policy 
specifically request a second physicians  guidelines in the Medicare Carriers Manual 
interpretation in order to render appropriate  2020G. The manual revision is currently 
medical care before the patient is discharged.  under development. 
(OEI-02-89-01490) 
Third Party Liability Settlements and 
Awards: 
The HCFA should develop legislative proposals  The HCFA agreed that the exception in the  3

to close the loopholes in the Omnibus Budget  law contains loopholes.  It indicated that 
Reconciliation Act of 1993 that allow Medicaid  recommendations could be made to the 
beneficiaries who receive settlements and  Congress to amend the exception limiting 
awards from third parties as a result of  the use of trust funds to certain 
accidents to shelter the assets in irrevocable  well-defined necessities (e.g. health care 
trusts and retain their eligibility for Medicaid.  that is not covered by Medicaid). The 
The HCFA should also develop guidelines to  HCFA also agreed to take appropriate 
assist States in strengthening Medicaids right  action to strengthen Medicaids right to 
to recover when trusts are established by third  recover from trusts established from third 
parties. (CIN:  A-09-93-00033)  party settlements. 
Hospital General and Administrative and 
Fringe Benefit Costs: 
1

Revise the Provider Reimbursement Manual  The HCFA has published changes to the  2.1 
(PRM) to provide explicit guidelines on the  PRM to clarify the allowability of several

allowability of certain general administrative  of the cost categories identified in OIGs

and fringe benefit costs. (CIN:  report. The HCFA has not yet clarified the

A-03-92-00017)  remaining cost categories noted in OIGs

report.

PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Institute and Collect User Fees for Food and 
Drug Administration Regulations: 
Extend user fees to inspections of food  In the absence of specific authorizing  44.4

processors and establishments.  legislation, the Food and Drug

(OEI-05-90-01070)  Administration is precluded by statute from

imposing user fees to cover additional 
functions. 
1 Medicare savings only. The bulk of costs were passed to other health care consumers. 
B-7    OIG Recommendation  Status  Savings 
in Millions 
Limit Graduate Student Compensation: 
The Assistant Secretary for Management and  The ASMB endorsed the OIG  $5.7

Budget (ASMB) should work with the Office of  recommendation, concluding that a prudent

Management and Budget (OMB) to revise  person would not provide greater

Circular A-21 to stipulate a reasonableness  compensation to individuals who are less

standard for graduate student compensation  qualified by education and practical

charged to federally sponsored research based  experience than others performing similar

on assigned responsibilities and not to exceed  work.

compensation paid to other individuals of 
similar experience for similar work. (CIN: 
A-01-94-04002) 
Recharge Center Costs: 
Universities should: improve their oversight of  The ASMB concurred with the  3.2

recharge centers; develop and implement  recommendations and has recommended to

policies and procedures for the operation of  OMB that Circular A-21 be revised to

recharge centers that are consistent with OMB  provide more definitive guidance on the

Circular A-21; establish and maintain adequate  financial operations of recharge centers.

accounting and recordkeeping procedures for 
recharge centers; and analyze and adjust billing 
rates to eliminate deficit and surplus funds. 
(CIN: A-09-92-04020) 
ADMINISTRATION FOR CHILDREN AND FAMILIES 
Reducing Federal Financial Participation: 
The Administration for Children and Families  This proposal was not included in the  1,100 
should consult with the Congress on  Presidents FY 1996 budget. 
modifications to the Federal medical assistance 
percentages formula which would result in 
distributions of Federal funds that would more 
closely reflect per-capita income relationships. 
(CIN: A-06-90-00056) 
Reduce Incentive Payments and Base Them 
on States Performance: 
Base incentive payments on the States  This proposal was not included in the  277 
demonstrated ability to meet Federal child  Presidents FY 1996 budget. 
support enforcement (CSE) requirements and 
performance objectives. Also, consider OIG 
recommended options to reduce financial 
incentives realized by States that would result 
in a more equitable cost sharing with the 
Federal Government.  These options are: 
limiting incentives to a break-even point where 
a States share of Aid to Families with 
Dependent Children collections, plus incentive, 
equal the States share of CSE costs; 
eliminating incentives to poor performing 
States; and reducing the Federal share of 
administrative costs. (CIN: A-09-91-00147; 
CIN: A-09-91-00034) 
B-8
   OIG Recommendation  Status  Savings 
in Millions 
Limit Federal Participation in States Costs 
for Administering the Foster Care Program: 
Limit Federal participation in foster care  This proposal was not included in the  $247 
administrative costs through one of the  Presidents FY 1996 budget. 
following actions: limit future increases in 
administrative costs to no more than 10 percent 
per year; fund administrative activities via a 
single block grant with future increases based 
on the consumer price index; limit 
administrative costs to a percentage of 
maintenance payments; or restrict, through 
legislation, the filing period for retroactive 
claims, namely require States to file claims for 
Federal participation within 1 year after the 
calendar quarter in which the expenditure was 
made. (CIN: A-07-90-00274; 
OEI-05-91-01080) 
GENERAL OVERSIGHT 
Disallow Interest Charges on Unfunded 
Liabilities of Government Pension Plans: 
The OMB should revise Circular A-87 limiting  Because of the sensitivity and financial  1,300

Federal sharing of actuarially determined  impact of the proposed changes on the State 
pension costs, including amortization of  and local governmental entities, OMB has 
unfunded liabilities, to situations where the  expended considerable effort working with 
State and local governmental unit are funding  State and local interest groups prior to 
such costs through an actuarially sound plan.  issuance as a draft proposed rule change. 
Interest costs caused by late funding should not  The OIG continues to recommend that 
be allowed. (CIN: A-09-87-00031)  OMB clarify the rule relating to pensions 
by finalizing revisions to Circular A-87. 
Pension Reserves: 
Recover the Federal Governments  The Departments Division of Cost  111

proportionate share of pension reserve funds  Allocation concurred with OIGs finding; 
used by California to pay current period  resolution with the State is in progress. The 
employer pension costs. (CIN: A-09-92-00116)  State did not agree that the Federal 
Government should receive a proportionate 
share of the reserves saying that the use of 
the funds was mandated by State law 
specifically restricting the use to State 
funding sources only. 
Internal Service Funds: 
California should refund the Federal share of  The Departments Division of Cost  12.2

accumulated surpluses in its internal service  Allocation generally agreed with OIGs

fund that provides goods and services to State  findings. However, California did not

agencies on a cost reimbursable basis, and  concur.

adjust billing rates to eliminate future surpluses

or deficits. (CIN: A-09-93-00039)

B-9
 APPENDIX C 
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations 
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result 
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency. More detailed information may 
be found in OIGs Program and Management Improvement Recommendations (the Orange Book). 
OIG Recommendation  Status 
HEALTH CARE FINANCING ADMINISTRATION 
Medicare Carrier Assessment of New 
Technologies: 
The HCFA should foster greater consistency among  The HCFA indicated that it recognized the problems with

carriers in their coverage and pricing decisions, by  the carrier assessment of new technologies and had taken

providing carriers with selective access to comparative  steps to correct the problems. The OIG plans to conduct a

information on new technologies, reviewing carrier  follow-up study to determine if effective actions have been

performance and working with the Public Health Service  completed.

