Department of Health and Human Services
 
OFFICE OF 

   
INSPECTOR GENERAL 

 
 
 
 
 
 
 
 
ME DICARE DRUG PLAN 

 
S  I
PONSORS   DENTIFICATION OF 

 
 
P F A  
OTENTIAL  RAUD AND  BUSE 

 
 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
October 2008 
 
OEI-03-07-00380 
    
 
 
Office of Inspector General

http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components:  
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections  
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving  program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The  Office of Counsel to the Inspector General (OCIG)  provides  general legal services  to  
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity  agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.    
  
  E X E C U T I V E   S U M M A R Y  
OBJECTIVES 
To determine: 
1.  the extent to which Medicare stand-alone prescription drug plan 
sponsors identified potential fraud and abuse; 
2.  the type  of potential fraud and abuse that these plan sponsors 
identified; and  
3.  the extent to which these plan sponsors conducted inquiries, initiated 
corrective actions, and made referrals for further investigation 
regarding potential fraud and abuse. 
BACKGROUND 
As of January 1, 2006, Medicare beneficiaries could obtain prescription 
drug coverage under the Medicare Part D program. Part D 
expenditures for 2007 were approximately $49.5 billion.  As of August 
2008, 26 million beneficiaries were enrolled in Part D and two-thirds 
were in stand-alone drug plans.   
Plan sponsors are private companies that contract with the Centers for 
Medicare &  Medicaid Services (CMS) to provide Part D drug coverage to  
Medicare beneficiaries.   Sponsors are required to have a comprehensive 
program to  detect and deter fraud and abuse.  They can identify 
potential fraud and abuse through internal efforts such as claim 
reviews, and through complaints or referrals from external sources such 
as CMS, Medicare Drug Integrity Contractors (MEDIC), law 
enforcement agencies, beneficiaries,  and pharmacy providers.    
Upon identifying potential fraud and abuse, sponsors are required to  
conduct an inquiry and initiate appropriate corrective action.  CMS 
recommends that sponsors refer potential fraud and abuse incidents to 
MEDICs and/or law enforcement agencies.    
The only type of fraud and abuse information CMS requires sponsors to 
report to CMS is the aggregate number of fraud and abuse complaints 
they received directly from beneficiaries each quarter. 
We analyzed data representing the first 6 months of 2007 from             
86 of 91 stand-alone drug plan sponsors.  We did not include                   
5 of the 91 plan sponsors because 1 had been terminated from the 
program, 1 was under investigation, and the other 3 did not provide 
data in time to be included in our review.  
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   i   
  
EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
    
FINDINGS 
Overall, 24 of 86 Part D stand-alone plan sponsors did not identify  
any potential fraud and abuse incidents; most potential fraud and 
abuse incidents were associated with only  a small number of plan 
sponsors. Twenty-four plan sponsors (28 percent) did not identify any 
potential fraud and abuse incidents in the first 6 months of 2007 either 
from internal efforts or complaints from external sources. Of the        
62 plan sponsors that identified a total of 9,774 incidents of potential 
fraud and abuse during this period, 7 plan sponsors accounted for         
90 percent of all incidents. One of the seven plan sponsors identified           
67 percent of all incidents.  
Plan sponsors identified 78 percent  of all potential fraud and abuse 
incidents through internal efforts; however, 42 plan sponsors did not 
identify any potential fraud and abuse through internal efforts. One 
plan sponsor was associated with 84 percent of the potential fraud and 
abuse identified through internal efforts.   
Twenty-two percent of potential fraud and abuse incidents identified 
came from external sources; however, 34 plan sponsors did not identify 
any potential fraud and abuse incidents from external sources. Two 
plan sponsors had the majority (51 percent) of these incidents. 
Inappropriate billing was the most prevalent type of potential fraud 
and abuse incident identified, and pharmacies were associated with 
most of the potential fraud and abuse incidents. Plan sponsors 
identified 26 different types of fraud and abuse (both from internal 
efforts and complaints from external sources). Of the 26 types, the most 
prevalent type was inappropriate billing, which accounted for 9,073 
incidents. An example of inappropriate billing is submitting claims for 
drugs not provided. 
Plan sponsors identified 11 types of persons or entities associated with 
potential fraud and abuse. Pharmacies/pharmacists were most often 
associated with these incidents. 
Not all 62 plan sponsors that identified potential fraud and abuse 
incidents conducted inquiries, initiated corrective actions, or made 
referrals for further investigation.   Three actions that plan sponsors 
can take after identifying potential fraud and abuse are conducting 
inquiries, initiating corrective actions, and referring incidents for 
further investigation. Of the 62 plan sponsors that identified incidents 
of potential fraud and abuse, 47 conducted inquiries, 32 initiated 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   ii   
  
EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY    
corrective actions, and 33 referred incidents to other entities for further 
investigation. Overall, 17 plan sponsors initiated all three actions,       
21 initiated two actions, 19 initiated one action, and 5 did not initiate 
any of these actions. 
RECOMMENDATIONS 
Plan sponsors are the first line of defense against Part D fraud and 
abuse. However, we found that some plan sponsors did not identify any 
potential fraud and abuse incidents.   Moreover, some of the plan 
sponsors that identified potential fraud and abuse incidents did not 
initiate inquiries, corrective actions, or referrals.     
CMS does not routinely collect information that would describe the 
overall volume or types of Part D fraud and abuse that occur or that 
would inform CMS as to the effectiveness of the comprehensive fraud  
and abuse plan each sponsor is required to have in place. The only  
information that CMS requires plan sponsors to  report to CMS 
concerning fraud and abuse is the quarterly aggregate number of fraud  
and abuse complaints that plan sponsors  receive from beneficiaries.     
A crucial aspect of protecting the integrity of the Part D program is 
ensuring that the plan sponsors have a comprehensive and  effective 
program to  detect and deter fraud and abuse. Therefore, we recommend  
that CMS: 
Review Part D plan sponsors to determine why  certain sponsors 
have identified especially high or low volumes  of potential fraud and 
abuse incidents.   
Determine whether the  Part D plan  sponsors that identified potential  
fraud and abuse initiated inquiries  and corrective actions  as 
required by CMS, and made referrals for further investigation as 
recommended by  CMS. 
Require Part D plan sponsors to maintain and routinely  report 
information related to the results of sponsors  fraud and abuse 
programs.   
Use this required information to help determine the effectiveness of 
sponsors  fraud and abuse programs.   
 
