The Department of Health and Human Services 
  and 
  The Department of Justice 
  Health Care Fraud and Abuse Control Program 
  Annual Report for Fiscal Year 2013 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
February 2014 TABLE OF CONTENTS 
 
 
Page 
 
Executive Summary  1     
Introduction  3     
Monetary Results                  5   
Program Accomplishments  7   
   
Department of Health and Human Services       
Office of Inspector General    46   
Centers for Medicare & Medicaid Services        61 
Administration on Community Living  77 
Office of the General Counsel  80   
Food and Drug Administration Pharmaceutical Fraud Program  83   
 
Department of Justice   
United States Attorneys  86   
Civil Division  88   
Criminal Division  90   
Civil Rights Division  94   
 
 
Appendix: Federal Bureau of Investigation  99     
        Return on Investment Calculation          102 
        Total HCFAC Funding              103 
 
Glossary of Terms                                                                                                      104   
 
 
 
 
 
 
    GENER AL NOTE   
   
All years are fiscal years unless 
otherwise noted in the text.    EXECUTIVE SUMMARY 
 
 
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national 
Health Care Fraud and Abuse Control Program (HCFAC or the Program) under the joint 
direction of the Attorney General and the Secretary of the Department of Health and Human 
Services (HHS)1, acting through the Inspector General, designed to coordinate Federal, state and 
local law enforcement activities with respect to health care fraud and abuse.  In its seventeenth 
year of operation, the Programs continued success confirms the soundness of a collaborative 
approach to identify and prosecute the most egregious instances of health care fraud, to prevent 
future fraud and abuse, and to protect program beneficiaries. 
 
Monetary Results 
 
During Fiscal Year (FY) 2013, the Federal government won or negotiated over $2.6 billion in 
health care fraud judgments and settlements2, and it attained additional administrative 
impositions in health care fraud cases and proceedings.  As a result of these efforts, as well as 
those of preceding years, in FY 2013, approximately $4.3 billion was deposited with the 
Department of the Treasury and the Centers for Medicare & Medicaid Services (CMS), 
transferred to other Federal agencies administering health care programs, or paid to private 
persons during the fiscal year.  Of this $4.3 billion, the Medicare Trust Funds3 received transfers 
of approximately $2.85 billion during this period, and over $576 million in Federal Medicaid 
money was similarly transferred separately to the Treasury as a result of these efforts.  The 
HCFAC account has returned over $25.9 billion to the Medicare Trust Funds since the inception 
of the Program in 1997. 
 
Enforcement Actions 
 
In FY 2013, the Department of Justice (DOJ) opened 1,013 new criminal health care fraud 
investigations involving 1,910 potential defendants.  Federal prosecutors had 2,041 health care 
fraud criminal investigations pending, involving 3,535 potential defendants, and filed criminal 
charges in 480 cases involving 843 defendants.  A total of 718 defendants were convicted of 
health care fraud-related crimes during the year.  Also in FY 2013, DOJ opened 1,083 new civil 
health care fraud investigations and had 1,079 civil health care fraud matters pending at the end 
of the fiscal year.  In FY 2013, Federal Bureau of Investigation (FBI) health care fraud 
investigations resulted in the operational disruption of 425 criminal fraud organizations and the  
 
                                                 
1 Hereafter, referred to as the Secretary. 
2The amount reported as won or negotiated only reflects Federal recoveries and therefore does not reflect state 
Medicaid monies recovered as part of any global, Federal-State settlements.  
3Also known as the Medicare Hospital Insurance (Part A) Trust Fund and the Supplemental Medical Insurance (Part 
B) Trust Fund.  
 
  1  dismantlement of the criminal hierarchy of more than 115 criminal enterprises engaged in health 
care fraud. 
 
In FY 2013, HHS Office of Inspector General (HHS-OIG) investigations resulted in 849 
criminal actions against individuals or entities that engaged in crimes related to Medicare and 
Medicaid; and 458 civil actions, which include false claims and unjust-enrichment lawsuits filed 
in Federal district court, civil monetary penalties (CMP) settlements, and administrative 
recoveries related to provider self-disclosure matters.  HHS-OIG also excluded 3,214 individuals 
and entities.  Among these were exclusions based on criminal convictions for crimes related to 
Medicare and Medicaid (1,132) or to other health care programs (311); for patient abuse or 
neglect (180); and as a result of licensure revocations (1,324).   HHS-OIG also issued numerous 
audits and evaluations with recommendations that, when implemented, would correct program 
vulnerabilities and save program funds. 
 
Impact of Sequestration 
  
Due to sequestration in 2013, there were fewer resources for DOJ and HHS to fight fraud and 
abuses against Medicare, Medicaid, and other healthcare programs.  A total of $30.6 million was 
sequestered from the HCFAC program in FY 2013.  
 
  2    INTRODUCTION 
   
 
  ANNUAL REPORT OF  
  THE ATTORNEY GENERAL AND THE SECRETARY 
  DETAILING EXPENDITURES AND REVENUES 
  UNDER THE HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM 
  FOR FISCAL YEAR 2013 
 
  As Required by  
  Section 1817(k)(5) of the Social Security Act 
 
  STATUTORY BACKGROUND 
 
 
The Social Security Act Section 1128C(a), as established by the Health Insurance Portability and 
Accountability Act of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud 
and Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, 
including both public and private health plans.   
 
As was the case before HIPAA, amounts paid to Medicare in restitution or for compensatory 
damages must be deposited in the Medicare Trust Funds.  The Act requires that an amount 
equaling recoveries from health care investigations  including criminal fines, forfeitures, civil 
settlements and judgments, and administrative penalties  also be deposited in the Trust Funds.   
 
The Act appropriates monies from the Medicare Hospital Insurance Trust Fund to an expenditure 
account, called the Health Care Fraud and Abuse Control Account (the Account), in amounts that 
the Secretary and Attorney General jointly certify as necessary to finance anti-fraud activities.  
The maximum amounts available for certification are specified in the Act.  Certain of these sums 
are to be used only for activities of the HHS-OIG, with respect to the Medicare and Medicaid 
programs.  In FY 2006, the Tax Relief and Health Care Act (TRHCA) (P.L 109-432, 303) 
amended the Act so that funds allotted from the Account are available until expended.  
TRHCA also allowed for yearly increases to the Account based on the change in the consumer 
price index for all urban consumers (all items; United States city average) (CPI-U) over the 
previous fiscal year for fiscal years for 2007 through 2010.4  In FY 2010, the Patient Protection 
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, 
collectively referred to as the Affordable Care Act (P.L. 111-148, ACA) extended permanently 
the yearly increases to the Account based upon the change in the consumer price index for all 
urban consumers or CPI-U. 
 
                                                 
4 The CPI-U adjustment in TRHCA did not apply to the Medicare Integrity Program (MIP).  Section 6402 of the 
ACA indexed Medicare Integrity Program funding to inflation starting in FY 2010. 
3 
  In FY 2013, the Secretary and the Attorney General certified $295.1 million in mandatory 
funding for appropriation to the Account.  Additionally, Congress appropriated $309.1 million in 
discretionary funding.  A detailed breakdown of the allocation of these funds is set forth later in 
this report.  HCFAC appropriations generally supplement the direct appropriations of HHS and 
DOJ that are devoted to health care fraud enforcement and funded approximately three-fourths of 
HHS-OIGs appropriated budget in FY 2013.  (Separately, the FBI received $128.1 million from 
HIPAA which is discussed in the Appendix.) 
 
Under the joint direction of the Attorney General and the Secretary, the Programs goals are:  
 
(1)  to coordinate Federal, state and local law enforcement efforts relating to health care fraud 
and abuse with respect to health plans; 
 
(2)  to conduct investigations, audits, inspections, and evaluations relating to the delivery of 
and payment for health care in the United States; 
 
(3)  to facilitate enforcement of all applicable remedies for such fraud; 
 
(4)  to provide education and guidance regarding complying with current health care law; and 
 
(5)  to establish a national data bank to receive and report final adverse actions against health 
care providers and suppliers. 
 
The Act requires the Attorney General and the Secretary to submit a joint annual report to the 
Congress which identifies both: 
 
(1)  the amounts appropriated to the Trust Funds for the previous fiscal year under various 
categories and the source of such amounts; and 
 
(2)  the amounts appropriated from the Trust Funds for such year for use by the Attorney 
General and the Secretary and the justification for the expenditure of such amounts. 
 
This annual report fulfills the above statutory requirements.   
 
Additionally, this report fulfills the requirement in the annual discretionary HCFAC 
appropriation (Public Law 112-74 Consolidated Appropriations Act of 2012) that this report 
include measures of the operational efficiency and impact on fraud, waste, and abuse in the 
Medicare, Medicaid, and CHIP programs for the funds provided by this appropriation.   
 
 
 
 
4 
    MONETARY RESULTS 
 
As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited 
to the Medicare Trust Funds and the source of such deposits.  In FY 2013, approximately $4.3 
billion was deposited with the Department of the Treasury and CMS, transferred to other Federal 
agencies administering health care programs, or paid to private persons during the fiscal year.  
The following chart provides a breakdown of the transfers/deposits:   
Total Transfers/Deposits by Recipient FY 2013 
Department of the Treasury    
  Deposits to the Medicare Trust Funds, as required by HIPAA   
            Gifts and Bequests  $95 
            Amount Equal to Criminal Fines  $708,406,030 
            Civil Monetary Penalties  $14,483,916 
            Asset Forfeiture   $30,166,006 
            Penalties and Multiple Damages  $1,363,761,885 
Subtotal  $2,116,817,933 
   
Centers for Medicare & Medicaid Services   
  HHS-OIG Audit Disallowances  Recovered - Medicare  $61,717,799 
  Restitution/Compensatory Damages  $677,300,987 
             Subtotal*    $739,018,786 
   
Grand Total of Amounts Transferred to the Medicare Trust Funds  $2,855,836,718 
   
Restitution/Compensatory Damages to Federal Agencies   
TRICARE  $41,597,410 
Department of Veterans Affairs  $40,896,098 
 HHS-OIG Cost of Audits, Investigations and Compliance Monitoring  $9,888,585 
Office of Personnel Management  $43,286,981 
Other Agencies  $10,065,851 
   
Centers for Medicare and Medicaid Services   
Federal Share of Medicaid  $576,540,583 
HHS-OIG Audit Disallowances  Recovered - Medicaid  $431,249,581 
Subtotal  $1,153,525,089 
Relators  Payments**  $324,194,039 
=
      TOTAL ***  $4,333,555,846 
*   Restitution, compensatory damages, and recovered audit disallowances include returns to both the Medicare 
Hospital Insurance (Part A) Trust Fund and the Supplemental Medical Insurance (Part B) Trust Fund. 
**These are funds awarded to private persons who file suits on behalf of the Federal government under the qui tam 
provisions of the False Claims Act, 31 U.S.C.   3730(b). 
'
***State funds are also collected on behalf of state Medicaid programs; only the Federal share of Medicaid funds 
transferred to CMS are represented here. 
5 
  The above transfers include certain collections, or amounts equal to certain collections, required 
by HIPAA to be deposited directly into the Medicare Trust Funds.  These amounts include: 
 
(1)  Gifts and bequests made unconditionally to the Trust Funds, for the benefit of the Account 
or any activity financed through the Account; 
 
(2)  Criminal fines recovered in cases involving a Federal health care offense, including 
collections under section 24(a) of Title 18, United States Code (relating to health care 
fraud); 
 
(3)  Civil monetary penalties in cases involving a Federal health care offense; 
 
(4)  Amounts resulting from the forfeiture of property by reason of a Federal health care 
offense, including collections under section 982(a)(7) of Title 18, United States Code; and 
 
(5)  Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the 
general fund of the Treasury obtained under sections 3729 through 3733 of Title 31, 
United States Code (known as the False Claims Act, or FCA), in cases involving claims 
related to the provision of health care items and services (other than funds awarded to a 
relator, for restitution or otherwise authorized by law). 
6 
  PROGRAM ACCOMPLISHMENTS 
EXPENDITURES 
 
In the seventeenth year of operation, the Secretary and the Attorney General certified  
$295.1 million in mandatory funding as necessary for the Program.  Additionally, Congress 
appropriated $309.2 million in discretionary funding.  Sequestration reductions, as required by 
law, were taken against the mandatory and discretionary HCFAC accounts.  The following chart 
gives the allocation by recipient: 
FY 2013 ALLOCATION OF HCFAC APPROPRIATION 
Organization  Mandatory  Discretionary  Funds  Total 
Allocation5  Allocation  Sequester  Allocation 
Department of Health and Human         
Services 
Office of Inspector General6  197,109,153  29,614,462  (11,503,999)  215,219,616 
Office of the General Counsel  8,887,870  0    8,887,870 
Administration for Community Living  10,548,259  0    10,548,259 
Food and Drug Administration  3,377,220  0    3,377,220 
Centers for Medicare & Medicaid Services  12,005,774  249,941,882  (12,598,773)  249,348,883 
Unallocated Funding  1,914,767  0  (1,914,767)  0 
  Subtotal  233,843,043  279,556,344  (26,017,539)  487,381,848 
         
Department of Justice              
 U  n  i  t e d   States Attorneys  31,400,000  10,610,752    42,010,752 
 C  i v  i l Division  18,972,139  8,113,000    27,085,139 
Criminal Division  1,580,000  6,594,000    8,174,000 
Civil Rights Division   2,376,000  1,741,493    4,117,493 
 Nursing Home and Elder Justice Initiative  1,000,000  0    1,000,000 
Justice Management Division  200,000  0    200,000 
Department of Justice - Other  5,761,684  2,555,217  (4,618,552)  3,698,349 
Subtotal  61,289,823  29,614,462  (4,618,552)  86,285,733 
 
TOTAL7  295,132,866  309,170,806   (30,636,091)  573,667,581 
 
 
                                                 
5 In FY 2007, mandatory funds became available until expended.   Discretionary funding is two-year funding. 
 
6Total includes $0.8 million in FY 2013 HCFAC mandatory funding.  In addition, HHS-OIG obligated $17.3 million 
in funds received as reimbursement for the costs of conducting investigations and audits and for monitoring 
compliance plans as authorized by section 1128C(b) of the Social Security Act, 42 U.S.C.  1320a-7c(b).   
7Amounts only represent those that are provided by statute, and do not include other mandatory sources or 
discretionary appropriated sources provided through Departments annual appropriations. 
  
 
7 
  ACCOMPLISHMENTS 
 
Overall Recoveries 
 
During this fiscal year, the Federal government won or negotiated approximately $4.33 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Funds received transfers of approximately 
$2.85 billion during this period as a result of these efforts, as well as those of preceding years; and 
another $576 million in Federal Medicaid money was transferred to the Treasury separately as a 
result of these efforts. 8 
 
In addition to these enforcement actions, numerous audits, evaluations and other coordinated 
efforts yielded recoveries of overpaid funds, and prompted changes in Federal health care 
programs that reduce vulnerability to fraud.   
 
The return-on-investment (ROI) for the HCFAC program over the last three years (2011-2013) is 
$8.1 returned for every $1.00 expended.   This is $2.7 higher than the average ROI for the life of 
the HCFAC program since 1997.  Due to the fact that the annual ROI can vary from year to year 
depending on the number of cases that are settled or adjudicated during that year, DOJ and HHS 
use a three-year rolling average ROI for results contained in the report.  Additional information 
on how the ROI is calculated can be found in the Appendix. 
 
Departmental Collaboration  
 
Health Care Fraud Prevention & Enforcement Action Team (HEAT) 
 
The Attorney General and the Secretary maintain regular consultation at both senior and staff 
levels to accomplish the goals of the HCFAC Program.  On May 20, 2009, Attorney General 
Holder and Secretary Sebelius announced the Health Care Fraud Prevention & Enforcement 
Action Team (HEAT), a new effort with increased tools and resources, and a sustained focus by 
senior level leadership to enhance collaboration  between the Departments of Health and Human 
Services and Justice.  With the creation of the new HEAT effort, DOJ and HHS pledged a cabinet-
level commitment to prevent and prosecute health care fraud.  HEAT, which is jointly led by the 
Deputy Attorney General and HHS Deputy Secretary, is comprised of top level law enforcement 
agents, prosecutors, attorneys, auditors, evaluators, and other staff from DOJ and HHS and their 
operating divisions, and is dedicated to joint efforts across government to both prevent fraud and 
enforce current anti-fraud laws around the country.  The Medicare Fraud Strike Force teams are a 
key component of HEAT.     
 
The mission of HEAT is: 
 
  To marshal significant resources across government to prevent waste, fraud and 
o
abuse in the Medicare and Medicaid programs and crack down on the fraud 
                                                 
8 Note that some of the judgments, settlements, and administrative actions that occurred in FY 2013 will result in 
transfers in future years, just as some of the transfers in FY 2013 are attributable to actions from prior years. 
8 
  perpetrators who are abusing the system and costing us all billions of dollars. 
 
  To reduce skyrocketing health care costs and improve the quality of care by ridding 
o
the system of perpetrators who are preying on Medicare and Medicaid beneficiaries. 
 
  To highlight best practices by providers and public sector employees who are 
o
dedicated to ending waste, fraud, and abuse in Medicare. 
 
  To build upon existing partnerships between DOJ and HHS, such as our Medicare 
o
Fraud Strike Force Teams, to reduce fraud and recover taxpayer dollars. 
 
Since its creation in May 2009, HEAT has focused on key areas for coordination and 
improvement.  HEAT members are working to identify new enforcement initiatives and areas for 
increased oversight and prevention to increase efficiency in areas such as pharmaceutical and 
device investigations.  DOJ and HHS have expanded data sharing and improved information 
sharing procedures in order to get critical data and information into the hands of law enforcement 
to track patterns of fraud and abuse, and increase efficiency in investigating and prosecuting 
complex health care fraud cases.  The departments established a cross-government health care 
fraud data intelligence sharing workgroup to share fraud trends, new initiatives, ideas, and success 
stories to improve awareness across the government of issues relating to health care fraud.  
 
Both departments also have developed training programs to prevent honest mistakes and help stop 
potential fraud before it happens.  This includes CMS compliance training for providers, HHS-
OIGs HEAT Provider Compliance Training initiative, and on-going meetings at U.S. Attorneys 
Offices (USAOs) with the public and private sector, and increased efforts by HHS to educate 
specific groups  including elderly and immigrant communities  to help protect them.  In 
addition, DOJ conducts, with the support of HHS, a Medicare Fraud Strike Force training 
program designed to teach the Strike Force concept and case model to prosecutors, law 
enforcement agents, and administrative support teams.   
 
To achieve the mission and objectives of HEAT, the Attorney General and the Secretary 
promoted several HEAT initiatives during the fiscal year:   
 
  In October 2012, Medicare Fraud Strike Force operations in seven cities led to charges 
against 91 individuals  including doctors, nurses and other licensed medical professionals 
 for their alleged participation in Medicare fraud schemes involving approximately 
$429.2 million in false billing.  The coordinated nationwide takedown encompassed 
indictments charging more than $230 million in home health care fraud; more than  
$100 million in mental health care fraud and more than $49 million in ambulance 
transportation fraud; and millions more in other frauds.  HHS also suspended or took other 
administrative action against 30 health care providers. 
 
  In May 2013, a nationwide takedown by Medicare Fraud Strike Force operations in eight 
cities resulted in charges against 89 individuals, including doctors, nurses and other 
licensed medical professionals, for their alleged participation in Medicare fraud schemes 
9 
  involving approximately $223 million in false billings.  The defendants charged were 
accused of various health care fraud-related crimes, including conspiracy to commit health 
care fraud, violations of the anti-kickback statutes and money laundering.  The charges 
were based on a variety of alleged fraud schemes involving various medical treatments 
and services, primarily home health care, but also mental health services, psychotherapy, 
physical and occupational therapy, durable medical equipment (DME) and ambulance 
services.  This coordinated takedown was the sixth national Medicare fraud takedown in 
Strike Force history. 
 
Healthcare Fraud Prevention Partnership (HFPP) 
 
The Healthcare Fraud Prevention Partnership (HFPP) is the groundbreaking public/private 
partnership between the government and private sector insurance payers.  The purpose of the 
partnership is to exchange data and information between the partners to help improve capabilities 
to fight fraud, waste and abuse in the health care industry.  Current partners include federal (HHS-
OIG, DOJ, FBI, CMS), states, private plans and associations. The Partnership's first information 
sharing study included exchanging codes and code combinations frequently associated with fraud, 
waste or abuse, as well as fraud schemes and descriptions.  Additional studies are underway and 
the Partnership is poised for the procurement of the data-exchange entity, the Trusted Third Party 
(TTP), as well as expansion to new partners. 
 
The HFPP is a demonstrated example of effective departmental collaboration between HHS and 
DOJ, working together to create a strong partnership with the states and private payers to detect 
fraud, waste, and abuse.  
 
During FY 2013, the many significant HCFAC Program accomplishments included the following:  
 
Medicare Fraud Strike Force  
 
The first Medicare Fraud Strike Force (Strike Force) was launched in March 2007 as part of the 
South Florida Initiative, a joint investigative and prosecutorial effort against Medicare fraud and 
abuse among Durable Medical Equipment (DME) suppliers and Human Immunodeficiency Virus 
(HIV) infusion therapy providers in South Florida.  The Strike Force teams use advanced data 
analysis techniques to identify high-billing levels in health care fraud hot spots so that interagency 
teams can target emerging or migrating schemes along with chronic fraud by criminals 
masquerading as health care providers or suppliers.  Based on the success of these efforts and 
increased appropriated funding for the HCFAC program from Congress and the Administration, 
DOJ and HHS expanded the Strike Force to include teams of investigators and prosecutors in a 
total of nine locations  Miami, FL; Los Angeles, CA; Detroit, MI; Houston, TX; Brooklyn, NY; 
South Louisiana (South Louisiana and New Orleans, LA)9; Tampa, FL; Chicago, IL; and Dallas, 
TX.     
 
Each Medicare Fraud Strike Force team combines the data analysis and administrative action 
capabilities of CMS, the investigative resources of the FBI and HHS-OIG, and the prosecutorial 
                                                 
9 While the Strike Force in southern Louisiana started in Baton Rouge, LA, it now operates in New Orleans as well. 
10 
  resources of the Criminal Divisions Fraud Section and the USAOs.  Strike Force 
accomplishments from cases prosecuted in all nine cities during FY 2013 include10:  
 
  137 indictments, informations and complaints involving charges filed against 345 
defendants who allegedly collectively billed the Medicare program more than $1.1 billion;  
 
  234 guilty pleas negotiated and 34 jury trials litigated, with guilty verdicts against 48 
defendants; and  
 
  Imprisonment for 229 defendants sentenced during the fiscal year, averaging more than 52 
months of incarceration.  
 
In the six and a half years since its inception, Strike Force prosecutors filed more than 788 cases 
charging more than 1,727 defendants who collectively billed the Medicare program more than 
$5.5 billion; 1,137defendants pleaded guilty and 148 others were convicted in jury trials; and 
1087 defendants were sentenced to imprisonment for an average term of approximately 47 
months.11   
 
Although multiple factors may be in play, there has been a measurable decrease in Medicare 
reimbursements for certain medical services that have also been targeted by the Medicare Strike 
Force.  For instance:   
 
Miami:  Medicare Payments for DME.  The Strike Force initially started in Miami 
precisely to respond to an epidemic of a particular type of fraud involving claims for 
DME.  The law enforcement activity response to DME fraud in the Miami area was 
overwhelming.  Hundreds of defendants were charged and convicted of DME fraud by the 
Miami Medicare Fraud Strike Force.  Law enforcement prosecution of DME fraud, while 
diminished from its height, continues.   
 
During this same time period, CMS implemented an aggressive and multifaceted strategy 
to address DME fraud, waste, and abuse without any loss of access or quality for Medicare 
beneficiaries.  In 2009, CMS began to require DME suppliers to become accredited and 
possess a surety bond of at least $50,000. Based upon these new requirements, 10,533 
DME suppliers were revoked between October 2009 and December 2009.   In addition to 
those revoked, approximately 1,500 more suppliers voluntarily terminated their enrollment 
between September 2009 and December 2009, likely to avoid facing revocation actions 
until they could procure a surety bond or obtain accreditation.12  Also in 2009, CMS 
developed the DME Stop Gap Plan.  This two year project enhanced detection and 
prevention in seven high risk states, including Florida, and resulted in the implementation 
of claims processing edits that denied millions in claims, and the revocation or 
deactivation of hundreds of providers.  Finally, on January 1, 2011, CMS implemented the 
                                                 
10 The accomplishments figures presented in the bullets include all reported Strike Force cases handled by DOJ 
Criminal Division attorneys and AUSAs in the respective USAOs during FY 2013.     
11 These statistics are for the period of May 7, 2007, through September 30, 2013. 
12 These are national statistics.  Miami-specific statistics are not presently available.  
11 
  competitive bidding program for DME in nine areas, including Miami.  Competitive 
bidding plays an important part in the oversight of the DME benefit.  As a new payment 
methodology and process, DME competitive bidding was devised due to concerns about 
program integrity.  The revisions to program administration and payment established by 
competitive bidding have resulted in program integrity changes. 
 
Law enforcement activity combined with various measures taken by CMS, which 
themselves were prompted by enforcement activity, appear to have contributed to even 
further declines in Medicare payments for DME in Miami over time, as indicated by the 
chart below.  Payments by Medicare for DME in Miami-Dade County13 alone hit an all-
time high in the third-quarter of 2006, when payments exceeded $73 million, those 
payments have decreased over time, and in the first-quarter of 2013 payments were under 
$15 million 
 
 
 
 
                                                 
13 The charts included in this section were prepared by HHS-OIGs Consolidated Data Analysis Center (CDAC), 
which has data available starting in the first quarter of 2006 through the first-quarter of 2013.  Core-Based Statistical 
Areas (CBSAs) are defined by the U.S. Census Bureau.  The OIGs CBSA definitions use the smaller metropolitan 
division if it exists; the CBSA metro division or CBSA is identified on each chart.  The OIG Miami-Miami Beach-
Kendall, FL CBSA includes Miami-Dade County.    
12 
  Miami:  Medicare Payments for Home Health.  The Miami Medicare Fraud Strike 
Force began to focus on home health care fraud in 2009.  On June 23, 2009, the Strike 
Force indicted the first large home health care case, United States v. Zambrana et al.  The 
Zambrana case led law enforcement to discover how criminals operating home health care 
companies in South Florida were cheating Medicare.  To qualify for home health care, 
which involves a nurse or other skilled medical professional providing services in a 
beneficiarys home, a beneficiary must be homebound.  Medicare makes additional 
payments, known as outlier payments, to home health providers that supply services to 
beneficiaries who incur unusually large costs.  Criminals in South Florida took advantage 
of the outlier payment system by falsely claiming that almost every service qualified for 
an outlier payment.   During calendar year 2009, Medicare paid over $976 million to home 
health agencies in the Miami area.  More than half of these home health payments --  
$558 million -- were for outliers.  Since 2009, the Miami Strike Force has charged over 
202 defendants, and convicted 191 for their roles in falsely billing Medicare over $570 
million for home health care services.   
 
Following the issuance of a report by the Inspector General for HHS describing the 
scheme,14 CMS put into effect a limit on the percentage of outlier payments that each 
home health agency can claim to address abuses of these payments. The CMS field office 
also ran a home health special project in Miami in 2009 and 2010 to identify beneficiaries that 
were not homebound.  As a result of this project, 32 home health agencies had their payments 
suspended, additional automated payment edits saved $9.6 million, and $5.5 million in costs 
were avoided as a result of the payment suspensions.  On July 30, 2013, CMS implemented a 
temporary enrollment moratorium on new HHAs in Miami-Dade and certain bordering 
counties to further the fight against fraud in this area. 
 
The coordination between the Strike Force and CMS appears to have contributed to a 
dramatic decline in payment for home health care in Miami and throughout Florida.  In 
2009, claims to Medicare for home health services in Florida were $3.4 billion, and 
Medicare paid approximately $2.9 billion for home health care services.  Just two years 
later, in 2011, billings to Medicare had dropped precipitously to $2.3 billion, a difference 
of $1.1 billion.  Payments by Medicare had dropped to $2.4 billion, a difference of 
approximately $500 million. Payments have essentially flat-lined since that time.
                                                 
14 In December 2009, the Inspector General for HHS issued a report entitled Aberrant Medicare Home Health 
Outlier  Payment  Patterns  in  Miami-Dade  County  and  Other  Geographic  Areas  in  2008.  (OEI-04-08-00570).   
Among other findings, the report concluded that Miami-Dade County accounted for more home health outlier 
payments in 2008 than the rest of the United States combined.   
13 
   
 
Detroit:  Medicare Payments for Home Health.  The first large home health care 
prosecution in Detroit commenced in January 2010 with the indictment of thirteen 
individuals who participated in a home health care fraud at Patient Choice Home Health 
Care and All American Home Health Care.  Since that time, prosecution of home health 
care fraud in Detroit has led to the charging of 84 individuals who in aggregate submitted 
approximately $150 million in allegedly fraudulent home health care claims to Medicare.  
To date, the Detroit Strike Force has obtained the conviction of 47 of those individuals.  
The Strike Force has also coordinated with CMS to ensure that payments are cut off at the 
earliest possible time.  For example, in May 2012, simultaneous with a Detroit Strike 
Force takedown of home health care fraudsters, CMS suspended payments to 18 
associated home health agencies.  As shown in the following chart, Medicare payments for 
home health care services have declined steadily since 2009.15 
 
                                                 
15 The OIG CBSA for Detroit includes only Wayne County.   
14 
   
 
Nationwide:  Medicare Payments for Community Mental Health Center (CMHC).  
Strike Force and CMS activity targeting CMHC fraud began in 2008, accelerated in 2010 
and culminated in prosecutions in Miami in 2010 and 2011, the suspension of CMHC 
providers in Baton Rouge and Houston in 2011, and the prosecution of owners and 
operators of CMHCs in Baton Rouge and Houston in 2012.  The enforcement activity was 
purposefully aimed at the CMHCs that billed Medicare the most, and were paid the most.  
The actions correspond to a national decline in CMHC billing to Medicare that has 
persisted to the present time as indicated in the chart below.  Total payments by Medicare 
to CMHCs, which peaked in 2008 at more than $70 million per quarter, are now well 
under $10 million per quarter, a savings to the Trust Fund exceeding $60 million per 
quarter. 
 
15 
   
 
Based on these examples, Strike Force and HEAT prevention and enforcement operations appear 
to have had a real and lasting impact on Medicare payments. 
 
Examples of successful cases initiated or concluded in districts where Strike Force prosecution 
teams were operational during FY 2013, as well as other successful cases are provided below.  
Summaries of additional successful prosecutions and settlements follow, organized by fraud type. 
 
Phase 1: Miami (Southern District of Florida) 
 
  In June 2013 in the Southern District of Florida, the chief executive officer (CEO) of a 
state-licensed psychiatric hospital and three other hospital executives were convicted at 
trial in connection with a $67 million Medicare fraud scheme.  This was the first Strike 
Force case involving charges against executives of a licensed hospital.  According to trial 
evidence, the defendants and their co-conspirators paid illegal bribes and kickbacks to 
patient brokers in order to obtain Medicare beneficiaries as patients. The defendants then 
caused the submission of fraudulent Medicare claims for treatments for which these 
beneficiaries were not eligible.  To cover up the fraudulent claims, employees of the 
hospital falsified patient charts and even administered unnecessary psychotropic 
medications to make it appear as if Medicare beneficiaries attending the hospital needed 
intensive mental health services.  A fifth defendant, a patient recruiter, had pled guilty 
16 
  prior to trial.  On September 10, 2013, a federal district judge sentenced the CEO to 25 
years in prison for her leading role in the fraud, and two other executives to 15 years and 
12 years in prison, respectively for their conduct. 
 
  Between October 2012 and July 2013, 11 individuals were convicted, including one at 
trial, and thirteen were sentenced for their role in a $63 million health care fraud scheme.  
On July 17, 2013, a psychiatrist and six additional therapists were also charged in the case, 
bringing the total number of defendants charged in the case to twenty.  According to court 
documents, the defendants caused the submission of fraudulent claims to Medicare and 
Medicaid through a company that operated community mental health centers in Miami, 
FL, and North Carolina.  The company paid kickbacks to the owners and operators of 
assisted living facilities in order to obtain Medicare beneficiaries for purported partial 
hospitalization program (PHP) services that were unnecessary, and, in many instances, not 
provided. The scheme operated from 2004 through 2011, and billed Medicare and Florida 
Medicaid $63.4 million of which they paid $28.1 million. All of the sentenced defendants 
received prison time, ranging from 168 months to 24 months; eight individuals received 
over five years in prison for their conduct.  In addition, defendants were ordered to pay 
restitution in excess of $28 million. 
 