(PHS) operating divisions to disseminate information on

new health care technologies. (OEI-01-88-00010)

Carrier Maintenance of Provider Numbers: 
The HCFA should establish adequate safeguards for  The HCFA is taking steps to address the problems 
detection of abusive providers. (OEI-06-89-00870)  identified in the report, which OIG will monitor. The 
HCFA agreed to issue a modification to the Medicare 
Carrier Manual which will clearly state that carriers have a 
responsibility to ensure the integrity of provider numbers 
and that only those practitioners and providers with legal 
authority to practice are given and may retain provider 
numbers. The HCFA is also implementing changes to the 
contractor evaluation process, durable medical equipment 
claims processing and supplier requirements, and provider 
number system. 
Improve the Health Care Financing 
Administrations Federal Managers Financial 
Integrity Act Program: 
The HCFA should enhance the testing used to evaluate  The HCFA agreed and has established a work group 
the contractors claims processing internal controls.  comprised of OIG and HCFA staff members to address 
(CIN: A-14-93-03026)  Medicare contractors controls. The work group is 
developing an internal control review protocol to review 
contractors controls. 
Implement Proper Accountability over Billing 
and Collection of Medicaid Drug Rebates: 
The HCFA should ensure that States implement  The HCFA concurred with the recommendation. States 
accounting and internal control systems in accordance  will now be required to maintain detailed supporting 
with applicable Federal regulations for the Medicaid drug  records of all rebate amounts invoiced to drug companies 
rebate program. Such systems must provide for accurate,  using a formal accounts receivable system. The HCFA 
current and complete disclosure of drug rebate  hopes to have final regulations during Fiscal Year (FY) 
transactions and provide HCFA with the financial  1996. 
information it needs to effectively monitor and manage 
the Medicaid drug rebate program. (CIN: 
A-06-92-00029) 
C-1
 OIG Recommendation  Status 
Physical Therapy in Physicians Offices: 
The HCFA should take appropriate steps to prevent  The HCFA concurred with options one and two, and have 
inappropriate payments for physical therapy in  distributed copies of the report to the carriers to determine 
physicians offices. Some options are: conduct focused  if the issues identified are problems in their service areas. 
medical review; provide physician education activities;  The HCFA is also forming a work group that represents 
apply existing physical therapy coverage guidelines for  physicians who provide physical therapy services in their 
other settings to physicians offices. (OEI-02-90-00590)  offices to focus on the clinical appropriateness of services 
provided, including monitoring of these services. 
Use of Nursing Homes and Medigap Guides: 
The HCFA should work with the Social Security  The HCFA concurred with OIGs recommendation. It is 
Administration (SSA) and the Assistant Secretary for  also considering other OIG suggestions, such as 
Public Affairs to develop a more effective strategy to  distributing information through physicians offices, 
make the booklets available to all beneficiaries.  hospital personnel and post offices to continue to improve 
(OEI-04-92-00481)  its communication with beneficiaries. 
Medicare Trust Funds Accounts Receivable 
Balances: 
The HCFA needs to improve its internal controls and the  The HCFA concurred with the intent of most of the 
controls of its fiscal intermediaries and carriers related to  recommendations and is taking corrective actions. 
the recording and reporting of accounts receivables.  However, HCFA has still been unable to resolve all the 
Additionally, HCFA needs to properly estimate the  critical problems. The HCFA and OIG will continue to 
allowance for uncollectible receivables and determine the  work together to develop corrective action plans to resolve 
amounts to be written off as uncollectible. In a review  these deficiencies. The HCFA has established a work 
conducted in accordance with the Chief Financial  group to review Medicare contractor operations and 
Officers Act, OIG continued to find weaknesses in  systems, analyze contractor controls and identify internal 
contractors controls. (CIN: A-01-92-00516; CIN:  control weaknesses. The work group has contracted with a 
A-14-93-03027)  Medicare contractor and a certified public accounting firm 
to develop an approach to evaluate internal controls at 
Medicare contractors. The HCFA has also requested a 
clarification of the reporting of Medicaid financial 
information from the Federal Accounting Standards 
Advisory Board. 
Medicare Trust Funds Accounts Payable 
Balances: 
The HCFA should improve its internal controls and the  The HCFA concurred with the recommendations. 
controls of its fiscal intermediaries and carriers related to  Regarding recommendations to perform FMFIA section 2 
the recording and reporting of accounts payable. The  and 4 reviews at contractors, a work group is developing an 
HCFA should also perform Federal Managers Financial  internal control review protocol to review contractors 
Integrity Act (FMFIA) sections 2 and 4 reviews on all  controls. 
carrier accounts payable internal controls and financial 
management systems. (CIN: A-04-92-02054; CIN: 
A-05-92-00106) 
Improve Financial Management Systems to 
Enhance Financial Reporting: 
The HCFA should develop and implement financial  The HCFA agreed that reasonable data should be included 
management systems and related accounting and  in the reporting of Medicare liabilities. However, HCFA 
administrative internal controls to ensure that all  asserts that the process for developing a reasonable 
Medicare liabilities are reported to the HCFA general  estimate of a liability for provider reports would be too 
ledger at fiscal year end. (CIN: A-14-92-03015)  cumbersome. The HCFA is currently developing the 
Medicare Transaction System that will include an 
integrated accounting subsystem to estimate the amount of 
appealed cost reports. 
C-2
 OIG Recommendation  Status 
Clarify the Allowability of General and 
Administrative Costs at Medicare Hospitals: 
The HCFA should revise the Provider Review Manual  The HCFA has published changes to the PRM to clarify the 
(PRM) to further clarify the allowability of specific types  allowability of several of the cost categories identified in 
of general and administrative and fringe benefit costs.  OIGs report. The HCFA has not yet clarified the 
(CIN: A-03-92-00017)  remaining cost categories noted in OIGs report. 
Consider Recommended Safeguards over 
Medicaid Managed Care Programs: 
The HCFA should consider safeguards available to reduce  The HCFA generally concurred with OIGs 
the risk of insolvency, and to ensure consistent and  recommendations, but felt that a broader analysis of 
uniform State oversight. (CIN: A-03-93-00200)  managed care plans was needed to support broad program 
recommendations. The OIG notes that the same concerns 
raised in its report have been expressed by the Congress 
and the General Accounting Office. The OIG is continuing 
reviews of Medicaid managed care plans. 
Provide Additional Guidance to Drug 
Manufacturers to Better Implement the 
Medicaid Drug Rebate Program: 
The HCFA should survey manufacturers to identify the  The HCFA did not concur stating that the drug law and the 
various calculation methods used to determine average  rebate agreements already established a methodology for 
manufacturer price (AMP). The HCFA should also  computing AMP. The OIG disagreed because the rebate 
develop a more specific policy for calculating AMP  law and agreement defined AMP but did not provide 
which would protect the interests of the Government and  specific written methodology for computing AMP. 
which would be equitable to the manufacturers. (CIN: 
A-06-91-00092) 
Use of Emergency Rooms by Medicaid 
Beneficiaries: 
The HCFA should encourage States to develop initiatives  The HCFA indicated that it was concerned that it may not 
to review and reduce nonemergency use of emergency  have sufficient resources to encourage States to develop 
rooms by Medicaid beneficiaries, and assist them through  initiatives to review and reduce nonemergency use of 
data analysis instructions, expedited review of waiver  emergency rooms or disseminate annual reports on 
applications for managed care and dissemination of  effective practices, but it will assist States by expediting 
effective emergency room control practices.  the review of State applications for waivers to implement 
(OEI-06-90-00180)  their efforts to control emergency rooms. 
Avoid Future Medicare Secondary Payer 
Overpayments: 
To identify Medicare secondary payer (MSP) situations,  The HCFA is continuing implementation of the corrective 
HCFA should continue to implement its corrective action  action plan. The HCFA did not agree with the 
plan to eliminate the designation of MSP as a high risk  recommendation on use of the W-2, indicating that it 
area, and seek legislation which would require employers  preferred to evaluate the outcome of recent legislation 
to report other health insurance coverage on the W-2 and  which mandated a data exchange between the Internal 
tax statement. (CIN: A-09-89-00100; OEI-07-90-00760;  Revenue Service, SSA and HCFA. 
OEI-07-90-00763) 
Recover Past Medicare Secondary Payer 
Overpayments: 
The HCFA should ensure that there is adequate funding  The HCFA is in the process of establishing funding needs