 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   iii   
  
E X E C U T I V E   S U M M A R Y
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS stated that it is committed to combating fraud, waste, and abuse 
in the Part D program but that because of limited funding, it has not 
been able to  perform as much direct  oversight of the Part D sponsors  
fraud, waste, and abuse efforts as expected.   
In response  to OIGs first recommendation, CMS stated that it agreed  
that the variability in the number of  potential fraud and abuse incidents  
identified by sponsors is a concern and that CMS will examine the data 
more closely by referring the findings to MEDICs.  CMS also stated that 
it intends to revise the reporting requirements and give sponsors more 
specific guidance on how to track and properly label incidents, e.g., as 
an education issue or a potential fraud issue.   
CMS concurred with OIGs second recommendation and will refer the 
data in this report to MEDICs for further investigation.   
Although CMS provided comments about OIGs third recommendation, 
CMS did not state whether it concurred.  CMS did state that OIGs 
report would be useful when CMS initiates its Part D sponsor 
compliance plan audits.  CMS stated that our report will help ensure 
that sponsors are conducting their own internal investigations and 
taking appropriate corrective actions.  CMS did not address OIGs 
fourth recommendation.  
   
 
 
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   iv    
 
 
  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8 
  
  Some plan sponsors did not  identify any potential  

  fraud and abuse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8 

          
         Inappropriate billing was most prevalent type of potential  

  fraud and abuse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 
  
   
         Not all plan sponsors with potential fraud and abuse   

  initiated inquiries, corrective actions, or referrals  . . . . . . . . . . . .  11 
  
 
 
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14 
  
  Agency Comments and Office of Inspector General Response . . .  15 

 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17 
  
  A:	  Selected Fraud and Abuse Activities for Stand-Alone  

               Drug Plan Sponsors, First 6 Months of 2007. . . . . . . . . . . . . .  17 
  
 
  B: 	Types of Potential Fraud and Abuse Identified by  

                Stand-Alone Drug Plan Sponsors, First 6 Months of 2007  . .  20 

 
         C: 	 Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24 
  
 
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27 
    
  
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  I N T R O D U C T I O N  
OBJECTIVES 
To determine: 
1.  the extent to which Medicare stand-alone prescription drug plan 
   sponsors identified potential fraud and abuse; 
2.  the type  of potential fraud and abuse that these plan sponsors 
identified; and  
3.  the extent to which these plan sponsors conducted inquiries, 
    initiated corrective actions, and made referrals for further 
    investigation regarding potential fraud and abuse.   
BACKGROUND 
As of January 1, 2006, Medicare beneficiaries could obtain prescription 
drug coverage under the Medicare Part D program (hereinafter         
Part D).1   Part D expenditures for 2007 were approximately              
$49.5 billion.2     
Stand-Alone Drug Plan Coverage  
Stand-alone drug plan coverage refers to a plan for prescription drugs 
only.  Beneficiaries who enroll in Part D have the option to receive their 
drug coverage from a stand-alone drug plan sponsor or a managed-care 
plan sponsor that covers other medical benefits in addition to 
prescription drugs.   
Two-thirds of the 26 million beneficiaries enrolled in Part D as of 
August 2008 were enrolled in plans offered by stand-alone plan 
sponsors.3    
Prescription Drug Plan Sponsors  
Prescription drug plan sponsors (plan sponsors)  are private companies 
that provide Part D drug coverage to Medicare beneficiaries.   The 
Centers for Medicare &  Medicaid Services (CMS) makes monthly 
prospective payments to sponsors for each of the beneficiaries covered  
 
1 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003  101; 
P.L. No. 108-173  101; Social Security Act,  1860D-1(a)(2); 42 U.S.C.  1395w-101(a)(2). 
2 The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary  
Medical Insurance Trust Funds, 2008 Annual Report, p. 111.  Available online at 
http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2008.pdf. Accessed on             
April 22, 2008. 
3 CMS, Monthly Contract and Enrollment Summary Report.  Available online at 
http://www.cms.hhs.gov/MCRAdvPartDEnrolData/. Accessed on September 29, 2008. 
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I N T R O D U C T I O N   
by the sponsors plans.  The payments are based  on estimates that 
sponsors provide in their approved bids prior to the beginning of the 
plan year. Sponsors bids are based on their actual costs from the base 
year.  After the close of the plan year, CMS must reconcile the payments 
with the sponsors actual costs to determine whether sponsors owe 
money to Medicare or Medicare owes money to sponsors based on 
legislatively mandated risk-sharing percentages.4   Thus, under Part D,  
both Medicare and sponsors share the profits and losses of providing the 
benefit.   
CMS contracts with plan sponsors to provide drug plans in designated 
regions. CMS established 39 stand-alone drug plan regions in 2007.  Of 
the 39 regions, 25 included one State each, 9 included multiple States, 
and the remaining 5 included one U.S. territory  each.  Plan sponsors 
may offer plans in one or more  regions and may offer plans with 
different features within each region.  Plan sponsors may also offer 
plans to employer/union groups.    
Plan sponsors may use related entities and subcontractors to  fulfill their 
Part D contract.  A related entity is  a company that is related to the 
plan sponsor by common ownership or control.   The subcontractors of 
plan sponsors may also subcontract.5  For example, a plan sponsor 
might subcontract with a pharmacy benefit manager (PBM), and the 
PBM might subcontract with numerous pharmacies. Regardless of the 
number of subcontractors and related entities involved per  plan 
sponsor, the plan sponsor is ultimately responsible for the Medicare 
contract requirements and all data submitted to CMS.6    
Detecting and Deterring Fraud and Abuse 
Plan sponsors are required to have a comprehensive program to detect 
and deter fraud and abuse.7  The specifics of the program are left to the 
discretion of each plan sponsor.  However, CMS provides fraud and  
abuse program guidelines for plan sponsors in chapter 9 of its 
Prescription Drug Benefit Manual (hereinafter CMS Manual).   
Fraud and abuse reporting. CMS does not require plan sponsors to  
report statistics about fraud and abuse detection and deterrence other 
 
4 42 U.S.C.  1395w-115e. 

5 CMS refers to the subcontractors as first tier and downstream  entities.  CMS, 

Prescription Drug Benefit Manual, v. 4-25-06, ch. 9,  40. 
6 42 CFR  423.505(i) and 423.505(k). 
7 42 CFR  423.504(b)(4)(vi)(H). 
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than the quarterly aggregate number of fraud and abuse complaints 
that plan sponsors receive from beneficiaries. The requirement to 
report complaints is based on a Federal regulation that requires plan 
sponsors to  keep track of enrollee grievances.8  CMS uses the term 
grievance for beneficiary complaints to sponsors to distinguish them 
from beneficiary complaints that CMS receives from its complaint 
lines.9   We will use the term complaints from beneficiaries or 
beneficiary complaints to refer to grievances in this report.  Fraud and 
abuse is one of 11 categories of beneficiary complaints that plan 
sponsors report to CMS.     
Plan sponsors must report to CMS the number of beneficiary complaints 
they receive for each plan. CMSs instructions state that because plan 
sponsors must maintain certain information about the enrollee 
regarding each complaint, plan sponsors should be able to report the 
data by plan.10  
CMS defines fraud and abuse complaints as follows: 
 	  A fraud complaint is an allegation that a person or an entity          
(e.g., beneficiary, provider, or  plan) engaged in an intentional 
deception or misrepresentation that they know or believe to be 
false and that they know could result in some unauthorized 
benefits. 
 	  An abuse  complaint is an allegation that a person or an entity      
(e.g., beneficiary, provider, or plan) engaged in behavior that they 
should have known to be false and that could result in some 
unauthorized benefits. 
Internal and external sources of information about potential fraud and 
abuse. Plan sponsors can identify potential fraud and abuse through 
internal efforts, such as claim reviews and subcontractor audits.11       
Plan sponsors can also identify potential fraud and abuse through 
complaints they receive from external sources. External sources include  
 