  Twelve defendants have been sentenced related to a $56 million health care fraud scheme. 
Health Care Solutions Network, Inc. (HCSN), operated community mental health centers 
(CMHCs) in Florida (HCSN-FA) and North Carolina (HCSN-NC).  These CMHCs 
allegedly provided partial hospitalization program (PHP) services to individuals suffering 
from mental illness.  The clinical director of the PHP at HCSN-FL submitted claims to 
Medicare under her personal Medicare provider number for individual therapy she 
purportedly provided, while knowing that HCSN-FL was simultaneously billing for PHP 
services for the same patients. In addition the defendants paid illegal kickbacks to owners 
and operators of Miami-Dade County Assisted Living Facilities (ALF) in exchange for 
referring patients to the HCSN-FL PHP.  Many of the ALF referral patients were 
ineligible for PHP services because they suffered from mental retardation, dementia, and 
Alzheimer's disease.  To date, co-conspirators have been sentenced to a combined 70 years 
of incarceration and ordered to pay $186 million in joint and several restitution. 
 
  In April 2013, the owner of a mental health clinic in Miami, FL and three other 
participants in a $50 million fraud were sentenced to 30 years in prison, 25 years in prison, 
262 months in prison, and 1 year probation following their August 2012 trial convictions.  
The defendants caused the submission of over $50 million in false and fraudulent claims 
to Medicare for purported PHP services at a fraudulent clinic. The defendants paid patient 
recruiters to refer ineligible Medicare beneficiaries to the clinic for services that were 
never provided or were not reimbursable under applicable Medicare rules.  In December 
2012, the former clinical director of the facility was sentenced to 100 months in prison and 
ordered to pay $5.6 million in restitution for his role in the offense. 
 
  From October 2012 through January 2013, nine defendants were sentenced and one 
defendant was convicted at trial in connection with a Medicare fraud scheme involving 
17 
  over $205 million in fraudulent billing through a mental health care corporation and 
related companies. The corporation purported to operate community mental health centers 
at seven different locations throughout South Florida and Orlando, which purported to 
provide PHP services.  A related company purported to provide diagnostic sleep disorder 
testing. According to court documents, the corporation paid kickbacks to the owners and 
operators of assisted living facilities, half-way houses, and patient brokers in exchange for 
delivering ineligible patients for treatment. In some cases, the patients received a portion 
of the kickbacks. Throughout the conspiracy, millions of dollars in kickbacks were paid in 
exchange for Medicare beneficiaries to attend treatment programs at the centers; the 
companies would then bill Medicare for these medically unnecessary services. To obtain 
the cash required to support the kickbacks, the co-conspirators laundered millions of 
dollars of payments from Medicare. 
 
All of the sentenced defendants received a prison sentence, ranging in time from 120 
months to 36 months. Additionally, defendants were ordered to pay up to $87.4 million in 
restitution. 
  
  In April 2013, a co-owner of Ideal Home Health, Inc., was sentenced to 14 years of 
imprisonment and ordered to pay $30 million in restitution after pleading guilty to charges 
of conspiracy to commit health care fraud and conspiracy to pay health care kickbacks.  
Ideal Home Health purportedly provided skilled nursing services and home health aide to 
Medicare beneficiaries.  According to the indictment, the co-owner offered and paid 
kickbacks and bribes to recruiters and its own employees for recruiting Medicare 
beneficiaries for the purpose of billing Medicare for home health services that were not 
medically necessary and not provided.   
 
  In October 2012, the owner of a home health agency in Miami was sentenced to 10 years 
in prison and ordered to pay $26 million in restitution, joint and several, after pleading 
guilty to charges of conspiracy to commit health care fraud.  The agency, Willsand Home 
Health Services, Inc. (Willsand), purportedly provided home health care and physical 
therapy services to Medicare beneficiaries.  According to court documents, the owner paid 
kickbacks to patient recruiters for enrolling Medicare beneficiaries to be placed at 
Willsand and signed false documents stating that they received home health care services.  
He also paid kickbacks to physicians in return for signing false prescriptions for these 
patients.  From approximately January 2006 through November 2009, Willsand submitted 
more than $40 million in claims to Medicare for home health services it purportedly 
provided to beneficiaries when, in fact, the patients were not homebound and/or had no 
medical necessity for the services. 
 
  In February 2013, the co-owner and operator of three Miami, Florida-based pharmacies 
was sentenced to 168 months in prison, ordered to forfeit over $23 million, and ordered to 
pay a $100,000 fine on his December 2012 guilty plea to conspiracy to pay health care 
kickbacks and conspiracy to commit health care fraud. According to court documents, 
from 2007 to September 2012, the defendant paid illegal kickbacks to guarantee a stream 
18 
  of beneficiary information, which was used to submit false and fraudulent claims by the 
pharmacies to Medicare and Medicaid.  
 
Phase 2: Los Angeles (Central District of California)  
 
  On October 4, 2012, the U.S. District Court for the Central District of California unsealed 
an indictment charging four defendants with conspiracy to commit health care fraud, 
health care fraud, and conspiracy to obstruct a federal auditor. The charges stemmed from 
a Medicare fraud scheme regarding purported ambulance transportation services involving 
Alpha Ambulance.   According to the indictment, the defendants conspired to defraud 
Medicare by providing ambulance services to ineligible Medicare beneficiaries.  From 
June 2008 to July 2012, Alpha submitted Medicare claims totaling approximately  
$49.3 million for purported ambulance transportation and related services, and Medicare 
paid Alpha approximately $13.3 million on those claims.  In addition, the indictment 
alleges that the defendants obstructed a Medicare audit of Alphas false and fraudulent 
claims by altering patient files and records that otherwise showed ambulance 
transportation services provided by Alpha were not medically necessary, and therefore not 
reimbursable by Medicare.   
 
  A former officer of Fendih Medical Supply, Inc., a medical supply company, was 
sentenced in September 2013 to serve 51 months in prison for his role in a fraud scheme 
that resulted in $1.5 million in fraudulent claims to Medicare.   In addition, a physician 
was sentenced to 27 months in prison for his role in the scheme.   In April 2013, a jury in 
Los Angeles federal court found the two defendants, as well as another health care 
professional, guilty of conspiracy to pay and receive kickbacks and of conspiracy to 
commit health care fraud.  Trial evidence showed that the owner of the DME company 
fraudulently billed Medicare for DME that was either never provided to its Medicare 
beneficiaries or was not medically necessary.  The defendant physician provided 
medically unnecessary power wheelchair prescriptions in exchange for cash kickbacks.  
This fraud scheme caused the submission of approximately $1.5 million in false and 
fraudulent claims to Medicare, of which about $1 million was paid.  
 
  In July 2013 in the Central District of California, the owner and operator of a DME supply 
company was convicted in connection with an $11 million Medicare fraud scheme. The 
evidence at trial revealed that the defendant submitted false and fraudulent prescriptions 
for DME by using street-level patient recruiters to find senior citizens with Medicare and 
Medi-Cal benefits at swap meets and other public places. The recruiters, who were paid 
about $600 per beneficiary, would convince the seniors to accept power wheelchairs and 
other DME that they did not need. 
 
Phase 3: Detroit (Eastern District of Michigan)  
 
  In August 2013, a Michigan oncologist/hematologist was charged with health care fraud in 
wide-ranging and dangerous fraudulent billing scheme.  According to the original 
complaint and subsequent indictment, the doctor alleged provided chemotherapy and other 
19 
  medical treatments to patients who did not need the treatments, including patients who 
were in remission and did not need chemotherapy, and directed his staff to falsify medical 
documents to justify the treatments.  The allegations raised serious health concerns, 
particularly given the physical effect of chemotherapy and some of the other treatments 
the doctor administered to his patients.  At the time of arrest, the doctor was treating 1,200 
patients.  The Criminal Divisions Fraud Section, working with the U.S. Attorneys Office 
for the Eastern District of Michigan, undertook a massive and aggressive effort to make 
sure that victim witnesses received all necessary support in finding new medical care.  
Between August 2010 and August 2013, the doctors business, billed Medicare  
$225 million and was paid $91 million.  In addition, private insurer Blue Cross/Blue 
Shield also paid the doctor $78 million on claims submitted by the practice.  
 
  In May 2013, two health center owners were sentenced on their October 2012 guilty pleas 
in connection with an over $13 million Medicare fraud scheme. One owner was sentenced 
to 100 months in prison and $5.4 million in restitution, while the other was sentenced to 
12 months and one day in prison, and over $500,000 in restitution. The two defendants 
were also ordered to forfeit $40,717. According to plea documents, the two defendants 
submitted claims through their health clinics for infusion therapy treatments which were 
never rendered. 
 
  From May 2013 to July 2013, 2 defendants were sentenced and or pled guilty for their 
involvement in a $13.8 million home health care Medicare fraud scheme. According to 
court documents, from June 2009 through September 2011 four companies conspired to 
defraud Medicare through falsifying documents and submitting fraudulent claims.  The 
two sentenced defendants, the owner/administrator of a home health care company and a 
physical therapy assistant, were given 30 month and 60 month prison terms, and ordered 
to pay $1.7 million and $1.3 million in restitution, respectively.  
 
  Between December 2012 and April 2013, four individuals two owners, a marketer and a 
registered nurse pled guilty for their involvement in a $24.7 million home health care 
fraud scheme. According to court documents, the conspirators attempted to defraud 
Medicare by submitting claims for home health services that were medically unnecessary 
and/or not provided. The owners oversaw and ran the schemes at multiple home health 
agencies.  The marketer sold the Medicare information of hundreds of Medicare 
beneficiaries, and the registered nurse fabricated notes and other documentation to give 
Medicare the impression that she had provided necessary home health care services. In 
reality, the home health care billed was not needed and/or not provided.  
 
Phase 4: Houston (Southern District of Texas)  
 
  In June 2013, the owner of a DME supply company was sentenced to 97 months in prison 
and ordered to pay $2.5 million in restitution as the result of a December 2012 conviction 
in connection with a $6.7 million Medicare fraud scheme. According to court documents 
and trial evidence, the defendant used his companys Medicare provider number to submit 
20 
  claims to Medicare for DME that was medically unnecessary, and in some cases, never 
provided. 
 
  In March 2013, a physician was sentenced to 63 months in prison and ordered to pay over 
$2.9 million in restitution on his December 2012 conviction of conspiracy to commit 
health care fraud and several counts of false statements relating to heath care matters. Trial 
evidence showed that the defendant signed plans of care for Medicare beneficiaries who 
were not under his care and about whose conditions he had no knowledge.  Overall, 
approximately $17.3 million was paid by Medicare for fraudulent home health care 
services. 
 
  In March 2013, the owner/operator of an ambulance transport company was convicted on 
conspiracy to commit health care fraud and health care fraud, in connection with a  
$1.7 million Medicare fraud scheme. Trial evidence showed that the defendant and others 
conspired to enrich themselves by falsifying patient records in order to bill Medicare for 
ambulance services that were medically unnecessary and not provided.  
 
Phase 5: Brooklyn (Eastern District of New York) 
 
  In October 2012, nine defendants, including the owner and operator of a fraudulent 
physical therapy clinic in Brooklyn and its medical director, were charged with 
participating in a $13 million Medicare fraud scheme.  The indictment alleged that the 
defendants operated a physical therapy clinic in Brooklyn, recruited patients to visit the 
clinic through the payment of kickbacks and bribes, and billed Medicare for services that 
were unnecessary and often never provided at all.  Between the time of indictment and 
September 30, 2013, four defendants had pled guilty to participating in the scheme.    
 
  Between October 2012 and July 2013, two physicians and three owners and operators of a 
fraudulent medical clinic pled guilty in connection with an over $12.6 million Medicare 
fraud scheme. According to plea documents, these individuals in fact provided a variety of 
spa services, such as massages, facials, lunches, and dancing classes to Medicare 
beneficiaries in an effort to induce those beneficiaries into allowing their Medicare 
numbers to be billed for medical services that were never provided and were not medically 
necessary. 
 
  In December 2012, a board-certified colorectal surgeon was sentenced to 30 months in 
prison, ordered to pay over $1 million in restitution and forfeit over $1 million on his June 
2012 jury conviction on health care fraud and false statements relating to health care 
matters in connection with a $22.6 million Medicare scheme.  Trial evidence 
demonstrated that from January 2008 to January 2010, the doctor defrauded Medicare and 
private insurance companies by billing for surgeries, specifically hemorrhoidectomies, and 
related medical services that he never provided.  
 
 
 
21 
  Phase 6: South Louisiana (Middle and Eastern Districts of Louisiana) 
  In May 2013, five individuals were indicted in the Eastern District of Louisiana for their 
role in a home health scheme that billed Medicare $51 million.  The indictment charges an 
owner, two doctors and two recruiters with conspiracy to commit health care fraud, 
conspiracy to pay or receive health care kickbacks and health care fraud.  The conduct 
involves billings by three, related  home health agencies in Louisiana which obtained 
patients through paying patient recruiters and billed by services that were not medically 
necessary and, sometimes, not provided. 
 
  In October 2012, in the Middle District of Louisiana, an executive of a Mississippi 
corporation that purportedly provided durable medical equipment to Medicare 
beneficiaries was sentenced to 72 months in prison and ordered to pay $3 million in 
restitution on his October 2011 guilty plea in connection with a $9.1 million Medicare 
fraud scheme. According to court documents, the defendant admitted that from October 
2004 through October 2010, he and others conspired to defraud Medicare through the 
submission of false and fraudulent claims, and by concealing the submission of those 
claims and the receipt and transfer of the fraud proceeds. The proceeds were diverted to 
their own personal use or benefit of others. 
 
  In March 2013, two New Orleans residents, the owner of a home health care company and 
the director of nursing for the same company, were convicted after a six day trial for their 
involvement in a scheme that fraudulently billed Medicare $17.1 million between 2005 
and 2011. According to trial evidence, the defendants paid recruiters to obtain Medicare 
beneficiary information. The owner paid medical doctors to sign referrals and 
certifications for home health services that were not medically necessary, and the nurse 
falsified and directed others to falsify certification evaluations and other forms to make it 
appear that the home health services were medically necessary.  The owner was sentenced 
to 180 months, and the director of nursing was sentenced to 60 months. 
 
Phase 7: Tampa (Middle District of Florida) 
 
Two defendants were indicted on May 7, 2013 on a charge of conspiracy to commit 
money laundering involving the proceeds of a health care fraud scheme.  According to 
documents filed in the case, the defendants and others conspired to engage in financial and 
monetary transactions of health care fraud proceeds from Renew Therapy Center of Port 
St. Lucie LLC (Renew Therapy), a comprehensive outpatient rehabilitation facility.  From 
November 2007 through August 2009, Renew Therapy submitted approximately  
$10.5 million in fraudulent claims for reimbursement to Medicare for therapy services that 
were not legitimately prescribed and not legitimately provided to Medicare 
beneficiaries.  As a result of those fraudulent claims, Medicare deposited approximately 
$6.2 million into a Renew Therapy bank account, approximately $1,847,222 of which was 
moved through bank accounts and business entities that the defendants controlled.  The 
defendants pled guilty on Oct. 23, 2013 and Oct. 24, 2013. 
 
22 
  Phase 8: Dallas (Northern District of Texas) 
 
  In February 2013, the husband and wife owners/operators of a home health care agency 
were each sentenced to 37 months in prison and ordered to pay over $850,000 on their 
December 2011 guilty pleas to conspiracy to commit health care fraud. According to court 
documents, the couple along with a second couple owned a home health care agency that 
provided care to Medicare and Medicaid beneficiaries. The couple admitted to conspiring 
with others to defraud Medicare by submitting fraudulent claims home health services on 
behalf of patients who were ineligible for the services. They also falsified documentation 
indicating that patients were home bound and eligible for home health services, when in 
fact they were ineligible, and paid kickbacks to a patient recruiter to recruit Medicare 
patients so that the agency could increase its Medicare billing and revenue. 
 
  In October 2012, the owner and operator of a home health services company pled guilty to 
conspiracy to commit health care fraud, in connection with a home health care scheme that 
billed over $350 million to Medicare and $24 million to Texas Medicaid. According to the 
court documents, the defendant admitted to directing others to recruit Medicare 
beneficiaries from Dallas, Texas neighborhoods for home health services they did not 
need and for which they did not qualify.  
 
Phase 9: Chicago (Northern District of Illinois)  
 
  In September 2013, the owner of numerous outpatient surgery centers and other 
healthcare-related businesses in Illinois and Indiana, pleaded guilty in the U.S. District 
Court for the Northern District of Illinois to honest services fraud and tax fraud.   The 
charges stem from a healthcare bribery scheme that included the defendant paying cash to 
physicians in exchange for the physician referring his patients to or conducting surgeries 
at the defendants outpatient surgery centers, rather than at a hospital or competitor 
surgery center.  The indictment, returned by the grand jury in June 2012, alleges that the 
defendant paid hundreds of thousands of dollars to different physicians, in exchange for 
the referrals the physicians made to the defendants facilities, and that the bribery 
arrangement was not disclosed to the patients, thereby depriving patients of the right to the 
honest services of their physician.  The indictment further alleged that, to obtain cash to 
pay bribes to doctors, the defendant engaged in a tax fraud scheme with another individual 
that consisted of the defendant giving Individual A over $2 million in checks written from 
defendants healthcare businesses, which were deducted as business expenses, in 
exchange for which Individual A gave the defendant cash in an amount approximately 
equal to about 70% of the value of the checks. 
 
  On October 3, 2012, a grand jury returned an indictment charging a Chicago-area 
dermatologist, with defrauding Medicare and private health insurance companies by 
submitting false claims for hundreds of patients resulting in millions of dollars of losses.  
The doctor falsely diagnosed patients with actinic keratosis, or sun-induced skin lesions 
that have the potential to become cancerous, and then billed Medicare, Blue Cross Blue 
Shield of Illinois, Aetna, and Humana for treatments that were ineffective and falsely 
23 
  documented.  Between 2003 and 2010, the doctor allegedly falsely documented patients 
charts to support medically unnecessary, cosmetic treatments that he ordered.  In some 
instances, he falsely documented the removal of more than 1,000 lesions from patients 
over several years of treatment, according to the indictment.  Trial is scheduled for 
February 2014. 
 
  In September 2013, the owner of numerous outpatient surgery centers and other 
healthcare-related businesses in Illinois and Indiana, pleaded guilty in the U.S. District 
Court for the Northern District of Illinois to honest services fraud and tax fraud.   The 
charges stem from a healthcare bribery scheme that included the defendant paying 
physicians cash in exchange for the physician referring his patients to or conducting 
surgeries at the defendants outpatient surgery centers, rather than at a hospital or 
competitor surgery center.  The indictment, returned by the grand jury in June 2012, 
alleges that the defendant paid hundreds of thousands of dollars to different physicians, in 
exchange for the referrals the physicians made to the defendants facilities, and that the 
bribery arrangement was not disclosed to the patients, thereby depriving patients of the 
right to the honest services of their physician.  The indictment further alleged that, to 
obtain cash to pay bribes to doctors, the defendant engaged in a tax fraud scheme with 
another individual that consisted of the defendant giving Individual A over $2 million in 
checks written from defendants healthcare businesses, which were deducted as business 
expenses, in exchange for which Individual A gave the defendant cash in an amount 
approximately equal to about 70% of the value of the checks.    
 
This case is one of the first in which a healthcare bribery scheme has been charged as 
honest services fraud under 18 U.S.C.  1341 and 1346, premised upon the defendant (as 
a third-party) causing a breach of the physicians duty of care and disclosure to a 
patient.   Also representing a departure from ordinary charging theories in healthcare fraud 
cases, the indictment included Travel Act allegations, see 18 U.S.C.  1951, premised on 
the defendant causing the travel of patients across state lines and the use of the interstate 
mail with intent to facilitate commercial bribery in violation of Illinois law.  The 
defendants sentencing is scheduled for January 2014.   
 
  In 2013, five of ten defendants charged in two separate indictments with conspiracy to 
violate the Medicare anti-kickback statute pled guilty, including a Doctor who admitted to 
receiving approximately $324,000 in cash kickbacks in exchange for Medicare patients 
referrals to Grand Home Health Care, Inc. In all, ten individuals, including the owners of 
two home health care agencies and three physicians, were charged in two indictments with 
conspiracy to violate the Medicare anti-kickback statute. The charges stemmed from 
kickback schemes in which the owners of the two home health care agencies paid cash 
kickbacks to physicians and other health care professionals in exchange for the referral of 
Medicare patients. According to the indictments, from 2005 through 2011, the owners of 
Grand Home Health Care, Inc. paid over $1.1 million in cash kickbacks to approximately 
twenty doctors, nurses, social workers, and other health care professionals in exchange for 
the referral of Medicare patients to Grand. During this period, Medicare paid Grand more 
than approximately $8.3 million on claims for patients illegally referred to Grand in 
24 
  exchange for kickbacks. During this same time period, the owner of Romyst Home 
Health, Inc. paid approximately $500,000 in cash kickbacks to several doctors in exchange 
for the referral of Medicare patients to Romyst. Medicare paid Romyst more than 
approximately $11.7 million on claims for patients illegally referred to Romyst in 
exchange for kickbacks.  
 
In addition to the Medicare Strike Force matters listed above, our respective Departments 
successfully pursued the following matters, which are grouped by subject below: 
 
Pharmaceutical and Device Manufacturers and Related Individuals 
 
  In May 2012, Abbott Laboratories pleaded guilty and in October 2012 was sentenced to 
pay $1.5 billion (including a criminal fine and forfeiture totaling $700 million and federal 
and state civil settlements totaling $800 million) to resolve criminal and civil liability 
arising from the companys off-label promotion of the prescription drug, Depakote.  In 
particular, Abbott pleaded guilty to misbranding Depakote by promoting the drug to 
control agitation and aggression in elderly dementia patients and to treat schizophrenia 
when neither of these uses was FDA approved.  In an agreed statement of facts filed in the 
criminal action, Abbott admitted that from 1998 through 2006, the company maintained a 
specialized sales force trained to market Depakote in nursing homes for the control of 
agitation and aggression in elderly dementia patients, despite the absence of credible 
scientific evidence that Depakote was safe and effective for that use.  Moreover, this 
settlement resolved FCA allegations that Abbott misled doctors about the safety and 
efficacy of Depakote for off-label indications, encouraged physicians to circumvent 
regulations designed to prevent the use of unnecessary drugs in nursing homes, and paid 
kickbacks to doctors and long-term care pharmacies to prescribe and/or recommend 
Depakote.  As part of this resolution, Abbott also is now subject to court-supervised 
probation and reporting obligations for Abbotts CEO and Board of Directors. 
 
  In December 2012, Amgen Inc. paid $762 million to resolve criminal and civil FCA 
liability arising from the improper marketing of certain drugs and biologics.  The company 
pleaded guilty to a misdemeanor and paid $150 million combined criminal fine and 
forfeiture for misbranding the anemia drug Aranesp.  In addition, the company paid  
$612 million to resolve FCA allegations that Amgen (1) promoted Aranesp and two other 
drugs that it manufactured, Enbrel and Neulasta, for off-label uses and doses that were not 
approved by the FDA and not properly reimbursable by federal insurance programs; (2) 
offered illegal kickbacks to a wide range of entities in an effort to influence health care 
providers to select its products for use, regardless of whether they were reimbursable by 
federal health care programs or were medically necessary; and (3) engaged in false price 
reporting practices involving several of its drugs.  As part of the criminal and civil 
resolutions, Amgen also executed a Corporate Integrity Agreement (CIA) with HHS-OIG. 
 
  In May 2013, Ranbaxy Laboratories Limited (Ranbaxy) and its subsidiary, Ranbaxy 
USA, Inc., paid a total of $500 million to resolve criminal and civil liability relating to 
the manufacture and distribution of certain adulterated drugs made at two of Ranbaxys 
25 
  manufacturing facilities in India.  The settlement included $350 million to resolve FCA 
allegations that Ranbaxy manufactured, distributed, and sold drugs whose strength, purity, 
or quality differed from the drugs specifications or that were not manufactured according 
to the FDA-approved formulation.  In addition, Ranbaxy USA pleaded guilty to three 
felony Food, Drug, and Cosmetic Act (FDCA) counts, and four felony counts of 
knowingly making material false statements to the FDA.  Under the plea agreement, the 
company will pay $150 million in fines and forfeitures. 
 
  In July 2013, Wyeth Pharmaceuticals Inc. pleaded guilty and paid a total of $490.9 million 
to resolve its criminal and civil liability arising from the unlawful marketing of the 
prescription drug Rapamune for uses not approved as safe and effective by the FDA.  In 
particular, Wyeth pleaded guilty to a criminal information charging it with a misbranding 
violation under the FDCA.  The resolution included a criminal fine and forfeiture totaling 
$233.5 million.  In addition, Wyeth paid $257.4 million to resolve FCA allegations that it 
promoted Rapamune for unapproved uses, some of which were not medically accepted 
indications and, therefore, were not covered by Medicare, Medicaid and other federal 
health care programs. These unapproved uses included non-renal transplants, conversion 
use (switching a patient from another immunosuppressant to Rapamune) and using 
Rapamune in combination with other immunosuppressive agents not listed on the label. 
 
  In December 2012, Sanofi-Aventis U.S., Inc. and Sanofi-Aventis U.S. LLC, subsidiaries 
of international drug manufacturer Sanofi (collectively, Sanofi), agreed to pay  
$109 million to resolve FCA allegations that they provided physicians with free units of 
Hyalgan, a knee injection, to induce them to purchase and prescribe the product in 
violation of the Anti-Kickback Statute.  The settlement also resolved allegations that 
Sanofi submitted false average sales price (ASP) reports for Hyalgan that failed to account 
for the free units distributed contingent on Hyalgan purchases.  The Government alleged 
that the false ASP reports, which were used to set reimbursement rates, caused 
Government programs to pay inflated amounts for Hyalgan. 
 
  In October 2012, Boehringer Ingelheim Pharmaceuticals Inc. paid $95 million to resolve 
FCA allegations relating to the improper promotion of the stroke-prevention drug 
Aggrenox, the chronic obstructive pulmonary disease (COPD) drugs Atrovent and 
Combivent, and the hypertension drug Micardis.  Boehreinger promoted each of the drugs 
for uses that were not medically accepted indications and were not covered by federal 
health care programs. Specifically, the settlement resolves allegations that Boehreinger 
promoted Aggrenox for certain cardiovascular events such as myocardial infarction and 
peripheral vascular disease; that Combivent was marketed for use prior to another 
bronchodilator in treating COPD; and that Micardis was marketed for treatment of early 
diabetic kidney disease.  As part of the resolution, Boehreinger entered into a CIA with 
HHS/OIG. 
 
  In December 2012, Wyeth Pharmaceuticals Inc. (acquired by Pfizer in October 2009) 
agreed to a $55 million civil disgorgement settlement to resolve civil FDCA allegations 
that it illegally introduced and caused the introduction into interstate commerce of a 
26 
  misbranded drug, Protonix, between February 2000 and June 2001. Protonix is a proton 
pump inhibitor (PPI) that was used by physicians to treat various forms of gastro-
esophageal reflux disease (GERD). Wyeth sought and obtained approval from the FDA 
to promote Protonix for short-term treatment of erosive esophagitisa condition associated 
with GERD that can only be diagnosed with an invasive endoscopy. However, Wyeth 
allegedly promoted Protonix for all forms of GERD, including symptomatic GERD, which 
is far more common and can be diagnosed without an endoscopy. 
 
  In May 2013, C.R. Bard, Inc. paid $48.26 million to resolve FCA allegations that it paid 
illegal kickbacks in the form of grants and rebates to doctors and/or hospitals to solicit 
business from those providers in violation of the Anti-kickback Statute.  The hospitals 
purchased Bards brachytherapy seeds, the doctors surgically implanted the seeds in 
prostate cancer patients, and the hospitals then falsely billed Medicare for those seeds in 
claims the government alleged were rendered false by Bards illegal kickback conduct.  As 
part of the resolution, Bard also paid $2.2 million to pursuant to a Non-Prosecution 
Agreement to resolve a related criminal investigation.   
 
  In December 2012, Healthpoint Ltd. agreed to pay $48 million to resolve allegations that 
it caused false claims to be submitted to Medicare and Medicaid for an unapproved drug, 
Xenaderm, which was ineligible for reimbursement by those programs. The complaint 
alleged that Healthpoints business strategy was to market new prescription drug products 
modeled after drug products that were on the market before October 1962, in order to 
avoid the time, effort, and expense of obtaining FDA approval. The complaint further 
alleged that at no time prior to its introduction of Xenaderm into the market did 
Healthpoint complete any double-blind placebo-controlled clinical studies that established 
the safety and effectiveness of Xenaderm. Notwithstanding the lack of FDA approval, the 
government alleges, Healthpoint actively promoted Xenaderm as a prescription drug that, 
unlike non-prescription skin ointments such as Vaseline, was Medicaid reimbursed and 
thus cost nursing homes nothing to administer to Medicaid patients. 
 
  In March 2013, Par Pharmaceutical Companies Inc. (Par) pleaded guilty and paid a total 
of $45 million to resolve its criminal and civil FCA liability arising from the companys 
promotion of its prescription drug Megace ES for uses not approved as safe and effective 
by the FDA and not covered by federal health care programs.  In particular, Par pleaded 
guilty to a criminal misdemeanor for misbranding Megace ES and paid a fine and 
forfeiture totaling $22.5 million.  Moreover, Par paid an additional $22.5 million to 
resolve civil allegations that, by promoting the sale and use of Megace ES for uses that 
were not FDA-approved and not covered by federal health care programs, Par caused false 
claims to be submitted to these programs.  The government further alleged that Par 
deliberately and improperly targeted sales to elderly nursing home residents with weight 
loss, whether or not such patients suffered from AIDS, and launched a long-term care 
sales force to market to this population.  As part of the criminal and civil resolution, Par 
entered into a CIA with HHS-OIG. 
 
27 
    In May 2013, ISTA Pharmaceuticals, Inc. pleaded guilty and paid a total of $33.5 million 
to resolve its criminal and civil FCA liability arising from the companys promotion of its 
prescription drug, Xibrom.  In particular, ISTA pled guilty to conspiring to introduce a 
misbranded drug into interstate commerce and conspiracy to pay illegal remuneration in 
violation of the federal Anti-Kickback Statute.  Under the terms of the plea agreement, 
ISTA paid $18.5 million, including a criminal fine of $16,125,000 for the conspiracy to 
introduce misbranded Xibrom into interstate commerce, $500,000 for the conspiracy to 
violate the Anti-Kickback Statute, and $1,850,000 in asset forfeiture associated with the 
misbranding charge.  In addition, ISTA also paid $15 million to resolve FCA allegations 
that ISTA promoted the sale and use of Xibrom for certain uses that were not FDA-
approved and not covered by the federal health care programs, including prevention and 
treatment of cystoid macular edema, treatment of pain and inflammation associated with 
non-cataract eye surgery, and treatment of glaucoma. 
 
  In April 2013, Amgen Inc. paid $24.9 million to settle FCA allegations that it violated the 
Anti-Kickback Statute.  In particular, the government alleged that Amgen paid kickbacks 
to long-term care pharmacy providers Omnicare Inc., PharMerica Corporation and 
Kindred Healthcare Inc. in return for implementing therapeutic interchange programs 
that were designed to switch Medicare and Medicaid beneficiaries from a competitor drug 
to Aranesp. The government alleged that the kickbacks took the form of performance-
based rebates that were tied to market-share or volume thresholds. The government further 
alleged that, as part of the therapeutic interchange program, Amgen distributed materials 
to consultant pharmacists and nursing home staff encouraging the use of Aranesp for 
patients who did not have anemia associated with chronic renal failure. 
 
  In July 2013, a bio-pharmaceutical company based in Ventura County, California paid 
$14.99 million to settle FCA allegations that it knowingly paid unlawful remuneration to 
oncology practice groups and doctors in order to induce them to prescribe a cancer-
treatment drug to beneficiaries of federally funded health care programs, in violation of 
the Anti-Kickback Statute.  The remuneration included directing data purchase agreements 
for prescription information to the oncology practice groups.   
 
  In December 2012, Victory Pharma, Inc. (Victory) paid $11.4 million to resolve federal 
civil and criminal liability arising from its marketing of the pharmaceutical products 
Naprelan, Xodol, Fexmid, and Dolgic.  Under the agreement, Victory entered into a 
deferred prosecution agreement and paid a criminal forfeiture of $1.4 million to resolve 
federal Ant-Kickback Statute allegations, and paid $9.9 million to resolve federal FCA 
allegations.  The settlement resolves allegations that Victory engaged in a scheme to 
promote its drugs by paying kickbacks to doctors to induce them to write prescriptions for 
Victorys products, including tickets to sporting events; concerts and plays; spa, golf and 
ski outings; dinners at expensive restaurants.  The settlement also resolves allegations that 
Victory improperly used paid preceptorships to induce doctors to prescribe Victorys 
products. 
 
28 
    In July 2013, Mallinckrodt, Inc., a pharmaceutical manufacturer, agreed to pay  
$3.5 million to settle allegations that it made improper payments to physicians and, as a 
result, caused the submission of false claims to Medicare and Medicaid for various drugs.  
 