available to contractors to pursue collection of MSP  for recoveries and agreed to make recovery of backlog

overpayments, and instruct contractors to recover the  cases a top priority.

MSP overpayment backlog and notify insurance

companies of improper payments within recovery

regulation time frames. (CIN: A-09-91-00103; CIN:

A-04-92-02037)

C-3
 OIG Recommendation  Status 
Review Social Security Administration 
Procedures that Impact Medicare Trust Funds: 
The HCFA should review SSAs wage certification  The SSA is pursuing a legislative solution to this problem.

procedures to ensure that the transfer of Medicare

Hospital Insurance trust funds is consistent and

performed in accordance with the Social Security Act.

(CIN: A-14-92-03013)

Sanction Referral Authority of Peer Review 
Organizations: 
The HCFA should adopt one or more of the following  The HCFA opposed the first option, supported the second

options for changing the peer review organization (PRO)  and concurred with the third. It plans to develop a

authority: repeal or modify the unwilling or unable  Memorandum of Agreement which will provide the

requirement; substantially increase the monetary penalty;  necessary mechanism for PROs to exchange information

maintain the authority as it now exists, but mandate  about those physicians found to have serious quality of

referrals to State medical boards when PROs confirm  care problems with the States.

serious quality of care problems. (OEI-01-92-00250)

Payments for Total Parenteral Nutrition: 
The HCFA should review research concerning the use of  The HCFA agreed that there has been inappropriate 
intradialytic parenteral nutrition (IDPN). If IDPN is  coverage of IDPN in the past and has proposed changes in 
considered reasonable and necessary for the treatment of  the policy to ensure appropriate coverage. While HCFA 
a subset of end stage renal disease patients, it should be  generally agreed with OIGs inspection report 
paid on a per-capita basis, with discounts negotiated by  recommendations, a subsequent audit revealed that new 
each facility or the networks, or by using some other  claims were being paid for IDPN. This audit report, 
method that takes into account the efficiencies associated  Medicare Part B Payments for Intradialytic Parenteral 
with facility administration of the nutrients.  Nutrition, found that payment for IDPN continued after 
(OEI-12-92-00460; CIN: A-04-93-02073)  release of the inspection report. 
Physician Office Surgery: 
The PROs should extend their review to surgery  The HCFA continues to work with the PROs to refine a 
performed in physicians offices. (OEI-07-91-00680)	 methodology for review of quality of care for ambulatory 
services. The implementation plan is to expand the review 
of ambulatory services to additional States, first on a pilot 
basis, then on an implementation basis in other States. 
Patient Advance Directives -Early 
Implementation Experience: 
The HCFA should develop and issue specific regulatory  The HCFA did not concur with the recommendation, but is 
guidelines clarifying acceptable documentation methods  willing to provide assistance to States by issuing 
to assist providers in meeting the requirements of the  interpretive guidelines for survey and certification 
Federal statute. The statute requires providers to inform  containing examples of what would constitute acceptable 
individuals of any rights they have under State law  documentation of whether a patient has an advance 
regarding self-determination. (OEI-06-91-01130)  directive. 
C-4
 OIG Recommendation  Status 
PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Fully Implement Internal Controls in the Food 
and Drug Administrations Medical Device 
510(k) Review Process: 
The Food and Drug Administration (FDA) should modify  The FDA has made significant progress in rectifying 
its exception report for use on a quarterly basis to detect  deficiencies in this program area, and that it will continue 
possible manipulation of the 510(k) process; periodically  to monitor FDAs efforts until all corrective actions are 
sample reviewer workload to ensure compliance with the  implemented. 
first-in, first-reviewed policy; require reviewers to 
document responses to all items on the review checklist; 
conduct bioresearch monitoring inspections on devices 
likely to result in 510(k) submissions; complete 
postmarket testing of the four devices it selected for 
review and increase the number sampled for future tests; 
include in its quality control reviews an independent 
scientific evaluation of reviewers 510(k) decisions; and 
periodically monitor employee compliance with 
procedures for employee/industry contacts. (CIN: 
A-03-92-00605) 
Federal Involvement in Patents: 
The National Institutes of Health (NIH) should develop  The PHS generally concurred with OIGs 
procedures to obtain information on patents issued to NIH  recommendations. The NIH has completed its review of 
grantees and determine if these patents were developed  patents issued to one grantee and found additional patents 
with Federal funds. (CIN: A-15-93-00029)  that were made with NIH support. The NIH has 
implemented a pilot project to assess the accuracy of 
reporting compliance for selected research institutions and 
has contacted the U.S. Patent Office to develop procedures 
which will lead to better monitoring of all federally 
supported patents. 
Ensure that All Superfund Grantees Are 
Audited: 
The PHS should direct its Superfund agencies to establish  The PHS directed the Superfund grant offices to take steps

procedures to ensure that all Superfund grantees submit  to ensure that all Superfund grantees provide the required

audit reports and that grantees that are unwilling to have a  audit reports.

proper audit conducted are sanctioned. (CIN:

A-04-93-04506; CIN: A-04-93-04518)