 
 
 8 42 CFR  423.564(g). 
     9 CMS, CY 2007 Part D Reporting Requirements: Frequently Asked Questions. 
                                            
10 Ibid. 

11 CMS, Prescription Drug Benefit Manual, v. 4-25-06, ch. 9,  50.2.6.150.2.6.3.
   
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I N T R O D U C T I O N
   
 
CMS, Medicare Drug Integrity Contractors (MEDIC), law enforcement 
agencies, beneficiaries, and pharmacy providers.   
In this report, when we use the phrase complaints from external 
sources, we mean all fraud and abuse complaints or referrals made to 
plan sponsors, including those from beneficiaries.  
Inquiries into potential fraud and abuse. Plan sponsors are required to 
conduct a timely, reasonable inquiry (i.e., preliminary investigation) 
when evidence suggests potential fraud or abuse related to payment or 
delivery of Part D prescription drug items or services.12  CMS 
recommends that the inquiry be initiated no later than 2 weeks from 
the date the incident is identified.  In the event that the plan sponsor 
does not have time or  resources to investigate the incident, CMS 
recommends that plan sponsors refer the incident to a MEDIC within    
2 weeks from the date the incident is identified.  MEDICs will further 
investigate referrals from plan sponsors and make referrals to law 
enforcement agencies when necessary.13  MEDICs are responsible for 
assisting CMS with Part D audits, oversight, and antifraud and abuse 
efforts. 
Corrective actions. In response to potential fraud and abuse, plan 
sponsors are required to carry out appropriate corrective actions      
(e.g., repayment of overpayments and disciplinary action against 
responsible individuals).14       
Referrals to Government entities for further investigation. CMS 
recommends that after conducting inquiries, if plan sponsors identify 
potential fraud or abuse, they should refer the incidents to a MEDIC for 
further investigation. CMS recommends that the referral be made 
within 2 months of determining that fraud or abuse may have 
occurred.15    
CMS also recommends that plan sponsors voluntarily report  potential 
fraud or abuse discovered at the level of the plans, subcontractors, or 
sponsor-related entities to law enforcement entities, such as the Office 
 
12 42 CFR  423.504(b)(4)(vi)(G)(1). 

13 CMS, Prescription Drug Benefit Manual, v. 4-25-06, ch. 9,  50.2.8.3. 

14 42 CFR  423.504(b)(4)(vi)(G)(2). 

15 CMS, Prescription Drug Benefit Manual, v. 4-25-06, ch. 9,  50.2.8.2. 

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I N T R O D U C T I O N   
of Inspector General (OIG) (through OIGs Provider Self-Disclosure 
Protocol) or the Department of Justice.16  17   
Plan sponsors can also make referrals for further investigation to other 
Government entities, including CMS, State agencies, and local law 
enforcement agencies.  
Related Study  by the Office of Inspector General 
In December 2006, OIG issued a report  entitled Prescription Drug Plan 
Sponsors Compliance Plans (OEI-03-06-00100). In this study, OIG 
found that of 79 compliance plans for stand-alone drug plan sponsors:     
 	  14 did not indicate that the sponsors had any procedures in 
place to identify fraud and abuse; 
 	  19 did not indicate that the sponsors had procedures to  
voluntarily report fraud or misconduct to Government entities, 
such as OIG or the Department of Justice;  
 	  43 did not describe procedures for responding to compliance 
violations; and  
 	  54 did not provide detailed descriptions of the types of corrective 
actions sponsors undertake in response to compliance violations.   
METHODOLOGY 
Scope 
We reviewed Medicare Part D stand-alone drug plan sponsors fraud 
and abuse information for the first 6 months of 2007.  During this 
period, there were 91 such plan sponsors across the country and in U.S.  
territories.   However, our study includes 86 plan sponsors  with a total of 
2,039 plans.18  We did not include five plan sponsors because one had  
 
16 Ibid. In  December 2007, CMS issued a final rule  retaining plan sponsors voluntary 
self-reporting of  potential fraud  or misconduct.  However, in the publication of the rule, 
CMS stated that it is committed to adopting  mandatory self-reporting and  was seeking  
additional comments to craft a mandatory provision.  72 Fed. Reg. 68700, 68707             
(Dec. 5, 2007).  
17 OIGs Provider Self-Disclosure Protocol offers providers a method of coming forward to 
work openly and cooperatively  with OIG to quantify a particular problem and ultimately to 
promote a higher level of ethical and lawful conduct throughout the health care industry.  
63 Fed. Reg. 58399 (Oct. 30, 1998). 
18 We did not include employer/union groups  that contract directly with CMS in this 
study.  However, some plan sponsors in our study provided  national or regional plans to 
employer/union  groups.  These plans are included in our study.     
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been terminated from the program, one was under investigation, and  
three did not respond to  our data request in time to be included in our 
review.  
Of the 2,039 plans in our review, 1,332 were also offered to beneficiaries 
in 2006. For these 1,332 plans, we also collected data for the last          
6 months of 2006. 
Data Collection 
Plan sponsors. We sent  a data request to each plan sponsor that was on 
file in CMSs Health Plan Management System as of October 2007. We 
requested that the plan sponsors send us data regarding each of their 
plans. 
Thirteen plan sponsors in our study did not provide data by plan as we  
requested.   These plan sponsors stated that they do not track their data 
at that level. Eight of these plan sponsors provided their data 
aggregated to the plan sponsor level. The other five plan sponsors 
provided data for each State and/or U.S. territory where their  plans 
were offered. 
For the first 6 months of 2007 and, if applicable, the last 6 months of  
2006, we asked each plan sponsor to provide the number of potential 
fraud and abuse incidents identified through internal efforts and the 
number of complaints received from external sources as defined by 
CMS. These external sources include CMS, MEDICs, law enforcement  
agencies, beneficiaries, and others.  We also asked for the number and 
types of fraud and abuse identified, the number and types of persons or  
entities associated with the fraud and abuse incidents identified, the 
number of inquiries conducted, the number and types of corrective 
actions initiated as a result of the fraud and abuse identified, and the 
number of referrals for further investigation made to Government 
entities. 
Centers for Medicare & Medicaid Services. We collected information 
about the plan sponsors from CMSs Part D enrollment files and Health 
Plan Management System. We collected the number of plans offered,  
regions covered, and beneficiaries enrolled.    
Analysis 
For all plan sponsors in  our study, we summarized responses for each 
question in our data request at the plan sponsor level. For the 73 plan 
sponsors that provided data by plan, we also summarized responses for 
each question at the plan level. We summarized data by State and U.S. 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   6   
  