Hospitals 
 
  Fifty-five hospitals located throughout 21 states paid a total of over $34 million to resolve 
FCA liability related to claims for kyphoplasty, a minimally-invasive procedure used to 
treat spinal compression fractures.  In many cases, kyphoplasty can be performed safely 
and effectively as an outpatient procedure without any need for a more costly inpatient 
hospital admission.  The settlements resolve allegations that the hospitals knowingly billed 
Medicare for medically unnecessary admissions for kyphoplasty procedures in order to 
increase their profits and circumvent lower outpatient reimbursement rates.   
 
  In August 2013, Shands Teaching Hospital & Clinics Inc., Shands Jacksonville Medical 
Center Inc. and Shands Jacksonville Healthcare Inc. (collectively, Shands Healthcare), 
paid the government and the state of Florida a total of $26 million to settle FCA 
allegations that six of its health care facilities submitted false claims to Medicare, 
Medicaid and other federal health care programs for inpatient procedures that should have 
been billed as outpatient services. 
 
  In April 2013, Intermountain Health Care Inc. paid $25.5 million to settle claims that it 
violated the Stark Statute and the FCA by engaging in improper financial relationships 
with referring physicians.  These improper financial relationships included employment 
agreements under which the physicians received bonuses that improperly took into 
account the value of some of their patient referrals and office leases and compensation 
arrangements between Intermountain and referring physicians that violated other 
requirements of the Stark Statute.  These issues were disclosed to the government by 
Intermountain.  
 
  In December 2012, American Sleep Medicine, LLC (ASM), agreed to pay $15.3 million 
to resolve allegations that it violated the FCA.  ASM operates 19 sleep diagnostic centers 
throughout the United States.  ASM allegedly submitted claims to Medicare and other 
federal health care programs for sleep diagnostic services that were not eligible for 
payment because the diagnostic tests were performed by individuals who lacked the 
required license, certification, or credentials.  Between January 2004 and December 2011, 
ASM submitted nearly 20,000 claims for reimbursement.  In addition to the monetary 
agreement, ASM entered into a CIA with HHS/OIG. 
 
  In July 2013, Sound Inpatient Physicians Inc., a nationwide hospitalist firm, paid $14.5 million 
to settle allegations that it overbilled Medicare and other federal health care programs.  The 
agreement resolves allegations that the firm upcoded Evaluation & Management services 
rendered to inpatients.  The parent company bills on behalf of the providers for the professional 
services, while the physicians are being paid a flat salary. 
 
29 
    In May 2013, Adventist Health System/West, dba Adventist Health, and its affiliated 
hospital, White Memorial Medical Center, paid $14.1 million to settle FCA allegations 
that Adventist Health violated the Anti-Kickback Statute and Stark Statute by improperly 
compensating physicians who referred patients to the White Memorial facility by 
transferring assets, including medical and non-medical supplies and inventory, at less than 
fair market value. 
 
  In January 2013, Cooper University Hospital agreed to pay $12.5 million to settle 
allegations that it created a fraudulent advisory board in an effort to induce referrals to its 
cardiology department.  The hospital recruited local outside primary care physicians and 
non-invasive cardiologists to serve on a sham advisory board. The physicians were paid 
approximately $18,000 a year to attend four meetings.  However, these meetings were 
largely marketing affairs and there was little evidence of any services being provided by 
the physician members.  In addition to the monetary settlement, the hospital enacted and 
agreed to maintain a number of corporate reforms designed to enhance accountability, 
training, and other aspects of its compliance operations. 
 
  In June 2013, the Chief Financial Officer of a hospital in California was sentenced to 8 
months of home confinement and ordered to pay $10.6 million in restitution after pleading 
guilty to charges of conspiracy to pay kickbacks for patient referrals and other related 
crimes.  According to court documents, the CFO oversaw the issuance of checks to 
companies owned by co-conspirators for the referral of recruited beneficiaries admitted to 
the hospital.  The hospital executed sham consultant contracts with these companies to 
conceal the kickback payments.  The hospital then billed Medicare and Medi-Cal for 
hospital stays and related services provided to the recruited beneficiaries, including 
admissions that were medically unnecessary.  Medicare and Medicaid paid the hospital 
more than $10.5 million in reimbursement for these false claims. 
 
  In November 2012, Morton Plant Health Care, Inc. and its affiliated hospitals, all part of 
the BayCare Health System, paid the United States $10.1 million to settle FCA allegations 
of improperly billing for certain interventional cardiac and vascular procedures as 
inpatient care when those services should have been billed as less costly outpatient care or 
as observational status. 
 
  In November 2012, Freeman Health System paid $9.3 million to resolve FCA allegations 
that it knowingly provided incentive pay to physicians in a manner that violated the Stark 
Law.  In particular, the government alleged that Freeman provided incentive pay to 70 
physicians employed at clinics operated by the health system based on the revenue 
generated by the physicians referrals for certain diagnostic testing and other services 
performed at the clinic. 
 
  In July 2013, Dubuis Health System and Southern Crescent Hospital for Specialty Care, 
Inc. (Southern Crescent) paid $8 million to settle allegations that they knowingly kept 
patients hospitalized beyond the time considered to be medically necessary in order to 
30 
  increase their Medicare reimbursement and to maintain Southern Crescents classification 
as a long-term acute care facility. 
 
  In July 2013, Beth Israel Deaconess Medical Center (BIDMC) paid $5.3 million to settle 
civil allegations that it violated the FCA by improperly admitting patients and then billing 
for inpatient stays with respect to services that should have been provided in an outpatient 
setting, resulting in overpayment by Medicare for unnecessary hospital stays. 
 
  In February 2013, St. Josephs Medical Center paid $4.9 million to resolve the hospitals 
civil liability to the United States under the FCA for admitting patients to the hospital 
unnecessarily from 2007 to 2009.  More specifically, the hospital voluntarily disclosed 
that it admitted patients for short stays (typically one or two days) that were not warranted 
by the patient's medical condition, and thereby generated a larger reimbursement than was 
medically necessary for each patient.   
 
  In April 2013, St. Vincent Healthcare and Holy Rosary Healthcare (collectively, the 
Hospitals) agreed to pay $3.9 million to resolve allegations under the Stark law.  These 
Montana Hospitals self-disclosed that, between July 2003 and December 2010, they paid 
certain employed physicians incentive compensation that was based, in part, on the 
volume or value of referrals made to the Hospitals.  More specifically, the physician 
formula for compensation included inappropriate revenue related to such designated 
health services as EKG and EMG services at the Hospitals.  In addition, the Hospitals 
identified numerous arrangements or contracts it held with independent physicians or 
physician groups that the Government contended violated the Stark Law.  These 
arrangements or contracts included violations relative to expired or unsigned contracts, 
unwritten agreements, untimely payment of rent under lease terms, and potential 
deviations from fair market value rental charges. 
 
  In January 2013, EMH Regional Medical Center (EMH) paid $3.8 million and North Ohio 
Heart Center Inc. (NOHC) paid $541,870 to resolve allegations that they submitted false 
claims for medically unnecessary cardiac procedures.  In particular, the government 
alleged that between 2001 and 2006, EMH and NOHC performed angioplasty and stent 
placement procedures on patients who had heart disease but whose blood vessels were not 
sufficiently occluded to require the particular procedures at issue. 
 
  In July 2013, University Medical Center (UMC), doing business as University of 
Louisville Hospital, paid $2.8 million to settle FCA allegations that it may have violated 
federal law concerning the relationships it had with certain health care providers.  
University of Louisville Hospital operates a separate fast track unit within the emergency 
department to address non-urgent care.  This in-house immediate care center, FirstCare, is 
staffed by UMC-employed physician assistants (PAs) and nurse practitioners (NPs) under 
the direction of the Department of Emergency Medicine physicians  who in turn operate 
as University Emergency Medicine Associates (UEMA).  From January 1, 2006 through 
December 31, 2010, the salaries and benefits paid to FirstCare PAs and NPs were claimed 
on UMC cost reports filed with Medicare.  At the same time, UEMA physicians generally 
31 
  treated the FirstCare PAs and NPs as their own employees including, to various degrees, 
billing and collecting from Medicare for their professional services.  The United States 
contended that UMC provided an improper benefit to UEMA in violation of the FCA and 
other federal law. 
 
  In October 2012, Wyoming Medical Center (WMC) paid $2.7 million arising from the 
alleged submission of fraudulent claims to Medicare.  More specifically, the settlement 
resolved allegations that WMC submitted higher-paying inpatient reimbursement claims 
to Medicare for (a) procedures that had been performed in an outpatient setting, (b) 
hospital stays where there was no record of a physician ordering inpatient-level care, and 
(c) services provided to patients who did not meet requirements for inpatient admission.  
The United States also settled allegations that WMC prolonged inpatient hospital 
admissions without medical necessity in order to qualify patients for Medicare-covered, 
long-term care at a skilled nursing facility.  In addition to the settlement agreement, WMC 
agreed to enter into a 5-year CIA with HHS-OIG. 
Physicians 
 
  In February 2013, an individual and his two companies (identified as Wasserman), paid 
$26.1 million to resolve FCA allegations that he and his company violated the Anti-
Kickback Statute by accepting free pathology services from Tampa Pathology Lab 
(TPL) for biopsy specimens they sent to the lab.  The government also alleged that 
Wasserman billed Medicare for medically unnecessary skin repair procedures and for 
evaluation and management services that he did not perform.  In addition to paying the 
settlement amount, the individual agreed to a five-year voluntary exclusion from 
participation in any federal health care programs as part of the resolution. 
 
  In July 2013, the United States District Court for the District of Columbia granted the 
United States motion for partial summary judgment against a Doctor and his two 
companies, Ishtiaq Malik M.D., P.C. and Advanced Nuclear Diagnostics, for submitting 
false nuclear cardiology claims to federal and state health care programs and awarded over 
$17 million in damages and penalties.  The United States alleged that the doctor and his 
companies violated the FCA by double-billing multi-day nuclear stress test studies, billed 
for services that were already included in the payment for these tests, and billing for 
services not rendered.   
 
  In December 2012, a California physician was sentenced for his role in a hospital fraud 
scheme to 1 year and 1 day in prison and ordered to pay $11 million in restitution.  He 
previously pleaded guilty to conspiracy to receive kickbacks.  According to court 
documents, Tustin Hospital paid marketers to recruit patients and drive them from Skid 
Row around Los Angeles, past other hospitals, to be admitted to its facility.  The 
physician admitted these patients and then he and the hospital billed Medicare for in-
patient services, even if the services were not medically necessary.  The physician 
admitted that many of the recruited patients had been coached to recite false symptoms, 
and that he falsified medical records to justify the admission of some patients.  On 
32 
  average, he admitted approximately 60 patients per month to the hospital, even though 
some did not require hospitalization.  
 
  In July 2013, Jackson Cardiology Associates (JCA) and its owner paid $4 million to 
resolve FCA allegations that JCAs owner and certain JCA cardiologists performed 
medically inappropriate cardiac procedures, including invasive catheterizations at 
Allegiance Health.  Specifically, the government alleged that JCAs owner ordered 
catheterizations for patients based on findings from nuclear stress tests that he improperly 
read as positive.  The government found that three-quarters of these patients had no 
significant heart blockages.  These catheterizations involve snaking a hollow tube into the 
heart through an incision in the patients groin. 
 
  In August 2013, Imagimed LLC and its former owners and former chief radiologist paid 
$3.57 million to resolve FCA allegations that they submitted false claims for magnetic 
resonance imaging (MRI) services.  In particular, the government alleged that the 
defendants submitted claims to Medicare, Medicaid and TRICARE for MRI scans 
performed with a contrast dye without the direct supervision of a qualified physician.  
Since a potential adverse side effect of contrast dye is anaphylactic shock, federal 
regulations require that a physician supervise the administration of contrast dye when it is 
used for an MRI.  The government also alleged that Imagimed submitted claims for 
services referred to Imagimed by physicians with whom Imagimed had improper financial 
relationships in violation of the Stark Law and the Anti-Kickback Statute. 
 
  In June, 2013, an oncologist and his wife paid $3.1 million to resolve FCA allegations that they 
jointly defrauded Medicare, Tricare, and other federal programs by overbilling for medication 
and services and/or billing for medication and services not provided. 
 
  In December 2012, an Illinois physician was sentenced to 10 years in prison and ordered 
to pay $2.9 million in restitution after being convicted on charges of health care fraud and 
fraud of visas, permits, or other documents.  The physician was the manager and co-owner 
of House Call Physicians, LLC, a suburban home health care provider.  According to court 
documents, the physician directed House Call Physicians to bill Medicare for:  (a) services 
that were not medically necessary, including uncomfortable nerve conduction tests; (b) 
services purportedly provided by physicians when, in fact, they were performed by 
physician assistants; and (c) services performed by a podiatrist with a suspended license.  
Two other defendants were sentenced to 6 months and 18 months of incarceration, 
respectively.  The two were also, respectively, fined $20,000 and ordered to pay $791,095 
in restitution.  After completing his sentence, the physician, a Canadian citizen who was 
not authorized to work in the United States, will be surrendered to the Department of 
Homeland Security for a deportability determination. 
 
  In November 2012, a Michigan physician was sentenced to 5 years of incarceration and 
ordered to pay $2.9 million in restitution after being convicted on charges of health care 
fraud and conspiracy to commit health care fraud.  The physician was an 
obstetrician/gynecologist who served as a general practitioner for three clinics operating in 
33 
  the same location:  Blessed Medical Clinic, Alpha and Omega Medical Clinic, and Manuel 
Medical Clinic.  According to evidence presented at trial, the physician joined a 
conspiracy to bill Medicare for medically unnecessary neurological tests.  Some of the 
tests involved sending an electrical current through the arms and legs of the patients.  
Clinic employees, who lacked any meaningful training, administered the diagnostic tests.  
Patients were recruited with prescriptions for controlled substances, cash payments, and 
fast food.  
 
  In July 2013, Northwestern University agreed to pay $2.93 million to resolve FCA 
allegations of grant fraud by one of its cancer center physician researchers.  The physician 
was the principal investigator on several National Institutes of Health (NIH) grants related 
to cancer research.  Instead of using the funds as the grants required, he allegedly spent the 
money on family trips, meals, and hotels for himself and friends.  He also charged 
consulting fees to the grants which went to unqualified friends and family members, 
including his brother and cousin.  Northwestern additionally allowed the researcher to 
subcontract work under the grants without following NIH guidelines.  A civil suit against 
the individual doctor is proceeding. 
 
  In April 2013, the owner of Winnetka Medical Group, a cosmetic health care clinic, pled 
guilty to health care fraud and was sentenced to 42 months in prison and was ordered to 
make full restitution.  The defendant billed Medicare, Anthem Blue Cross, and Blue 
Shield of California for three unusual and high-paying procedures, even though he lacked 
the equipment necessary to perform them.  The defendant even billed Medicare for 26 
patients who were already dead on the date he claimed to have performed the procedures.  
In total, the defendant submitted approximately $7.5 million in fraudulent claims to 
Medicare and was paid over $3 million. 
 
  In May 2013, Las Vegas Urology, LLP agreed to pay $1 million to settle allegations that it 
submitted false claims to federal health care programs.  An investigation of the practices 
billing and medical records showed that it had billed for intra-abdominal pressure testing 
that had never been performed and upcoded its billings for cystourethroscopies, 
consultations, and ultrasound tests.  In addition to the settlement agreement, the practice 
has entered into a three-year CIA with HHS/OIG. 
 
  In January 2013, a Missouri psychotherapist was sentenced to 36 months imprisonment 
and ordered to pay $1 million in restitution for health care fraud.  The defendant also 
agreed to surrender his psychotherapy license.  Between September 17, 2008 and April 5, 
2012, the defendant submitted Medicare and Medicaid claims for daily or near daily 
psychotherapy services to 19 beneficiaries for which he was paid $1.3 million. Although 
the defendant provided some services for most of the beneficiaries, he admitted that he 
never saw them more than once a week.  The defendant further admitted that he forged, or 
caused another person to forge, the signatures of five the beneficiaries on patient sign-in 
sheets in order to obtain payments. 
 
 
34 
  Other Health Care Providers 
 
  In May 2013, U.S. Renal Care, Inc. paid $7.3 million to resolve FCA allegations that 
Dialysis Corporation of America, which U.S. Renal acquired in June 2010, submitted false 
claims to Medicare for more Epogen, an intravenous drug commonly given to dialysis 
patients, than it actually administered.   
 
  In October 2012, Westchester County Health Care Corporation (WCHCC) agreed to pay 
$7 million to resolve alleged FCA violations.  WCHCC operates the freestanding mental 
health facility Westchester Behavioral Health Center (BHC).  WCHCC allegedly 
submitted false certifications to Medicaid stating that claims for services at BHC complied 
with applicable regulations.  However, WCHCC allegedly knew or should have known 
that:  (1) many of the claims lacked the required supporting documentation, and (2) many 
of the services either did not meet the minimum duration requirements and/or were 
provided by staff who lacked proper certification.  BHC also allegedly billed Medicaid for 
psychiatric services without creating or maintaining treatment plans and progress notes. 
 
  In October 2012, the owner/operator of a halfway house was sentenced to 4 years and 3 
months of imprisonment and ordered to pay $2.4 million in restitution after pleading 
guilty to charges of conspiracy to receive and pay health care kickbacks.  According to 
court documents, the owner/operator accepted kickbacks to send Medicare beneficiaries 
who resided at the half-way house to American Therapeutic Corporation (ATC) for partial 
hospitalization services.  Investigators believe that these services were not medically 
necessary and were not provided at ATC.  ATC then billed Medicare for these services. 
  In October 2012, the owner of Gideons Gate, a provider of tutoring and day care services, 
 was sentenced to 6 years and 8 months of incarceration and ordered to pay more than  
$1.9 million in restitution after pleading guilty to health care fraud charges.  The owner 
admitted that she executed a scheme to file more than 2,400 illegitimate reimbursement 
claims for psychological services that she never performed.  The owner conspired with 
another defendant, who owned the company Primeway.  Primeways owner had a welfare-
to-work contract to train Medicaid recipients to become certified nursing assistants.  
Primeways owner provided the Medicaid recipients' personal identifiers to the owner of 
Gideons Gate, who then back billed these recipients to Medicaid for mental health 
services that were not rendered.  The owner of Primeway previously pleaded guilty to 
charges of receiving an illegal kickback from a health care program and was sentenced to 
5 years of probation and assessed a $2,000 fine. 
 
Pharmacies 
 
  From August, 2011 through July, 2013, twenty-six defendants have been convicted for 
their roles in a widespread scheme to defraud Medicare and Medicaid of nearly  
$58 million.  According to the indictment, a licensed pharmacist owned or controlled 26 
pharmacies in Michigan.  The pharmacist concealed his ownership and control over many 
of his pharmacies through the use of straw owners.  He offered and paid kickbacks, bribes, 
35 
  and other inducements to providers in exchange for them writing fraudulent prescriptions 
for patients with Medicare, Medicaid, and private insurance and directing the patients to 
fill their prescriptions at one of his pharmacies.  In September 2013, the pharmacist was 
sentenced to 17 years in prison and ordered to pay $18.9 million in restitution, joint and 
several.  His co-conspirators were sentenced between February and May 2013 to a 
combined 19 years in prison and ordered to pay more than $8.4 million in restitution, joint 
and several.  Nineteen additional defendants are awaiting sentencing. 
 
  In June 2013, Omnicare, Inc. paid $17.2 million to settle FCA allegations that it paid 
kickbacks to obtain pharmacy contracts in violation of the federal Anti-Kickback statute.  
The settlement addressed false claims allegedly made to the Medicaid programs of 
Missouri, Illinois, and Florida. 
 
  In October 2012, RxAmerica LLC., a wholly owned subsidiary of CVS Caremark 
Corporation, paid $5.25 million to resolve FCA allegations that it made false submissions 
to CMS regarding prices for certain generic prescription drugs used for Plan Finder, a 
web-based tool offered by CMS to assist participants to choose a Part D plan that 
minimized their out-of-pocket costs by estimating prescription drug prices for each 
Medicare Part D plan that the beneficiary considered for enrollment.  As a result of the 
false submissions, the government alleged that RxAmerica received Medicare Part D 
payments for claims for the covered drugs at prices that in some cases were significantly 
higher than the pricing data RxAmerica submitted to CMS for use on Plan Finder. 
 
  In November 2012, two HHS-OIG Most Wanted Fugitives were captured and later pled 
guilty to charges related to health care fraud.  In April 2013, the first was sentenced to 4 
years and 9 months of incarceration and ordered to pay $4.4 million in restitution, joint 
and several, while the second sentenced to 2 years and 6 months of incarceration and 
ordered to pay $845,000 in restitution.  The two owned and operated pharmacies in 
Miami.  According to court records, the two owners/operators and their co-conspirators 
were involved in a Medicare scheme in which kickbacks and bribes were paid to patient 
recruiters and beneficiaries for prescriptions that were then used to submit fraudulent 
claims to Medicare.  An employee, who also participated in the scheme, was sentenced to 
3 years and 10 months of incarceration and ordered to pay $4.4 million in restitution, joint 
and several. 
 
  In August 2013, National Respiratory Services (NRS), a mail-order/closed door pharmacy 
which supplied compounded inhalation drugs to patients, pled guilty to health care fraud 
for billing for compounded medications as if they were non-compounded, commercially 
manufactured FDA-approved drugs.  The compounded medications were most often sub-
potent, super-potent, and in some cases non-sterile.  As a result of the conduct, the 
government paid NRS over $2 million dollars.  The two NRS pharmacists, the minority 
owner, and the majority owner pled guilty to a FDA misbranding violation and were 
sentenced to one year probation.  The vice-president of operations pled guilty to felony 
misbranding, felony adulteration, health care fraud, and mail fraud.  The defendants must 
pay restitution jointly and severally in the amount of $2 million. 
36 
  Clinics 
 
  In May 2013, a captured HHS-OIG Most Wanted Fugitive was sentenced to 9 years and 1 
month of incarceration and ordered to pay more than $26 million in restitution, joint and 
several, after pleading guilty to charges of conspiracy to commit health care fraud and 
money laundering.  According to court documents, as an employee of a provider of 
physical therapy services, he signed his name on patient files as the provider of such 
services, including blank treatment data forms, progress notes, and daily physical therapy 
records.  However, he was not licensed, trained, or otherwise qualified to provide physical 
therapy to patients.  This individual was arrested by Nigerian authorities in 2011 and 
extradited back to the United States in June 2012 to face health care fraud charges. 
 
  In November 2012, a Miami man was sentenced to 12 years and 7 months of incarceration 
and ordered to pay $11 million in restitution after pleading guilty to charges of conspiracy 
to commit health care fraud and to pay health care kickbacks, health care fraud, payment 
of health care kickbacks, and money laundering.  The man was the president and co-owner 
of Research Center of Florida, Inc., a purported medical clinic.  He paid more than  
$2.3 million to fraudulent companies controlled by outside patient recruiters who paid 
cash to Medicare beneficiaries to attend Research Center as purported patients.  Between 
October 2003 and November 2004, Research Center submitted claims to Medicare for 
nearly $21 million, almost exclusively for the purported treatment of HIV-positive 
Medicare beneficiaries and for the administration of prescription drugs.  Co-conspirators 
were previously sentenced to 6 years and 6 months and 5 years and 10 months of 
incarceration, respectively, and ordered to pay $14 million in restitution, joint and several, 
for their roles in the scheme.  Two other defendants were sentenced to 3 years and 10 
months and 6 years and 6 months of incarceration, respectively, and ordered to pay  
$10.9 million in joint and several restitution. 
 
  In June 2013, the part-owner and medical biller for the Advanced Clinics was sentenced to 
serve twelve months and one day in federal prison for her role in a health care fraud 
scheme.  The defendant was also ordered to pay a $1.89 million fine, restitution of 
$120,689 and a refund of $1 million.  The majority of patients of the Advanced Clinics 
were injured United States Postal Service workers receiving medical benefits under the 
U.S. Department of Labor, Office of Workers Compensation Program (DOL-OWCP).  
The defendant fraudulently billed DOL-OWCP for services not rendered, double billed, 
and unbundled billing codes to obtain higher reimbursements.  The defendant personally 
received over $4.4 million from the Advanced Clinics. 
 
  In July 2013, Health Guard Inc. and its owner, a unlicensed diagnostic technician, pled 
guilty to health care fraud, and currently awaits sentencing.  Patients went to Health Guard 
Inc. for medical tests that were not performed or were medically unnecessary.  Patients 
were moved between other commonly owned health care clinics to Health Guard Inc. to 
repeatedly perform the same unnecessary tests.  Five other clinics and their owners have 
already been sentenced for the same activity.  If the patients refused the diagnostic tests at 
37 
  Health Guard Inc., prescriptions for narcotic drugs were withheld.  Thereafter, bills for the 
unnecessary services were submitted to Medicare and Medicaid.  
 
  In March 2013, the medical director of a clinic in Long Beach, California, was sentenced 
to 42 months imprisonment and ordered to pay $2.9 million in restitution for issuing 
bogus prescriptions that led to fraudulent Medicare claims of over $3 million.  The doctor 
and his co-schemers recruited Medicare patients for office visits that typically included 
unnecessary tests and procedures.  The medical director, who was a doctor, also generated 
fraudulent prescriptions for medical equipment, power wheel chairs and enteral nutritional 
supplies, prescriptions that were sold to medical supply companies that used the fraudulent 
documents to bill Medicare for millions of dollars of unnecessary and undelivered medical 
supplies.  Nearly all of the wheelchair prescriptions signed by the doctor were written for 
people who could walk.  As a result of the fraudulent conduct involving the defendant and 
his co-schemers, $5.6 million in fraudulent claims were submitted to Medicare, which 
paid approximately $2.97 million.  The defendant was convicted following a jury trial in 
March 2012. 
 
  In July 2013, the owner of two false front healthcare clinics operating in Houston, Texas 
and Euless, Texas was sentenced to 120 months imprisonment and ordered to pay over  
$2 million in restitution, jointly and severally with four codefendants. Along with the 
owner, the clinics were operated by the codefendants who were unlicensed physicians and 
physicians assistants.  These unlicensed employees traveled to Medicare beneficiaries 
homes to conduct medical examinations.  In addition to conducting medical examinations, 
the unlicensed employees would falsify orders for medical testing in order to make the 
patient files look legitimate. These tests were never ordered and never administered.  The 
owner of the clinic purchased fake results and subsequently billed Medicare for millions 
of dollars in phony home visits and fake medical tests.   
 
  In May 2013, a Florida woman was sentenced to 10 years in prison following her 
conviction for conspiracy to commit health care fraud through several physical and 
occupational therapy clinics she owned in the Miami area.  The owner of the clinics 
defrauded the Medicare Part A program by falsely billing over $20 million in therapy 
services that were never rendered.  As part of the scheme, patients were recruited and paid 
kickbacks for allowing their Medicare eligibility to be misused.  Clinic employees would 
rotate the patients, many of whom lived hours away from Miami, through the various 
clinics in an effort to spread out the fraudulent billing and avoid detection.  Eight other 
employees and therapists at the clinics were convicted and received sentences ranging 
from two to five years of imprisonment.  Collectively, the defendants were ordered to 
repay almost $14 million in restitution.  The owner of the clinics forfeited approximately 
$200,000 in cash, along with various real properties and personal items seized at the time 
of her arrest. 
 
 
 
 
38 
  Medical Equipment Suppliers  
 
  In November 2012, Orthofix International NV paid $30 million to settle FCA allegations 
that it paid illegal kickbacks to spinal surgeons to induce them to use the companys 
products.  In particular, the government alleged that Blackstone Medical Inc., a subsidiary 
of Orthofix, paid kickbacks to spinal surgeons in a number of forms, including sham 
consulting agreements, sham royalty arrangements, sham research grants, travel and 
entertainment.  As part of the settlement, Orthofix entered into a CIA with HHS/OIG. 
 
  In May 2013, an owner/operator of several durable medical equipment (DME) companies 
in Nevada was sentenced to 4 years and 3 months of incarceration and ordered to pay over 
$12 million in restitution after pleading guilty to charges of health care fraud and tax 
evasion.  According to the indictment, the owner/operator paid marketers in Southern 
California to obtain patients for her various DME companies.  The marketers provided 
patients with money in exchange for their Medicare information, which was used to bill 
Medicare for items not provided.  The owner/operator also forged or caused to be forged 
prescriptions and falsified or caused to be falsified certificates of medical necessity to 
make it appear as if a physician had ordered a product for her customers.  She then 
submitted and caused to be submitted false claims to Medicare for DME that was not 
medically necessary, was not provided to her customers, and was not prescribed by a 
physician. 
 
  In March 2013, a California DME company owner and operator was sentenced to 156 
months imprisonment and ordered to pay $8.2 million in restitution, jointly and severally, 
after a jury convicted her of multiple counts of health care fraud and anti-kickback 
violations.  At trial, the government presented evidence that the defendant paid marketers 
to recruit Medicare beneficiaries to seek expensive DME, such as motorized wheel chairs, 
that they did not need.  The defendant or the marketers she relied on, often paid doctors to 
write the fraudulent prescriptions.  The defendant would then submit the false claims to 
Medicare.  Over the course of the scheme, defendant submitted over $16 million in 
fraudulent claims to Medicare, of which Medicare paid over $8 million.  Other defendants 
included a marketer, who was sentenced to 41 months imprisonment, as well as a 
cooperating marketer who received a time served sentence and a cooperating doctor who 
received a 36-month period of probation.   
 
  In July 2013, TranS1, Inc. (now known as Baxano Surgical, Inc.) paid $6 million to 
resolve FCA allegations that the company caused health care providers to submit false 
claims to federal health care programs for surgical procedures involving the companys 
AxiaLIF System.  Specifically, the settlement resolves allegations that TranS1 (1) 
improperly counseled physicians and hospitals to inflate reimbursement by using incorrect 
and inaccurate codes intended for more invasive spine fusion surgeries; (2) provided 
improper remuneration in violation of the Anti-Kickback Statute; and (3) promoted 
unapproved uses that were not covered by federal health care programs. 
 
 
39 
    In April 2013, the owner/operator of a DME company in New York was sentenced to 12 
years of imprisonment and ordered to pay $4.4 million in restitution for her role in a 
scheme to defraud Medicare by billing for DME that she did not provide.  Through the 
DME company, the owner/operator and her husband fraudulently billed the accounts of 
nursing home residents from over 15 New York area nursing homes for DME that was 
never ordered or provided.  According to court documents, the owner/operator entered 
these nursing homes falsely presenting herself in many roles, including physician, nurse 
practitioner, and wound care expert.  She then stole original medical records, as well as 
altered and manufactured records, in an effort to justify medical billing.  Investigators 
believe that her husband fled the country and remains a fugitive. 
 
  In June 2013, the owner/operator of a DME company in Louisiana was sentenced to 
8 years and 1 month of incarceration and ordered to pay $2.5 million in restitution after 
being convicted on charges of health care fraud.  According to the indictment, the 
owner/operator submitted approximately $467,000 in claims to Medicare for DME 
purportedly prescribed by a doctor in Houston, Texas.  However, the doctor never 
prescribed any of the DME for which he billed Medicare.  He also submitted more than 
$6.7 million in claims to Medicare for DME that was not medically necessary, and in 
some cases, was never provided. 
 
  In June 2013,  a DME business owner was sentenced to 70 months of imprisonment and 
ordered to pay $1.9 million in restitution, after pleading guilty to conspiracy to commit 
health care fraud and aggravated identity theft.  According to court documents, the DME 
company owner created several different companies and submitted more than 1,500 false 
and fraudulent claims to Medicare for DME including power wheelchairs, power pressure 
reducing air mattresses and knee orthosis.  The defendant submitted claims using the 
identities of Medicare beneficiaries for DME that was not medically necessary.   
 
  In October 2012, the co-owner of a Florida DME company was sentenced to 11 years and 
3 months of incarceration and ordered to pay $1.7 million in restitution, joint and several, 
after pleading guilty to charges of conspiracy to commit health care fraud.  The DME 
company, MA Medical Supply, Inc., paid beneficiaries for allowing them to use their 
information to create false and fraudulent prescriptions for DME and medical services that 
were either not rendered or were unnecessary.  From January 2006 through July 2011, MA 
Medical Supply submitted $4 million in false and fraudulent claims to Medicare.  In 
addition, the co-owner and his co-conspirators caused the submission of false and 
fraudulent claims and prescriptions to Medicare through several pharmacies.  From 
approximately April 2009 through January 2012, Medicare paid more than $16 million to 
these pharmacies based on claims for medical benefits, primarily prescription drugs, 
which, in turn, were never actually received by the beneficiaries.   
 