Improve Financial Reporting and Monitoring 
of Research Funds at Universities: 
The Department should require grantees to submit a  The Assistant Secretary for Management and Budget and 
revised budget for the use of unspent grant funds when a  PHS concurred with OIGs recommendations. In April 
substantial carryover of funds occurs from one budget  1992, the Office of Management and Budget (OMB) gave 
period to another. Additionally, the Department should  the Department approval to conduct a pilot project with 
expedite the pilot project for obtaining detailed  selected universities to obtain detailed expenditure data by 
expenditure data from universities. (CIN:  electronic transfer. This project is still under development. 
A-06-91-00073)  In addition, PHS added language to its grant policy 
statement that defines significant rebudgeting. 
C-5
 OIG Recommendation  Status 
Improve Accountability Over National 
Institutes of Healths Management and Service 
and Supply Funds Activities: 
The NIH should improve accountability over personal  A Board of Survey was initiated and presented a series of 
property and inventory by performing monthly  recommendations to improve property management. 
reconciliations and perform adequate follow-up 
procedures on discrepancies noted by physical counts. 
The NIH should also develop policies and procedures for 
retaining supporting accounting documentation. (CIN: 
A-15-93-00008) 
Improve Controls Over Advisory Committee 
Conflict of Interest: 
The NIH should: review advisory committee members  The NIH concurred with OIGs recommendations and has 
financial disclosure forms to identify perceived or actual  taken actions which, when fully implemented, will 
conflicts of interest; require ongoing reviews to identify  significantly strengthen internal controls. 
changes in financial interest that could result in conflicts 
of interest; revise required financial disclosures to include 
involvement in nonfederal grants and contracts; and 
provide guidance to determine when a waiver should be 
sought to obtain essential services of a committee 
member. (CIN: A-15-93-00020) 
Implement a Charging System for Centers for 
Disease Control and Prevention Data 
Processing Costs: 
The PHS should require the Centers for Disease Control  The PHS did not concur with OIGs recommendations. 
and Prevention (CDC) to implement a system for  However, it agreed to analyze its charging systems and 
charging data processing costs to its component centers  correct any major inequities. The CDC reported that it 
consistent with the provisions of the Federal Information  analyzed its computer charges and found them not to be 
Processing Standards Publication 96. (CIN:  based on actual utilization. However, it stated that the 
A-04-92-03503)  charges included other costs incurred and that it will 
analyze these costs to ascertain whether there are any 
actual inequities. 
Improve Monitoring of Community Health 
Center Grantee Financial Controls: 
The PHS should strengthen its monitoring procedures to  The PHS concurred with OIGs recommendations and 
improve community health centers accountability over  indicated that onsite peer reviews began in FY 1994 to 
grant funds. (CIN: A-07-92-00518)  strengthen monitoring of community health centers. 
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING 
Undistributed Child Support Payments: 
The Administration for Children and Families (ACF)  The ACF agreed to participate in a joint effort with OIG to 
should remind States to: monitor and expedite the  determine the extent of these problems, but disagreed with 
distribution of collected child support payments; place  the need to remind States of ACFs policies and procedures 
undistributed payments in interest bearing accounts; and  for undistributed collections. The ACF expected 
report escheated payments and interest as State income.  considerable alleviation of the undistributed collections as 
(CIN: A-09-93-00030)  States complete their automated systems. The ACF is in 
the process of reviewing 12 selected States undistributed 
collections balances in order to address the wide disparity 
in the level of balances reported by the States, as well as 
problems cited in the OIG report. When all 12 reviews are 
complete, a national report will be issued to outline 
problems encountered and suggested solutions for the 
handling and reporting of undistributed collections. 
C-6
 OIG Recommendation  Status 
Strengthen Head Start Grantees Financial 
Management Systems: 
The ACF should intensify efforts to assure that Head Start  The ACF generally agreed with OIGs recommendations. 
grantees have adequate systems of internal controls; 
maintain proper accounting records; have systems for 
assuring program requirements are met; and obtain 
acceptable independent audits and submit reports in 
accordance with Federal requirements. The ACF should 
also take appropriate action when grantees do not meet 
these requirements. (CIN: A-17-93-00001) 
Measure Head Start Grantees Performance: 
The ACF should establish and implement performance  The ACF agreed with the importance of strengthening 
measures and procedures for determining Head Start  performance measurement criteria but disagreed with 
grantees compliance with program requirements, and as  OIGs conclusions relative to high-risk conditions. The 
a basis for establishing uniform ratings and identifying  ACF is now completing a major initiative to develop Head 
management practices that create high-risk conditions.  Start performance measures designed to assess the quality 
(CIN: A-04-90-00009)  and effectiveness of the program nationally through stating 
outcomes for children and families and through program 
indicators. 
Ensure that Head Start Program Attendance 
Goals and Matching Requirements are Met: 
The ACF should establish and implement procedures to  The ACF noted that it is obtaining information from its 
ensure that center-based Head Start grantees attain the  grantees to improve internal reporting procedures. As far 
expected attendance goal of 85 percent of funded  as average daily attendance, ACF states that an average 
enrollment. The ACF should also seek a legislative  daily attendance of 85 percent is a service goal, not a 
change to require that funding levels be based on current  program requirement of Head Start grantees. The ACF is 
conditions (not historic funding levels) and require  also reviewing Head Start procedures to grant waivers. 
current information to support requests for waivers of 
nonfederal matching requirements. (CIN: 
A-04-90-00010) 
Health and Safety Standards at Child Care 
Facilities: 
The ACF should work with States to improve the health  The ACF generally concurred with OIGs findings and

and safety practices of child care facilities. In addition to  recommendations, and is taking actions to enhance the

actions ACF is already taking, OIG recommended that  health and safety standards of child care facilities.

ACF provide State agencies with identified best practices

including: parental involvement, provider self-appraisals

and private/public partnerships. (CIN: A-04-94-00071;

CIN: A-07-93-00718; CIN: A-12-92-00044)

Improve the Federal Foster Care Program: 
The OIG provided options for ACF to consider in its  The ACF concurred on the issues raised in OIGs report.

efforts to improve its partnership with State and local  The ACF has convened two teams whose task is to

governments in administering the Federal Foster Care  redesign the titles IV-B and IV-E child welfare reviews.

program. The options included streamlining the process;  The objectives of the teams are consistent with issues and

determining whether legislative change is needed; and  options described in OIGs report.

determining if certain program requirements could be

changed to facilitate compliance. (CIN: A-12-93-00022)

C-7
 OIG Recommendation  Status 
Improve Oversight of Audits of Office of 
Community Service Grantees: 
The ACF should track Office of Community Services  The ACF agreed and will take steps to implement the

grantees implementation of recommendations made as a  recommendations within the limitation of current staffing

result of single audits, and follow-up with grantees to  resources.

ensure actions taken were effective. (CIN:

A-12-92-00043)

Colocating Intergenerational Programs: 
The Administration on Aging (AoA) and ACF should  The AoA and ACF generally agreed with OIGs

examine whether demonstrated successes in colocating  recommendations.

programs and facilities in the private and public sector

can be more broadly applied to departmental programs on

a voluntary basis. (CIN: A-05-94-00009)