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territory for respondents that provided the data by those variables. We  
identified the mean, median, maximum, and minimum for each 
question. 
We also compared plan sponsors responses based on the number of 
plans offered, regions covered, and beneficiaries enrolled. 
For plan sponsors that provided data for the last 6 months of 2006, we 
compared those data with data from the first 6 months of 2007. 
However, we did not include the 2006 information in this report because 
it was not significantly different from the 2007 data. 
We assigned an identification number to the plan sponsors in our review 
based on the number of  potential fraud and abuse incidents they 
identified through internal efforts.   We use these identification numbers 
in all of our report tables so that the reader can identify information 
related to the same plan sponsor across the different tables. 
Our findings that plan sponsors identified or did not identify potential 
fraud and abuse incidents are based on the numeric data that plan 
sponsors provided. 
Limitations 
We did not independently verify the  information plan sponsors provided  
to us or to CMSs Health Plan Management System. 
We use the term incident (i.e., potential fraud and abuse incident) to 
represent an instance of misconduct or a violation, not the number of 
providers involved in the misconduct or violation. However, in our 
analysis of plan sponsor responses,  we saw that the numbers plan 
sponsors provided for certain questions about fraud and abuse volume 
did not always match. One example  was a plan sponsor that reported  
identifying a total of 92 incidents of potential fraud and abuse from 
internal and external sources but conducted only 46 inquiries. Another 
example was a plan sponsor that reported identifying a total of 66 
incidents of potential fraud and abuse but initiated 171 corrective 
actions. We did not determine why this information did not match.      
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   7   
  
  F I N D I N G S  
 
Overall, 24 of 86 Part D stand-alone plan  Twenty-four plan sponsors            
sponsors did not identify any potential fraud  (28 percent) did not identify any 
incidents of  potential fraud and 
and abuse incidents; most potential fraud and 
abuse, either from internal efforts or 
abuse incidents were associated  with only a 
complaints from external sources, in 
small number of plan sponsors   
the first 6 months of 2007.          
Sixty-two plan sponsors (72 percent) 
identified a total of 9,774 potential fraud and abuse incidents in this 
time period.  Of these 62 plan sponsors, the number of incidents per 
plan sponsor ranged from 1 to 6,533, with a median of 11.  Plan 
sponsors are not required to report to CMS the number of fraud and  
abuse incidents they identify, only the number of beneficiary complaints 
they receive.       
Most of these potential fraud and abuse incidents were associated with 
seven plan sponsors.  As shown in Table 1, these seven plan sponsors 
represent 90 percent of the total number of potential fraud and abuse 
incidents (8,817 of 9,774).  One of these seven plan sponsors identified 
67 percent of the incidents.  Although these seven plan sponsors 
identified most of the potential fraud and abuse incidents, only two of 
the seven are among the top seven plan sponsors with the largest 
beneficiary enrollment.  Appendix A provides the number of potential 
fraud and abuse incidents identified and other information for 86 plan 
sponsors. 
 
Table 1. Top Seven Plan Sponsors That Identified the Most  
Potential Fraud and Abuse Incidents, First 6 Months of 2007 
         
  Number of  Percentage of All     
Plan  Potential Fraud  Potential Fraud    Number of 
Sponsor  and Abuse  and Abuse  Number of  Regions
ID  Incidents  Incidents1   Plans Offered  Covered2  
1  6,533  67%   104  34  
33  860  9%   104  34  
2  636  7%   107  35  
14  258  3%   104  34  
3  242  2%   2  1  
10  166  2%   41  34  
5  122  1%   101  33 
 Total  8,817  90%     
                                                         Sources: CMSs Health Plan  Management System data and OIG analysis of plan sponsor responses. 

                                                         1 Percentages are  affected by rounding.  

                                                                                      2  National employer/union group plans  are not included  in  this  column. 

  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   8   
  
F   I N D I N G S   
 
Plan sponsors identified 78 percent of all potential fraud and abuse 
incidents through internal efforts; however, 42 plan sponsors did not 
identify any  potential fraud and abuse through internal efforts   
Of the 9,774 incidents of potential fraud and abuse, 7,595 incidents    
(78 percent) were identified through  internal efforts.  An example of an 
internal effort is claim reviews.  Forty-four plan sponsors (51 percent) 
identified potential fraud and abuse from internal efforts; 42 plan 
sponsors (49 percent) did not identify any potential fraud and abuse 
from internal efforts. 
One plan sponsor was associated with 84 percent of the potential fraud and 
abuse incidents identified through internal efforts. As shown in Table 2, 
one plan sponsor was responsible for 84 percent of the potential fraud  
and abuse incidents identified through internal efforts (6,410 of       
7,595 incidents). Table 2 also shows that this plan sponsor, along with 
two additional plan sponsors, made up 95 percent of the potential fraud 
and abuse incidents identified from  internal efforts.  Appendix A 
provides data on all plan sponsors internal efforts. 
   
Table 2. Top Three Plan Sponsors With the Most Potential Fraud and 
Abuse Incidents Identified Through Internal Efforts, First 6 Months of  
2007 
     
  Number of Incidents Plan  Percentage of All Incidents 
  Sponsors Identified Through  Plan Sponsors Identified 
Plan Sponsor ID  Internal Efforts   Through Internal Efforts  
1  6,410  84% 
2  592  8% 
3  242  3%
 Total  7,244  95% 
Source:  OIG analysis of plan sponsor responses.  
 
Twenty-two  percent of potential fraud and abuse incidents identified came 
from external sources; however, 34 plan sponsors did not identify any  
potential fraud and abuse incidents from external sources 
Of the 9,774 incidents of potential fraud and abuse identified by plan 
sponsors, 2,179 (22 percent) were complaints from external sources.  
Fifty-two plan sponsors (60 percent) had fraud and abuse complaints 
from external sources; 34 plan sponsors (40 percent) had no complaints 
from external sources.  Of the 2,179 complaints from external sources, 
80 were from law enforcement agencies, 936 were from CMS and 
MEDICs, and 1,163 were from beneficiaries and other sources such as 
pharmacy providers. 
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   9   
  
FFF IIIN NND DDI IIN NNG GG SSS  
Two plan sponsors were associated with 51 percent of these incidents. 
Two plan sponsors had the majority (51 percent) of the complaints from 
external sources. Appendix A provides the number of potential fraud 
and abuse incidents identified through external sources for all 86 plan 
sponsors. 
 