Nursing Homes 
 
  In March 2013, Grace Healthcare LLC and its affiliate Grace Ancillary Services LLC 
(collectively, Grace) paid $2.7 million, plus interest, to resolve FCA allegations that 
40 
  they knowingly submitted or caused the submission of false claims to Medicare and 
Medicaid for medically unreasonable and unnecessary rehabilitation therapy.  In 
particular, the government alleged that in ten nursing home facilities where Grace 
provided physical, occupational, and speech therapy, Grace pressured therapists to 
increase the amount of therapy provided to patients in order to meet targets for Medicare 
revenue that were set without regard to patients individual therapy needs and could only 
be achieved by billing for a large amount of therapy per patient.  
 
  In February 2013, Fairfax Nursing Center, Inc. and its owners paid $700,000 to resolve 
FCA allegations that they provided excessive, medically unnecessary, or otherwise non-
reimbursable physical, occupational, and speech therapy services to 37 Medicare 
beneficiaries.   
 
Home Health Providers 
 
  In April 2013, a Miami man was sentenced to 168 months for his role as one of the owners 
of a Miami-Dade home health agency which submitted approximately $45 million in false 
claims to Medicare, causing Medicare to pay the agency approximately $30 million.  
Almost all of these claims were for providing twice daily insulin injections to purportedly 
homebound diabetic patients.  The investigation revealed that the agency used the services 
of dozens of patient recruiters who were paid $1,500 per month for each patient that they 
provided to the agency.  Investigation revealed that almost all of these patients were not 
homebound and many of them were not insulin dependent diabetics.  During the course of 
this investigation, a total of thirty two defendants pled guilty and four were found guilty 
after trial.  These defendants included patient recruiters, office employees, and registered 
nurses. 
 
  In December 2012, a Miami man was sentenced to 120 months in prison for his role in a 
home health care fraud scheme in which he submitted and caused the submission of 
approximately $5.3 million in false claims to Medicare.  The defendant recruited 
individuals so that he could secretly control three separate home health agencies in Miami-
Dade County.  The defendant would purchase the companies for cash, and within a few 
weeks of purchasing the companies he used stolen Medicare beneficiary information to 
submit claims for services that were never actually rendered to Medicare beneficiaries.  
The defendant was a former drug trafficker who served nine years in prison from 1999 
through 2006. 
 
  Nine defendants were sentenced in April and May of 2013 for their roles in a home health 
care fraud scheme.  According to court records, the president of Safe Home Health Care 
Agency, Inc., a Miami-based business that purportedly provided home health services to 
Medicare beneficiaries, and several co-conspirators allegedly offered and paid kickbacks 
and bribes to patient recruiters in return for referring beneficiaries to Safe Home to serve 
as patients.  Beneficiaries also received kickbacks for agreeing to serve as patients of Safe 
Home.  Safe Home received $9.5 million in reimbursements from these false claims.  The 
41 
  nine defendants were sentenced to a combined 16 years and 2 months in prison and 
ordered to pay more than $5.8 million in restitution, joint and several. 
 
  In February 2013, two owners of a home health company, Alliance Home Health, each 
received a sentence of 37 months and were ordered to pay over $800,000 in restitution for 
a conviction on one count of conspiracy to commit health care fraud.  They were also 
permanently excluded from the program.  Another owner also received the same sentence 
in August 2012, and a marketer for the company received a 27 month sentence.  The 
owners of Alliance and the marketer sought out Medicare beneficiaries for home health 
care, regardless of homebound status and paid the beneficiaries $100 each month to use 
Alliance services. 
 
  In July 2013, a New Jersey physician and the founder and owner of Visiting Physicians of 
South Jersey, a provider of home-based physician services for seniors, was sentenced to 
24 months in prison and ordered to pay more than $1 million in restitution and forfeiture 
for charging Medicare for lengthy visits that her elderly patients did not receive.  The 
physician admitted to lying in Medicare billings about the amount of face-to-face time she 
spent with her elderly and disabled patients, which led to her receiving at least $511,068 in 
criminal profits.  The physician was, for the period January 1, 2008 through October 14, 
2011, the highest billing home health care provider of all of the 24,000 doctors in New 
Jersey. 
 
  In April and June 2013, respectively, a Florida woman and a registered nurse were 
sentenced after pleading guilty to conspiring to pay and receive illegal health care 
kickbacks and paying kickbacks in connection with the a home health agency they 
operated.  The woman was sentenced to 70 months imprisonment and ordered to pay more 
than $5 million in restitution, jointly and severally.  The registered nurse was sentenced to 
97 months imprisonment and ordered to pay more than $22,000 in restitution, jointly and 
severally.  According to court documents, the defendants paid kickbacks to patient 
recruiters to obtain Medicare beneficiaries to serve as patients of a home health agency 
they operated.  The defendants also paid bribes to doctors who prescribed the home health 
services for the beneficiaries.  In a little more than two years of operation, Medicare paid 
the defendants home health agency more than $11 million dollars, most of which was tied 
to kickbacks.  In addition to these two defendants, seven patient recruiters were convicted 
in this indictment.   
 
  In August 2013, the owner of a network of Michigan health care companies was sentenced 
to 4 years in prison, paid a $1 million civil FCA settlement, and agreed to a 20-year 
exclusion from federal health care programs in connection with pervasive kickback and 
upcoding schemes at his physical therapy clinics, medical offices, and home health care 
agency.  This sentence followed the convictions and sentencings of eight other 
individuals: two physicians, three physician assistants, two practice administrators, and a 
biller, who participated in these schemes.  According to court documents in the criminal 
case and a parallel civil case against 25 defendants, the defendants paid or received illegal 
kickbacks in exchange for referring Medicare and Medicaid patients for physical therapy, 
42 
  electrodiagnostic testing, and home health care services.  The illegal payments were made 
in cash and checks disguised as bonuses, mileage reimbursements, and payments for 
medical director and consulting services that were never performed.  At least one of the 
affiliated health care companies also allegedly engaged in upcoding by fraudulently billing 
for high-level office visits, among other things.  To date, the Government has obtained 
over 7 years in total prison sentences in these cases, collected $1.1 million in related civil 
settlements, and OIG has imposed 40 years in total exclusions from federal health care 
programs.    
 
  In July 2013, the president of a D.C.-based home health care provider was sentenced to 8 
months incarceration, to be followed by 4 months home detention, after pleading guilty to 
one count of falsification of records in connection with an HHS audit.  The defendants 
company, which provided home healthcare services, was asked by auditors to produce 
plans of care for 62 patients who had received home health care services from her 
company.  In total, Medicare and D.C. Medicaid had paid nearly $1.9 million in federal 
funds to the defendants company for the services these patients had already supposedly 
been provided.  The company lacked the requisite plans of care for these individuals.  
Rather than admitting that the company lacked the necessary documentation, the 
defendant and employees of the company devised and implemented a plan to fabricate the 
plans of care.  After creating plans of care for the patients who had already received this 
nearly $1.9 million in services, the defendant and others had a doctor sign the plans and 
then the documents were backdated to dates prior to the services. This doctor, who was the 
medical director, was sentenced to two years of probation after pleading guilty to one 
count of making a false writing in connection with this audit.  
 
Other Medicare/Medicaid Matters 
 
  In December 2012, Orthofix, Inc. pled guilty to a one count felony information charging 
obstruction of a health care audit.  In addition, the company agreed to a $42 million civil 
and criminal global resolution in connection with a number of practices, including 
falsification of certificates of medical necessity and kickbacks.  The case also resulted in a 
number of criminal convictions of Orthofix employees, six of whom were sentenced or 
charged during FY 2013, including three Territory Managers, a Vice President of Sales, 
and a Regional Manager.  A Virginia physician was also indicted in June 2013 for making 
false declarations to a grand jury in Boston.  Her trial has not yet been scheduled.  
 
  In January 2013, American Sleep Medicine LLC paid $15.3 million to resolve FCA 
allegations that it billed Medicare, TRICARE, and the Railroad Retirement Medicare 
Program for sleep diagnostic services that were not eligible for payment.  In particular, the 
government alleged that although federal regulations require that initial sleep studies must 
be conducted by technicians who are licensed or certified by a state or national 
credentialing body as sleep test technicians, American Sleep submitted claims for 
diagnostic testing services that were performed by technicians who lacked the required 
credentials or certifications.  
 
43 
    In April 2013, the California Rural Indian Health Board Inc., a nontribal entity and grantee 
of the HHS Substance Abuse and Mental Health Services Administration, agreed to a 
settlement worth over $5.1 million to resolve an FCA lawsuit filed by the United States.  
The lawsuit involved the entitys administration of a grant to provide services to Native 
American tribes.  The United States alleged that the entity eliminated the substance abuse 
screening and assessment required of certain program applicants, and instructed the 
service providers to pay for prohibited expenses with the federal grant funds.  The entity 
agreed to pay $532,000 and relinquish federal grant funds valued at over $4.6 million.  
 
  In December 2013, two Regional Vice-Presidents employed with Humana Inc. will be 
sentenced for their roles in a kickback scheme involving Humanas Medicare Advantage 
and prescription drug plan.  As a result of their conduct, each received a kickback payment 
of approximately $2 million dollars.  The two defendants entered guilty pleas to violation 
of the Travel Act and the state commercial bribery statute in January and February 2013, 
respectively.  Each defendant has been ordered to pay $100,000 in restitution to Humana 
and $900,000 in forfeiture.   
 
  In January 2013, a California university paid $925,000 to resolve allegations that its 
medical center sought Medicare reimbursement for liver transplants and related services 
when its liver transplant program failed to comply with federal requirements regarding 
surgeon staffing.   
 
Hospice Providers 
 
  In March 2013, Hospice of Arizona L.C., along with a related entity, American Hospice 
Management LLC, and their parent corporation, American Hospice Management Holdings 
LLC, paid $12 million to resolve FCA allegations that they submitted or caused the 
submission of false claims to the Medicare program for ineligible hospice services.  In 
particular, the government alleged that Hospice of Arizona and its related entities engaged 
in certain practices that resulted in the admission of ineligible patients or inflated bills, 
including pressuring staff to find more patients eligible for Medicare, adopting procedures 
that delayed and discouraged staff from discharging patients from hospice when they were 
no longer appropriate for such services, and not implementing an adequate compliance 
program that might have addressed these problems.  As part of the settlement, American 
Hospice Management Holdings has agreed to enter into a CIA with HHS-OIG. 
 
Other Schemes 
 
  In November 2012, a Washington, D.C., woman was sentenced to 6 years and 3 months of 
incarceration and ordered to pay $3.1 million in restitution after being convicted of 
charges related to health care fraud.  According to the indictment, the woman was part 
owner and chief executive officer of the Health Advocacy Center, Inc. (HAC), which 
purportedly was an advocate for improving health care delivery to the community.  She 
was also the owner of Sheridan Rehabilitative and Wellness Centers, Inc., which 
purportedly provided rehabilitative services to the mentally and physically disabled 
44 
  community.  Around October 2002, HAC entered into an agreement with DC Medicaid to 
provide health care services to District of Columbia Medicaid beneficiaries.  The womans 
employees transported many of these patients to HAC, where they often slept, watched 
television, and occasionally received drug and alcohol counseling.  From these visits, the 
woman submitted more than $6 million in claims to DC Medicaid for manual therapy 
services, despite the fact that:  1) she did not maintain progress notes and related 
documentation for the purported manual therapy and other services, 2) she frequently 
billed for services for which HAC lacked the medical equipment to perform, and 3) she 
frequently billed for more than 24-hours of services for a single patient in a given day. 
   
45 
  DEPARTMENT OF HEALTH AND HUMAN 
SERVICES 
  
Office of Inspector General 
 
A certain portion of the funds appropriated under HIPAA are, by law, set aside for Medicare and 
Medicaid activities of HHS/OIG.13  In FY 2013, the Secretary and the Attorney General jointly 
allotted $197 million to HHS/OIG.  Additionally, Congress appropriated $30 million in 
discretionary funding for HHS/OIG HCFAC activities.  Of these amounts, over $11 million was 
sequestered in FY 2013 and thus unavailable to OIG to fight fraud and abuse in Medicare and 
Medicaid.   
 
In FY 2013, HHS/OIG investigations resulted in 849 criminal actions against individuals or 
entities that engaged in crimes related to Medicare and Medicaid; and 458 civil actions, which 
include false claims and unjust-enrichment lawsuits filed in Federal district court, civil monetary 
penalties (CMP) settlements, and administrative recoveries related to provider self-disclosure 
matters.  In addition, during FY 2013, HHS/OIG excluded a total of 3,214 individuals and 
entities, the details of which are below. 
 
In FY 2013, HHS/OIG continued to staff and support Medicare Strike Force operations worked in 
conjunction with DOJ Criminal Divisions Fraud Section, local USAOs, the FBI, and State and 
local law enforcement agencies.  HHS/OIG has assigned agents to Strike Forces in Miami, New 
York City, Houston, Tampa, Detroit, Los Angeles, South Louisiana, Dallas, and Chicago.  
HHS/OIG has supported Strike Force operations by providing investigative, analytic, and forensic 
resources.  These Strike Forces have effectively investigated and prosecuted individuals and 
entities that do not provide legitimate health care services, but exist solely for the purpose of 
defrauding Medicare and other Government health care programs.  The continued support of 
Medicare Strike Force operations is a top priority for HHS/OIG.   
 
Program Savings 
 
Frequently, investigations, audits, and evaluations reveal vulnerabilities or incentives for 
questionable or fraudulent practices in agency programs or administrative processes.  As required 
by the Inspector General Act, HHS/OIG makes recommendations to agency managers to address 
these vulnerabilities.  In turn, agency managers recommend legislative proposals or other 
corrective actions that, when enacted or implemented, close loopholes and reduce improper 
payments or conduct.  The savings from these joint efforts toward program improvements can be 
substantial.  For FY 2013, potential savings from legislative and administrative actions that were 
                                                 
13  In addition to the funds made available to OIG from the HCFAC account under HIPAA, Congress has provided 
funds to OIG specifically for oversight of the Medicaid program.  The Deficit Reduction Act of 2005 (DRA, P.L. 
109-171), and the Supplemental Appropriations Act of 2008 (Pub. L. 110-252) at  7001(b) each appropriated 
funding for Medicaid-related oversight efforts.  Therefore, OIGs Medicaid activities cited throughout this report 
may have drawn from these funding sources, in addition to HCFAC. 
46 
  supported by HHS/OIG recommendations were estimated by third parties, such as the 
Congressional Budget Office or actuaries within HHS, to be $19.4 billion  $18.54 billion in 
Medicare savings and $834 million in savings to the Federal share of Medicaid.   
 
Additional information about savings achieved through such policy and procedural changes may 
be found in the HHS/OIG fall Semiannual Report to Congress, on-line at http://oig.hhs.gov. 
 
Exclusions 
 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in the abuse or neglect of patients or fraud 
from participation in Medicare, Medicaid, and other Federal health care programs.  During  
FY 2013, HHS/OIG excluded a total of 3,214 individuals and entities.  Among these were 
exclusions based on criminal convictions for crimes related to Medicare and Medicaid (1,132) or 
to other health care programs (311); for patient abuse or neglect (180); or as a result of licensure 
revocations (1,324).  This list of conduct is not meant to be exhaustive, but identifies the most 
prevalent causes underlying HHS/OIGs exclusions of individuals or entities in FY 2013.  
Exclusion actions by HHS/OIG included: 
 
  Florida  In February 2013, the owner and operator of a pain clinic, was excluded for a 
minimum period of 50 years based on his conviction for conspiracy to possess with intent to 
distribute oxycodone and oxymorphone and conspiracy to commit health care fraud.  From 
November 2007 to about September 2011, he owned and operated the pain clinic for the 
purpose of obtaining false prescriptions for these drugs for beneficiaries of the Medicare, 
Medicaid, and private insurance plans and he would offer inducements to beneficiary 
recruiters so they would bring beneficiaries to his pain clinic.  The court sentenced the 
owner/operator to more than 16 years of incarceration and ordered him to pay $15 million in 
restitution.   
 
  Pennsylvania  In January 2013, an osteopath was excluded for a minimum period of 20 years 
based on his drug trafficking conviction.  Between September 2000 and March 2010, the 
osteopath and others distributed controlled substance prescription diet drugs outside of 
professional practice.  This included more than 1.5 million doses of a substance that contained 
phendimetrazine and more than 2.5 million doses of a substance that contained phentermine.  
The court sentenced him to 2 years and 10 months of incarceration.  The Pennsylvania State 
Board of Osteopathic Medicine revoked his license to practice. 
 
  Kansas  In December 2012, a licensed practical nurse was excluded for a minimum period of 
10 years based on her conviction on charges of consumer product tampering and adulteration 
of a drug.  During the course of her employment, the nurse would steal morphine from a 
particular patient at the facility where she worked.  To conceal her behavior, she added tap 
water to the patients medication bottle and then placed the bottle back on the medication cart 
to dispense to the patient.  The court sentenced her to 3 years of incarceration.  In addition, the 
Kansas State Board of Nursing permanently revoked her license to practice nursing. 
 
47 
    Florida  In August 2013, a chiropractor, was excluded for a minimum period of 40 years 
based on his convictions for health care fraud, conspiracy to illegally distribute and dispense 
and cause to be distributed and dispensed schedule III and IV controlled substances, and 
aiding and abetting transactional money laundering.  The chiropractor billed and caused bills 
to be sent to Medicare, Medicaid, and private insurers for services that were rendered by him 
or his staff as though they were medical doctors.  In actuality, he used the name of a medical 
doctor to fraudulently bill for services that were never performed or provided by the medical 
doctor.  In addition, he used the names and DEA numbers of medical doctors to illegally 
prescribe controlled substances to patients with no legitimate doctor-patient relationship.  As a 
result of these crimes, the chiropractor was sentenced to 15 years and 8 months of 
incarceration and ordered to pay more than $2 million in restitution.  The Florida Board of 
Chiropractic Medicine ordered the voluntary relinquishment of his license to practice. 
 
  Louisiana  In August 2013, an individual who was the owner, manager, and technician of 
several medical clinics was excluded for a minimum period of 25 years based on his 
conviction.  The owner and his co-conspirators were involved in a scheme to defraud 
Medicare and Medicaid through fraudulent billing for diagnostic tests that were not medically 
necessary or not performed.  Based on this scheme, he was convicted on charges of 
conspiracy to commit health care fraud and conspiracy to commit money laundering and was 
sentenced to 4 years and 1 month of incarceration and ordered to pay more than $6 million in 
restitution, joint and several.  The owner was also excluded from participation in Medicaid by 
the Louisiana Department of Health and Hospitals. 
 
  Kentucky  In August 2013, a registered nurse was excluded for a minimum period of 20 
years based on her reckless homicide conviction.   The nurse entered the room of a patient 
with a cigarette lighter, which started a fire on the patients bedding.  Because he was in a 
complete vegetative state, the patient was unable to escape and he died as a result.  The court 
sentenced the nurse to 5 years of incarceration.  In addition, the Kentucky State Board of 
Nursing revoked her license to practice. 
 
  Florida  In August 2013, a medical doctor was excluded for a minimum period of 10 years 
based on his conviction for conspiracy to knowingly and willfully dispense and cause to be 
dispensed schedule IV controlled substances.  From about January 2004 to about February 
2008, the doctor conspired with others to dispense controlled substances that involved a 
mixture and substance containing methadone.  Investigators believe that the use of these 
substances resulted in one or more deaths.  The doctor was sentenced to 12 months of 
incarceration followed by 12 months of home detention. 
 
Other Administrative Enforcement Actions  Civil Monetary Penalties 
 
HHS/OIG has the authority to impose civil monetary penalties (CMPs) against providers and 
suppliers who knowingly submit false claims to the Federal government, who participate in 
unlawful patient referral or kickback schemes, who fail to appropriately treat or refer patients at 
hospital emergency rooms, or who engage in other activities prescribed in statute.  HHS/OIG has 
continued to pursue its affirmative enforcement actions under these authorities.  Examples 
48 
  include:   
 
  South Carolina  In January 2013, Heritage Medical Partners agreed to pay $170,260 to 
resolve allegations that, from April 2008 through December 2008, Heritage violated the CMP 
Law by requesting that its 5,474 patients who were Medicare beneficiaries pay a $50 
administrative fee.  Heritage told these Medicare beneficiaries that the Federal Government 
(Medicare) continue[s] to increase the amount of paperwork were required to fill out to 
assure you receive the benefits to which youre entitled and that Heritage instituted the fee as 
partial compensation for the time the physician and staff spend assuring [patients] receive 
prescription renewals quickly [and] maximum benefits from Medicare. . .  HHS/OIG alleged 
that a portion of the $50 constituted payment for Medicare services that are covered and 
reimbursed by Medicare and constituted a request for payment other than copayments or 
coinsurance, which violated Medicare assignment regulations.  Heritage agreed to return the 
money it collected to patients and pay a penalty to HHS/OIG.   
 
  Illinois  In November 2012, ForTec Medical, Inc.; ForTec Litho, LLC; ForTec Litho Florida, 
LLC; ForTec Litho Central, LLC; and ForTec Litho NY, LLC (collectively, ForTec), agreed to 
pay $126,249 to resolve their liability under the CMPL for offering remuneration in exchange 
for referrals.  From 2006 through 2011, ForTec allegedly provided customers, including 
physicians, with an all-expense paid trip to the Masters Golf Tournament in Augusta, Georgia.  
Invitations to these trips were extended to physicians based on their use of ForTecs products 
and services and the potential for additional business from those physicians.  
 
  New Mexico  In December 2012, University of New Mexico Hospital (UNMH) agreed to 
pay $30,000 to resolve its liability under the patient dumping statute.  UNMH allegedly failed 
to provide an adequate medical screening examination and failed to stabilize a suicidal patient 
when it did not prevent the suicidal patient from hanging himself in the hospital.  The patient 
came to the emergency room experiencing suicidal ideations and was placed in an observation 
room, but he was not provided a medical screening examination for 7 hours.  During this time, 
the patient used his shoelaces to hang himself from an air vent in the observation room.  The 
patient was found still alive by a security employee.  UNMH then treated and admitted the 
patient.  UNMH self-reported the incident to the State.  
 
  Illinois  In October 2012, University of Chicago Medical Center (UCMC) agreed to pay 
$50,000 to resolve its liability under the patient dumping statute.  UCMC allegedly failed to 
provide appropriate medical screening and stabilizing treatment within its capabilities to a 
male patient who arrived at their emergency department complaining of severe jaw pain as a 
result of a physical assault. The results of a CT scan taken by UCMC revealed injuries that he 
needed corrective surgery.  However, UCMC did not provide further treatment and discharged 
the patient with instructions to go to another hospital for further care.    
 
  Massachusetts  In May 2013, Trustees of Tufts College and Tufts University School of 
Dental Medicine (TUSDM) agreed to pay $841,120 for allegedly violating the CMP Law.  
TUSDM submitted claims to Medicare for various services from four of their clinics.  
However, HHS/OIG alleged that these claims were improper because the services were 
49 
  provided by dentists who were not credentialed by Medicare or the services were not 
supported by sufficient medical record documentation. 
 
  Georgia  In May 2013, C.F. Health Management, Inc., d/b/a Gainesville Pain Management 
(GPM), and its physician agreed to pay $1.5 million for allegedly violating the Civil Monetary 
Penalties Law.  HHS/OIG alleged that GPM submitted false or fraudulent claims by:  (1) 
inappropriately using certain modifiers to submit claims for payment for multiple units when 
only a single unit may be billed per patient encounter, and (2) inappropriately billing for 
certain services when less expensive services were actually provided. 
 
  Pennsylvania  In July 2013, Bravo Health Pennsylvania, Inc. (Bravo), agreed to pay 
$225,000 to resolve its liability under the CMP provisions applicable to a Medicare 
Advantage organization.  HHS/OIG alleged that patient medical records Bravo provided to 
HHS/OIG were intentionally altered prior to their submission or resubmission.  Specifically, 
Bravo allegedly added apparent diagnoses notations or signatures to the patient medical 
records. 
 
Audits and Evaluations 
 
Every year, HHS/OIG conducts a substantial number audits and evaluations that disclose 
questionable or improper conduct in Medicare and Medicaid, and recommends corrective actions 
that, when implemented, return misspent funds and prevent future wasteful or improper payments.  
Among those completed in FY 2013 were:  
 
Preventing and Detecting Medicaid Fraud 
 
Medicaid Fraud Control Units (MFCU) are key partners in the fight against fraud, waste, and 
abuse in State Medicaid programs.  HHS/OIG is responsible for overseeing MFCUs activities.  
As part of this oversight, HHS/OIG conducts periodic reviews of all Units and prepares public 
reports based on these reviews.   
 
  HHS/OIG found that from FYs 2009 to 2011, the New Hampshire Unit reported recoveries of 
$14 million, filed criminal charges against 25 defendants, and obtained 15 convictions.  The 
overall number of cases opened and closed by the Unit decreased.  The Unit attributed the 
overall decrease primarily to staffing limitations; for all 3 years, the Units staffing levels 
were below the number of staff that the Unit requested and HHS/OIG approved.  
Additionally, although the Unit reported that its best source of fraud referrals was the States 
Surveillance and Utilization Review Subsystem (SURS), the Unit noted that the number of 
referrals from SURS was low.  HHS/OIG recommended that the New Hampshire Unit seek to 
expand staff sizes to reflect the number of staff approved in the Units budget, ensure that it 
maintains an adequate workload through referrals from SURS, ensure that case files contain 
documented supervisory reviews, and establish annual training plans for each professional 
discipline. 
 
50 
    HHS/OIG found that from FYs 2009 through 2011, the Louisiana Unit reported recoveries of 
$95 million, obtained 192 convictions and 86 civil judgments or settlements, and received 
1,043 referrals.  Provider fraud referrals to the Unit increased, and the Unit received patient 
abuse and neglect referrals from a variety of sources.  In addition, HHS/OIG found that the 
Unit had not updated its memorandum of understanding (MOU) with the Louisiana 
Department of Health and Hospitals (DHH) to reflect current law and practice.  HHS/OIG 
recommended, among other things, that the Louisiana Unit revise its MOU with DHH to 
reflect current law and practice. 
 
  HHS/OIGs analysis of collected data from FYs 2008 through 2010 shows that the South 
Carolina Units caseload increased by 65 percent and that the amount of funds the Unit 
recovered nearly doubled, from $15.3 million in FY 2008 to $30.3 million in FY 2010.  In 
addition, HHS/OIG found that the Unit did not report program income properly in FY 2010.  
HHS/OIG recommended, among other things, that the Unit ensure that program income is 
reported properly. 
 
Medicaid Payments to Excluded Providers 
 
  HHS/OIG found that California made unallowable Medicaid payments of $1.9 million  
($1.2 million Federal share) for items and services furnished, ordered, or prescribed by 
excluded providers.  Although the amount of unallowable payments is small when compared 
with the $31.5 billion in claims paid by the State agency, no Medicaid payments may be made 
for items or services furnished, ordered, or prescribed by excluded providers.  In addition, 
HHS/OIG set aside for resolution by CMS $1.1 million ($699,000 Federal share) paid by the 
State for additional items or services that may have been furnished, ordered, or prescribed by 
providers whose exclusion status could not be verified.  HHS/OIG recommended, among 
other things, that California refund $1.2 million to the Federal Government for unallowable 
Medicaid payments and work with CMS to resolve the $699,000 set aside. 
 
Medicaid Data for Program Integrity 
 
  HHS/OIG conducted a review to determine the status of national Transformed Medicaid 
Statistical Information System (T-MSIS) implementation. T-MSIS is designed to be a detailed 
national database of Medicaid and Childrens Health Insurance Program information to cover 
a broad range of user needs, including program integrity.  HHS/OIG found that overall, as of 
January 2013, CMS and the 12 volunteer States had made some progress in implementing T-
MSIS.  However, most other States had not started implementing T-MSIS, and they reported 
varied timeframes for when they plan to begin.  Further, early T-MSIS implementation 
outcomes raised questions about the completeness and accuracy of T-MSIS data upon national 
implementation.  HHS/OIG recommended that CMS establish a deadline for when national T-
MSIS data will be available; ensure that States submit required T-MSIS data; and ensure that 
T-MSIS data are complete, accurate, and timely upon T-MSIS implementation.  
 
 
 
51 
  Medicaid Disproportionate Share Hospital Payments 
 
  HHS/OIG found that New Jersey claimed Disproportionate Share Hospital (DSH) payments 
of about $100 million ($50 million Federal share) for five hospitals that did not meet Federal 
requirements for DSH payments during our audit period. Specifically, for the five hospitals, 
New Jersey calculated a Medicaid Inpatient Utilization Rate (MIUR) of less than 1 percent 
during one or more State fiscal years but claimed DSH payments for the hospitals because it 
misinterpreted Federal regulations on DSH eligibility. Under the Medicaid DSH program, a 
State is required to make DSH payments to hospitals that serve a disproportionate share of 
low-income and/or uninsured patients.  For a hospital to receive DSH payments, the State 
must classify the hospital as a DSH. A State may not define or deem a hospital as a DSH 
unless the hospital has a MIUR of not less than 1 percent.  HHS/OIG recommended that New 
Jersey refund $50 million to the Federal Government and ensure that all hospitals designated 
as DSHs meet Federal eligibility requirements for DSH payments. 
 
Medicaid Inpatient Psychiatric Services 
 
  HHS/OIG found that Indiana claimed Federal reimbursement for Medicaid inpatient 
psychiatric service payments made to Logansport State Hospital (Logansport) that were not in 
accordance with Federal requirements for inpatient psychiatric hospital services.  For States to 
claim Federal reimbursement for such payments, the hospitals inpatient services must 
demonstrate compliance with the basic Medicare Conditions of Participation (CoPs) generally 
applicable to all hospitals and two special Medicare CoPs applicable to psychiatric hospitals.  
Logansport did not demonstrate compliance with the special Medicare CoPs at any time 
during the audit period.  Therefore, none of the Federal reimbursement for Medicaid inpatient 
psychiatric service payments made to Logansport for claims with dates of service during the 
audit period was allowable.  HHS/OIG recommended, among other things, that Indiana refund 
$5.8 million to the Federal Government. 
 
Medicaid Payments for Personal Care Services 
 
  HHS/OIGs first OIG Portfolio synthesized an array of audit and evaluation work addressing 
improper payments for personal care services (PCS).  Eligible beneficiaries can receive PCS 
under Medicaid State plan options or waivers.  PCS must be provided at home or another 
approved location, must follow a specific plan of care, and are typically performed by care 
attendants.  In the past 6 years, Medicaid costs for such services increased by 35 percent, 
totaling approximately $12.7 billion in 2011.  In the same period, HHS/OIG issued 23 reports 
on PCS and conducted numerous investigations involving related fraud.  Based on this global 
look at the body of HHS/OIG work on PCS, HHS/OIG recommended, among other things, 
that CMS issue guidance to States regarding adequate prepayment controls and provide States 
with the data they need to identify overpayments. 
 
 
 
 
52 
  Medicaid Home Health Services 
 
  HHS/OIG found that New York claimed Federal Medicaid reimbursement for home health 
services claims submitted by Certified Home Health Agencies (CHHAs) in New York City 
that were not in accordance with Federal and State requirements. Specifically, for 17 claims, 
the plan of care was not reviewed every 60 days, and for 1 claim, the provider was unable to 
document that the service was provided.  Pursuant to Federal regulations, home health 
services are provided to a beneficiary at the beneficiarys place of residence and on his or her 
physicians orders as part of a written plan of care that the physician reviews every 60 days.  
On the basis of our sample results, HHS/OIG estimated that the State improperly claimed 
$69.1 million in Federal Medicaid reimbursement during our January 1, 2007, through 
December 31, 2009, audit period.  HHS/OIG recommended that New York should refund 
$69.1 million to the Federal Government and issue guidance to CHHAs in New York City on 
Federal and State requirements for physicians orders and plans of care. 
 
Medicaid Family-Based Treatment Rehabilitation Services 
 
  HHS/OIG found that New York improperly claimed a Federal share of family-based treatment 
(FBT) rehabilitation services that did not meet Federal and State requirements. FBT 
rehabilitation services include training and assistance with daily living skills, medication 
management, socialization, counseling, family support, and health services.  Of the 100 claims 
in our random sample, 84 did not comply and 58 contained more than 1 deficiency.  These 
deficiencies occurred because providers did not fully comply with State regulations, 
authorizing physicians were not familiar with applicable State regulations and program 
requirements, and the State did not adequately monitor the program.  HHS/OIG 
recommended, among other things, that New York should refund $27.5 million to the Federal 
Government. 
 
Medicaid Family Planning Services 
 
The Federal Government pays its share of a States medical assistance expenditures under 
Medicaid on the basis of the Federal medical assistance percentage, which varies depending on 
the State's relative per capita income.  Family planning services are reimbursed at an enhanced 
90-percent rate.  Family planning services are those that prevent or delay pregnancy or otherwise 
control family size.  Following are the results of family planning services reviews in Arkansas 
and California. 
 