Improving Administration on Agings Nutrition 
Program for the Elderly: 
The AoA and the Department of Agriculture (USDA)  The AoA and USDA generally agreed to address these 
should remove barriers to increase States use of  issues through joint efforts. 
commodities by fostering better communications and 
working relationships with State distribution agencies 
which handle USDA commodities; assuring a better 
variety of commodities; and improving dependability, 
quality and packaging of commodities. (CIN: 
A-01-93-02510) 
GENERAL OVERSIGHT 
Coping With Twin Disasters -Department of 
Health and Human Services Response to 
Hurricane Hugo and the Loma Prieta 
Earthquake: 
The Office of the Secretary (OS) and the Office of the  The OS and OASH have consolidated into one unit. The 
Assistant Secretary for Health (OASH) should clarify the  OASH had taken the lead in this area and has met with 
Department of Health and Human Services (HHS)  headquarters operating division emergency preparedness 
disaster recovery roles and responsibilities by defining  officials. It is in the process of clarifying roles and 
precisely how they will implement the January 1990  responsibilities and plans to publish this information in the 
transfer of primary disaster authority from OS to PHS,  Federal Register once it is approved. 
and clarifying the disaster relief and recovery 
responsibilities of all operating divisions and the regions. 
(OEI-09-90-01040) 
Coping With Twin Disasters -Department of 
Health and Human Services Response to 
Hurricane Hugo and the Loma Prieta 
Earthquake: 
The OASH should issue guidelines to improve disaster  The OASH has undertaken the revision, updating and 
planning. The plans of each operating and staff division  simplification of emergency planning and response 
should spell out lines of communication with each other,  guidance. The OASH will also coordinate the 
and should specify headquarters and regional lines of  development of HHS Disaster Response Guides which will 
communication with the Federal Emergency Management  outline the types of emergency assistance provided by the 
Agency. (OEI-09-90-01040)  Department. The OASH and OS have consolidated. 
C-8
 OIG Recommendation  Status 
Ensure that New York Allocates Training Costs 
to Federal Programs for Actual Number of 
Attendees: 
The Department should be more aggressive when  The Departments Division of Cost Allocation (charged 
approving State plans to ensure that the State (among  with approval of State cost allocation plans) expressed 
other actions): allocates future training contracts to  agreement with the findings and recommendations. 
programs based on the actual number of participants; 
maintains documentation which clearly details which 
programs benefit from future training and, where 
applicable, allocates training costs to all benefitting 
programs; and discontinues using third party 
contributions provided by private contractors to meet its 
share of training costs. (CIN: A-02-91-02002) 
Reform the Systems for Determining State and 
Local Government Administrative/Indirect 
Costs: 
The OIG identified a number of options, some of which  The National Performance Review Report included OIGs 
require legislative action, to facilitate the allocation of  recommendations. The OMB is working on the 
administrative/indirect costs to Federal grants and  development of guidelines to assist States in the charging 
contracts. These include: establishing a block grant to  of administrative/indirect costs to Federal programs. 
pay administrative/indirect costs, negotiating 
nonadjustable rates for a predetermined number of years, 
and assigning the responsibility for negotiating rates for 
all entities within a State to one Federal agency. (CIN: 
A-12-92-00014) 
Revise Hospital Cost Principles for Federally 
Sponsored Research Activities: 
The Department should act to modernize and strengthen  The Department intends to begin work on revising hospital 
cost principles applicable to hospitals by either revising  cost principles when the revisions of the Governmentwide 
existing guidelines to conform with OMB Circular A-21  cost principles for universities and State and local 
or working with OMB to extend Circular A-21 coverage  governments (OMB Circulars A-21 and A-87, respectively) 
to all hospitals. (CIN: A-01-92-01528)  are finalized by OMB. 
Guidelines to Reimburse Educational 
Institutions and Nonprofit Organizations: 
The Department should work with OMB to revise  The OMB has revised Circular A-87 to limit post 
applicable cost principles to reflect the change in  retirement benefit costs to the amount funded, and agreed 
accounting for post retirement benefit costs arising from  that similar provisions should be incorporated in future 
implementation of Financial Accounting Standards Board  modifications of circulars applicable to educational 
Opinion 106. It should also advise negotiators for the  institutions and nonprofit organizations (OMB Circulars 
Departments Division of Cost Allocation to pay special  A-21 and A-122, respectively). In the interim, the 
attention to such costs when reviewing fringe benefit  Department has issued instructions to negotiators. 
rates for schools and nonprofit organizations. (CIN: 
A-01-93-04000) 
Implement Random Moment Sampling 
Systems and Other Time Studies: 
The Department, in conjunction with OMB, should issue  The Department agreed with OIGs conclusion and is 
definitive, authoritative guidelines for States adopting  working with OMB in the development of guidelines 
random moment time studies. (CIN: A-07-93-00645)  related to the determination of administrative costs, 
including standards for the use of random moment time 
studies. 
C-9
 APPENDIX D