Inappropriate billing was the most prevalent  Plan sponsors identified             
type of potential fraud and abuse incident  26 different types of fraud and 
abuse (both from internal efforts 
identified; pharmacies  were associated with  
and complaints from external 
most of the potential fraud and abuse incidents 
sources). Plan sponsors are not 
required to report to CMS the types of potential fraud and abuse they  
identify. 
Of the 26 types of potential fraud and abuse, the most prevalent type 
was inappropriate billing, with 9,073 incidents. An example of 
inappropriate billing is submitting claims for drugs not provided. 
The second  most prevalent type  of potential fraud and abuse identified  
by plan sponsors was providing false information, with 520 incidents. 
An example of providing false information is misrepresentation of a 
beneficiarys personal identity, eligibility, medical condition, or plan 
enrollment.    
The third  most prevalent type of potential fraud and abuse identified by 
plan sponsors was doctor shopping, with 400 incidents. Doctor 
shopping is the term used for consulting a number of doctors for the 
purpose of inappropriately obtaining multiple prescriptions  for drugs.      
Plan sponsors identified fewer than 152 incidents of each of the other     
23 types of potential fraud and abuse. Appendix B provides the number  
and types of potential fraud and abuse reported  by plan sponsors. 
Plan sponsors reported that pharmacies/pharmacists were the entities 
most often associated with potential fraud and abuse incidents. Plan 
sponsors reported that pharmacies/pharmacists were associated with    
9,852 incidents (92 percent).19   Plan sponsors reported that beneficiaries  
 
19 The number 9,852 is higher than the 9,774 potential fraud and abuse incidents that 
plan sponsors identified. One possible explanation is that more than one person  or entity  
was identified for each incident of potential fraud and abuse. 
 
 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   10   
  
FF II NN DD II NN GG SS  
were associated with 591 incidents and sales or marketing brokers were 
associated with 124 incidents. Plan sponsors themselves were also 
listed as entities associated with potential fraud and abuse during this 
period. Table 3 shows the persons or entities plan sponsors reported as 
associated with potential fraud and abuse. 
 
Table 3. Persons or Entities Associated With Potential Fraud and 
Abuse Incidents, First 6 Months of 2007 
   
Person or Entity   Number of Incidents  
Pharmacy/pharmacist  9,852 
Beneficiary  591 
Sales or marketing broker  124 
Third party  82 
Physician or other prescriber  56 
Plan sponsor  44 
PBM  6 
Family member  5 
Insurance agency/agent  3 
Claims adjudicator  2 
Drug manufacturer  1 
Total  10,7661  
Source: OIG analysis of plan sponsor responses. 
1 The number 10,766 is higher than the total number of potential fraud and abuse incidents  that plan                                           
sponsors identified and higher than  the aggregated number of different types of fraud and abuse they     
reported. One possible explanation is that more than one person or entity was identified for each incident 
of potential fraud and abuse.     
 
Not all 62 plan sponsors that identified potential  Three actions that plan sponsors 
can take after identifying 
fraud and abuse incidents conducted inquiries, 
potential fraud and abuse are 
initiated corrective actions, or made referrals for 
conducting inquiries, initiating 
further investigation 
corrective actions, and referring 
incidents for further investigation.  
Plan sponsors are not required to report to CMS any data concerning  
the actions they take in response to potential fraud and abuse. 
Of the 62 plan sponsors that identified potential fraud and abuse,       
47 conducted inquiries, 32 initiated corrective actions, and 33 referred  
incidents to other entities for further investigation. Overall, 17 plan 
sponsors initiated all three actions, 21 initiated two actions, 19 initiated 
one action, and 5 did not initiate any of these actions. Appendix A  
provides inquiry, corrective action, and referral information for all plan 
sponsors. 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   11    
  
F I N D I N G S  
Inquiries. Of the 62 plan sponsors that identified potential fraud and 
abuse, 47 conducted 1,904 inquiries during the review period.20  Of 
these 1,904, one plan sponsor conducted 849 inquiries, or 45 percent. 
The top four plan sponsors conducted 72 percent of all these inquiries. 
CMS recommends that plan sponsors refer fraud and abuse incidents to 
MEDICs when they do not have the time or resources  to conduct 
inquiries.  Of 15 plan sponsors that identified potential fraud and abuse 
incidents but did not conduct inquiries, none sent any incidents to 
MEDICs because of time or resource constraints.  
Corrective actions.  Of the 62 plan sponsors that identified potential 
fraud and abuse, 32 initiated 9,011 corrective actions.21  The most 
frequent type of corrective action  was repayment of overpayments, with 
8,318 actions taken. One plan sponsor that initiated 71 percent of the 
corrective actions (6,410 of 9,011) used repayments to address              
98 percent of its potential fraud and abuse incidents.  The second most 
frequent type of corrective action  initiated was termination from the 
network, with 476 actions taken. Table 4, on the next page, shows the 
number and types of corrective actions plan sponsors initiated and the 
number of sponsors that initiated each type.   
Three plan sponsors initiated a significantly higher number of 
corrective actions compared to the total number of potential fraud and 
abuse incidents they identified.  These three plan sponsors initiated  
795, 479, and 171 corrective actions, respectively, although they 
identified only 70, 2, and 66 potential fraud and abuse incidents. 
 
 
20 One plan sponsor that had  not identified  any potential fraud and abuse during this 
period reported  conducting one inquiry.  Therefore, the total number of inquiries plan  
sponsors conducted during this time period is 1,905. 
21 Two plan sponsors that had  not identified any  potential fraud  and abuse during this 
period each reported initiating one corrective action.  Therefore, the total number of  
corrective actions that plan sponsors initiated during this time period is 9,013.  
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   12   
  
F I N D I N G S  

Table 4. Corrective Actions Initiated by Plan Sponsors, First 6 Months of 2007 
    Number of Plan 
 
  Number of Times  Sponsors That 
Type of Correction Action   Type Was Initiated  Initiated Each Type1  
 
Repayment of erroneous payment or overpayment  8,318  20 
Termin ation from network   476  14 
Disciplinary action  158  8 
Correct ion of data  16  4 
Utilization monitoring  8  1 
 
Premium or true out-of-pocket cost adjustment  6  1 
Reverse processing of erroneous prescriptions  6  1 
 
Oversight  2  1 
Uniden tified  21  4 
Total  9,011   
 
Source:  OIG analysis of plan sponsor responses.  

1Column cannot be totaled because some plan sponsors are represented in more than one  row. 

 
 
 
Referrals. Of the 62 plan sponsors that identified potential fraud and 

abuse incidents, 33 made at least 1 referral for further investigation, for 

a total of 1,701 referrals.22  The referrals were made to CMS, 

Department of Justice agencies, local law enforcement agencies, 

MEDICs, OIG, State agencies, and other plan sponsors. 
                
Eighty-nine percent of these referrals went to MEDICs (1,522 of 1,701).  

Two plan sponsors made 89 percent  of the referrals to MEDICs     
  
(1,347 of 1,522). 