  HHS/OIG found that Arkansas claimed expenditures that did not qualify for the 90-percent 
rate for family planning.  The expenditures exceeded limits specified in the States infant 
delivery allocation methodology and resulted from errors in compiling the family planning 
expenditures and from errors in the computer programming used to identify infant delivery 
costs.  HHS/OIG recommended, among other things, that Arkansas refund to the Federal 
Government $1.9 million in family planning Federal share and work with CMS to determine 
the allowable portion of $929,000 in family planning Federal share that it received for 
allocated sterilization costs. 
53 
   
  HHS/OIG found that California did not always comply with Federal and State requirements 
when claiming Federal reimbursement at the 90-percent rate for family planning services.  
The rate was unallowable because the primary purpose of the visits was not family planning, 
the visits were for follow-up properly reimbursed at the regular rate, or the supporting 
documentation was insufficient.  HHS/OIG also found claims that contained either no 
procedure code or a procedure code that was not approved by CMS for reimbursement at the 
90-percent rate.  HHS/OIG recommended, among other things, that California refund  
$5.7 million to the Federal Government. 
 
Medicaid School-Based Services 
 
  HHS/OIG found that New Hampshire did not always claim Federal Medicaid reimbursement 
for school-based transportation services submitted by schools in accordance with Federal and 
State requirements during calendar years 2006 through 2009.  Of the 115 items in a random 
sample, 78 items had 1 or more transportation services that were not reimbursable.  The 
deficiencies occurred because New Hampshire issued incorrect guidance to the school 
administrative units (SAUs).  In addition, the State did not adequately monitor the claims for 
Medicaid school-based transportation services submitted by SAUs.  HHS/OIG recommended, 
among other things, that the State refund an estimated $2.7 million to the Federal 
Government. 
 
  HHS/OIG found that Arizona did not always maintain required documentation to support the 
random moment time study (RMTS) methodology used to allocate school-based 
administrative costs to Medicaid and the RMTS methodology was not fully consistent with 
Federal requirements.  Federal law provides for States to be reimbursed at a 50 percent 
matching rate for administrative activities that directly support identifying and enrolling 
potentially eligible children in Medicaid.  HHS/OIG recommended, among other things, that 
the State refund to the Federal Government $11.7 million for unallowable school-based 
administrative costs and work with CMS to determine the allowability of $18.8 million that 
we set aside for further analysis. 
 
Medicaid Overpayments 
 
  HHS/OIG found that as of December 2012, CMS reported collecting $987.5 million of the 
$1.2 billion in Medicaid overpayments that it had sustained in the 147 audit reports issued by 
OIG between fiscal years 2000 and 2009.  However, CMS had not collected the remaining 
$225.6 million.  The uncollected amount related to overpayments that OIG had identified in 
10 audit reports that the States had not agreed to refund.  In addition, CMS could not 
document that $7.2 million that it reported as collected had been collected.  HHS/OIG 
recommended, among other things, that CMS collect the remaining $225.6 million that is due 
to the Federal government. 
 
 
 
54 
  Detecting Fraud in Medicare 
 
  HHS/OIG found deficiencies in CMSs and its contractors ability to identify and respond to 
potential fraud by home health agencies.  The two CMS Medicare Administrative Contractors 
(MACs) in this review prevented $275 million in HHA improper payments and referred 
several instances of potential fraud, but the four Zone Program Integrity Contractors (ZPICs) 
we reviewed did not identify any HHA-specific vulnerabilities and varied substantially in 
their efforts to detect and deter fraud.  Two of the ZPICs recommended administrative actions 
and referred law enforcement cases for approximately eight times the number of HHAs as the 
other two. All four ZPICs served fraud-prone geographic areas.  In addition, Medicare 
inappropriately paid five HHAs with suspended or revoked billing privileges.  HHS/OIG 
recommended, among other things, that CMS establish additional contractor performance 
standards for high-risk providers in fraud-prone areas (including newly enrolled HHAs). 
 
  One of nine MACs reviewed by HHS/OIG performed activities to detect and deter fraud by 
community mental health centers in 2010, and most of the activities were part of a CMS-led 
special project.  Activities to detect and deter CMHC fraud varied substantially among ZPICs 
in 2010; one ZPIC performed almost all such activities, most of which were part of the same 
CMS-led special project.  Other MACs and ZPICs performed minimal activities to detect and 
deter fraudulent CMHC billing, despite having jurisdiction over fraud-prone areas.  Also, 
Medicare paid CMHCs that did not comply with its requirements after their revocations were 
effective and while their revocations were being approved.  HHS/OIG recommended, among 
other things, that CMS implement additional CMHC fraud mitigation activities in all fraud-
prone areas. 
 
  CMS developed a Fraud Prevention System which uses predictive analytics to provide leads 
to its benefit integrity contractors for investigation.  HHS/OIG found that in the first year of 
implementation, HHS did not fully meet the requirements for reporting actual and projected 
improper payments recovered and avoided in the Medicare fee-for-service program and 
reporting HHSs return on investment related to its use of such technologies.  HHS did not 
report some of the amounts required by statute and had inconsistencies in its data; in addition, 
its methodology for calculating other reported amounts included some invalid assumptions 
that may have affected the accuracy of those amounts.  HHS/OIGs  recommendations 
included that  HHS should require contractors to track recoveries that result from Fraud 
Prevention System leads and that HHS revise its methodologies to calculate projected savings 
and costs avoided. 
 
  Recovery Audit Contractors (RAC) are designed to protect Medicare by identifying improper 
payments and referring potential fraud to CMS.  HHS/OIG found that in FYs 2010 and 2011, 
RACs identified half of all claims they reviewed as having resulted in improper payments 
totaling $1.3 billion.  CMS took corrective actions to address the majority of vulnerabilities it 
identified in FYs 2010 and 2011; however, it did not evaluate the effectiveness of these 
actions. As a result, high amounts of improper payments may continue.  Additionally, CMS 
did not take action to address the six referrals of potential fraud that it received from RACs. 
Finally, CMSs performance evaluations did not include metrics to evaluate RACs 
55 
  performance on all contract requirements.  HHS/OIG recommended, among other things, that 
CMS take action, as appropriate, on vulnerabilities that are pending corrective action and 
evaluate the effectiveness of implemented corrective actions and ensure that RACs refer all 
appropriate cases of potential fraud. 
 
Theft of Medicare Identities 
 
  HHS/OIGs review of CMSs response to known breaches of protected health information and 
to medical identity theft involving Medicare identification numbers revealed opportunities for 
improvement.  Although CMS notified Medicare beneficiaries affected by known breaches, 
HHS/OIG found that several requirements were not met.  CMS has made progress in 
responding to medical identity theft by developing a compromised number database for 
contractors, but the databases usefulness could be improved.  Further, Medicares contractors 
do not consistently develop edits to stop payments on compromised numbers.  HHS/OIG 
recommended, among other things, that CMS ensure that breach notifications meet statutory 
requirements, and improve the compromised number database. 
 
Part C and Part D Program Integrity Activities 
 
  HHS/OIGs review of the Medicare Drug Integrity Contractor (MEDIC) that has 
responsibility for preventing fraud, waste, and abuse in both Medicare Part C and Part D 
revealed that its Part C investigations and case referrals represented only a small percentage of 
its benefit integrity activities.  HHS/OIG identified several problems hindering the MEDICs 
ability to identify and investigate fraud and abuse in Part C and Part D.  HHS/OIG 
recommendations included that CMS amend its regulations to require Part C and Part D plan 
sponsors to refer potential fraud and abuse incidents to the MEDIC and authorize the MEDIC 
to directly obtain information from entities such as pharmacies, physicians, and pharmacy 
benefit managers.  
 
Payments for Individuals Ineligible for Medicare 
 
HHS/OIG audited Medicare payments made for patients who were not lawfully present in the 
United States or were incarcerated.  Unlawful presence occurs when a non-U.S. citizen remains in 
the United States longer than the time authorized by U.S immigration agencies.  Incarcerated 
patients are people who are under arrest, are imprisoned, reside in a halfway house, or are 
required to live under home detention.  Medicare does not make payments for the care of 
unlawfully present patients and generally does not pay for incarcerated patients. 
 
  HHS/OIG found that CMSs controls were not adequate to ensure that all improper payments 
for services to unlawfully present beneficiaries were detected and recouped.  Also, when CMS 
received untimely information indicating that the unlawful presence overlapped with the dates 
of service on previously paid Medicare claims, CMS did not notify Medicares contractors of 
this updated information.  HHS/OIG recommended, among other things, that CMS ensure that 
Medicare contractors recoup the $91.6 million in improper payments and that CMS 
implement administrative policies and procedures to detect and recoup improper payments 
56 
  made for Medicare services when information relating to the unlawful presence is received on 
previously paid Medicare claims. 
 
  HHS/OIG found that CMSs controls were not adequate to ensure that all improper payments 
for services to incarcerated beneficiaries were detected and recouped and that CMS does not 
always receive timely updates regarding incarceration information before Medicare 
contractors pay providers on behalf of incarcerated beneficiaries.  In addition, when CMSs 
data systems did not indicate until after a claim had been processed that a beneficiary was 
incarcerated; CMSs controls were not adequate to identify and recoup the improper 
payments.  HHS/OIG recommended that CMS ensure that Medicare contractors recoup the 
$33.6 million in improper payments and that CMS implement administrative policies and 
procedures to detect and recoup improper payments when incarceration information is 
received on previously paid Medicare claims. 
 
Medicare Payment for Cancelled Surgeries 
 
  HHS/OIG estimated that, on the basis of sample results, Medicare made $38.2 million in Part 
A inpatient hospital payments in calendar years 2009 and 2010 for short-stay, canceled 
elective surgery admissions that were not reasonable and necessary.  For 80 of the 100 claims 
in the sample, Medicare made payments totaling $346,000 for hospital inpatient claims 
involving canceled elective surgeries when a clinical condition did not exist on admission or a 
new condition did not emerge after admission that required inpatient care.  Therefore, these 
inpatient claims did not satisfy Medicares requirements that the admissions be reasonable and 
necessary.  HHS/OIGs recommendations included that CMS adjust the 80 sampled claims 
representing overpayments of $346,000 to the extent allowed under the law and strengthen 
guidance to better explain the Medicare rule that a clinical condition requiring inpatient care 
must exist for hospitals to bill for Part A prospective payments for elective surgeries that were 
canceled. 
 
Medicare Medical Equipment and Supplies 
 
  HHS/OIG found that two years after the surety bond requirement for medical equipment 
suppliers was implemented, CMS did not have accurate surety bond information for all 
suppliers.  Information for thousands of bonded suppliers was missing, and surety bond 
amounts were not consistently maintained by supplier location.  CMS can only collect 
$50,000 per bonded supplier, so it is unlikely going to be able to reconcile surety bond 
collections with the tens of millions of dollars in overpayments owed by suppliers.  HHS/OIG 
recommended, among other things, that CMS improve oversight of supplier data to ensure 
accurate and consistent information and immediately begin using the surety bond requirement 
to recover outstanding overpayments. 
 
Medicare Payments for Drugs 
 
  Herceptin (Trastuzumab) is a Medicare-covered drug used to treat breast cancer that has 
spread to other parts of the body.  HHS/OIG conducted six reviews of Medicare contractors 
57 
  payments for Herceptin and identified improper payments.  HHS/OIG found that providers 
reported incorrect units of service on line items with unit counts that represented full multiuse 
vials, did not provide supporting documentation, billed for unallowable services, and reported 
a combination of incorrect units of service and incorrectly coded claims.  The Medicare 
contractors made these incorrect payments because neither the Fiscal Intermediary Standard 
System nor the Common Working File had sufficient edits in place during our audit period to 
prevent or detect the overpayments.  HHS/OIG recommended that the responsible Medicare 
contractors recover the identified overpayments, implement or update system edits that 
identify for review multiuse-vial drugs that are billed with units of service equivalent to the 
dosage on an entire vial(s), and use the results of the audits in provider education activities. 
 
Medicare Skilled Nursing Facilities 
 
Skilled nursing facilities (SNFs) are nursing homes that provide skilled care to Medicare patients. 
SNFs are required to evaluate each patients needs and develop a care plan specifically for that 
patient. Care plans identify problems and set specific treatment goals. 
 
  HHS/OIG found that Medicare paid approximately $5.1 billion for stays in which SNFs did 
not meet quality-of-care requirements.  In addition, HHS/OIG found that for 37 percent of 
stays, SNFs did not develop care plans that met requirements or did not provide services in 
accordance with care plans.  For 31 percent of stays, SNFs did not meet discharge planning 
requirements.  Additionally, reviewers found examples of poor quality care related to wound 
care, medication management, and therapy.  HHS/OIG recommended, among other things, 
that CMS strengthen its regulations on care planning and discharge planning. 
 
  HHS/OIG found that SNFs misreported information to Medicare; as a result, inappropriate 
payments were made.  In addition, SNFs billed one-quarter of claims in error in 2009; the 
incorrect claims resulted in about $1.5 billion in inappropriate Medicare payments.  For 47 
percent of claims, SNFs misreported information on the Minimum Data Set (MDS), the 
system used to classify beneficiaries into resource utilization groups (RUGs) for payment.  
Some SNFs incorrectly reported items such as therapy and activities of daily living, thereby 
placing beneficiaries into higher paying RUGs.  HHS/OIG recommended, among other things, 
that CMS change the current methodology for determining how much therapy is needed to 
ensure appropriate payments. 
 
Medicare Incentive Payments for Electronic Health Records 
 
  To qualify for Medicare incentive payments for the use of electronic health records (EHRs), 
professionals and hospitals must possess certified EHR technology and meaningfully use that 
certified EHR technology in accordance with requirements defined by CMS.  Professionals 
and hospitals self-report data to demonstrate that they meet program requirements.  HHS/OIG 
found that CMS does not verify the accuracy of professionals and hospitals self-reported 
information prior to payment because data necessary for verifications are not readily 
available. CMS also does not direct high-risk professionals and hospitals to submit supporting 
documentation for prepayment review.  HHS/OIG recommended, among other things, that 
58 
  CMS obtain and review supporting documentation from selected professionals and hospitals 
before payment to verify the accuracy of their self-reported information. 
 
Medicare Part C Capitation Payments 
 
Under the Medicare Advantage (MA) program, CMS makes monthly capitated payments to MA 
organizations for beneficiaries enrolled in the organizations health care plans.  These payments 
are adjusted on the basis of the health status of each beneficiary.  CMS uses a model to calculate 
these risk-adjusted payments.  Under this model, MA organizations collect risk adjustment data, 
including beneficiary diagnoses, from hospitals and other providers.  CMS uses the diagnosis data 
to calculate a risk score for each beneficiary, which is in turn used to adjust the monthly capitated 
payments to MA organizations.  HHS/OIG conducted two audits to determine the accuracy of 
MA organizations calculation of risk scores. 
 
  HHS/OIG found that for CY 2007 Bravo Health Pennsylvania, Inc.s, submissions of 
diagnoses did not always comply with Federal requirements.  The risk scores calculated using 
the diagnoses that Bravo submitted for 35 of the 100 beneficiaries in the sample were valid.  
However, the risk scores for the remaining 65 beneficiaries were invalid because the 
diagnoses were not supported by adequate documentation.  As a result, Bravo received 
$422,409 in overpayments from CMS.  On the basis of these sample results, HHS/OIG 
estimated that Bravo was overpaid approximately $22.1 million in CY 2007.  HHS/OIG 
recommended, among other things, that Bravo refund to the Federal Government $422,409 in 
overpayments identified for the sampled beneficiaries and that Bravo work with CMS to 
determine the correct contract-level adjustment for the projected $22.1 million of projected 
overpayments. 
 
  HHS/OIG found that for CY 2007 CIGNA Healthcare of Arizona, Inc.s, submissions of 
diagnoses did not always comply with Federal requirements.  For 60 of the 100 beneficiaries 
in our sample, the risk scores calculated using the diagnoses that CIGNA submitted were 
valid.  The risk scores for the remaining 40 beneficiaries were invalid because the diagnoses 
were not supported by adequate documentation.  As a result, CIGNA received $151,453 in 
overpayments from CMS.  Based on these sample results, HHS/OIG estimated that CIGNA 
received approximately $28.4 million in additional overpayments for CY 2007.  HHS/OIG 
recommended, among other things, that CIGNA  refund to the Federal Government $151,453 
in overpayments identified for the sampled beneficiaries and that Bravo work with CMS to 
determine the correct contract-level adjustment for the projected $28.4 million of projected 
overpayments. 
 
Medicare Part D Drugs 
 
  HHS/OIG found that over 1 million individual prescribers ordered drugs paid by Part D in 
2009.  Prescribing patterns varied widely by specialty.  Over 700 general-care physicians had 
questionable prescribing patterns.  Each of these physicians prescribed extremely high 
amounts for at least one of five measures.  For example, many of these physicians prescribed 
extremely high numbers of prescriptions per beneficiary, which may indicate that these 
59 
  prescriptions are medically unnecessary.  Moreover, more than half of the 736 general-care 
physicians with questionable prescribing patterns ordered extremely high percentages of 
Schedule II or III drugs, which have potential for addiction and abuse.  Although some of this 
prescribing may be appropriate, such questionable patterns warrant further scrutiny.  
HHS/OIG recommended that CMS instruct the MEDIC to expand its analysis of prescribers, 
provide sponsors with additional guidance on monitoring prescribing patterns, provide 
education and training for prescribers, and follow up on prescribers with questionable 
prescribing patterns. 
 
  HHS/OIG found that nationwide, Part D inappropriately paid for drugs ordered by individuals 
who clearly did not have the authority to prescribe, such as massage therapists, athletic 
trainers, home contractors, interpreters, and transportation companies.  This raises concerns 
about the appropriateness of Part D payments and about patient safety.  In 10 States, Part D 
also inappropriately paid for drugs ordered by other individuals without the authority to 
prescribe, such as counselors, social workers, and chiropractors.  Tens of thousands of these 
drugs were controlled substances.  These drugs are of particular concern because they have 
potential for abuse.  HHS/OIG recommended that CMS require sponsors to verify that 
prescribers have the authority to prescribe drugs, increase the MEDICSs monitoring of 
prescribers, ensure that Medicare does not pay for prescriptions from individuals without 
prescribing authority, and follow up on the individuals without prescribing authority who 
ordered prescriptions. 
 
Other Fraud and Abuse Prevention Activities 
 
HHS/OIGs HEAT Provider Compliance Training initiative (HEAT PCT), launched in 2011, 
provided free, high-quality compliance training for providers, compliance professionals, and 
attorneys in Strike Force cities and elsewhere, and online.  Following six live presentations in 
FY 2011, HHS/OIG made available online the comprehensive training materials it developed to 
accompany HEAT PCT, together with sixteen video modules dividing the presentation by subject 
area.  HEAT PCT continues to reach the health care community with HHS/OIGs message of 
compliance and prevention via these online offerings, which in FY 2012 expanded to include a 
series of twelve free, downloadable video and audio podcasts that summarize a range of 
compliance topics. 
 
HCFAC funding also supported HHS/OIGs continued enhancement of data analysis and mining 
capabilities for detecting health care fraud, including tools that allow for complex data 
analysis.  OIG continues to use data mining, predictive analytics, trend evaluation, and modeling 
approaches to better analyze and target the oversight of HHS programs.  Analysis teams use near-
time data to examine Medicare claims for known fraud patterns, identify suspected fraud trends, 
and to calculate ratios of allowed services as compared with national averages, as well as other 
assessments.  When united with the expertise of OIG agents, auditors, and evaluators, as well as 
our HEAT partners, HHS/OIGs data analysis fosters a highly effective combination of 
technologies and traditional skills to the fight against fraud, waste, and abuse.  
 
 
60 
  Industry Outreach and Guidance 
 
Advisory Opinions   
 
Central to the HIPAA guidance initiatives is an advisory opinion process through which parties 
may obtain binding legal guidance as to whether their existing or proposed health care business 
transactions run afoul of the AKS, the CMP laws, or the exclusion provisions.  During FY 2013, 
the HHS/OIG, in consultation with DOJ, issued 23 advisory opinions, including two 
modifications of advisory opinions.  A total of 299 advisory opinions have been issued during the 
17 years of the HCFAC program. 
 
Corporate and Other Integrity Agreements   
 
Many health care providers that enter agreements with the government to settle potential 
liabilities for violations of the FCA also agree to adhere to a separate CIA, Integrity Agreement, 
or other similar agreement.  Under these agreements, the provider or supplier commits to 
establishing a program or taking other specified steps to ensure its future compliance with 
Medicare and Medicaid rules.  At the close of FY 2013, HHS/OIG was monitoring compliance 
with 201 such agreements. 
 
Centers for Medicare & Medicaid Services 
 
In FY 2013, CMS was allocated approximately $12.5 million by HHS, and appropriated  
$237.3 million in discretionary funds by Congress to support its comprehensive program integrity 
strategy for Medicare, Medicaid and the Childrens Health Insurance Program (CHIP).  With 
these funds, CMS is working to ensure that public funds are not diverted from their intended 
purpose:  to make accurate payments to legitimate entities for allowable services or activities on 
behalf of eligible beneficiaries of federal health care programs.  CMS also performs many 
program integrity activities that are beyond the scope of this report because they are not funded 
directly by the HCFAC Account or discretionary HCFAC funding.  Medicare Fee-for-Service 
error rate measurement and activities, and Recovery Audit activities are discussed in separate 
reports, and CMS will submit a combined Medicare and Medicaid Integrity Program report to 
Congress later this year.   
 
Our approach is guided by four major principles that support the strategic goal of improving 
program integrity: 
 
1.  Prevention 
2.  Detection 
3.  Transparency and Accountability 
4.  Recovery 
 
 
 
 
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  1.   Prevention 
Moratoria 
 
Building on strong anti-fraud efforts already underway in the home health provider and 
ambulance supplier arenas, CMS in July 2013 announced the first use of its temporary moratoria 
authority granted by the Affordable Care Act.  The moratoria stops the enrollment of new home 
health and ambulance enrollments in Medicare, Medicaid and the Childrens Health Insurance 
Program (CHIP) in three fraud hot spot areas of the country with demonstrated oversupply of 
certain types of providers.  The temporary enrollment moratoria apply to newly-enrolling home 
health agencies in the Miami and Chicago metropolitan areas; and newly-enrolling ground 
ambulance companies in the Houston metropolitan area.  
 
The goal of the temporary moratoria is to fight fraud and safeguard taxpayer dollars, while 
ensuring patient access to care. Under the moratoria, existing providers and suppliers can continue 
to deliver and bill for services, but no new provider and supplier applications will be approved in 
these areas, allowing CMS and its law enforcement partners to remove bad actors from the 
program while blocking provider entry or re-entry into these already over-supplied 
markets.  CMS is required to re-evaluate the need for such moratoria every six months. 
One Program Integrity 
 
In FY 2013, CMS continued making improvements and changes to One Program Integrity (One 
PI), CMS centralized portal that provides CMS contractors and law enforcement with a single 
access point to Medicare data as well as analytic tools to review the data. CMS moved from an 
integration contractor to a system support contractor while continuing to enhance the existing 
analytic tools.  One PI improves CMS ability to detect fraud, waste, and abuse with consistent, 
reliable, and timely analytics. 
 
One PI users have access to the CMS Integrated Data Repository (IDR) to perform data analytics. 
The IDR contains a comprehensive and accurate set of Medicare provider, beneficiary and claims 
data from Medicare Parts A, B, and D back to January 2006.  The IDR includes claims data at 
three distinct points in the claim life-cycle: at the time the claims are enumerated, the time claims 
are adjudicated, and at the time the claims have payment data posted.  This access allows users to 
perform pre-payment analytics on historical data and develop models that can be applied in CMS 
predictive analytics system, the Fraud Prevention System. With claims available from 2006, 
ZPICs will also be able to improve their analytics for post-payment detection of fraud, waste, and 
abuse. 
In order to streamline access for our law enforcement partners, CMS is transitioning STARS, a 
healthcare fraud, waste, and abuse analytics tool to the One PI suite tools in 2013.  The One PI 
team is also replacing on-site instructor led training with virtual instructor led training to reduce 
training costs and provide better access to training for law enforcement 
Next Generation Desktop 
 
The Next Generation Desktop (NGD) was developed to provide single access point that interacts 
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  with all Medicare claims processing systems and multiple other government data sources.  NGD 
has been adapted for law enforcement purposes, providing investigators the ability to examine all 
claims associated with a specific provider tax ID or a Medicare beneficiary.  CMS implemented 
enhancements to the Next Generation Desktop in September 2012.  These enhancements are a 
result of collaboration between CMS, National Government Services (NGS), the NGD contractor, 
and Medicare Administrative Contractor (MAC), with specific requests from law enforcement for 
enhanced views of provider data.  CMS and NGS developed tailored training material for law 
enforcement partners and have conducted several 3-day training sessions in FY 2013.  CMS 
trained 100 individuals in FY 2013.  
Compromised Number Checklist 
 
Since January 2010, CMS has maintained a national database of compromised Medicare 
beneficiary and provider ID numbers called the Compromised Number Checklist (CNC). This 
database is populated by monthly submissions from CMS program integrity contractors.  The 
purpose of the CNC is to share compromised ID numbers and any associated corrective actions 
that have been taken among CMS staff and contractors.  CMS uses this national CNC database to 
enhance efforts to detect and prevent fraud and abuse in Medicare.   
 
The compromised numbers list is updated on an ongoing, real-time basis by the PSCs/ZPICs and 
MEDIC. 
The Command Center 
 
CMS opened its state-of-the-art Command Center on July 31, 2012 to facilitate improvements in 
health care fraud detection and investigation, drive innovation, and help reduce fraud and 
improper payments in the Medicare and Medicaid programs.  The Command Center provides 
advanced technologies and collaborative environment for a multi-disciplinary team of experts and 
decision makers to more efficiently coordinate policies and case actions, reduce duplication of 
efforts, and streamline fraud investigations for more immediate administrative action.   
 
CMS is using the Command Center to collaborate in unprecedented ways with the private sector, 
law enforcement, and our State partners. The Command Centers advanced technologies and 
collaborative environment allow multi-disciplinary teams of experts and decision makers to more 
efficiently coordinate policies and case actions, reduce duplication of efforts, and streamline fraud 
investigations for more immediate administrative action. These collaborative activities enable 
CMS to take administrative actions, such as revocations of Medicare billing privileges and 
payment suspensions, more quickly and efficiently.   
 
In FY 2013, the Command Center conducted 93 missions that included participants from CMS 
and our partners, including the OIG and FBI, that are designed to lead to improvements in the 
fraud prevention and detection process. Missions are facilitated collaboration sessions that bring 
together experts from various disciplines to improve the processes for fraud prevention in 
Medicare and Medicaid.  Approximately 870 experts met since the opening of the Command 
Center representing policy analysts, investigators, lab modelers, FBI, OIG, ZPICS, field office 
staff, clinicians, Contracting Officer Representatives (CORs), and other CMS staff.   CMS is also 
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  working with other Federal agencies in the Command Center to pool resources to tackle cross-
cutting issues surrounding fraud prevention. 
DME Initiatives 
 
DME suppliers pose a high risk of fraud to the Medicare Program and CMS has undertaken an 
aggressive strategy to address this risk. Through the DME Stop Gap Project, initiated in 2009, 
ZPICs/PSCs have increased site visits and interviews of DME suppliers, providers, and 
beneficiaries receiving DME products in high billing areas for DME supplies and products.  In 
FY 2013, these additional funds supported DME investigations which included site visits to, and 
interviews of, suppliers, doctors and patients that were identified as potentially suspicious or high 
risk. 
Medicaid and CHIP Business Information Solutions (MACBIS) 
 
The Medicaid and CHIP Business Information Solutions (MACBIS) is a CMS enterprise-wide 
initiative to modernize and transform the information and data exchanges with States and other 
key health reform stakeholders in order to ensure we have high performing Medicaid and CHIP 
programs. This initiative creates a more robust and comprehensive information management 
strategy for Medicaid and CHIP. We have designed a transformed data state that will, for the 
first time, integrate Medicaid and CHIP program, operational, quality, and performance data. 
Specifically, the data will be used to support detection of fraudulent patterns in State Medicaid 
programs as well as comparative analytics across state lines. Implementation of the Transformed-
Medicaid Statistical Information System (T-MSIS) by states will be on a rolling basis with a goal 
of all states submitting data by July 1, 2014.  T-MSIS is an expansion of the existing CMS 
Medicaid Statistical Information System (MSIS) extract process.  The new T-MSIS extract format 
is expected to further CMS and States goals for improved timeliness, reliability, and more robust 
data analysis process through monthly updates and an increase in the amount of data provided. 
The accomplishments for FY 2013 include: 
 
  MACBIS  Implement change control process for the MACBIS program, of which 
MACPro and T-MSIS are the two main projects within.  The change control process 
coordinates and manages change across both projects which provide efficiencies and 
eliminates duplication. 
 
  T-MSIS  Awarded the Baltimore Data Center and Virtual Data Center Contract which 
will provide the infrastructure to accept, validate and house T-MSIS data from states from 
a short term and long term perspective.   Awarded the Development and Testing contracts 
that will develop and test the receipt and control of the submitted T-MSIS files, validation 
routines for ensuring data quality and storage capacity for the T-MSIS data.  In addition, 
provided project management and technical assistance to states during the on-boarding 
process for migrating from MSIS to T-MSIS. 
 
  MACPro  While MACPro is being designed and developed, we implemented an interim 
technology solution to support the data collection of Medicaid and CHIP and Alternative 
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  Benefit Plan State Plan Amendments for meeting the October 1, 2013 Affordable Care 
Act mandates.  
 
  Information Technology Support  Integrated MACBIS processes into CMSs enterprise 
shared services efforts including, master data management, identity management, and 
portal development. 
 
Outreach & Education Campaign 
 
In FY 2013, CMS developed and implemented a multimedia outreach and education 
campaign.  The campaign included national television, radio, print and outreach to specific ethnic 
communities where Medicare fraud is more prevalent. The advertising campaign ran from May 27 
- August 11, 2013, resulted in increased awareness of how to detect and report Medicare fraud. 
 
2.   Detection  
 
Strengthened Program Integrity Activities in Medicare Advantage and Medicare Part D 
 
In FY 2013, CMS enhanced its data analysis and improved coordination with law enforcement to 
get a more comprehensive view of activities in the Medicare Advantage (MA) and Prescription 
Drug (Part D) programs.  All MA and Part D plan sponsors are required to have a comprehensive 
plan to detect, correct and prevent fraud, waste and abuse.  This plan consists of written policies, 
procedures, and standards that articulate the organizations commitment to comply with all 
applicable federal and state standards related to fraud and abuse.  Sponsors must have a properly 
trained, effective compliance officer, and provisions for internal monitoring and auditing, as well 
as other requirements.  These requirements help ensure that sponsors track and identify potential 
beneficiary or provider abuse.  CMS issued Compliance Program Guidelines in Chapter 9 of the 
Prescription Drug Benefit Manual (PDBM) and Chapter 21 of the Medicare Managed Care 
Manual Both Chapters are identical, and apply equally to Medicare Advantage Plans and 
Prescription Drug Plans. 
 
To combat fraud, waste and abuse more effectively, CMS evaluates sponsors operations to ensure 
that they are compliant with the regulations and guidance.  CMS also contracts with a private 
organization, called the Medicare Drug Integrity Contractor (MEDIC), to assist CMS in managing 
audit, oversight and anti-fraud efforts.  The MEDICs main functions include identifying and 
investigating potential fraud, and abuse, developing cases for referral to law enforcement 
agencies, acting as a liaison to law enforcement and collaborating with sponsors on the 
identification of potentially fraudulent schemes.   
 
In FY 2013, CMS continued to invest HCFAC discretionary funds to strengthen Medicare 
Advantage (Part C) and Part D oversight, including: 
 
  Managing all incoming complaints about Part C and Part D fraud, waste, and abuse; 
  Utilizing new and innovative techniques to monitor and analyze information to help 
identify potential fraud; 
65 
    Working with law enforcement, MA, and prescription drug plans, consumer groups, and 
other key partners to protect beneficiaries and enforce Medicares rules; 
  Providing basic tips for beneficiaries on how to protect themselves from potential scams;  
  Identifying program vulnerabilities; and 
  Performing proactive research utilizing all available data to find trends in order to ferret 
out fraud, waste, and abuse activities. 
 
As of June 2013, the national benefit integrity MEDIC received on average approximately 532 
actionable complaints per month; processed 35 requests for information from law enforcement 
per month; and referred an average of 34 cases to law enforcement per month.    CMS also hosted 
quarterly workgroup meetings to promote information sharing on the latest fraud schemes. 
Representatives from sponsoring organizations, Pharmacy Benefit Managers, CMS, law 
enforcement, and CMS Program Integrity Contractors gather to share information and discuss 
current fraud trends and anti-fraud efforts. 
 