Notes to Tables I and II

Table I 
1 The opening balance was adjusted to reflect an upward revaluation of recommendations in the amount of $14.5 million. 
2 During the period, revisions to previously reported management decisions included: 
CIN: A-03-91-00553 	 Foster Care Allegheny County: The Departmental Appeals board issued a decision 
which reduced the audit disallowance by $1,486,159. 
CIN: A-02-94-30824 	 Puerto Rico Office of Human Development - Head Start: The grantee provided 
documentation to support previously disallowed costs of $407,992. 
CIN: A-03-93-22784 	 District of Columbia Department of Human Resources: DHS provided 
documentation to support previously disallowed costs of $54,008. 
Not detailed are revisions to previously disallowed management decisions totaling $1,037,690. 
3 Audits on which a management decision had not been made within 6 months of issuance of the report: 
A.	 Due to administrative delays, many of which were beyond managements control, resolution of the following 
audits was not completed within 6 months of issuance; however, based upon discussions with management 
officials responsible for those audits, resolution of these outstanding recommendations is expected before the 
end of the next semiannual reporting period: 
CIN: A-03-91-00552	 Independent Living Program - National, March 1993, $6,529,545 (Related 
recommendation of $10,161,742 outstanding on Table II) 
CIN: A-07-92-00578  BC/BS of Texas Inc. - Unfunded Pension Costs, October 1992, $6,244,637 
CIN: A-03-89-00046	 Maryland BC/BS Administrative Costs Part B FYs 1985 - 1988, September 1991, 
$5,996,278 
CIN: A-03-90-02003	 Blue Cross of Western PA Administrative Costs FYs 1986 -1989, August 1993, 
$3,355,560 
CIN: A-07-93-00633  Pension Segmentation -AETNA Life Insurance Co., October 1993, $3,011,376 
CIN: A-05-93-00013  Michigan BC/BS -Contract Medicare Audit, April 1993, $3,010,916 
CIN: A-07-92-00585  Pension Segmentation BC/BS of California, January 1994, $2,973,504 
CIN: A-03-93-03308  GSX Services, Inc. CACS 263-86-0098, February 1994, $2,806,577 
CIN: A-07-92-00579  BC/BS of Michigan Inc -Unfunded Pension Costs, October 1992, $2,535,698 
CIN: A-05-92-00026  Associated Insurance Co. - Medicare Administration, February 1992, $2,530,409 
CIN: A-02-91-01006	 Blue Shield of Western NY Medicare Administrative CTS Porter, September 1991, 
$2,379,239 
CIN: A-03-90-02003 	 Blue Cross of Western PA Administrative Costs FYs 1986 -1989, August 1993, 
$2,218,528 
CIN: A-02-93-02001  Manpower Demonstration Res Corp, October 1994, $2,024,444 
D-1  CIN: A-02-95-33649  Puerto Rico Department of Anti-Addiction Services, April 1995, $1,606,955 
CIN: A-03-92-19733  State of Maryland, August 1992, $1,505,462 
CIN: A-03-90-00051	 Maryland BC/BS Administrative Cost - Part A FYs 1985 -1988, August 1991, 
$1,438,414 
CIN: A-09-93-00083 	 Child Support Intercept Programs - California, August 1995, $1,429,837 (Related 
recommendation of $2,900,000 outstanding on Table II) 
CIN: A-05-93-00057  MI BC/BS of MI - Contract Audit, July 1993, $1,409,954 
CIN: A-10-91-00011  WPS - Keystone Computer Acquisition, October 1992, $1,346,681 
CIN: A-07-93-00700  BC/BS of Mass - Unfunded Pension Cost Audit, May 1994, $1,290,740 
CIN: A-07-94-00762  Health Care Service Corp - Unfunded Pension Costs, July 1994, $1,233,337 
CIN: A-07-93-00665  Travelers Insurance Co - Unfunded Pension Cost Audit, October 1993, $1,218,963 
CIN: A-03-93-03313  Biocon, Inc. CCS 263-86-0098, February 1994, $1,061,376 
CIN: A-07-94-00763  Health Care Serv Corp - Pension Segmentation, August 1994, $1,055,458 
CIN: A-07-93-00699  BC/BS of Mass - Pension Segmentation Audit, April 1994, $658,471 
CIN: A-09-94-01010	 Closeout Audit - Contract No. 01-ES-75196 (STRATAGENE), March 1994, 
$983,208 
CIN: A-05-92-00060  Contractor Audit -BCBS - Administrative Cost, February 1993, $879,609 
CIN: A-07-95-01149  BC/BS Texas Charging of Pension Costs, July 1995, $874,111 
CIN: A-07-93-00701  BC/BS of Mass - Pension Costs Charged Audit, July 1994, $839,740 
CIN: A-03-94-03304  Biocon, Inc. CACS No. 1-CP-95644, February 1994, $747,865 
CIN: A-05-91-00136  Community Mutual Insurance Co. Administrative Costs, August 1992, $720,668 
CIN: A-03-95-33212  State of Pennsylvania, April 1995, $704,872 
CIN: A-03-93-00353  D.C. Dept of Human Resources - Block Grants Drugs, April 1995, $657,048 
CIN: A-10-95-00001  KCMBS Administrative Cost Audit, January 1995, $620,138 
CIN: A-02-95-37125  Columbia University System, May 1995, $594,676 
CIN: A-04-94-01078	 Monitoring Administrative Cost -Audit Medicare Part B BC/BS, July 1994, 
$594,092 
CIN: A-04-93-01069	 Monitoring Administrative Cost - Audit Medicare Part A BC/BS, July 1994, 
$590,844 
CIN: A-07-93-00679  AETNA - Unfunded Pension Cost Audit, May 1994, $590,207 
CIN: A-02-91-03508  Audit of New Jersey Child Care and Supportive Services, June 1993, $506,710 
CIN: A-03-92-16229  State of Pennsylvania, March 1992, $496,876 
CIN: A-09-94-00058  Transamerica Occidental Medicare Administrative Cost, March 1995, $491,479 
CIN: A-06-92-00017  IHS Creek Contract Closeout Report, May 1992, $468,217 
D-2
 CIN: A-06-92-00102	 JOBS: Federal Financial Participation, October 1993, $438,996 (Related 
recommendation of $14,999 outstanding on Table II) 
CIN: A-06-93-00042  BCBS Texas Administrative Costs - Medicare Parts A & B, January 1993, $434,134 
CIN: A-03-95-00451  Escheated Warrants - District of Columbia, August 1995, $420,607 
CIN: A-06-95-37434  State of Texas, August 1995, $379,759 
CIN: A-05-92-00126  Wisconsin Westcap Head Start ACF/RO Request, March 1993, $347,576 
CIN: A-05-93-25697  West Central Wisconsin Community Action Agency, Inc., August 1993, $324,759 
CIN: A-09-94-31078  State of Arizona, June 1994, $267,021 
CIN: A-03-92-20033  State of Delaware, August 1992, $247,609 
CIN: A-07-93-00710  BC/BS of Connecticut-Unfunded Pension Cost Audit, March 1994, $237,392 
CIN: A-03-95-37464  Johns Hopkins University Applied Physics Laboratory, May 1995, $215,470 
CIN: A-09-95-34788  State of Arizona, August 1995, $209,462 
CIN: A-05-93-26106  Economic Opportunity Committee of St. Clair County, August 1993, $188,691 
CIN: A-05-94-29229  West Central Wisconsin Community Action Agency Inc., March 1994, $167,977 
CIN: A-03-94-26611  State of Delaware, December 1993, $163,100 
CIN: A-01-94-00521  Audit of Non PPS A/G and Capital Cost NE Rehab, January 1995, $160,170 
CIN: A-09-92-06850  Santa Ysabel Band of Mission Indians, September 1992, $151,081 
CIN: A-04-94-00081  Escheated Warrants -Florida, April 1995, $143,291 
CIN: A-02-93-01003  Empire BCBS Administrative Cost Medicare Part A, July 1994, $119,293 
CIN: A-07-93-00709  BC/BS of Connecticut - Pension Segmentation Audit, April 1994, $119,472 
CIN: A-05-92-00048  WI Physicians Services, Pension - Medicare vs. Erisa, October 1992, $130,577 
CIN: A-09-92-00093  Blue Cross Arizona Administrative Costs, August 1992, $129,518 
CIN: A-05-91-00064  Nationwide Administrative Costs Contract Audit, October 1991, $211,422 
CIN: A-04-93-20785  State of Florida, June 1993, $103,486 
CIN: A-05-94-31408  Tri State Community Action Commission Inc., July 1994, $98,110 
CIN: A-06-95-34421  State of Oklahoma, April 1995, $91,974 
CIN: A-05-95-36487  Economic Opportunity Committee of St. Clair County, March 1995, $90,505 
CIN: A-03-94-27083  Pennsylvania State University, March 1994, $86,479 
CIN: A-04-93-00059	 Refugee Social Services and Targeted Assistance - Florida, September 1994, 
$84,676 
CIN: A-05-95-33723  Economic Opportunity Committee of St. Clair County, January 1995, $74,746 
CIN: A-02-93-02518  Biederman, Kelly & Shafer Contract No. 26389C0354, February 1994, $72,883 
CIN: A-09-93-00091  Walter McDonal - Indirect Cost Rate Audit, June 1994, $68,663 
CIN: A-03-91-02002  Delaware Blue Cross Administrative Costs, October 1991, $66,858 
D-3  CIN: A-02-95-33649  Puerto Rico Dept. of Anti-Addiction Services, April 1995, $65,277

CIN: A-05-95-37615  Illinois Dept. of Children & Family Services, July 1995, $64,000

CIN: A-09-95-33441  State of California, April 1995, $63,666

CIN: A-03-91-16232  Unisys Inc., September 1991, $61,754

CIN: A-06-94-27816  South Plains Health Provider Organization, Inc., March 1994, $60,900

CIN: A-06-92-19887  Central Tribes of the Shawnee Area, Inc., July 1992, $57,944

CIN: A-04-95-32641  State of Florida, April 1995, $56,984

CIN: A-10-95-34220  Grant County Community Action Council, November 1994, $55,004

CIN: A-03-93-03306  Survey Research Assoc. CACS No 1-ES-45067, December 1993, $48,779

CIN: A-04-95-38272  State of Florida, August 1995, $45,398

CIN: A-01-95-36087  State of Maine, June 1995, $45,057

CIN: A-09-94-01022  Intelligenetics #No 1-GM-72110, October 1994, $44,590

CIN: A-01-93-20875  State of Maine, May 1993, $40,540

CIN: A-03-95-03315  Health Systems Research Inc., April 1995, $37,161

CIN: A-03-95-33937  KOBA Institute Inc., August 1995, $32,575

CIN: A-01-94-27881  State of Maine, June 1994, $32,460

CIN: A-03-95-35319  Porter/Novelli, February 1995, $31,332

CIN: A-03-93-24682  Medlantic Research Institute, June 1993, $31,038

CIN: A-09-93-00106  Review of RSS and TAP Grants - CDSS, February 1996, $31,001

CIN: A-05-95-36811  Independent School District No.709-Duluth Minn, April 1995, $30,000