 
 
 
 
 
 
 
 
 
22 One plan sponsor that reported  not identifying any potential fraud and abuse during 
this period also reported referring three incidents of potential fraud and abuse for further 
investigation.  Therefore, the total number of referrals for further investigation  during this 
time period is 1,704. 
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS   IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   13   
  
  R E C O M M E N D A T I O N S  
 
Plan sponsors are the first line of defense against Part D fraud and 
abuse. They are required to have a comprehensive program to detect 
and deter Part D fraud and abuse. However, we found that some  of 
these plan sponsors did not identify any potential fraud and abuse  
incidents; most incidents were identified by a small number of plan 
sponsors; and not all plan sponsors  that identified potential fraud and 
abuse conducted inquiries, initiated corrective  actions, or made referrals 
for further investigation.     
CMS does not routinely collect information that would describe the 
overall volume or types of Part D fraud and abuse that occur  or other 
outcome-related information that would inform CMS as to the 
effectiveness of the comprehensive fraud and abuse plan each sponsor is 
required to  have in place.  The only information concerning  fraud and 
abuse that CMS requires to be reported is the quarterly aggregate 
number of fraud and abuse complaints that plan sponsors received from  
beneficiaries. There is no required reporting to  CMS of information 
relating to self-identified instances of fraud or allegations received from 
sources other than beneficiaries.  Further, the data CMS collects about 
beneficiary complaints to plan sponsors do not provide information 
about whether, or how effectively, the plan sponsors addressed the 
allegations. 
A crucial aspect of protecting the integrity of the Part D program is 
ensuring that the plan sponsors have in place a comprehensive and 
effective program to detect and deter fraud and abuse.   Therefore, we 
recommend that CMS: 
Review Part D plan sponsors to determine why certain sponsors have  
identified especially high or low volumes of potential fraud and abuse 
incidents. 
Determine whether the Part D plan sponsors that identified potential fraud 
and abuse initiated inquiries and corrective actions as required by CMS, and 
made referrals for further investigation as recommended by  CMS. 
Require Part D plan sponsors to maintain and routinely report information 
related to the results of  sponsors fraud and abuse programs.    
Such information should include, but not be limited to, the number and 
types of potential fraud and abuse incidents identified through internal 
efforts and external sources, the number of inquiries conducted into 
potential fraud and abuse, the number and types of corrective actions  
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   14  
  
R E C O M M E N D A T I O N S  
initiated, the number of referrals for further investigation, and the 
types of agencies to which referrals were sent.   Moreover, all categories 
of required information  should be clearly defined to prevent  
misinterpretation and to ensure that information from different sources  
can be compared. 
Use this required information to help determine the effectiveness of 
sponsors fraud and abuse programs.      
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS stated that it is committed to combating fraud, waste, and abuse 
in the Part D program but that because of limited funding, it has not 
been able to  perform as much direct  oversight of the Part D sponsors  
fraud, waste, and abuse efforts as it anticipated.   
CMS questioned the validity of our report numbers and stated that 
incidents might include beneficiary misunderstandings, a sponsors   
noncompliance, and incidents of potential fraud. 
The data that we requested from sponsors were specifically about 
potential fraud and abuse incidents.  We asked sponsors to provide us 
the number of potential fraud and abuse incidents that they identified  
through internal efforts and the number  of potential fraud and abuse  
incidents that they identified through external sources (e.g., law 
enforcement agencies, MEDICs, providers, and beneficiaries).  We used  
terms from two CMS sources:  (1) the Prescription Drug Benefit 
Manual, chapter 9, which provides  guidance on fraud and abuse 
programs; and (2) the CMS instructions to sponsors for reporting 
beneficiary complaint numbers. We  agree that potential fraud and 
abuse incidents should be further defined by CMS to ensure 
comparability of data across sponsors and this is included in our third 
recommendation.               
In response  to OIGs first recommendation, CMS stated that it agreed  
that the variability in the number of  potential fraud and abuse incidents  
identified by sponsors is a concern.  CMS will examine the data more 
closely by referring the findings to MEDICs for further investigation.  
CMS also stated that it intends to revise the reporting requirements to  
enhance the data collected and give sponsors more specific guidance on 
how to track and properly label incidents, e.g., as an education issue or  
a potential fraud issue.          
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   15   
  
RR EE CC OO MM MM EE NN DD AA TT II OO NN SS  
CMS concurred with OIGs second recommendation and will refer the 
data in this report to MEDICs for further investigation. 
Although CMS provided comments about OIGs third recommendation, 
CMS did not state whether it concurred. CMS did state that OIGs 
report would be useful when CMS initiates its Part D sponsor 
compliance plan audits. CMS stated that our report will help ensure 
that sponsors are conducting their own internal investigations and 
taking appropriate corrective actions. CMS did not address OIGs 
fourth recommendation.    
CMS provided technical comments. CMS stated  that the number of 
complaint categories in the Complaint Tracking Module should be 
10 and not 11 as stated on page 3 of the report. We did not change the 
number of complaint categories because there is an 11th category in the 
Complaint Tracking Module (Other).    
CMS stated  that our methodology would be improved by including 
information about enrollments. However, during a meeting with CMS 
about our findings, prior to the issuance of our draft report, CMS staff 
requested that OIG remove enrollment information from the tables in 
the report because they believed that readers could use it to  identify 
sponsors. OIG has provided CMS with a crosswalk to identify sponsors  
in our report tables for further analysis or followup.               
We ask that, in its final management decision, CMS more clearly 
indicate whether it concurs with our third and fourth recommendations 
and what steps, if any, it will take to implement them. The full text of 
CMSs comments is provided in Appendix C. 
OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   16   
  
  A P P E N D I X ~ A
 
The table below provides information about the 86 Part D stand-alone drug plan sponsors 
reviewed in this report.  The information is sorted by the number of potential fraud and abuse 
incidents plan sponsors identified through internal efforts.   
 
Selected Fraud and Abuse Activities for Stand- Alone Drug Plan Sponsors, First 6 Months of 2007 
Number of  Number of 
Potential   Potential  
Fraud and  Fraud and  Total 
Abuse  Abuse  Number of 
Incidents  Incidents  Potential   Number of 
Identified  Identified  Fraud and  Number of  Referrals to  
Plan  Number  Number of  Through  Through  Abuse  Number of  Corrective   Other Entities 
Sponsor  of Plans  Regions  Internal  External   Incidents  Inquiries  Actions  for Further 
ID  Offered  Covered1   Efforts    Sources2    Identified  Conducted  Initiated  Investigation 
1  104  34  6,410  123  6,533  0  6,410  0 
2  107  35  592  44  636  30  565  6 
3  2  1  242  0  242  242  154  0 
4  2  1  37  3  40  0  20  0 
5  101  33  33  89  122  122  10  16 
6  107  31  30  62  92  46  0  46 
7  4  1  27  0  27  0  27  0 
8  85  38  22  44  66  51  171  18 
9  104  34  21  49  70  65  795  827 
10  41  34  20  146  166  166  0  0 
11  5  1  15  3  18  17  0  2 
12  2  1  13  0  13  5  0  8 
13  56  33  12  27  39  20  0  0 
14  104  34  9  249  258  18  14  38 
15  5  1  9  2  11  11  0  2 
16  2  1  9  1  10  10  7  4 
17  70  34  8  24  32  0  8  11 
18  69  21  8  17  25  10  0  0 
19  17  1  7  9  16  8  0  8 
20  4  1  7  1  8  8  0  0 
21  5  1  6  0  6  6  0  8 
22  5  1  5  10  15  14  1  6 
23  110  36  4  88  92  19  0  4 
24  68  33  4  73  77  2  0  6 
25  92  34  4  13  17  17  17  0 
26  3  1  4  3  7  7  10  0 
27  1  1  4  0  4  4  0  3 
28  4  1  4  0  4  4  0  4 
29  15  3  3  16  19  19  11  6 
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   17   
  