In FY 2011, CMS established a contract for Medicare Part C and Part D outreach and education.  
This contractor is responsible for providing support in designing, developing and implementing 
compliance training, education and outreach for internal and external stakeholders, including plan 
sponsors.  In addition, this contractor supports the development of tools, models and program best 
practices to share and communicate goals and expectations in order to reinforce CMS approach 
to compliance and enforcement.  CMS continued efforts to do this by successfully broadcasting 
the 2013 Medicare Advantage & Prescription Drug Plan Spring Conference using webcast 
technology.  This conference provided guidance and real time information on significant topics 
such as benefits and formulary updates for 2014; Part C and Part D monitoring, as well as 
marketing, surveillance and compliance updates. 
 
Since 2011, CMS has been taking steps to ensure that valid prescriber identifiers accompany Part 
D claims, and that the MEDIC and plan sponsors are monitoring pharmacy billing patterns.  In 
2011, to enhance then existing practice and in collaboration with the Drug Enforcement 
Administration (DEA), we directed Part D sponsors to ensure that the prescriber identifier 
submitted on a Prescription Drug Event (PDE) record was active and valid starting in the 2012 
coverage year, whether it was a National Provider Identifier (NPI), DEA number, unique 
physician identifier number, or state license number.  Additionally, we began validating the 
format of all prescriber identifiers on PDEs that were coded as an NPI and excluded from 
payment reconciliation PDEs with invalid NPIs.  We began assessing each sponsors performance 
regarding NPI use and validity and notified them of their performance. We also directed Part D 
sponsors to check that all prescriptions for controlled substances under Part D were associated 
with DEA numbers that indicated there was appropriate authority to prescribe the controlled 
substance. 
 
Through rulemaking finalized in 2012, CMS required Part D sponsors to submit PDEs with active 
and valid individual prescriber NPIs, beginning January 1, 2013.  CMS, through the annual 
Medicare Dear Doctor letter, explained the NPI requirement to prescribers.  CMS began to deny 
any PDE without an active and valid NPI beginning on May 6, 2013.  We have continued to 
assess each sponsors performance regarding NPI use and validity of submitted NPIs and notified 
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  sponsors of their performance in preparation for this deadline. Based on this assessment, we 
found that 99.6 percent of the 2013 PDEs received during the first quarter of the coverage year 
reported the prescribers NPI; all but 0.002 percent of the reported NPIs were valid and currently 
active, or active within a year of the date of service.  We also examined the taxonomy codes, 
which are self-reported by the providers to identify their specialty. We found 0.5 percent of these 
codes would be unreasonable for a prescriber.  Based on a review of the PDEs reporting these 
unreasonable taxonomy codes, CMS determined that about 10.6 percent were for controlled 
substances.  We further determined that all but 16.5 percent of these PDEs for controlled 
substance the prescriber in fact did have a valid DEA number.   
 
These actions ensure improved sponsor compliance with PDE reporting requirements, enhance 
CMSs ability to review claims data to identify possible fraud and abuse, and help determine 
whether prescribers of controlled substances are writing prescriptions in accordance with their 
DEA registration. 
 
Additionally, CMS is working to improve the data available for MA oversight.  In January 2012, 
CMS required MA plan sponsors to begin submitting Part C data to its new Encounter Data 
System.  This new requirement will enable the MEDIC to undertake future Part C projects once 
the Part C data is located in a central repository.    
 
In addition to the work of the MEDICs, CMS enhanced other Part C and Part D oversight 
functions in FY 2013 to address new complexities facing law enforcement, contract and plan 
oversight functions, monitor plan performance assessment and surveillance/secret shopper 
activities, audit programs, and conduct routine compliance and enforcement tracking. Also in FY 
2013, CMS conducted 30 program audits of sponsoring organizations and tested plan policies and 
procedures for compliance with program requirements in the following areas:  Part D formulary 
and benefit administration, Part C and D organizational/coverage determinations, appeals, and 
grievances;  outbound enrollment verification, special needs plans models of care, and 
compliance program effectiveness.  The organizations audited provide MA and Part D services to 
21 percent of the beneficiaries enrolled in MA and Part D as of April 2013.   
 
 
MCMarSk eatlisnog s Struernvgethilelnanedc ep rAocgtriavmiti einstegrity in MA and Part D through marketing surveillance 
activities and compliance actions based on surveillance activities.  In FY 2013, CMS conducted 
marketing surveillance activities, such as secret shopping and examining newspaper ads for 
unreported marketing events and content. These activities have improved plan sponsor oversight 
of marketing and lessened incidents of agent/broker misconduct. 
 
Secret Shopping 
Secret shopping provides undercover surveillance of formal MA, MA-PD, and PDP marketing 
events.  Plan sponsors report formal sales/marketing events to CMS from which contractors and 
CMS identify a sampling of events to secret shop.  Shoppers use a CMS developed tool to 
facilitate and electronically record their evaluations of marketing events compliance with CMS 
requirements.  The tool is designed to capture various compliance aspects of the representatives 
or agents presentations, actions and provided materials.  Additionally, it collects general 
67 
  information about the event, such as the number of people in attendance, the type of venue where 
the event was held, and the language in which the agent presented the event. 
 
For the 2013 Annual Enrollment Period (AEP), CMS conducted 1,781 secret shopping events   Of 
the events shopped, 1,176 (65.7%) had no validated deficiencies and were considered entirely 
compliant with Medicare regulations.   
 
Of the 114 parent organizations shopped, 23 (or 20.2%) had no validated deficiencies noted.  
These 23 parent organizations represented 605 shops or approximately 33% of the total completed 
shops.  Forty-five (2.4%) of the completed shops were presented in a language other than English, 
including:  
 
  24 events presented in Spanish; 
  15 events presented in Cantonese or Mandarin; 
  2 events presented in Armenian; 
  1 events presented in Korean; 
  1 event presented in Russian; and, 
  1 event presented in Vietnamese. 
 
Compliance Actions Based on Surveillance Activities 
 
CMS issues the following types of letters to sponsors who have had deficiencies related to our 
surveillance:  
 
  Technical Assistance Letters (TAL) (not formal compliance notices); 
  Notices of Non Compliance (NONC); 
  Warning Letters with a Request for Business Plan; and, 
  Ad-hoc Corrective Action Plans (CAPs). 
 
To determine the appropriate action for deficiencies identified by secret shopping, CMS 
developed an objective, data-driven, and performance-based model.  This model not only 
automated the review process, but also accounted for the seriousness of each deficiency to 
develop proper compliance action for identified deficiencies.  Within this model, CMS 
categorized each deficiency and assigned a weighted value: administrative errors (1 point), errors 
of omission (2 points), undue beneficiary influence or harm (4 points), and marketing 
misrepresentations (6 points).  To determine a plan sponsors overall performance score (OPS), 
CMS added the total number of points for all shops for each plan sponsor and divided by the total 
number of shops conducted for that plan sponsor. 
 
The following three tables provide additional information on our process and findings.  The first 
table shows how the OPS score is determined, while the second table is CMS tool to determine 
what type of compliance action should be issued based on the OPS score. Finally, the Compliance 
Action table provides a break out, by risk, of the types of compliance actions taken and how many 
of each action were taken. 
 
68 
         
 
 
OPS Ranges and Corresponding Compliance Actions 
 
 
  Overall Shopping  Compliance Action Taken 
  Performance Score 
  Range 
  0.01  1.49  Technical Assistance Letter 
  1.50  3.49  Notice of Non-Compliance 
3.50  6.99  Warning Letter with 
 
Business Plan 
 
7.00+  Adhoc CAP 
 
 
Compliance Actions Taken by Risk Level for Secret Shopping 
 
Action b  High  Medium  Low  Total 
Technical Assistance Letter  105  72  13  183 
Notice of Non-Compliance  2  1  1  4 
Warning Letter  2  0  0  2 
Total Letters Issued  109  73  14  189 
 
The unreported marketing events initiative is an attempt to determine if plan sponsors 
appropriately reports and represented their sales events activity to CMS.  Daily and weekly print 
publications in U.S. domestic markets nationwide, including advertisements in several non-
English languages are reviewed.  CMS conducted reviews of 4,846 Medicare advertisements 
representing 8,699 total advertised events.  These advertisements represented events hosted by 36 
plan sponsors. 
 
Of those advertisements reviewed, CMS identified 406 marketing events that were unreported, 
indicating a deficiency for each plan sponsor that had failed to submit a marketing event.  Based 
on the results, CMS issued 18 TALs and 4 NONCs to plan sponsors related to unreported 
marketing events.  NONCs were issued to plan sponsors that incurred deficiency rates of 5% or 
higher. 
 
Medicare Advantage Encounter Data Processing System Contract 
 
The Medicare Advantage (MA) Encounter Data Processing System (EDPS) is currently being  
maintained and modified out of guidance published in the final FY 2009 inpatient prospective 
payment system (IPPS) rule. In that rule, CMS revised regulations to clarify that CMS has the 
69 
  authority to require MA organizations to submit encounter data for each item and service 
provided to MA plan enrollees.  Consistent with this authority, CMS is requiring MA 
organizations to submit encounter data for dates of service January 3, 2012 and later. MA plans 
are required to submit data for all institutional, professional and DME services provided to MA 
plan enrollees on or after that date.   
 
What program needs will EDPS be addressing?  Over the past several years there has been 
dramatic growth in the Medicare Advantage program.  Today, one-fourth of Medicare 
beneficiaries are enrolled in Medicare Advantage plans.  CMS pays Medicare Advantage 
organizations approximately $145 billion per year for the care provided to these 15 million 
beneficiaries.  Previously, CMS had not collected encounter data, which will provide CMS with 
information that is equivalent to the information provided on a FFS claim record.  The diagnosis 
data provided on these claims will be used to risk adjust payments and, as a result, CMS will need 
complete encounter data records for the MA population being served.  Sampling is not an option 
for processing the approximately 500 million encounter data claims any more than it would be for 
processing Medicare FFS claims. 
      
To better ensure that CMS is a more prudent purchaser, in January 2012 agency launched an 
initiative to collect encounter data from Medicare Advantage organizations.  The encounter data 
detail each item and service provided to enrollees of Medicare Advantage organizations.  These 
records are comparable in format and detail to claims submitted to the MACs by FFS providers.   
 
How will CMS use the data collected by EDPS?  CMS will use encounter data to determine the 
risk adjustment factors used to adjust payments, as required under CMS regulations at 42 CFR 
422.304, to update risk adjustment models, to calculate Medicare Disproportionate Share 
Hospital percentages, for Medicare coverage purpose and to conduct quality review and 
improvement activities. The collection of MA encounter data is expected to provide CMS with a 
more complete picture of MA member utilization.   
 
Medicaid/CHIP Financial Management Project 
 
Under this project, funding specialists, including accountants and financial analysts, worked to 
improve CMSs financial oversight of the Medicaid program and CHIP.  In FY 2013 through the 
continued efforts of these specialists, CMS removed an estimated $2.7 billion (with 
approximately $375 million recovered and $2.4 billion resolved) of approximately $9.7 billion 
identified in questionable Medicaid costs.   
 
Furthermore, an estimated $188 million in questionable reimbursement was actually averted due 
to the funding specialists preventive work with states to promote proper state Medicaid 
financing.  The funding specialists activities included reviews of proposed Medicaid state plan 
amendments that related to reimbursement; development of financial management reviews; 
research regarding state Medicaid financing policy and practices; collaboration with states to 
resolve the Medicaid and CHIP portions of the A-133 Single State audits; and identification of 
sources of the non-Federal share of Medicaid program payments to ensure proper financing of 
Medicaid program costs.   
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  HHS-OIG Hotline Database  
 
CMS and its contractor use the OIG Hotline database to perform program integrity activities. 
Specifically, the contractor currently receives and processes the complaints OIG refers to CMS. 
OIG receives complaints through its TIPS Hotline and uploads certain complaints to the OIG 
Hotline database for review by CMS. The complaints from both the OIG Hotline and 1-800-
Medicare have been in two separate databases and followed two distinct processes for resolution. 
These processes will improve as we consolidate and integrate all the complaints received from 
OIG and 1-800-MEDICARE.  The CMS contractor is coordinating this effort with the OIG, ECM 
and NGD. CMS and the OIG anticipate implementing the new process by September, 2014. 
 
3.   Transparency and Accountability  
Healthcare Fraud Prevention Partnership 
 
One of the Secretarys key health care fraud prevention initiatives is to establish an ongoing 
partnership with the private sector to fight fraud across the health care system. Data collected and 
shared across payers can assist payers in evaluating trends, recognizing patterns consistent with 
potential fraud, and potentially uncover schemes or bad actors they could not otherwise identify 
using only their own information. Such collaboration is the purpose of the Healthcare Fraud 
Prevention Partnership (HFPP) which brings together both public and private, federal and state-
level individuals and organizations combatting health care fraud across all payers. 
 
The legal authority for the Partnership is 42 U.S.C.  1320a-7c. The delegated authority allows 
for the Partnership to consult with, and arrange for the collection of data from, and sharing of data 
with representatives of health plans under the HCFAC program. 
 
Several key milestones occurred in FY2013FY 2013 including the signing of the official 
Healthcare Fraud Prevention Partnership Charter by Secretary Sebelius and US Attorney General 
Holder and the second Executive Board meeting of the Healthcare Fraud Prevention Partnership 
which took place on April 1, 2013. The Board Meeting was followed immediately by two days of 
working sessions with committees at the CMS Program Integrity Command Center.  Over 60 
participants representing over 20 partnership organizations attended the two days of working 
sessions. In total, over a dozen meetings were held within the partnership including four in-person 
meetings which proved highly effective in distilling the critical spirit of collaboration and 
partnership.  
 
The HFPP has successfully completed a significant pilot information exchange, in which 11 
entities, including CMS, contributed fraud related data for aggregation and analysis, realizing in 
immediate cost savings and additional administrative actions for many of the participants. Future 
data exchanges, both non-identifiable and identifiable, will significantly expand in complexity 
and require substantial technologies and infrastructure including relevant contactors and a data 
exchange partner to serve as a Trusted Third Party. To plan for this function, CMS has invested in 
a strategic contractor with the objective of defining the requirements for a Trusted Third Party 
contract, to be procured in FY 2014.  
 
71 
  CMS added additional partners to the HFPP and is targeting further expansion of the partnership 
to include additional willing public and private payers once the technical and legal components of 
the program are in place.  The increase in members providing data will increase the resources 
necessary for the trusted third party contractor to process and store the increased number of 
claims data from the new members.   
Measured Error Rate - Payment Error Rate Measurement (PERM)  
 
The Improper Payments Information Act (IPIA) of 2002, amended by the Improper Payments 
Elimination and Recovery Act of 2010 (IPERA), amended by the Improper Payments Elimination 
and Recovery Improvement Act of 2012 (IPERIA) requires each agency to periodically review 
programs it administers, identify programs that may be susceptible to significant improper 
payments, estimate the amount of improper payments, submit those estimates to Congress, and 
report on actions the Agency is taking to reduce improper payments.   
 
The Medicaid program and CHIP have been identified as at risk for significant improper 
payments.  To comply with the IPIA, IPERA and IPERIA, CMS established the Payment Error 
Rate Measurement program (PERM) to estimate improper payment error rates in Medicaid and 
CHIP.  The error rates are based on reviews of the fee-for-service (FFS), managed care, and 
eligibility components of Medicaid and CHIP in the fiscal year under review.  CMS measures 
Medicaid and CHIP error rates using a 17-state rotation so that each state is reviewed once every 
three years.  After several years of development, the PERM error rate was published for the first 
time in FY 2008. 
 
In FY 2013, after consultation with OMB, CMS made two improper payment rate calculation 
methodology enhancements to improve the accuracy of the Medicaid improper payment rate 
estimate.  These two enhancements include: (1) replacing the three-year weighted average 
national Medicaid improper payment rate with a single-year rolling national Medicaid improper 
payment rate, and (2) incorporating prior year state-level improper payment rate recalculations. 
  
In past AFRs, CMS reported a three-year weighted average national Medicaid improper payment 
rate representing the percentage of expenditures improperly paid over the past three years. The 
three-year rate was calculated by utilizing a weighted average of the PERM cycle error rates from 
the three most recent years.  This methodology was implemented to ensure Medicaid improper 
payment rate reporting included findings from all states.  
 
In response to an OIG report (OIG Report A-06-08-00078, Oversight and Evaluation of the  
FY 2007 PERM Measurement Program), CMS is now reporting a single-year rolling national 
Medicaid improper payment rate, a more precise estimate that represents the percentage of 
expenditures improperly paid during one fiscal year.  The single-year rolling rate is calculated by 
multiplying each states most recently observed error rate by that states expenditures from the 
fiscal year being reported and dividing by the expenditures for that fiscal year.  The single-year 
rolling rate treats the three most recent PERM cycles as a contiguous sample (as if all states were 
observed in the fiscal year being reported) which allows CMS to report on findings from all states 
with improved precision. 
 
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  Additionally, past AFRs did not incorporate State-level error rate recalculations that occur after 
the cycle cut-off date. For the most recent cycle of States measured, these recalculations occur 
after AFR publication. In response to a Government Accountability Office report (GAO-13-229, 
Enhancements Needed for Improper Payments Reporting and Related Corrective Action 
Monitoring), State-level error rate recalculations for the previous two cycles measured are now 
incorporated into the national Medicaid improper payment rate, and will be incorporated in future 
calculations.    
 
CMS is reporting in the FY 2013 Agency Financial Report the national Medicaid error rate that is 
based on measurements that were conducted in fiscal years 2011, 2012, and 2013.  The national 
Medicaid error rate is 5.8 percent or $14.4 billion in estimated improper payments and has 
decreased from FY 2012 (7.1 percent or $19.2 billion).  The national component error rates are as 
follows:  Medicaid FFS  3.6 percent, Medicaid managed care  0.3 percent, and Medicaid 
eligibility  3.3 percent.  The major cause of error in fee-for-service claims is lack of sufficient 
documentation to support the payment.  The vast majority of the eligibility errors were due to 
beneficiaries found to be ineligible or whose eligibility status could not be determined.  
   
Section 601 of the Childrens Health Insurance Program Reauthorization Act of 2009 (CHIPRA) 
prohibited HHS from calculating or publishing any national or state-specific error rates for CHIP 
until six months after a new PERM final rule was effective.  In addition, Section 205(c) of the 
Medicare and Medicaid Extenders Act of 2010 exempted HHS from reporting a 2011 CHIP 
improper payment rate. On August 11, 2010, as part of enhanced efforts to reduce improper 
payments in federal programs, HHS issued the final regulations that fully implemented 
improvements to the PERM program. HHS commenced CHIP error rate reporting in FY 2012 
and, therefore, only two CHIP cycles of states have been measured for reporting in the FY 2013 
Agency Financial Report.  
 
The two Medicaid improper payment rate calculation methodology enhancements described 
above also apply to the CHIP improper payment rate estimate with one difference since only two 
cycles of states have been measured.  For FY 2013, the 34 measured states will be treated as a 
contiguous sample and projected to the 17 states that have not yet been measured. 
 
CMS is reporting in the FY 2013 Agency Financial Report the national CHIP error rate that is 
based on measurements that were conducted in fiscal years 2012 and 2013. The FY 2013 national 
CHIP error rate is 7.1 percent or $0.6 billion in estimated improper payments. The national 
component error rates are as follows: CHIP FFS   5.7 percent, CHIP managed care  0.2 percent, 
and CHIP eligibility  5.1 percent. The main source of error is beneficiaries found to be ineligible 
for CHIP. Other errors are due to policy violations, payments made for non-covered services, and 
insufficient documentation. 
 
CMS is currently measuring cycles that will be reported in 2014 and 2015.  CMS expects the 
error rates to decline in future years through program maturation and corrective action initiatives 
implemented at the state and Federal levels.   
 
As a result of Executive Order 13520Reducing Improper Payments and Eliminating Waste in 
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  Federal Programs, the PERM program also reports error rate information on the Treasury 
improper payment dashboard at  PaymentAccuracy.gov, and annually reports comprehensive 
improper payment measurement and reduction activities to HHS/OIG.   
 
Error Rate Measurement and Increased Accountability in Medicare Advantage (Part C) and 
Medicare Prescription Drug Benefit Program (Part D) 
 
In compliance with IPERA, CMS has implemented a systematic plan regarding improper 
payments for Part C and D programs.  Unlike Medicare fee-for-service, CMS makes prospective, 
monthly per-capita payments to Part C organizations and Part D plan sponsors.  Each per-person 
payment is based on a bid amount, approved by CMS, that reflects the plan's estimate of average 
costs to provide benefit coverage to enrollees.  CMS risk-adjusts these payments to take into 
account the cost associated with treating individual beneficiaries based on health status.  In 
addition, certain Part D prospective payments are reconciled against actual costs, and risk-sharing 
rules set in law are applied to further mitigate plan risk.  
 
The Part C payment error estimate reported for FY 2013 (based on calendar year CY 2011) is 9.5 
percent, or $11.8 billion.  The Part C payment error estimate has decreased from the FY 2012 
estimate of 11.4 percent or $13.1 billion.  The Part C payment error is driven by errors in risk 
adjustment data (clinical diagnosis data) submitted by Part C plans to CMS for payment purposes.  
Specifically, the Part C payment error estimate reflects the extent to which diagnoses that plans 
report to CMS are not supported by medical record documentation.   
 
In an effort to improve the Part C error rate, CMS has implemented three specific actions 
described below: contract level audits, Medicare Advantage Organization guidance, and physician 
outreach. 
 
  Contract-level audits: The contract-specific Risk Adjustment Data Validation (RADV) 
audits are designed to recover overpayments to Part C plans.  CMS will conduct payment 
recovery based on extrapolated estimated beginning with audits based on calendar year 
2011 payments.  CMS expects to audit about 30 MA contracts a year.  Additionally, the 
CY 2007 contract-level RADV audits are in the final stages.  In FY 2013, CMS recovered 
a total of$5.0 million from contracts involved in the CY 2007 RADV Targeted audits.  
CMS plans to conduct further recovery on the CY 2007 audits in FY 2014.  
 
  Medicare Advantage Organization Guidance:  CMS has also implemented a process to 
assist MA plans while they are submitting medical record documentation for review under 
the Part C error estimate. 
 
  Physician Outreach:  CMS has begun a program that enhances physician understanding of 
the way HHS pays MA organizations and the payment methodology impact on physicians.  
The focus of this effort is to improve medical record documentation prepared by 
physicians to support risk adjustment diagnoses. 
 
 
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  The Part D payment error estimate reported for FY 2013 (based on CY 201) is 3.7 percent, or 
$2.1 billion.  The FY 2013 Part D error estimate represents the combined impact on Part D 
payments of four sources of error: Payment error related to low income subsidy status; payment 
error related to Medicaid status; payment error related to prescription drug event data validation; 
and payment error related to direct and indirect remuneration.   
Probable Fraud Measurement Pilot   
 
There is no reliable estimate of the amount of fraud in the Medicare program.  Documenting the 
baseline amount of fraud in Medicare is of critical importance, as it allows officials to better 
evaluate the success of ongoing fraud prevention activities.  In collaboration with the HHS Office 
of the Assistant Secretary for Planning and Evaluation (ASPE), CMS developed the methodology 
for the first nationally representative estimate of the extent of probable fraud in the Medicare fee-
for-service program in FY 2011.  In FY 2012, CMS developed the measurement tools for the 
pilot, and collaborated with government partners, including ASPE, on the strategy for 
implementation.  CMS received OMB approval in May 2013.  
 
This project will estimate probable fraud in the Home Health benefit to pilot test the measurement 
approach and calculate a service-specific estimate.  This pilot is measuring probable fraud 
rather than fraud because fraud is a legal determination that involves establishing intent  a 
determination that is made through the judicial system.  A review panel of experienced health care 
analysts, clinicians, policy experts, and fraud investigators will review all collected data and 
determine if there is sufficient evidence to warrant a referral to law enforcement.  After the 
completion of this pilot, CMS will assess the value of expanding the measurement to other areas 
of Medicare. CMS will begin collecting data on probable fraud and have an estimate of probable 
fraud within HHAs in 2015.  
 
4.   Recovery  
Suspension 
 
CMS in FY 2013 continued its use of the new Affordable Care Act authority to suspend payments 
to providers during an investigation of a credible allegation of fraud. CMS also has authority to 
suspend payment if reliable information of an overpayment is brought to light.  As of September 
2013, CMS had 297 providers under active payment suspension, with 105 of those suspensions 
having been approved in FY 2013. 
Field Offices 
 
CMS has designated program integrity field offices located in or near the HEAT cities of Miami, 
Los Angeles, and Brooklyn that provide a CMS presence in high risk fraud areas of the country.  
All three field offices have staff that are designated CMS Strike Force Liaisons, who coordinate 
with law enforcement, facilitate data analysis, and expedite suspension requests.  The field offices 
also work with CMS central office and the ZPICs to conduct data analysis to proactively identify 
targets and to coordinate efforts among various contractors and agencies to identify local issues 
and vulnerabilities with national or regional impact.   
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The field office staff performs outreach and education to partners in their areas, including law 
enforcement, Senior Medicare Patrol and state Medicaid agencies. The field offices train US 
Attorneys, OIG and FBI agents, analysts and forensic accountants on Medicare policy and coding 
clarification, as well as provide data and billing analysis for specific cases.  These staff also 
provides significant support during the prosecution of health care fraud cases through testimony, 
depositions and victim impact statements. 
 
The field offices develop solutions to the most challenging program integrity issues in their 
region. In Miami, for example, the field office has boots on the ground working to root out fraud 
in home health by performing provider and beneficiary interviews.  The Los Angeles staff is 
working with county Emergency Medical Service licensing authorities, CMS contractors and 
local law enforcement to address emerging schemes in ambulance providers.   These efforts have 
resulted in nearly 100 revocations of Medicare billing privileges in FY 2013.  Additionally, the 
trial support provided by the Brooklyn field office has helped result in three convictions in FY 
2013. 
 
In FY 2013, the field offices also expanded their collaboration with Medicaid program integrity 
staff, including the CMS Medicaid Integrity Contractor (MIC) and the state Medicaid agency. The 
Los Angeles field office began two projects around the hospice benefit which is anticipated to 
result in administrative actions against providers. 
 
Enrollment Special Study 
 
The Enrollment Special Study is a project designed to stop fraudulent providers from obtaining 
new Medicare provider numbers, reduce the number of habitual bad providers from re-entering 
the Medicare system after they have been kicked out, and shift from the pay and chase approach 
that has existed in years past.  In this project, site visits are conducted prior to enrollment, and 
providers are targeted for a closer review.  The project is limited to Community Mental Health 
Centers (CMHCs), Comprehensive Outpatient Rehabilitation Facilities, and Independent 
Diagnostic Testing Facilities in South Florida.  Once the MAC conducts a site visit, it assesses the 
providers individual risk.  If the provider appears to be suspect or pose an elevated risk of fraud, 
the provider is referred to the ZPIC for investigation and administrative action, as appropriate.  
This project began as a one year project in July 2009 and has been extended due to its success.   
 
As of June 30, 2013, First Coast Service Operations, Inc. (FCSO), the MAC conducted 5,492 site 
verifications to verify providers and suppliers operational status, deactivated 77 practice 
locations, and revoked or denied 486 providers.  FCSO saved $10,834,126 from prepayment 
review.  Safeguard Services, Services (SGS), the ZPIC conducted over 296 on-site investigations 
resulting in 102 requests for provider revocation or deactivation.  SGS placed 48 providers on 
prepayment review saving $3,766,349.36 and requested $133,232,024 in overpayments. 
South Florida Fraud Hot Line 
 
CMS also continued a successful initiative aimed at increasing fraud reporting in South Florida.  
As part of a two-year infusion therapy demonstration, CMS established a special fraud hotline in 
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  2007 to protect Medicare beneficiaries in South Florida from fraudulent providers of infusion 
therapy.  As a result of the hotlines success in FY 2009, CMS expanded the scope of this 
infusion therapy fraud hotline to handle all Medicare fraud-related calls in South Florida.  The 
fraud hotline number is included on monthly Medicare Summary Notices (MSNs) sent to 
beneficiaries in Miami-Dade, Broward and Palm Beach counties.    
 
Trained, bilingual, or trilingual staff fielded and routed calls, and acknowledged receipt of 
complaints in writing.  A rapid response team at the ZPIC investigated the highest priority leads 
received from the fraud hotline within 48 hours of receipt of the call and then collaborated with 
CMS and law enforcement to pursue appropriate follow up action(s).  CMS worked with its 
partners to conduct beneficiary outreach and education to ensure beneficiaries understood the 
types of fraud that may occur and how to read their MSNs to detect potential fraudulent billings. 
 
As of August 31, 2013, the hotline has received more than 107,938 calls leading to 1,057 new 
fraud investigations.  In addition, the ZPIC has placed 223 providers on prepayment review 
saving over $16 million, revoked or deactivated 192 provider numbers, referred 52 cases to law 
enforcement, and sent 160 Immediate Advisements to the HHS-OIG.  Additionally, law 
enforcement has seized $3 million in provider bank accounts.   
 
Administration for Community Living 
 
The mission of the Senior Medicare Patrol (SMP) program is to empower and assist Medicare 
beneficiaries, their families, and caregivers to prevent, detect, and report health care fraud, errors, 
and abuse through outreach, counseling, and education. In FY 2013, the Administration for 
Community Living (ACL) was allocated $3.378 million in HCFAC funding by HHS to support 
infrastructure, technical assistance, and other SMP program support. In addition to this funding, 
ACL was initially allocated $7.331 million for capacity-building activities designed to enhance 
the effectiveness of state-wide SMP programs. This funding was reduced to $7.170 million later 
due to the funds requested by the SMP grantees.  During FY 2010 and FY 2011, CMS had 
provided this capacity funding to ACL for the SMP projects. In FY 2012 and FY 2013 the 
funding  came  directly  to  ACL.  The  base  SMP  project  grant  is  funded  from  a  separate 
Congressional appropriation.   
 
SMP Project Activities and Outcomes 
 
ACL funds 54 SMP statewide projects (each state, Guam, Puerto Rico, US Virgin Islands and 
D.C.) with funds authorized in the Older American Act and the HCFAC Wedge. In addition to the 
projects base grants, funded from the Older American Act, the SMP program offers HCFAC 
funds to each grantee so that they can expand their program. Prior to FY 2013, the additional 
funding was based largely on the known fraud prevalence within each state. However, in  
FY 2013, the program moved to a formula-driven allocation taking into account the number of 
Medicare beneficiaries living in each state and the ruralness of the state. The new formula is 
intended to provide a more equitable allocation of funds and reflects the reality that the 
prevalence of fraud is much broader than a few selected states. 
   
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  According to the most recent annual performance report from HHS-OIGs Deputy Inspector 
General for Evaluation and Inspections, issued July 2013, 5,137 active volunteers served SMP 
projects during 2012. These volunteers performed an essential function of this program, 
contributing 120,953 hours and conducting over 113,000 one-on-one counseling sessions in 
efforts to educate beneficiaries about how to prevent and detect Medicare fraud within local 
communities.  
 
Outreach to Medicare beneficiaries is a key element of the SMP program. During 2012, SMP 
projects held 10,032 community outreach education events reaching more than 996,000 people, 
and were responsible for over 188,199 media airings to increase beneficiary awareness about 
issues related to Medicare fraud. In addition, over 449,500 beneficiaries were educated through 
14,748 group educational sessions conducted by SMP programs in local communities.  
 
SMP projects nationwide received 86,331 inquiries for information or assistance in 2012 from or 
on behalf of beneficiaries. This included receipt of 2,270 complex issuesi.e., beneficiary 
complaints requiring further research, assistance, case development, and/or referral.   SMP 
projects reported that 1,748 complex issues were resolved for beneficiaries during 2012, while 
908 complex issues with an estimated dollar value of over $27.5 million, were referred to law 
enforcement, CMS integrity contractors, state Medicaid Fraud Control Units, or other entities for 
further action.  During this period, HHS-OIG documented that $133,971 in health care 
expenditures were avoided and nearly $6.2 million in Medicare, Medicaid and other savings 
resulted from actions taken by the SMP program. 
 
Since the programs inception, the program has educated over 5.2 million beneficiaries in group 
or one-on-one counseling sessions and has reached nearly 28 million people through community 
education outreach events. While SMPs make numerous referrals of potential fraud to 
investigators, it is still difficult to measure the outcome of these cases without a tracking 
mechanism. Therefore, we have no measure of these outcomes, though we anticipate that they 
would demonstrate an additional benefit of the SMP programs ability to detect and prevent fraud 
and abuse in the Medicare program.  In addition, the impact of the SMP programs primary 
activitieseducation of beneficiaries to prevent health care fraudis difficult to measure and 
impossible to quantify in dollars and cents.  As HHS-OIG indicated in the July 2013 report: 
 
 We continue to emphasize that it is not always possible to track referrals to Medicare 
contractors or law enforcement from beneficiaries who have learned to detect fraud, waste, 
and abuse from the projects. Therefore, the projects may not be receiving full credit for 
savings attributable to their work. In addition, the projects are unable to track the substantial 
savings derived from a sentinel effect whereby fraud and errors are reduced by Medicare 
beneficiaries scrutiny of their bills.   
 