CIN: A-03-95-03313  Quality Resource Systems Inc-#240-89-0044, March 1995, $28,387

CIN: A-09-94-27868  Inyo Mono Advocates for Community Action, November 1993, $22,875

CIN: A-06-92-20334  Pueblo of Jemez, September 1992, $20,156

CIN: A-02-93-24129  Council of Jewish Federations Inc, May 1993, $19,152

CIN: A-03-93-22091  Pennsylvania State University, September 1993, $19,878

CIN: A-01-95-36338  State of New Hampshire, June 1995, $18,600

CIN: A-05-93-21928  Wright State University, July 1993, $18,308

CIN: A-01-95-37861  South County Community Action Inc., July 1995, $15,137

CIN: A-05-95-34584  Wood County Head Start Inc., December 1994, $14,896

CIN: A-02-95-38374  Puerto Rico Office of Human Development - Head Start, August 1995, $46,021

CIN: A-05-95-36498  Hoosier Valley Economic Opportunity Corp., April 1995, $13,116

CIN: A-10-92-20781  Tulalip Tribes of Washington, September 1992, $14,525

CIN: A-05-94-30273  Central Illinois Economic Development Corp., May 1994, $12,518

D-4  CIN: A-05-95-37806  Lake-Geagua United Head Start Inc., July 1995, $12,357 
CIN: A-03-93-21579  State of West Virginia, April 1993, $11,380 
CIN: A-09-92-06864  San Juan Southern Paiute Tribe, September 1992, $10,433 
CIN: A-05-95-36138  Community Action Agency of Columbian County Inc., March 1995, $9,976 
CIN: A-05-94-31542  Council for Economic Opportunities in Greater Cleveland, June 1994, $9,374 
CIN: A-09-95-33652  Hawaii Dept. of Health, December 1994, $7,613 
CIN: A-10-93-22136  Confederated Tribes of the Grand Ronde Community, December 1992, $7,384 
CIN: A-03-95-32768  Pennsylvania State Univ., October 1994, $7,310 
CIN: A-04-94-00079	 Head Start -Financial Management Practices of TCRC Child Care, October 1994, 
$7,241 
CIN: A-08-94-32795  Northern Cheyenne Tribe, September 1994, $6,548 
CIN: A-09-95-33283  Commonwealth of the Northern Mariana Islands, November 1994, $5,171 
CIN: A-06-91-00034  Audit of Collection & Credit Activities at TDHS, January 1992, $5,081 
CIN: A-04-95-38272  State of Florida, August 1995, $5,000 
CIN: A-04-95-38180  Family Health Centers Inc. South Carolina, August 1995, $4,781 
CIN: A-01-94-28754  New England Deaconess Hospital Corp., April 1994, $4,447 
CIN: A-07-95-38195  East Central Kansas Economic Opportunity Corp., August 1995, $4,233 
CIN: A-01-95-37193  Champlain Valley Office of Economic Opportunity Inc., June 1995, $4,077 
CIN: A-01-95-32620  State of Connecticut, January 1995, $4,070 
CIN: A-07-95-01123  Review of CPA Administrative Cost-BCBS of Kansas City, May 1995, $4,045 
CIN: A-02-01-03508  Second Street Youth Center Foundation Inc, July 1993, $3,989 
CIN: A-10-93-26035  State of Washington, September 1993, $3,198 
CIN: A-07-94-25955  State of Kansas,December 1993, $2,783 
CIN: A-03-95-34716  West Virginia Medical Institute Inc., March 1995, $2,688 
CIN: A-05-95-35315  Lake County Economic Opportunity Council, January 1995, $2,650 
CIN: A-01-95-36087  State of Maine, June 1995, $2,451 
CIN: A-03-94-30398  Medlantic Research Institute, June 1994, $2,306 
B.  Reports in litigation: 
CIN: A-09-91-00155	 Blackburn Care Home, November 1991, $1,777,944 (Related recommendation of 
$662,370 outstanding on Table II) 
CIN: A-04-95-02096  Review of FY 1992 Unsupported G&A Costs - ABC, July 1995, $857,684 
CIN: A-03-92-00033  Blue Cross of West Virginia Termination, November 1995, $25,200 
CIN: A-03-91-02004	 W VA BC Administrative Cost FY 1985/1990 and Termination Cost, November 
1992 
D-5  C.	 Reports that have subsequently been resolved: 
CIN: A-09-95-37515  Northern Arizona Council of Governments, August 1995, $36,594 
CIN: A-07-95-38136  State of Missouri, August 1995, $10,289 
CIN: A-10-95-37226  Clallam-Jefferson Community Action Council, June 1995, $11,434 
Table II 
1 The opening balance was adjusted to reflect a downward adjustment of $319.9 million. 
2 Included in the sustained management decisions of funds put to better use is $55,485 attributable to audits performed by the 
Defense Contract Audit Agency. 
3 Management decisions have not been made within 6 months of issuance on 8 reports. 
A.	 Discussions with management are ongoing and it is expected that the following reports will be resolved during 
the next semiannual reporting period: 
CIN: A-04-93-00062  Refugee Social Services/Target Assist Monitoring/Rollup, May 1995, $9,091,909 
CIN: A-01-95-36338  State of New Hampshire, June 1995, $1,373,062 
CIN: A-02-95-34946  City of Caguas Puerto Rico, March 1995, $64,206 
CIN: A-06-91-00089	 Audit of CN B Accounts to Determine Status of IHS Cash On-hand, April 1992, 
$445,890 
CIN: A-06-95-00056  Payment Rate Audit of Glendale Surgicenter, April 1995, $19,111 
CIN: A-05-95-34659  Northwest Michigan Human Services Agency, Inc., January 1995, $12,441 
CIN: A-05-95-34584  Northwestern Illinois Community Action Agency, December 1994, $4,449 
B.  One report has subsequently been resolved: 
CIN: A-09-94-27864  Solano County Economic Opportunity Council Inc., March 1994, $12,178 
D-6
 APPENDIX E

Reporting Requirements of the

Inspector General Act of 1978, as Amended

The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to 
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular 
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is 
being furnished to the Congress under separate cover. Copies are available upon request. 
Section of the Act  Requirement  Page 
Section 4(a)(2)  Review of legislation and regulations  52 
Section 5(a)(1)  Significant problems, abuses and  throughout 
deficiencies 
Section 5(a)(2)  Recommendations with respect to  throughout 
significant problems, abuses and 
deficiencies 
Section 5(a)(3)  Prior significant recommendations on  appendices B and C 
which corrective action has not been 
completed 
Section 5(a)(4)  Matters referred to prosecutive authorities  53 
Section 5(a)(5)  Summary of instances where information  none 
was refused 
Section 5(a)(6)  List of audit reports  under separate cover 
Section 5(a)(7)  Summary of significant reports  throughout 
Section 5(a)(8)  Statistical table I -reports with questioned  50 
costs 
Section 5(a)(9)  Statistical table II -reports with  51 
recommendations that funds be put to 
better use 
Section 5(a)(10)  Summary of previous audit reports  appendix D 
without management decisions 
Section 5(a)(11)  Description and explanation of revised  appendix D 
management decisions 
Section 5(a)(12)  Management decisions with which the  none 
Inspector General is in disagreement 
E-1
 APPENDIX F