A P P E N D I X ~ A  

 
Selected Fraud and Abuse Activities for Stand- Alone Drug Plan Sponsors, First 6 Months of 2007 
(continued)  
Number of  Number of  Total 
Potential   Potential   Number 
Fraud and  Fraud and  of 
Abuse  Abuse  Potential  
Incidents  Incidents  Fraud  Number of 
Identified  Identified  and  Number of  Referrals to  
Plan  Number of  Number of  Through  Through  Abuse  Number of  Corrective   Other Entities 
Sponsor  Plans  Regions  Internal  External   Incidents  Inquiries  Actions  for Further 
ID  Offered  Covered1   Efforts    Sources2    Identified  Conducted  Initiated  Investigation 
30  42  12  3  10  13  5  0  0 
31  4  2  3  5  8  0  0  0 
32  2  1  3  3  6  0  0  1 
33  104  34  2  858  860  849  209  624 
34  2  1  2  10  12  12  2  8 
35  6  1  2  5  7  6  6  3 
36  3  1  2  0  2  0  479  0 
37  2  1  2  0  2  2  2  0 
38  68  34  1  59  60  0  57  3 
39  3  1  1  11  12  12  1  23 
40  104  34  1  5  6  5  1  3 
41  67  33  1  4  5  3  3  3 
42  5  1  1  3  4  4  1  1 
43  5  1  1  0  1  0  2  1 
44  3  1  1  0  1  1  0  0 
45  4  1  0  34  34  32  0  3 
46  14  7  0  14  14  14  0  0 
47  9  1  0  13  13  1  13  0 
48  3  1  0  10  10  10  8  0 
49  4  1  0  7  7  7  0  0 
50  4  1  0  4  4  0  0  0 
51  2  1  0  4  4  3  0  0 
52  4  1  0  4  4  4  0  0 
53  56  24  0  3  3  3  1  0 
54  6  2  0  3  3  3  3  2 
55  3  1  0  3  3  3  0  0 
56  4  1  0  2  2  2  2  2 
57  2  1  0  2  2  2  0  0 
58  2  1  0  2  2  0  0  0 
59  4  1  0  2  2  0  0  0 
60  4  1  0  1  1  0  1  0 
61  4  1  0  1  1  0  0  1 
62  1  1  0  1  1  0  0  0 
63  33  10  0  0  0  0  0  0 
64  36  34  0  0  0  0  0  0 
 
   
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   18   
  
A P P E N D I X ~ A  

 
Selected Fraud and Abuse Activities for Stand- Alone Drug Plan Sponsors, First 6 Months of 
2007 (continued)  
Number of  Number of  Total 
Potential   Potential   Number 
Fraud and  Fraud and  of 
Abuse  Abuse  Potential  
Incidents  Incidents  Fraud  Number of 
Identified  Identified  and  Number of  Referrals to  
Plan  Number of  Number of  Through  Through  Abuse  Number of  Corrective   Other Entities 
Sponsor  Plans  Regions  Internal  External   Incidents  Inquiries  Actions  for Further 
ID  Offered  Covered1   Efforts    Sources2    Identified  Conducted  Initiated  Investigation 
65  3  1  0  0  0  0  0  0 
66  4  1  0  0  0  0  0  0 
67  4  1  0  0  0  0  0  0 
68  5  1  0  0  0  0  0  0 
69  5  1  0  0  0  0  0  0 
70  37  35  0  0  0  0  0  0 
71  4  1  0  0  0  1  1  3 
72  6  3  0  0  0  0  0  0 
73  4  1  0  0  0  0  0  0 
74  9  1  0  0  0  0  0  0 
75  10  5  0  0  0  0  0  0 
76  2  1  0  0  0  0  0  0 
77  4  1  0  0  0  0  0  0 
78  2  1  0  0  0  0  1  0 
79  4  1  0  0  0  0  0  0 
80  4  1  0  0  0  0  0  0 
81  3  1  0  0  0  0  0  0 
82  2  1  0  0  0  0  0  0 
83  3  1  0  0  0  0  0  0 
84  4  1  0  0  0  0  0  0 
85  4  1  0  0  0  0  0  0 
86  3  1  0  0  0  0  0  0 
     Total  2,039    7,595  2,179  9,774  1,905  9,013  1,704 
Sources:  Centers  for Medicare & Medicaid Services Health Plan Management System data, and Office of Inspector General analysis of  
plan sponsor responses. 
1 There are 39 stand-alone drug plan regions.  Of the 39, 25 include only one State, 9 include multiple States, and 5 include one  
U.S. territory each.  The national employer/union group plans in our review are not included in the count of regions for this column.  
2 This column includes complaints that plan sponsors received from CMS, Medicare Drug Integrity Contractors, law enforcement 
agencies, beneficiaries, and others.  
 
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   19   
  
  A P P E N D I X ~ B
 
Examples in this table came from the Centers for Medicare  & Medicaid Services (CMS), 
Prescription Drug Benefit Manual, chapter 9, sections 70.1 through 70.1.7; Medicare Drug 
Integrity Contractors internal categories for  complaints; and plan sponsor responses to our 
review questions.   
 
Types of Potential Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 
     
Type of Fraud  Number of   
 and Abuse   Incidents   Examples 
   Billing for drugs or services not provided.   
   Billing multiple payers for the same prescriptions, except as required 
Inappropriate  for coordination of benefit transactions.  
9,073 
Billing       Billing based on group visits, e.g., a pharmacist visits a nursing home 
and bills for numerous prescriptions without furnishing any specific 
service to individual patients. 
   Plan sponsor or subcontractor falsified information furnished to CMS.  
   Prescriber falsified information submitted through a prior authorization 
Providing False 
520  or other formulary oversight mechanism in order to justify coverage. 
Information 
   Misrepresentation of beneficiary's personal identity  or eligibility  
information, medical condition, or plan enrollment information. 
   Beneficiary consulted a number of doctors for the purpose of 
Doctor 
400  inappropriately obtaining multiple prescriptions for narcotic painkillers 
Shopping   
or other drugs. 
Attempting To      Beneficiary  was asked for credit card or banking information.  
Steal     Beneficiary  was asked for payment over the telephone or Web.  
151 
Beneficiary      Individual or organization posed as Medicare or Social Security  with  
Identity/Money    intent to steal beneficiary's identity or money.  
Engaging in 
   Plan sponsor or subcontractor violated Medicare marketing guidelines 
Improper 
139  or other Federal or State laws, rules, and regulations to improperly  
Marketing 
enroll beneficiaries in a Part D plan. 
Schemes 
   Overcharging beneficiary for coinsurance or premium. 
   Pharmacy asked beneficiary to pay uncompensated amounts.  
Overcharging     Bait and switch pricing, i.e., beneficiary  is led to believe a drug will  
58 
Beneficiary    cost one price, but at point of sale beneficiary is charged a higher 
amount. 
 