ACL recognizes the importance of measuring the value of the SMP program impact to the fullest 
degree possible. Toward that end, in 2012,  ACL contracted for the first-ever SMP program 
evaluation that will assess the national design and implementation of the SMP program, the 
adequacy of current SMP performance measures, and seek to determine the most appropriate 
measures of SMP program value (benefits, results and impact).  The contract will conclude in 
December 2013. In addition, in FY 2013, the SMP program issued a research grant designed to 
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  measure the value of prevention activities. As the SMP program is focused on education and 
prevention, the true value of the program comes from beneficiaries avoiding fraud in the first 
place. This new grant is intended help the program identify a way to measure that effect.  
 
Despite the factors that have limited ACLs ability to quantify the value of the SMP program in 
preventing, identifying, and reporting health care fraud, the OIG has documented over  
$112 million in savings attributable to the program as a result of beneficiary complaints since its 
inception in 1997.  
 
SMP Infrastructure and Program Support  
 
National Consumer Protection Technical Resource Center 
 
The Center, established October 1, 2003, provides technical assistance, support and training to the 
SMP projects, ensuring a fully consolidated national approach to reaching Medicare and Medicaid 
beneficiaries.  The goal of the Center is to provide professional expertise and technical support, 
serve as an accessible and responsive central source of information, and maximize the 
effectiveness of the SMP projects in healthcare integrity outreach and education.  The Center has 
been instrumental in supporting ACL efforts to forge national visibility for the SMP program.   
 
National Hispanic SMP Project Grant 
 
In September 2008, AoA awarded an initial three-year grant to the National Hispanic Council on 
Aging for the development and implementation of a National Hispanic SMP (NHSMP) Program.  
The problem of health care fraud and abuse becomes even more challenging to address with hard-
to-reach populations, particularly those with cultural and language barriers. The NHSMP project 
also promotes collaborations among key community players in order to promote the prevention, 
detection and reporting of fraud within the Hispanic community.  The NHSMP program is 
working to create a model to provide technical assistance to SMP projects who work with 
Hispanic populations so that they can expand their reach to Hispanic older adults.   
 
Integration Project Grant 
 
The goal of the SMP program is to provide education to all Medicare beneficiaries. However, 
there are specific populations that are historically hard-to-reach. Three of these populations:  
Medicare beneficiaries under age 65; Lesbian, Gay, Bisexual and Transgender (LGBT) Medicare 
beneficiaries; and American Indian/Alaska Native (AI/AN) Medicare beneficiaries, were 
specifically identified as target populations. In FY 2013, ACL awarded five grants to 
organizations who have initiated 17 month projects which seek to increase awareness, 
empowerment, and actions to prevent healthcare fraud amongst these generally underserved 
populations. The goal of these grants will be to develop new, efficient, and sustainable approaches 
for ensuring high quality and culturally competent service delivery and help educate consumers to 
prevent health care fraud.  
 
 
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  Prevention Research Grant  
 
As mentioned above, in FY 2013, the SMP program has issued a three-year research grant to 
identify a way to measure the overall impact of the SMP program. Specifically, the grantee will 
develop and test an evaluation method to determine how to best measure the effects of the SMP 
programs community education techniques on health care fraud prevention.  
 
Office of the General Counsel  
 
In FY 2013, the Office of the General Counsel (OGC) was allocated approximately $8.88 million 
in HCFAC funding by HHS to supplement OGCs efforts to support program integrity activities.  
OGCs efforts in FY 2013 focused heavily on program integrity review, in which OGC reviews 
CMS programs and HCFAC activities in order to strengthen them against potential fraud, waste, 
and abuse.  OGC also continued its active litigation role in order to assist in the recovery of 
program funds.  During FY 2013, OGC was involved in a wide range of HCFAC efforts that 
resulted in Government recoveries of over $1.57 billion in judgments, settlements, or other types 
of recoveries, savings, or receivables as described elsewhere in this report.     
 
The Affordable Care Act 
 
The ACA significantly amended existing anti-fraud statutes. These provisions established 
fundamental expectations for compliance, disclosure, transparency, and quality of care, and are 
matched by corresponding enforcement provisions. Some specific provisions of the ACA that 
particularly support HCFAC priorities include amending Medicare and Medicaid 
provider/supplier enrollment requirements, overpayment provisions to specifically invoke the 
FCA, strengthening the anti-kickback statute, and creating a statutory disclosure protocol for 
violations of the physician self-referral prohibition known as the Stark law.  During FY 2013, 
as new ACA programs were implemented, OGC spent significant time and resources working 
with the relevant agencies to ensure that program integrity issues were reviewed and resolved, and 
assisted the agencies in addressing program integrity and compliance problems as they occurred.   
 
HEAT 
 
During FY 2013, OGC was involved in HEAT initiatives and worked closely with other HEAT 
members to combat fraud, waste, and abuse in the Medicare and Medicaid programs by providing 
advice on the myriad legal issues presented as the government works to initiate innovative anti-
fraud programs in various hotspots throughout the country. OGC continued to assist DOJ in 
pursuing both criminal and civil cases involving individuals and entities seeking to defraud the 
Medicare and Medicaid programs and to defend any Federal court challenges that are brought as a 
result of HEAT initiatives. OGCs involvement in HEAT also included advising CMS on 
provider and supplier revocations, payment suspensions, recoupments, and defending the 
administrative appeals that resulted.   
 
 
 
80 
  FCA and Qui Tam Actions 
 
OGC assisted DOJ in assessing qui tam actions filed under the FCA by interpreting complex 
Medicare and Medicaid rules and policies in order to assist DOJ in discerning which allegations 
were program violations and should be pursued and to help DOJ focus on those matters which 
were most likely to result in a recovery of money for the government. When DOJ filed or 
intervened in a FCA matter, OGC provided litigation support, including interviewing and 
preparing witnesses and responding to requests for documents and information. In FY 2013, OGC 
participated in FCA and related matters that recovered over $1 billion for the government.  The 
types of FCA cases that OGC participated included: drug pricing manipulation; illegal marketing 
activity by pharmaceutical manufacturers that resulted in Medicare and Medicaid paying for drugs 
for indications not covered; underpayment of rebates to state Medicaid programs; physician self-
referral violations; and provider up coding cases.   
     
Provider/Supplier Suspensions and Enrollment Revocations or Denials 
 
Suspensions play a critical role in protecting against the abuse of program funds.  OGC advised 
CMS on whether to suspend payments to Medicare providers and suppliers and defended the 
suspensions when challenged. In FY 2013, OGC attorneys were involved in a myriad of 
suspension and recoupment actions, which involved fraudulent billings and different segments of 
the health care industry: DME suppliers, ambulance companies, physicians, infusion clinics, 
therapists, home health agencies, and diagnostic testing facilities. OGC also represented CMS 
when a provider or supplier appealed a denial of enrollment or revocation. In FY 2013, OGC 
represented CMS in appeals before the Departmental Appeals Board (DAB) and often resolved 
these cases without formal hearings. OGC also continued to advise CMS on the interpretation of 
enrollment regulations and reviewed proposed enrollment rules and manual changes.   
 
Medicare Prescription Drug Program (Part D) & Medicare Advantage (Part C) Compliance 
 
During FY 2013, OGC continued to provide extensive advice to CMS on a variety of Part D and 
Medicare Advantage (MA)-related contract compliance issues, including identifying enforcement 
options against sponsors that are noncompliant or violate program rules, such as the Marketing 
Guidelines.  OGC reviewed compliance-related correspondence that CMS issued to Part D 
sponsors and MA plans in the form of warning letters, corrective action plan letters, intermediate 
sanctions, CMP notices, and non-renewal or termination notices.   
 
Civil Monetary Penalties 
 
CMS has the responsibility for administering numerous CMP provisions enacted by Congress to 
combat fraud, waste, and abuse by enforcing program compliance and payment integrity. In FY 
2013, OGC provided legal advice to CMS regarding the development and imposition of CMPs 
and defended CMS in many administrative appeals and judicial litigation resulting from these 
cases. 
 
 
81 
  Petitions for Remission 
 
OGC collaborated with Federal law enforcement, including the FBI, the USAOs, the Secret 
Service, U.S. Postal Service, and the U.S. Marshals Service in filing petitions for remission 
directed to recover assets subject either to administrative forfeiture by Federal law enforcement or 
civil judicial forfeiture by DOJ.  Each petition set forth the background of the fraudulent scheme, 
the history of Medicares payments, and how the fraudulently induced payments could be traced 
to the seized assets.  During FY 2013, OGC petitioned these agencies to recover funds in both 
criminal and civil litigation matters in which Medicare was a victim of fraud. 
     
Regulatory Review and Programmatic Advice 
 
In FY 2013, OGC advised CMS on a variety of regulatory and program issues, all to assist CMS 
in strengthening its programs and activities against fraud and to prevent the wrongful 
disbursement of program funds in the first instance.  Some highlights of OGC efforts include its 
work to develop and implement the Physician Payment Sunshine Rule, the Durable Medical 
Equipment (DME) Face-to-Face Rule, and the Provider Enrollment and Incentive Reward 
Program Proposed Rule.  Further, OGC provided extensive counsel regarding the CMS final rule 
on new survey procedures and alternative sanctions available for Home Health Agencies (HHAs) 
that are not meeting program participation requirements.  
 
Medicaid Integrity 
 
Continuing recent trends, OGC saw continued increasing involvement in FY 2013 in Medicaid 
integrity issues as CMS devoted more resources to financial reviews and oversight and as states 
continued to present innovative proposals to reconfigure their programs.   
 
Physician Self-Referral 
 
OGC provided valuable assistance to CMS in navigating the complexities of the Stark physician 
self-referral law.  In FY 2013, OGC reviewed and offered extensive comments on participation 
agreements or amendments to such agreements governing various initiatives of the Center for 
Medicare & Medicaid Innovation, including the Pioneer Accountable Care Organization Model, 
Bundled Payment for Care Improvement (BPCI) Models 2-4, and the Comprehensive ESRD 
Care Initiative.  In addition, OGC worked closely with OIG and CMS in devising new waivers of 
the fraud and abuse laws for the BPCI models.  OGC also advised CMS regarding matters 
disclosed under the new Stark self-disclosure protocol, now numbering over 200.   
 
Medicare Secondary Payer (MSP) Workload 
 
OGCs efforts to recover conditional payments by Medicare that are the primary responsibility of 
other payers directly supports the HCFAC statutory goal of facilitating the enforcement of all 
applicable legal remedies for program fraud and abuse.  During FY 2013, OGC has been 
successful in establishing the right to recover over $7.7 million for Medicare under the MSP 
program.  Recent statutory changes implementing mandatory insurance reporting requirements to 
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  the MSP law have strengthened and expanded OGCs efforts in this area  to the benefit of the 
Medicare Trust Funds  including substantial CMPs for failure to report.   
 
Bankruptcy Litigation 
 
OGC protects Medicare funds from waste in bankruptcy cases by asserting CMSs recoupment 
rights to collect overpayments, arguing to continue suspension or termination actions against 
debtors, seeking adequate assurances from the bankruptcy court that CMS interests in the debtors 
estate will be protected, arguing for the assumption of the Medicare provider agreement as an 
executory contract, and petitioning for administrative costs where appropriate.  In FY 2013, OGC 
asserted CMS interests in numerous bankruptcy and receivership actions involving physicians, 
hospitals, independent diagnostic test facilities, DME suppliers, nursing homes, and nursing home 
chains, collecting or establishing the right to collect over $2.4 million in recoveries involving 
bankrupt providers. 
 
Denial of Claims and Payments 
 
CMS and its contractors engaged in various activities and initiatives to detect and prevent abusive 
and fraudulent billing practices.  These measures included provider and beneficiary education, use 
of claim sampling techniques, and a more rigorous scrutiny of claims with increased medical 
review.  In FY 2013, OGC played a major role in advising CMS regarding the development and 
implementation of these types of program integrity measures and defended CMS in litigation 
brought by providers and suppliers who challenged these efforts.  OGC continued to aggressively 
defend CMS and its contractors in cases seeking damages for the alleged wrongful denial of 
claims, for being placed on payment suspension, and for not being granted extended repayment 
plans.   
 
Food and Drug Administration Pharmaceutical  
Fraud Program 
 
In FY 2013, FDA was allocated $3.37 million in HCFAC funding by HHS for the FDA 
Pharmaceutical Fraud Program (PFP).  The PFP was instituted to enhance the health care 
fraud- related activities of FDA's Office of Criminal Investigations (OCI) and the Office of the 
General Counsel (OGC) Food and Drug Division.  OCI, with the support of OGC, investigates 
criminal violations of the Federal Food, Drug, and Cosmetic Act (FFDCA), the Prescription 
Drug Marketing Act, the Federal Anti-Tampering Act, and related Federal statutes. 
 
The PFP is designed to detect, prosecute, and prevent pharmaceutical, biologic, and medical 
device fraud.  The PFP gathers information from sources inside and outside FDA and focuses on 
fraudulent marketing schemes, application fraud, clinical trial fraud, and flagrant manufacturing- 
related violations concerning biologics, drugs, and medical devices.  The goal of the program is 
the early detection and prosecution of such fraudulent conduct and furthers FDAs public health 
mission by helping to reduce health care costs, in most cases before they are incurred, and deter 
future violators.  As described below, the PFP has identified multiple alleged medical product 
fraud schemes through various avenues. 
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Since the inception of the PFP, OCI has opened a total of sixty-four criminal investigations.  In 
FY 2013, FDAs third full fiscal year of HCFAC Program activity, OCI, through its PFP, opened 
twenty-three criminal investigations, described below: 
 
  One investigation involving misbranding allegations, including minimization of risk 
and marketing two drugs by a single manufacturer for unapproved uses. The 
investigation involves marketing of the drugs for conditions not indicated in the 
approved labeling and for deceptive marketing practices regarding the safety of the 
drug products.  
 
  Three investigations involving allegations of misbranding by medical device 
manufacturers for selling and/or distributing devices for conditions which are not FDA 
cleared and/or for making misleading representations about the device benefits and 
efficacy. 
 
  Seven investigations involving allegations of flagrant manufacturing practices 
concerning both drugs and devices causing those products to be misbranded and/or 
adulterated and resulting in a safety risk to the public. 
 
  Twelve investigations involving allegations of clinical trial and/or application 
fraud.  These investigations consist in part of individuals suspected of improperly 
commencing and conducting clinical trials, falsifying clinical trial data, forging 
signatures of clinical investigators, and enrolling ineligible or non-existent subjects in 
clinical trials, as well as falsifying approval and/or clearance applications made to the 
FDA. 
 
In regards to judicial action, the types of criminal investigations conducted through the PFP tend to 
be complex in nature requiring extensive document review and coordination with the affected FDA 
Center.  It is not unusual for these complex fraud investigations to last five years or more from 
initiation to conclusion.  Nevertheless in March 2013, an application fraud investigation, opened in 
FY 2011, obtained an individual guilty plea for submitting a report to the FDA which was 
materially false or misleading during the device approval process.  The individual has agreed to 
assist in the prosecution of additional subjects related to this investigation and will be sentenced 
after this cooperation obligation is completed.  Additionally in August 2013, an indictment was 
secured against the main target in a clinical trial fraud case, also opened in FY 2011, charging 
false statements in a matter within the jurisdiction of the FDA.  
 
Furthermore, FDA believes that various investigations already initiated under the PFP show 
promise of future judicial action that may include criminal prosecution and monetary 
recoveries. These cases include an investigation of a large drug manufacturer for serious and 
pervasive manufacturing violations, as well as several investigations of clinical trial principal 
investigators who have allegedly fabricated study subjects, omitted exclusion/inclusion 
criteria and provided false data to drug and device sponsors representing these investigational 
products as safe and effective when, in fact, they are not. 
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In addition to these investigative activities, FDA conducted a three day training session in late 
June 2013 for criminal investigators and supervisors covering PFP related topics.  The instruction 
consisted of legal training provided by OGC on the FFDCA in areas relevant to PFP cases, 
investigative scenario training on clinical trial fraud investigations and case presentations on 
successful prosecutions involving misbranding and other fraud schemes encompassing both drugs 
and medical devices.  The training also provided background on FDAs participation in the 
HCFAC Program and resources available to assist in investigations being conducted under the 
PFP.   
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  THE DEPARTMENT OF JUSTICE 
 
United States Attorneys 
 
In FY 2013, the United States Attorneys Offices (USAOs) were allocated approximately  
$42.0 million in FY 2013 HCFAC funding to support civil and criminal health care fraud and 
abuse litigation, as exemplified in the Program Accomplishments section.  The USAOs dedicated 
substantial district resources to combating health care fraud and abuse in 2012, and HCFAC 
allocations have supplemented those resources by providing funding for attorneys, paralegals, 
auditors and investigators, as well as funds for litigation of resource-intensive health care fraud 
cases. 
 
The 93 United States Attorneys and their assistants, or AUSAs, are the nations principal 
prosecutors of Federal crimes, including health care fraud.  Each district has a designated 
Criminal Health Care Fraud Coordinator and a Civil Health Care Fraud Coordinator.  Civil and 
criminal health care fraud referrals are often made to USAOs through the law enforcement 
network described herein, and these cases are usually handled primarily by the USAOs, although 
the civil referrals are sometimes handled jointly with the Civil Divisions Commercial Litigation 
Branch (Fraud Section).  The other principal source of referrals of civil cases for USAOs is 
through the filing of qui tam (or whistleblower) complaints.  These cases are often handled jointly 
with trial attorneys in the Frauds Section. USAOs also handle most criminal and civil appeals at 
the Federal appellate level. 
 
USAOs play a major role in health care fraud enforcement by bringing criminal and affirmative 
civil cases to recover funds wrongfully taken from the Medicare Trust Funds and other taxpayer-
funded health care systems as a result of fraud, waste, and abuse.  Civil and criminal AUSAs 
litigate a wide variety of health care fraud matters, including false billings by physicians and other 
providers of medical services, overcharges by hospitals, Medicaid fraud, kickbacks to induce 
referrals of Medicare or Medicaid patients, fraud by pharmaceutical and medical device 
companies, home health and hospice fraud, and failure of care allegations against nursing home 
owners.  Working closely with their partners in the Civil Division, several civil health care fraud 
AUSAs have focused their efforts on pharmaceutical fraud, resulting in significant recoveries 
including: $1.5 billion from Abbott Laboratories and $500 million from Ranbaxy Laboratories 
Limited and its subsidiary, Ranbaxy USA, Inc..  Most of the civil settlements, including these 
settlements were part of a global resolution, which also addressed the criminal liabilities, resulting 
in criminal pleas, as well as significant fines and forfeitures.  The criminal portion of these 
investigations and resolutions was handled by criminal health care fraud AUSAs, often working 
with their counterparts at the Consumer Protection Branch of the Civil Division.  These global 
settlements resolved allegations including, reporting of false and inflated drug prices, 
manufacturing and distributing adulterated drugs, off-label marketing and kick-backs.  These 
cases are detailed earlier in this report.     
 
 
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  Several of the USAOs have dedicated significant resources to investigate fraud perpetrated on our 
most vulnerable citizens.  To this end, the USAOs have partnered with Civil Frauds in the Elder 
Justice and Nursing Home Initiative to address elder abuse and neglect.  As a result of USAO 
efforts, the owner and operator of three nursing homes was sentenced to serve 20 years in Federal 
prison on charges of conspiring with his wife to defraud the Medicare and Georgia Medicaid 
programs by billing them for worthless services in the operation of three nursing homes. This is 
the first time that a defendant has been convicted after a trial in Federal court for submitting 
claims for payment for worthless services. The defendant was also ordered to pay $6.7 million in 
restitution to Medicaid and Medicare 
 
The USAOs partner with the Criminal Division in the Strike Forces, which are currently operating 
in nine USAOs across the country.  Each USAO has dedicated several AUSAs and support 
personnel to work with Criminal Division attorneys in this important initiative.  The Strike Forces 
use data analysis to identify high-billing levels in health care hot spots so that emerging or 
migrating schemes can be targeted.  The significant successes of the Strike Forces have been 
detailed earlier in this report.   
 
Special Focus Teams, consisting of criminal and civil AUSAs, paralegals, and auditors, are 
operational in three districts and focus on pharmaceutical, biologics, and medical device fraud.  
The teams have contributed significantly to the success of the pharmaceutical investigations and 
recoveries this year.  To increase the capacity of other districts to successfully litigate these 
complex health care fraud cases, the Special Focus Teams have organized monthly training 
Webinars and serve as advisors for the USAO community in the various complex areas of health 
care fraud. 
 
Criminal Prosecutions 
 
In FY 2013, the USAOs received 1,013 new criminal matters involving 1,910 defendants, and had 
2,041 health care fraud criminal matters pending,17 involving 3,535 defendants.  The USAOs filed 
criminal charges in 480 cases involving 843 defendants, and obtained 718 Federal health care 
fraud related convictions. 
 
Civil Matters and Cases 
 
In FY 2012, the USAOs had opened 1,083 new civil health care fraud investigations.  At the end 
of FY 2012, the USAOs had 1,079 civil health care fraud investigations pending.18 
 
 
 
                                                 
17 When a USAO accepts a criminal referral for consideration, the office opens it as a matter pending in the district.  
A referral remains a pending matter until an indictment or information is filed or it is declined for prosecution. 
18 The accomplishments figures presented in this paragraph include all reported Strike Force cases handled by DOJ 
Criminal Division attorneys and AUSAs in the respective USAOs during FY 2013.  
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  Civil Division 
 
In FY 2013, the Civil Division received approximately $28.0 million in FY 2013 HCFAC funding 
to support the health care fraud activities of the Commercial Litigation Branchs Fraud Section 
and the Consumer Protection Branch.  This amount also included funding to support the 
Department of Justices Elder Justice and Nursing Home Initiative.   
 
The Commercial Litigation Branchs Fraud Section 
 
The Civil Divisions Commercial Litigation Branch (Fraud Section) investigates complex health 
care fraud allegations and files suit under the FCA to recover money on behalf of defrauded 
federal health care programs including Medicare, Medicaid, TRICARE, and the FEHBP.  The 
Fraud Section works closely with the Consumer Protection Branch, United States Attorneys 
Offices, HHS-OIG, state Medicaid Fraud Control Units and other law enforcement agencies.  As 
a result of these efforts, the Fraud Section has obtained settlements and judgments in health care 
cases of over $1 billion almost every year since 2000 and over $2.3 billion in FY 2013 alone. 
 
The Fraud Section investigates and resolves matters against a wide array of health care providers 
and suppliers.  Matters involving pharmaceutical and device manufacturers continue to constitute 
some of the most complex and resource intensive cases handled by the Fraud Section.  These 
matters commonly involve nationwide conduct, raise legally and factually complicated issues, and 
demand significant resources to investigate, resolve, and litigate, if necessary.  Many of these 
cases-- including the Abbott, Amgen, AstraZeneca and Wyeth matters discussed above-- involved 
allegations that the pharmaceutical manufacturer improperly promoted its drug for uses not 
approved by the FDA.  Other cases, like the Ranbaxy matter, involved allegations relating to the 
manufacture and distribution of adulterated drugs.  Lastly, many pharmaceutical fraud cases 
involve allegations that the drug or device manufacturer paid kickbacks to physicians to prescribe 
its products.  These cases are significant not only because of the significant dollars involved, but 
because they protect Medicare and Medicaid beneficiaries by preserving the integrity of the 
FDAs approval process as well as the doctor-patient relationship.     
 
In addition to pharmaceutical fraud, the Fraud Section also investigated and resolved several 
matters involving hospitals and physicians.  For example, the Fraud Section resolved several 
hospital matters involving allegations that the hospitals overbilled Medicare by treating patients 
on an inpatient basis when they should have been treated as observation patients or treated on an 
outpatient basis.  Likewise, the Fraud Section successfully resolved its investigation against a 
Florida doctor for violating the Anti-Kickback Statute by accepting free pathology services and 
billing Medicare as if he had personally performed those services.  As a result of its investigation, 
the government recovered over $26 million, and the doctor agreed to be voluntarily excluded for 
five years from participating in any federal health care program. 
 
Because the Fraud Section receives every FCA complaint filed across the country by 
whistleblowers (otherwise known as relators), it has a unique vantage point over health care 
fraud trends and developments nationwide and therefore regularly takes the lead on coordinating 
national investigations with its law enforcement partners.  Likewise, given the diversity of health 
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  care fraud cases pursued by the Fraud Section, it frequently provides training and guidance to 
AUSAs and agents on the FCA and health care fraud issues.  The Section works closely with 
HHS-OIG, Office of General Counsel, in all settlements of health care fraud allegations in order 
to ensure that the administrative remedies possessed by HHS are appropriately considered and to 
enable the negotiation of compliance terms that diminish the risk that the offending conduct will 
be repeated.  The Section also collaborates with and counsels CMS and HHS-OIG on interagency 
initiatives and proposed rules and regulations.   
 
The Elder Justice and Nursing Home Initiative, which is housed in the Civil Division, coordinates 
and supports law enforcement efforts to combat elder abuse, neglect, and financial exploitation.  
The Initiative supports law enforcement efforts by maintaining an information bank of Elder 
Justice related materials (including briefs, opinions, indictments, plea agreements, subpoenas 
templates); funding medical reviewers, auditors, and other consultants to assist DOJ attorneys and 
AUSAs in their nursing home and/or long term care facility cases; hosting quarterly 
teleconferences with DOJ attorneys and AUSAs across the country to discuss issues or 
developments in connection with our nursing home and failure of care cases; and coordinating 
nationwide investigations of skilled nursing facilities.  In addition to supporting law enforcement 
efforts, the Initiative continues to fund research projects awarded by the Office of Justice 
Programs, National Institute of Justice, to study the abuse, neglect, and exploitation of elderly 
individuals and residents of residential care facilities. 
 
The Consumer Protection Branch 
 
The Consumer Protection Branch (CPB) investigates and prosecutes manufacturers and 
individuals who are illegally promoting and distributing unapproved, misbranded, and adulterated 
drugs and devices in violation of the Food, Drug, and Cosmetic Act (FDCA).  CPB works closely 
with the Commercial Litigation Branchs Fraud Section, the USAOs, and the FDA on a wide 
variety of health care fraud matters.  In recent years, CPB has convicted dozens of companies and 
individuals.  The prosecutions resulted in significant jail terms and fines, penalties, and 
forfeitures; since 2009, these fines, penalties, and forfeitures have totaled more than $6 billion. 
 
In the area of pharmaceutical and medical device fraud, CPB coordinates complex investigations 
with districts nationwide, staffing the cases directly as well as providing assistance to USAOs.  
Because these investigations are complicated, both legally and factually, they demand significant 
resources.  These cases, such as the Amgen, Ranbaxy, and Wyeth cases mentioned above, which 
involve allegations of misbranding or adulteration of pharmaceuticals, often require in-depth 
analyses of pharmaceutical and medical device manufacturers clinical studies, manufacturing 
practices, or commercial activities.  Typically, they involve the review of hundreds of thousands 
or even millions of company and third party documents, as well as dozens of witness interviews 
or testimony.  These cases are significant not only because of the monetary fines and non-
monetary remedies that are imposed for criminal violations of the FDCA, but because of the 
public health and safety issues that they implicate.  In the Abbott case discussed above, for 
instance, not only did the company misbrand Depakote through its unlawful promotion and 
targeting of vulnerable elderly dementia patients, but it downplayed safety risks apparent from its 
own clinical studies and encouraged nursing homes to use Depakote to avoid reporting 
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  requirements designed to prevent the use of unnecessary drugs.   
 
In addition to prosecuting major pharmaceutical and medical device companies for health care 
offenses, CPB prosecutes smaller-scale, yet equally dangerous schemes involving online sale of 
pharmaceuticals and drug diversion.  For example, in FY 2013, together with the U.S. Attorneys 
Office in the Southern District of Florida, CPB prosecuted a Canadian citizen, Andrew J. 
Strempler, for his role in a scheme to defraud consumers purchasing pharmaceuticals online.  
Strempler pled guilty to conspiracy to commit mail fraud in connection with his role as owner and 
president of Mediplan Health Consulting Inc., a Canadian company that also operated under the 
name RxNorth.com.  RxNorth was an Internet, mail, and telephone order pharmacy, through 
which Strempler and others marketed and sold prescription drugs to residents of the United 
States.  Strempler and his co-conspirators falsely represented that RxNorth was selling safe 
prescription drugs in compliance with regulations in Canada, the United Kingdom and the United 
States, when in fact,  Strempler obtained the prescription drugs from various other source 
countries without properly ensuring the safety or authenticity of the drugs.  In fact, some of the 
drugs sold by Strempler included counterfeit drugs.  In January 2013, Strempler was sentenced to 
48 months in prison, and was ordered to pay a fine of $25,000 and restitution in the amount of 
$300,000. 
 
In yet another example, in FY 2013, CPB prosecuted Lina Ada Mendoza, a/k/a Nicole Rodriguez 
and Michael Jackson in the Southern District of Florida for their role in a conspiracy involving 
the operation of an Internet pharmacy business that illegally shipped over $1.5 million of 
pharmaceuticals to U.S. and overseas purchasers.  Rodriguez owned an Internet-pharmacy 
business used to advertise, sell and distribute a wide variety of controlled substances and 
prescription drugs in the United States and abroad.  Rodriguez and Jackson conspired to sell the 
prescription drug known as Adderall, which contains amphetamine, a Schedule II controlled 
substance.   Rodriquez was sentenced to 72 months imprisonment, and ordered to forfeit 
$36,112.  Jackson was also sentenced to 72 months imprisonment and ordered to forfeit $18,862. 
 
Criminal Division 
 
In FY 2013, the Criminal Division was allocated $8.1 million in FY 2013 HCFAC funding to 
support criminal health care fraud litigation and interagency coordination, which is carried out 
primarily by the Fraud Section and, to a lesser extent, the Organized Crime and Gang Section 
(OCGS).   
 
The Fraud Section 
 
The Fraud Section initiates and coordinates complex health care fraud prosecutions and supports 
the USAOs with legal and investigative guidance and training and trial attorneys to prosecute 
health care fraud cases.  Beginning in March 2007, the Fraud Section, working with the local 
USAOs, the FBI and law enforcement partners in HHS-OIG, and state and local law enforcement 
agencies, launched the Medicare Fraud Strike Force in Miami-Dade County, Florida, to prosecute 
individuals and entities that do not provide legitimate health care services but exist solely for the 
purpose of defrauding Medicare and other government health care programs.  Since 2007, DOJ 
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  and HHS have expanded the Strike Force to nine cities.  In FY 2013, the Fraud Section continued 
to provide attorney staffing, litigation support, and leadership and management oversight for 
numerous Strike Force prosecutions in eight of the nine cities.  A summary of the Fraud Sections 
key litigation accomplishments in FY 2013 follows:   
 
  Filed 60 new health care fraud cases involving charges against 159 defendants who 
collectively billed the Medicare and Medicaid programs more than $1 billion; 
  Obtained 93 guilty pleas and litigated 18 jury trials, winning guilty verdicts against 29 
defendants;196   
  Secured prison sentences in health care fraud cases averaging more than 62 months; and 
  Secured court-ordered restitution, forfeiture and fines exceeding $1.1 billion.   
 
Fraud Section attorneys staffed and coordinated the Divisions health care fraud litigation through 
the existing Medicare Fraud Strike Force teams in Miami, Los Angeles, Detroit, Houston, 
Brooklyn, South Louisiana, Tampa, Dallas, and Chicago. 
 
Section attorneys coordinated two major multi-district Strike Force arrest takedowns during the 
fiscal year and handled many of the investigations and indictments that were filed in these 
operations. 
 
On May 14, 2013, Fraud Section and USAO Strike Force prosecutors in eight cities executed a 
nationwide operation that resulted in charges against 89 individuals, including doctors, nurses, 
and other medical professionals, for their alleged participation in Medicare fraud schemes 
involving approximately $223 million in false billing. Earlier in the fiscal year, on October 4, 
2012, Fraud Section and USAO Strike Force prosecutors in seven cities executed a nationwide 
operation that resulted in charges against 91 individuals, including doctors, nurses, and other 
medical professionals, for their alleged participation in Medicare fraud schemes involving 
approximately $492.2 million in false billing.  
 
Of particular note during the FY2013, the Fraud Section charged a Michigan 
oncologist/hematologist in August 2013 with health care fraud in wide-ranging and dangerous 
fraudulent billing scheme.  According to the original complaint and subsequent indictment, the 
doctor allegedly provided chemotherapy and other medical treatments to patients who did not 
need the treatments, including patients who were in remission and did not need chemotherapy; the 
defendant also supposedly directed his staff to falsify medical documents to justify the treatments.  
The allegations against the defendant raised serious health concerns, particularly given the 
physical effect of chemotherapy and some of the other treatments administered to patients.  At the 
time of arrest, the defendant was treating 1200 patients.  The Fraud Section, working with the 
U.S. Attorneys Office for the Eastern District of Michigan, undertook a massive and aggressive 
effort to make insure that victim witnesses received all necessary support in finding new medical 
care.  Between August 2010 and August 2013, the defendants business, Michigan Hematology 
Oncology, Inc. (MHO), billed Medicare $150 million and was paid $62 million. In addition, 
                                                 
19 Fraud Section attorneys were responsible for many of the cases summarized in the Medicare Fraud Strike Force 
section of this report. 
91 
  private insurer Blue Cross/Blue Shield also paid the doctor $78 million on claims submitted by 
MHO.  
 