Performance Measures

In order to identify work done in the area of performance measurement, OIG has labeled some items throughout the semiannual 
report as performance measures with the symbol   .  Performance measures are used to evaluate the 
achievement of a program goal, such as the efficiency of an immunization program which is measured by the number of 
inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations finalized during 
this semiannual period offer management information about whether some aspect or all of the programs or activities reviewed are 
achieving their missions and goals. 
Page 
Medicare Risk Health Maintenance Organization Performance Indicators  . . . . . . . . . 6 
Medicare Beneficiary Interest in Health Maintenance Organizations . . . . . . . . . . . . . . 6 
Medicare Peer Review Organizations Role in Identifying and Responding

to PoorPerformers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Beneficiary Complaint Process of the Peer Review Organizations  . . . . . . . . . . . . . . 10

Medicare Beneficiary Satisfaction with and Understanding of Home

Health Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Medicaid Drug Rebate Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Reimbursable Patient Care Costs at the National Institutes of Healths

ClinicalCenter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

National Institutes of Healths Use of Heart Surgery Contracts with

Private Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Audits of the National Institutes of Healths Trust Funds, the Cooperative

Research and Development Agreements, and Royalties for Fiscal Year

1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Guidelines Sponsored by the Agency for Health Care Policy and Research  . . . . . . . 37

Emergency Assistance Program

A.Rising Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 
Coordination ofSpecialized Transportation Services . . . . . . . . . . . . . . . . . . . . . . . . . 46 
F-1
 APPENDIX G

Audits, Inspections and Investigations Related to Operation Restore Trust

The following audits, inspections and investigations finalized during this semiannual period relate to Operation Restore Trust, 
discussed in Chapter I.  These report and case summaries are labeled with the symbolin the text.  A multidisciplinary 
Federal and State approach to preventing and detecting fraud in home health agencies, nursing homes and durable medical 
equipment suppliers, Operation Restore Trust has targeted the five States with the greatest proportion of Medicare and 
Medicaid beneficiaries: New York, Florida, Illinois, Texas and California. 
Page 
Fraud and Abuse Sanctions 
A.Program Exclusions,fourth and ninth examples  . . . . . . . . . . . . . . . . . . . . . . . . . 12 
B.Civil Penalties forFalse Claims,third example . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
Medicare Beneficiary Satisfaction with and Understanding of Home

Health Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Geographical Variation in Visits Provided by Home Health Agencies . . . . . . . . . . . . 17

Criminal Fraud,second and fourth examples  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19,20

Kickbacks,first,second and third examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22,23

Payments forPrescription Drugs Used with Nebulizers . . . . . . . . . . . . . . . . . . . . . . . 23

Wound Care Supplies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Fraud Involving Durable Medical Equipment Suppliers, fifth and seventh

examples  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Medicaid PaymentsforIncontinence Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

G-1
 ACRONYMS

ACF  Administration for Children and Families 
AFDC  Aid to Families with Dependent Children 
AHCPR  Agency for Health Care Policy and Research 
AoA  Administration on Aging 
ASC  ambulatory surgical center 
ASMB  Assistant Secretary for Management and Budget 
ATSDR  Agency for Toxic Substances and Disease Registry 
CDC  Centers for Disease Control and Prevention 
CHAMPUS  Civilian Health and Medical Program of the Uniformed Services 
CMP  civil monetary penalty 
CSE  child support enforcement 
CY  Calendar Year 
DME  durable medical equipment 
DOJ  Department of Justice 
DRG  diagnosis-related group 
EA  Emergency Assistance 
EGHP  employer group health policy 
EOMB  explanation of Medicare benefits 
ESRD  end stage renal disease 
FDA  Food and Drug Administration 
FI  fiscal intermediary 
FMFIA  Federal Managers Financial Integrity Act 
FY  fiscal year 
GME  graduate medical education 
HCFA  Health Care Financing Administration 
HEAL  health education assistance loan 
HHA  home health agency 
HHS  Department of Health and Human Services 
HIV  human immunodeficiency virus 
HMO  health maintenance organization 
HRSA  Health Resources and Services Administration 
IHS  Indian Health Service 
IME  indirect medical education 
JOBS  Job Opportunity and Basic Skills 
MFCU  Medicaid fraud control unit 
MSP  Medicare secondary payer 
MTS  Medicare transaction system 
NIEHS  National Institute of Environmental Health Sciences 
NIH  National Institutes of Health 
OBRA  Omnibus Budget Reconciliation Act 
OMB  Office of Management and Budget 
OPD  outpatient department 
PHS  Public Health Service 
PPS  prospective payment system 
PRM  provider review manual 
PSC  Program Support Center 
SAMHSA  Substance Abuse and Mental Health Services Administration 
SAVE  Systematic Alien Verification for Entitlements  STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES 
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual 
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative 
reporting and enforcement responsibilities and authorities are listed below: 
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF 
MANAGEMENT AND BUDGET CIRCULARS 
P.L.  96-304  Supplemental Appropriations and Rescissions Act of 1980 
P.L.  96-510  Comprehensive Environmental Response, Compensation and Liability Act 
P.L.  97-255  Federal Managers Financial Integrity Act 
P.L.  97-365  Debt Collection Act of 1982 
P.L.  98-502  Single Audit Act of 1984 
P.L.  99-499  Superfund Amendments and Reauthorization Act of 1986 
P.L. 100-504  Inspector General Act Amendments of 1988 
P.L. 101-576  Chief Financial Officers Act of 1990 
P.L. 102-486  Energy Policy Act of 1992 
P.L. 103-62  Government Performance and Results Act of 1993 
P.L. 103-355  Federal Acquisition Streamlining Act of 1994 
P.L. 103-356  Government Management Reform Act of 1994 
Office of Management and Budget Circulars: 
A- 21  Cost Principles for Educational Institutions 
A- 25  User Charges 
A- 50  Audit Follow-up 
A- 70  Policies and Guidelines for Federal Credit Programs 
A- 73  Audit of Federal Operations and Programs 
A- 76  Performance of Commercial Activities 
A- 87  Cost Principles for State and Local Governments 
A-102  Uniform Administrative Requirements for Assistance to State and Local Governments 
A-110	 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations 
A-122  Cost Principles for Nonprofit Organizations 
A-123  Internal Controls 
A-127  Financial Management Systems 
A-128  Audits of State and Local Governments 
A-129  Managing Federal Credit Programs 
A-133  Audits of Institutions of Higher Education and Other Nonprofit Institutions 
General Accounting Office Government Auditing Standards 
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES 
Criminal investigative authorities include: 
Title  5,  United States Code, section 552a(i) 
Title 18,	 United States Code, sections on crime and criminal procedures as they pertain to 
OIGs oversight of departmental programs and employee misconduct 
Title 42,	 United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 
1320a-7b and 1320b-10, the Social Security and Public Health Service Acts 
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as 
those at: 
Title 31,	 United States Code, section 3729 et seq., the Civil False Claims Act and 3801 et seq., the Program Fraud 
Civil Remedies Act 
Title 42,  United States Code, sections 1320a-7, 1320a-7a, 1320c-5, 1395l, 1395m, 1395u, 1395dd and 1396b  DEPARTMENT OF HEALTH 
AND HUMAN SERVICES 
Office of Inspector General 
330 Independence Avenue, S.W. 
Washington, D.C. 20201 
Internet Address 
http://www.sbaonline.sba.gov/ignet/internal/hhs/hhs.html