 
 
  OEI-03-07-00380   MEDICARE DRUG  PLAN SPONSORS  IDENTIFICATION OF  POTENTIAL  FRAUD AND ABUSE   20   
  
A P P E N D I X   ~   B  

 
 
Types of Potential Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 (continued)  
     
Type of Fraud  Number of   
 and Abuse   Incidents   Examples 
   Dispensed expired or adulterated prescription drugs. 
Inappropriate 
   Dispensed drugs without a prescription. 
Prescription  50 
   Pharmacist or pharmacy  benefit managers (PBM) mail order pharmacy  
Dispensing   
split prescription to receive additional dispensing fee. 
   Beneficiary obtained prescription drugs from a provider and gave or sold 
this medication to someone else.  
Diverting  
33     Inappropriate consumption or distribution of a beneficiary's medications 
Prescriptions   
by  a caregiver or anyone else. 
   Beneficiary resale of drugs on black market. 
   Submitted inaccurate or incomplete prescription drug event data or Part D 
Providing Data   plan quarterly  data. 
That Lacks  27     Improperly reported enrollment/disenrollment data to CMS to inflate 
Integrity to CMS  prospective payments.  
   Inappropriately documented pricing information. 
   Prescriptions were altered by  someone other than the prescriber or 
pharmacist with prescriber approval  to increase quantity or number of 
Forging/Altering 
27  refills. 
Documents   
   Altered prescription, electronic claim records, medical document, etc., for 
greater payment. 
Inappropriate     Beneficiary  was dead at the time of enrollment. 
Enrollment/  26     Beneficiary enrolled under multiple plans. 
Disenrollment      Involuntary termination of enrollee for nonpayment of premium. 
Engaging in 
   Possible controlled substance abuse. 
Potential Drug  22 
  Outlier nonnarcotic; wasteful and potentially abusive drug use. 
Abuse 
Billing the Wrong 
8     Wrong person charged for prescription. 
Person 
Inappropriate     Off-label prescribing of controlled substance.  
7 
Prescribing     Prescriber is on Office of Inspector Generals (OIG) Exclusion List. 
   Plan sponsor provided false or misleading information regarding the 
number of its members who applied and qualified for the low-income  
Misusing Low- subsidy  in order to receive unwarranted low-income subsidy payments.  
5 
Income Subsidy       Beneficiary not reimbursed by plan following retroactive low  income  
subsidy determination. 
   Beneficiary not receiving the low-income benefit approved by CMS. 
 
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Types of Potential Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 (continued) 
 
     
Type of Fraud  Number of 
  
 and Abuse 
  Incidents   Examples 
Theft of     In context of e-prescribing, includes theft of provider's authentication, 
Prescribers  5  i.e., login, information, including Drug Enforcement Administration 
Prescription Pad    number. 
	  Selected/denied beneficiaries based on illness profile or other 
Adverse Selecting    4 
discriminating factors. 
	   Prescriber was offered or paid, solicited, or received unlawful 
remuneration to induce or reward the prescriber to write prescriptions 
Illegal  for drugs. 
Remuneration,   4     PBM received unlawful remuneration in order to steer a beneficiary  
Kickbacks, Bribes  toward a certain plan or drug. 
	   Inappropriate discounts, support services, educational grants, and 
research funding. 
  Any  manipulation/miscalculation of beneficiary's TrOOP to keep 
Inappropriate  beneficiary in the coverage gap. 
Manipulation of   	  Plan sponsor did not correctly  calculate amount beneficiary spent on 
4
True Out-of-Pocket  prescription out of pocket.  
Costs (TrOOP)    	  Beneficiary manipulated TrOOP to push through the coverage gap to 
reach catastrophic coverage  before being eligible. 
	   Plan sponsor, PBM, or PBM's pharmacy and therapeutics committees 
made decisions in which costs took priority over criteria such as clinical 
efficacy  and appropriateness of formulary drugs.  
Inappropriate Drug 
	   Inappropriate formulary support activities such as inappropriate 
Formulary   3 
payments to PBMs, and formulary placement payments in order to have 
Decisions 
manufacturer's products included on a plan's formulary. 
	   Bait and switch, i.e., frequent formulary changes to induce beneficiaries 
to sign up for specific drugs that are later removed. 
	   Beneficiary attempted to game her/his drug coverage by obtaining and 
storing large quantities of drugs and then disenrolling, thus avoiding  
Stockpiling     3 
out-of-pocket costs, to protect against periods of noncoverage, or to sell 
drugs on black market. 
	   Manufacturer provided free samples to physicians expecting those 
physicians to bill Federal health care programs for the samples. 
Inappropriate Sales 
	   Illegal promotion of off-label drug usage through marketing, financial 
Technique by   2 
incentives, or other promotion campaigns. 
Manufacturer  
	   Inappropriate marketing or promotion of drugs/products (sales, 
marketing, discounting) by manufacturer. 
Prescribing Outside 
2  	  Providers wrote prescriptions outside of their scope of practice. 
Scope of Practice  
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Types of Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 (continued) 
 
     
Type of Fraud  Number of   
 and Abuse   Incidents   Examples 
   Providers wrote prescriptions for drugs that were not medically 
necessary, often in mass quantities, and often for patients that were not 
Mass Prescribing  2  theirs. These prescriptions were often written for controlled drugs for 
sale on the black market and might include improper payments to the 
provider.  This practice is sometimes called a prescription mill. 
Hiding/Siphoning     Arrangements by  providers with pharmacies, PBMs, etc. to hide/siphon 
1 
Illegal Profits    illegal profits. 
Seeking Early 
1     Beneficiary sought early refills. 
Refills 
     Total  10,5771    
Source of numeric data:  OIG analysis of plan sponsor responses.  

1 The number 10,577 is higher than the 9,774 potential fraud and abuse incidents that plan sponsors reported identifying from internal efforts and 

complaints from external sources.   One possible explanation for the higher number is that more than one type of fraud and abuse was identified 

per incident. 
 
 
 
 
 
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 A P P E N D I X ~ C  
 
Agency Comments 
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A P P E N D I X   ~   C  
 
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A P P E N D I X   ~   C  
 
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  A C K N O W L E D G M E N T S
 
This report was prepared under the  direction of  Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Linda M. Ragone, Deputy Regional Inspector 
General. 
Isabelle Buonocore served as the team leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the  
Philadelphia regional office who contributed to the report include 
Conswelia McCourt; central office staff who contributed include Linda 
Abbott and Sandy Khoury.  
 
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