In addition to Medicare Fraud Strike Force cases, the Fraud Section handles other types of 
complex criminal health care fraud litigation.  Often, such cases are handled in a parallel manner 
by Fraud Section prosecutors along with DOJ Civil Division attorneys and/or AUSAs from the 
USAOs.   
 
In addition to health care fraud litigation, the Fraud Section also provided legal guidance to FBI 
and HHS-OIG agents, health program agency staff, AUSAs, and other Criminal Division 
attorneys on criminal, civil, and administrative tools to combat health care fraud.  Throughout 
FY2013, Fraud Section prosecutors met with federal prosecutors and agents across the United 
States to provide training, investigative leads based on data analysis, and related support.     The 
Fraud Section also provided advice and written materials on patient medical record confidentiality 
and disclosure issues, and coordinated referrals of possible criminal HIPAA privacy violations 
from the HHS Office for Civil Rights; monitored and coordinated DOJ responses to legislative 
proposals, major regulatory initiatives, and enforcement policy matters; reviewed and commented 
on health care provider requests to the HHS-OIG for advisory opinions, and consulted with the 
HHS-OIG on draft advisory opinions; worked with CMS to improve Medicare contractors  fraud 
=
detection, referrals to law enforcement for investigation, and case development work; and 
prepared and distributed to all USAOs and FBI field offices periodic summaries of recent and 
significant health care fraud cases. 
 
The Organized Crime and Gang Section (OCGS) 
The Criminal Divisions Organized Crime and Gang Section (OCGS) supports investigations and 
prosecutions of fraud and abuse targeting the 2.5 million private sector health plans sponsored by 
employers and/or unions, as well as investigations and prosecutions of health care frauds 
perpetrated by domestic and international organized crime groups. OCGS is also working to 
improve strategic coordination in the identification and prosecution of domestic and international 
organized crime groups engaged in sophisticated frauds posing a threat to the health care industry. 
In FY 2013, four OCGS attorneys and one paralegal were assigned to health care fraud 
prosecutions, although the section has remained under severe budget restrictions.  Three OCGS 
attorneys worked with AUSAs in the Organized Crime Strike Force in Philadelphia on 
prosecutions involving Medicare fraud in the operation of hospice facilities and ambulance 
companies.  A fourth OCGS attorney worked on an investigation of health care fraud involving a 
private sector employment based health care plan.  
  
In Philadelphia, an OCGS attorney partnered with an AUSA in the prosecution of four cases 
involving seven defendants for criminal charges in connection with the operation of a hospice 
facility.  In June 2013, a doctor who served as the medical director of the hospice was convicted 
after trial of receiving more than $300,000 in illegal payments for regularly referring Medicare 
and Medicaid patients to the hospice.  Sentencing was pending at the end of the fiscal year.  The 
conviction will result in the doctors mandatory exclusion from participation in any federal health 
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  care program and the possible loss of his medical license.  A second doctor remains under 
indictment for receiving illegal referral payments from the hospice.  In September 2013, the trial 
of a hospice co-owner commenced on charges of conspiring to defraud Medicare by submitting 
$14.3 million in fraudulent medical claims for hospice services provided to patients who did not 
receive services or were ineligible for the benefits claimed.  His trial was ongoing at the close of 
the fiscal year.  Four nurses who worked at the hospice are scheduled for trial in late 2013 and 
early 2014 on charges that they fabricated and falsified documents in support of hospice care for 
patients who were not eligible for hospice care, or for a higher, more costly level of care than was 
actually provided to the patients.  The nurse defendants are alleged to have submitted 
approximately $9,328,000 in fraudulent claims to Medicare and created fraudulent nursing notes 
for approximately 150 patients indicating that services were being provided, when, in reality, they 
were not. 
 
Two additional OCGS attorneys worked with Philadelphia AUSAs on prosecutions of the 5 
defendants involved in the operation of three different ambulance service companies.  In May 
2013, the operator of one ambulance company was sentenced to 92 months imprisonment for 
defrauding Medicare of approximately $5.4 million by billing for ambulance services which were 
not medically necessary. The operator, who was an emigre from Ukraine, recruited a straw owner, 
with the payment of $60,000, to apply for a license to operate after he was denied a license under 
his own name due to a prior criminal conviction.  Once licensed, the operator recruited patients 
who were capable of walking and submitted claim forms to Medicare falsely claiming that 
patients were unable to transport themselves. The straw purchaser and wife of the ambulance 
company operator have pleaded guilty to charges in connection with the operation of this 
ambulance company and await sentencing.  Owners of two additional ambulance companies were 
indicted in May 2013 for health care fraud and conspiracy to pay kickbacks to patients in an 
alleged scheme to recruit ambulatory dialysis patients for whom they billed Medicare for 
medically unnecessary ambulance services. 
 
In addition to conducting health care fraud investigations and prosecutions, OCGS attorneys 
routinely provide litigation support and advice to AUSAs and criminal investigative agencies in 
the investigation and prosecution of corruption and abuse of private employment-based group 
health plans covered by the Employee Retirement Income Security Act (ERISA).  Such private 
sector employment-based group health plans are the leading source of health care coverage for 
individuals not covered by Medicare or Medicaid.  OCGS attorneys also provide support to 
investigations of fraud schemes by corrupt entities that sell unlicensed health insurance products 
as well as fraud schemes by corrupt employers that cheat workers out of health benefits required 
by the prevailing wage laws and regulations.   
 
OCGS attorneys regularly provide health care fraud and abuse training and legal guidance to 
AUSAs and to criminal investigators and agents of the Department of Labors Employee Benefits 
Security Administration and Office of Inspector General.  Such guidance and training covers 
prosecutions involving abuse of private sector employee health plans subject to ERISA and health 
plans sponsored by labor organizations as well as fraud and abuse committed in connection with 
the operation of multiple employer welfare arrangements.  OCGS also drafts and reviews criminal 
legislative proposals affecting employee health benefit plans.  In addition, OCGS provides legal 
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  guidance to prosecutors and required approvals in the use of the Racketeer Influenced and Corrupt 
Organizations (RICO) statute in prosecutions of Medicare or Medicaid fraud and private sector 
health care frauds.   
  
Civil Rights Division 
 
  In FY 2013, the Civil Rights Division was allocated approximately $4.1 million in FY 2013 
HCFAC funding to support Civil Rights Division litigation activities related to health care fraud 
and abuse.  The Civil Rights Division pursues relief affecting public, residential health care 
facilities and service systems.  The Division conducts investigations to eliminate abuse and 
grossly substandard care in public, Medicare and Medicaid funded long-term care facilities.  
Consistent with the Supreme Courts decision in Olmstead v. L.C., 527 U.S. 581 (1999), the 
Division has also undertaken initiatives to eliminate the needless institutionalization of 
individuals who require health care supports and services. 
   
  The Division plays a critical role in the HCFAC Program.  The Special Litigation Section of the 
Civil Rights Division is the sole DOJ component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C.   1997 (CRIPA).  CRIPA authorizes the investigation of 
'
conditions of confinement at state and local residential institutions (including facilities for persons 
with developmental disabilities or mental illness, and nursing homes) and initiation of civil action 
for injunctive relief to remedy a pattern or practice of violations of the Constitution or Federal 
statutory rights.  The review of conditions in facilities for persons who have mental illness, 
facilities for persons with developmental disabilities, and nursing homes comprises a significant 
portion of the program.   
 
  The Disability Rights Section of the Civil Rights Division has primary enforcement authority for 
the Americans with Disabilities Act (ADA).  Title II of the ADA authorizes investigation of 
allegations of discrimination by public entities against individuals with disabilities, including 
discrimination in the form of needless institutionalization of persons who require health care 
supports and services.  See Olmstead, 527 U.S. 581.  Title II also authorizes the initiation of civil 
action to remedy discrimination in violation of the ADA.  Both the Special Litigation Section and 
the Disability Rights Section have undertaken initiatives to combat the unjustified 
institutionalization of persons with disabilities.   
 
  The Special Litigation and Disability Rights Sections work collaboratively with the USAOs and 
HHS.   
 
Fiscal Year 2013 Accomplishments 
 
Special Litigation Section staff conducted preliminary reviews of conditions and services at 16   
health care facilities in 13 states during Fiscal Year 2013.  The task in preliminary inquiries is to 
determine whether there is sufficient information supporting allegations of unlawful conditions 
and needless institutionalization to warrant formal investigation under CRIPA and/or the ADA.  
The Section reviews information pertaining to areas such as abuse and neglect, medical and 
mental health care, use of restraints, fire and environmental safety, and placement in the most 
94 
  integrated setting appropriate to individual needs.  Separately, in Fiscal Year 2013, the Section 
opened or continued formal investigations, entered remedial agreements, or monitored existing 
remedial agreements regarding 64 health care facilities in 15 states, the District of Columbia, and 
the Commonwealth of Puerto Rico.   
 
The Section found that conditions and practices at 12 state facilities for persons with intellectual 
and developmental disabilities and/or mental illness violate the residents' statutory rights.  Those 
facilities are:  Boswell Regional Center, in Magee, Mississippi; Ellisville State School, in 
Ellisville, Mississippi; Hudspeth Regional Center, in Pearl, Mississippi; Southern Mississippi 
Regional Center, in Long Beach, Mississippi; Mississippi Adolescent Center, in Brookhaven, 
Mississippi; North Mississippi Regional Center, in Oxford, Mississippi; Mississippi State 
Hospital, in Whitfield, Mississippi; South Mississippi State Hospital, in Purvis, Mississippi; 
Central Mississippi Residential Center, in Newton, Mississippi; East Mississippi State Hospital, 
in Meridian, Mississippi; North Mississippi State Hospital, in Tupelo, Mississippi; and the 
Specialized Treatment Center, in Gulfport, Mississippi. 
 
In Fiscal Year 2013, the Section entered into a letter agreement to resolve its investigation of 
Oregon State Hospital and the State of Oregons state-wide system for serving individuals with 
mental illness. The Agreement will be effective for four years. Pursuant to the Agreement, 
Oregon will collect and furnish state-wide system data to the Section. Throughout the Agreement 
period, Oregon and the Section will continue discussions on identifying gaps in the community 
service system, development of outcome measures, and whether positive outcomes are being 
achieved in the process.   
 
The Section entered into a settlement agreement to resolve its investigation of Maple Lawn 
Nursing Home in Palmyra, Missouri. Pursuant to the Agreement, the facility will implement pre-
admission measures to ensure that individuals who are inappropriate for admission to this facility 
are not housed there. The Agreement also requires discharge and transition planning, provision of 
adequate care and protections from harm for individuals, and quality outcome measures.  
 
The Section filed a memorandum in support of class certification in Amanda D. v. Hassan, (D. 
N.H.), a proposed class action involving claims under the ADA that the State of New Hampshire 
failed to provide adequate community-based services to persons with mental illness, 
unnecessarily segregating them in institutions and placing them at risk of unnecessary and more 
costly institutionalization.  The case is scheduled to go to trial in 2014.   
 
The Section entered into an interim settlement agreement in Steward v. Perry, (W.D. TX.), to 
resolve a suit against the State of Texas for its failure to provide adequate community-based 
services to persons with intellectual disabilities residing in nursing homes. Negotiations are 
continuing to resolve all issues pursuant to a comprehensive agreement.  
 
The Section filed four statements of interest in ongoing litigation: ILADD v. Quinn, (N.D. Ill.); 
Hunter v. Cooke, (N.D. Ga.); J.B. v. Bryant, (S.D. Miss.); and Sciarrillo v. Christie, (D.N.J). The 
Section filed the statements of interest to clarify and articulate the views of the United States 
pertaining to the Title II of the ADA and Olmstead and remedies therein, in matters where the 
95 
  United States is not a formal party.   
 
The Section continued its investigations of 12 residential facilities for persons with intellectual 
and developmental disabilities, including:  Northwest Habilitation Center, in St. Louis, Missouri; 
Bellefontaine Habilitation Center, in St. Louis, Missouri; Sonoma Developmental Center, in 
Eldridge, California; Lanterman Developmental Center, in Pomona, California; Utah State 
Hospital, in Provo, Utah; Clyde L. Choate Developmental Center, in Anna, Illinois; and, five 
Arkansas facilities, including:  Arkadelphia Human Development Center, in Arkadelphia, 
Arkansas; Alexander Human Development Center, in Alexander, Arkansas; Booneville Human 
Development Center, in Booneville, Arkansas; Jonesboro Human Development Center, in 
Jonesboro, Arkansas; and Southeast Arkansas Human Development Center, in Warren, Arkansas. 
 
The Section also continued its investigations of three facilities for persons with mental illness, 
including:  Ancora Psychiatric Hospital, in Hammonton, New Jersey; Oregon State Hospital, in 
Salem and Portland, Oregon; and Kingsboro Psychiatric Center, in Brooklyn, New York.  
 
The Section also continued its investigations of two nursing facilities:  Maple Lawn Nursing 
Home, in Palmyra, Missouri; and Casa del Veteranos, in Juana Diaz, Puerto Rico. 
 
The Section monitored the implementation of remedial agreements for 22 facilities for persons 
with intellectual and developmental disabilities:  Beatrice State Developmental Center, in 
Beatrice, Nebraska; Woodbridge Developmental Center, in Woodbridge, New Jersey; Clover 
Bottom Developmental Center in Nashville, Tennessee; Greene Valley Developmental Center in 
Greeneville, Tennessee; Lubbock State Supported Living Center, in Lubbock, Texas; Denton 
State Supported Living Center, in Denton, Texas; Abilene State Supported Living Center, in 
Abilene, Texas; Austin State Supported Living Center, in Austin, Texas; Brenham State 
Supported Living Center, in Brenham, Texas; Corpus Christi State Supported Living Center, in 
Corpus Christi, Texas; El Paso State Supported Living Center, in El Paso, Texas; Lufkin State 
Supported Living Center, in Lufkin, Texas; Mexia State Supported Living Center, in Mexia, 
Texas; Richmond State Supported Living Center, in Richmond, Texas; Rio Grande State 
Supported Living Center, in Harlingen, Texas; San Angelo State Supported Living Center, in 
Carlsbad, Texas; San Antonio State Supported Living Center, in San Antonio, Texas; Central 
Virginia Training Center, in Lynchburg, Virginia; Northern Virginia Training Center, in Fairfax, 
Virginia; Southeastern Virginia Training Center, in Chesapeake, Virginia; Southside Virginia 
Training Center, in Portsmouth, Virginia;  Southwestern Virginia Training Center, in Hillsville, 
Virginia.  These remedial agreements include the provision of adequate community supports and 
services.  The Section also litigated the issue of whether the closure of Arlington Developmental 
Center in Memphis, Tennessee should result in the dismissal of its case involving the facility and 
community services for individuals with intellectual and developmental disabilities in West 
Tennessee. 
 
The Section also monitored the implementation of remedial agreements regarding 13 state-
operated residential facilities for persons with mental illness:  Napa State Hospital, in Napa, 
California; Metropolitan State Hospital, in Norwalk, California; Kings County Hospital Center, in  
Brooklyn, New York; Delaware State Psychiatric Center, in New Castle, Delaware; Georgia 
96 
  Regional Hospital, in Atlanta, Georgia; Georgia Regional Hospital, in Savannah, Georgia;  
Central State Hospital, in Milledgeville, Georgia; Southwest State Hospital, in Thomasville, 
Georgia; West Central Georgia Hospital, in Columbus, Georgia; East Central Georgia Regional 
Hospital, in Augusta, Georgia; St. Elizabeths Hospital, in Washington, D.C.; Connecticut Valley 
Hospital, in Middletown, Connecticut; and Oregon State Hospital, in Portland, Oregon.  These 
remedial agreements include the provision of adequate support and services to enable individuals 
to live successfully in the community. 
 
In addition, the Section monitored remedial agreements at two nursing facilities: William F. 
Green State Veterans Nursing Home, in Bay Minette, Alabama; and Maple Lawn Nursing Home, 
in Palmyra, Missouri. 
In Fiscal Year 2013, the Disability Rights Section monitored the implementation of its eight-year 
settlement agreement with the State of North Carolina resolving the Sections Olmstead 
investigation of North Carolinas mental health service system, which currently serves thousands 
of individuals with mental illness in large, costly institutional settings known as adult care 
homes.  Under the agreement, North Carolina is providing opportunities to individuals with 
mental illness in adult care homes to transition to less costly, supported housing settings  
integrated housing that promotes inclusion and independence and enables individuals with mental 
illness to participate fully in community life.   
The Section intervened in Lane v. Kitzhaber (D. OR.), a class action brought on behalf of persons 
with intellectual and developmental disabilities alleging that Oregon is in violation of Title II of 
the ADA and Olmstead by unnecessarily segregating individuals with disabilities in sheltered 
workshops when such individuals can and want to work in more integrated supported 
employment settings.  The litigation is ongoing.   
 
The Section also filed suit against the State of Florida, in United States v. Florida, (S.D. Fla. 
2013) alleging that it administers its service system for children with significant medical needs in 
violation of the ADA and Olmstead by unnecessarily segregating children in nursing facilities, 
when they could, and want to, be served at home or in other community-based settings.  The 
Sections complaint further alleges that the State violates the ADA by administering its system of 
care in a manner that places many other children with complex medical conditions at risk of 
unnecessary institutionalization in nursing facilities. 
 
The Section entered into an interim settlement agreement with the State of Rhode Island and the 
City of Providence, in United States v. Rhode Island and City of Providence,  (D.R.I. 2013), 
resolving the Sections findings that the State and City unnecessarily segregated persons with 
intellectual and developmental disabilities (I/DD) in a sheltered workshop and segregated day 
activity service program, and placed public school students with I/DD at risk of unnecessary 
segregation in that same program.  Under the agreement, the State and City will provide 
supported employment services to individuals with intellectual and developmental disabilities and 
provide integrated day services to enable such individuals to participate in integrated activities 
when they are not working.    
 
97 
  The Section also entered into a settlement agreement with the State of New York and private 
plaintiffs regarding New Yorks mental health service system, in United States v. New York 
(E.D.N.Y. 2013).  The agreement remedies discrimination by the State in the administration of its 
mental health service system and ensures that individuals with mental illness who reside in 23 
large adult homes in New York City receive services in the most integrated setting appropriate to 
their needs consistent with the ADA and Olmstead.  Under the agreement, such individuals will 
have the opportunity to live and receive services in the community such that they are able to live, 
work, and participate fully in community life.  The Section also continued its ongoing 
investigation of the State of New York regarding the placement of children with disabilities at 
certain restrictive out-of-state facilities.      
 
The Division filed six statements of interest or amicus briefs in litigation raising issues of 
needless segregation in Illinois, the District of Columbia, Florida, Mississippi, Georgia, and New 
Jersey.  These briefs have addressed a wide range of issues, including unnecessary 
institutionalization of individuals in state-run and private institutions and cuts to community 
services placing individuals at risk of unnecessary, and more costly, institutionalization.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
98 
  Federal Bureau of Investigation 
 
I n FY 2013, the FBI was allocated $128.1 million in funding from HIPAA to support the 
facilitation, coordination and accomplishment of the goals of the HCFAC Program.  This yearly 
appropriation was used to support 801 positions (480 Agent, 321 Support).  In FY 2013, the FBI 
initiated 674 new health care fraud investigations and had 2,868 pending investigations.  
Investigative efforts produced 794 criminal health care fraud convictions and 1,023 indictments 
and informations.  In addition, investigative efforts resulted in over 425 operational disruptions of 
criminal fraud organizations and the dismantlement of the criminal hierarchy of more than 115 
HCF criminal enterprises.      
 
The FBI is the primary investigative agency involved in the fight against health care fraud that 
has jurisdiction over both the Federal and private insurance programs.  Each of the 56 FBI field 
offices has personnel assigned specifically to investigate health care fraud matters.  With national 
health care expenditures projected to exceed $2.9 trillion dollars in FY 2013, it is especially 
important to coordinate all investigative efforts to combat the significant fraud and abuse within 
the health care system.   
 
The FBI leverages its resources in both the private and public arenas through investigative 
partnerships with agencies such as HHS-OIG, the FDA, the DEA, the Defense Criminal 
Investigative Service, the Office of Personnel Management-OIG, the Internal Revenue Service-
CI, state Medicaid Fraud Control Units, and other state and local agencies.  On the private side, 
the FBI is actively involved in the Healthcare Fraud Prevention Partnership, an effort to exchange 
facts and information between the public and private sectors in order to reduce the prevalence of 
health care fraud.  These efforts will enable members to share successful anti-fraud practices and 
effective methodologies and strategies for detecting and preventing health care fraud.  In addition, 
the FBI maintains significant liaison with private insurance national groups, such as the National 
Health Care Anti-Fraud Association, the National Insurance Crime Bureau, other professional 
associations, and private insurance investigative units.   
 
Health care fraud investigations are considered a high priority within the FBI White Collar Crime 
Program.  In addition to being a partner in the majority of investigations listed in the body of this 
report, FBI field offices throughout the U.S. have pro-actively addressed significant health care 
fraud threats through coordinated initiatives, task forces, working groups, and undercover 
operations.  These activities seek to identify and pursue investigations against the most egregious 
offenders involved in health care fraud and abuse, including criminal enterprises and other crime 
groups; corporations; companies; and providers whose schemes affect public safety.   
 
In an effort to ensure sufficient FBI HCF resources are dedicated to address priority threats within 
the health care system for which the FBI has responsibility, the FBI provides oversight and 
guidance to field offices.  The guidance has included three initiatives to combat the crime 
problem, including the Health Care Fraud Prevention & Enforcement Action Team (HEAT), 
Large Scale Conspiracies, and Major Provider Fraud.  
 
A description of, and examples of results obtained by, the HEAT Initiative are contained in the 
 
  99  body of this report.  Contained within the HEAT section of the report is a description of, and 
examples of results obtained by, the Medicare Fraud Strike Forces (MFSFs), a key component of 
HEAT.  The FBI coordinates with the DOJ and HHS-OIG on all HEAT aspects including 
funding, resource allocation, MFSF expansion, target identification, training, and operations.  The 
FBI has 62 agents assigned to the nine Strike Forces in Miami, New York City, Houston, Tampa, 
Detroit, Los Angeles, South Louisiana, Dallas, and Chicago.  In addition to funding agent 
resources, the FBI funded undercover operations expenses, financial and investigative analysis 
support, offsite and evidence storage locations, and other investigative costs.  These Strike Forces 
have effectively investigated and prosecuted individuals and entities that do not provide 
legitimate health care services, but exist solely for the purpose of defrauding Medicare and other 
Federal government health care programs.  The continued support of Medicare Strike Force 
operations is a top priority for the FBI. 
 
The Large Scale Conspiracies Initiative seeks to identify and target criminal enterprises and other 
groups whose schemes result in significant losses, or potential losses, to health care benefit 
programs.  Large Scale Conspiracies include criminal enterprises and other crime groups 
collaborating in fraud schemes.  Intelligence efforts for this initiative include information sharing 
and analysis of billing data with DOJ components, CMS, and HHS-OIG.   Additional review of 
suspect/abnormal providers is conducted by the FBIs HCF Fusion Cell.  Investigative assistance 
provided to field offices as part of the initiative can include support for undercover operations, 
source identification and support, and funding of investigative costs.  An example of these types 
of cases was the Biscayne Milieu Health Center, Inc., investigation involving the submission of 
over $50 million in false or fraudulent claims for partial hospitalization program services.  Instead 
of providing these services, the clinic owners paid recruiters kickbacks to obtain Medicare 
beneficiary information and billed Medicare for services which were not rendered or necessary.  
Over 35 defendants have been charged and over 30 have either pled guilty or have been convicted 
at trial as part of the investigation. 
 
The Major Provider Fraud Initiative seeks to identify and target corporations, companies, and 
other groups involved in fraud schemes with significant billing to government and private 
healthcare benefit programs.  The related schemes are frequently complex, challenging to 
identify, and can involve conduct that is nationwide in scope.  Extensive resources and 
coordination are frequently required due to the complexity and scope of the schemes.  Qui Tams 
are a significant intelligence source for these types of cases.  In addition to the work completed at 
the field office level, and in response to this substantial threat, the FBI has established a 
centralized support team to provide investigative assistance on these types of cases nationwide.  
Examples of significant major provider investigations have included Amgen Inc. and Wyeth 
Pharmaceuticals which agreed to pay $762 million and $491 million respectively, to resolve 
criminal and civil liability.  The FBI coordinates efforts against the crime problem with our law 
enforcement partners, such as DOJ components, HHS/OIG, and FDA. 
In addition to the FBIs involvement in the above initiatives, each field office is involved in a 
HCF Task Force and/or working group.  The groups include US Attorney Office and HHS-OIG 
personnel, and in many cases also include state, local, and private insurance personnel.   Based on 
information sharing, including billing analysis by the group partners, additional cases are vetted 
and identified for investigation. 
 
  100   
The FBI actively provides training and guidance on health care matters.  The FBI has teamed with 
the DOJ, HHS, and private insurance organizations to provide training in the priority threat areas 
of health care fraud.  Funded training has included innovative methods of employing advanced 
investigative techniques, basic HCF training for FBI special agent and professional staff newly 
assigned to HCF, and sessions on new and current HCF trends and issues.  FBI personnel training 
opportunities included sessions offered by other government agencies and the private sector.  In 
FY 2013, more than 160 FBI health care fraud investigators and analysts received training.  FBI 
personnel also conducted a wide range of training for external audiences, including personnel 
involved in the investigation of health care fraud matters and industry representatives. 
 
Funding received by the FBI is used to pay direct and indirect personnel-related costs associated 
with the 801 funded positions.  Funds not used directly for personnel matters, are used to provide 
operational support for major health care fraud investigations, national initiatives, training, 
specialized equipment, expert witness testimony, and Strike Force operations.  
 
 
 
  101  Return-on-Investment Calculation 
 
  The Return-on-Investment (ROI) for the HCFAC program is calculated by dividing the total 
monetary results to the Federal government (not including relator payments) by the annual 
appropriation for the HCFAC Account in a given year (not including portions of CMS 
funding dedicated to the Medicare Integrity Program, listed in the table on page 103).  
 
  The monetary results include deposits and transfers to the Medicare Part A Trust Fund and the 
Treasury, as well as restitution and compensatory damages to Federal agencies. 
 
  The HCFAC Account is made up of three funding sources: mandatory funding for HHS and 
DOJ, including HHS-OIG, appropriated through Section 1817(k)(3)(A) of the Social Security 
Act; mandatory funding for FBI activities appropriated through Section 1817(k)(3)(B) of the 
Social Security Act; and discretionary funding for the HCFAC Account appropriated through 
the annual Labor-HHS-Education appropriation.  FBI mandatory HIPAA funding is included 
in ROI calculations given the important role the FBI plays in achieving the monetary results 
reflected in the HCFAC annual report and because that statute states that the funds are for the 
same purposes as the funds provided for HHS and DOJ under the Social Security Act, even 
though FBI spending and monetary results are not required to be reported, per the statute.   
 
  While all mandatory HCFAC Account funding is included in the ROI calculation of this 
report, only certain portions of discretionary HCFAC funding is included.  All discretionary 
HCFAC funding for HHS-OIG and DOJ are included in the HCFAC report ROI since they 
spend their discretionary funding on the same types of activities that they support with 
mandatory funding.  Only the portion of CMS Medicare discretionary HCFAC funding that 
supports law enforcement is included in the HCFAC report ROI.  The remainder of CMSs 
HCFAC Medicare discretionary funding supports activities in the Medicare Integrity Program 
(MIP) that are included in the MIP ROI, which is calculated separately and outside of the 
HCFAC report.  All discretionary CMS Medicaid Integrity program funding is included in a 
separate Medicaid Integrity program ROI published in a separate report. 
   
 
  102  Total Health Care Fraud and Abuse Control Resources 
 
The table below sets forth HCFAC funding, by agency, for health care fraud and abuse control 
activities in FY 2013, including sequester reductions.  The FBI also receives a stipulated amount 
of HIPAA funding for use in support of the Fraud and Abuse Control Program, which is shown 
below.  Separately, CMS receives additional Mandatory Resources under the Medicare Integrity 
Program (section 1817(k)(4) of the Social Security Act).  The inclusion of the activities supported 
with these funds is not required in this report, and this information is included for informational 
purposes.   
 
Since 2009, Congress has also appropriated annual amounts to help carry out health care fraud 
and abuse control activities within DOJ and HHS.  Those amounts are set forth as Discretionary 
Resources in the table below and the results of the efforts supported with these funds are 
contained within this report. 
Mandatory Resources  Fiscal Year 2013 
Office of Inspector General  $187,097,926 
Health and Human Services Wedge1  $34,819,122 
Medicare Integrity Program2  $851,509,634 
MIP/Medicare (non-add)  $797,581,005 
Medi-Medi (non-add)  $53,928,629 
Department of Justice Wedge1  $58,164,042 
Federal Bureau of Investigation3  $128,149,615 
Subtotal, Mandatory HCFAC  $1,259,740,339 
Discretionary Resources   
Office of Inspector General  $28,121,691 
CMS Program Integrity  $237,343,109 
Medicare Program Integrity (Non-Add)  $207,984,175 
Medicaid Program Integrity (Non-Add)4  $29,358,934 
Department of Justice  $28,121,691 
Subtotal, Discretionary HCFAC  $293,586,491 
Grand Total, HCFAC  $1,553,326,830 
     
 
                                                  
1 The HHS and DOJ Wedge funds are divided among multiple agencies within HHS and DOJ. Page 7 of this report 
includes the allocations of the HHS and DOJ Wedge by agency or activity. 
2 Medicare Integrity Program (MIP) and Medi-Medi fund fraud prevention and detection activities within Medicare 
and Medicaid, which are not included in this report to Congress. There is another mandatory report due to Congress 
in April regarding MIP activities. 
3 The FBI receives funding annually to conduct anti-fraud activities authorized by HIPAA. This funding is included 
in the HCFAC ROI calculation for this report.   
4 This is not to be confused with the Medicaid Integrity Program authorized in the Deficit Reduction Act of 2005, 
which receives funding separately from the HCFAC account. 
 
  103    Glossary of Terms 
 
 
The Account - The Health Care Fraud and Abuse Control Account 
 
ACA  Affordable Care Act 
 
AoA - Department of Health and Human Services, Administration on Aging 
 
ACL  Department of Health and Human Services, Administration for Community 
Living 
 
ASPA  Assistant Secretary for Public Affairs (HHS) 
 
AUSA - Assistant United States Attorney 
 
CHIP - Childrens Health Insurance Program 
 
CIA - Corporate Integrity Agreement 
 
CMP - Civil Monetary Penalty 
 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid 
Services    
 
CNC  Compromised Number Contractors 
 
CPI  Center Program Integrity 
 
CRIPA - Civil Rights of Institutionalized Persons Act 
 
CY  Calendar Year 
 
DME - Durable Medical Equipment 
 
DMEPOS  Durable Medical Equipment Prosthetics, Orthotics, and Supplies 
 
DOJ - The Department of Justice 
 
FEHBP  Federal Employee Health Benefits Program 
 
FBI - Federal Bureau of Investigation 
 
FCA - False Claims Act 
 
  104   
FDA - Food and Drug Administration 
 
FDCA  Food, Drug, and Cosmetic Act 
 
FY  Fiscal Year 
 
HCFAC - -Health Care Fraud and Abuse Control Program or the Program 
 
HEAT - Health Care Fraud Prevention & Enforcement Action Team 
 
HHA  Home Health Agency 
 
HHS - The Department of Health and Human Services 
 
HHS-OIG - The Department of Health and Human Services - Office of the Inspector 
General 
 
HI - Hospital Insurance Trust Fund 
 
HIPAA - The Health Insurance Portability and Accountability Act of 1996, P.L. 104-191 
 
HIV - Human Immunodeficiency Virus 
 
MEDIC - Medicare Drug Integrity Contractors 
 
MFCU  Medicaid Fraud Control Unit 
 
OCGS - Organized Crime and Gang Section 
 
OGC - Office of the General Counsel, Department of Health and Human Services  
 
PERM - Program Error Rate Measurement 
 
PFP  Pharmaceutical Fraud Pilot Program 
 
The Program - The Health Care Fraud and Abuse Control Program 
 
Secretary - The Secretary of the Department of Health and Human Services 
 
SMP - Senior Medicare Patrol 
 
USAO - United States Attorneys Office 
 
ZPIC - Zone Program Integrity Contractor 
 
  105