Testimony of: 
Daniel R. Levinson 
Inspector General 
U.S. Department of Health and Human Services 
________________________________________________________________________ 
Good morning, Chairmen Stark and Lewis, Ranking Members Camp and Ramstad, and 
distinguished members of the Committee.  I am Daniel R. Levinson, Inspector General 
for the Department of Health and Human Services (HHS).  I appreciate the opportunity to 
appear before you today to discuss the important oversight role of the Office of Inspector 
General (OIG) and the efforts we undertake to protect the integrity of all 300 programs 
the Department administers, including Medicare.   
 
I am pleased to come before you at a time when OIG recently commemorated an unusual 
confluence of milestones:  2006 marked the 30th anniversary of the OIGs creation, the 
20th anniversary of the 1986 amendments to the Federal False Claims Act, and the 10th 
anniversary of the Health Insurance Portability and Accountability Act (HIPAA).  All 
three of these anniversaries are important milestones that have shaped the way our office 
carries out its work.  
 
Since 1976, the world has dramatically changed and so has OIG.  We have seen 
enormous changes in the health care delivery system, information technology, 
globalization, and public health emergency preparedness.  These changes demand that we 
keep pace with our oversight efforts.  What has remained constant, however, is our core 
mission to promote integrity, economy, and efficiency in the Departments programs.  
OIGs work benefits millions of Americans and generates substantial cost savings. 
  
OIGs ability to combat fraud was greatly enhanced by the 1986 amendments to the False 
Claims Act.  These amendments rejuvenated the Acts qui tam provisions, resulting in a 
public-private partnership that has proven invaluable in detecting and prosecuting health 
care fraud. 
 
Enacted in 1996, HIPAA provided OIG with increased resources; stronger enforcement 
tools; and a management structure to coordinate the efforts of Federal, State, and local 
partners involved in combating health care fraud.  As a result, our office expanded its 
presence throughout the country, launched nationwide initiatives directed at health care 
fraud, and increased the savings and recoveries returned to the taxpayers. 
 
Ensuring the integrity of the Medicare program is challenging, given the programs size 
and complexity.  You have asked me to provide today a broad overview of OIGs 
organizational structure, funding sources, and methods by which we identify our work 
priorities.  I will also provide an overview of the Medicare program and its vulnerabilities 
and will touch on a select body of OIGs work that addresses these vulnerabilities.  I will 
conclude with a prospective look at the challenges ahead. 
 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 1  Role and Responsibility of the HHS OIG 
 
Our office was created in 1976 and was the first statutory OIG in the Federal 
Government.  Two years later, the Inspector General Act of 1978 (IG Act), modeled after 
the law creating the HHS OIG, established OIGs at other Cabinet-level departments of 
the Federal Government, as well as at some independent Government agencies.   
 
Congress created OIGs to be independent and objective units within Federal departments 
and agencies for the purpose of:  (1) conducting audits and investigations of programs 
and operations; (2) coordinating and recommending policies to promote economy, 
efficiency, and effectiveness in the administration of programs; (3) preventing and 
detecting fraud and abuse; and (4) keeping the Department Secretary or Agency 
Administrator and Congress informed about the necessity for corrective action. 
 
To achieve these objectives, our office reviews programs to identify systemic 
vulnerabilities and makes recommendations to improve their efficiency and effectiveness; 
investigates specific instances of fraud or abuse and takes appropriate enforcement 
actions; audits specific payments, providers, and programs to identify and recover 
overpayments; and promotes voluntary compliance by issuing guidance to health care 
providers and the health care industry. 
 
OIGs effectiveness in protecting the integrity of Medicare relies heavily on leveraging 
the resources of our law enforcement partners.  These partners include the Department of 
Justices Civil, Criminal, and Civil Rights Divisions, U.S. Attorneys Offices, and the 
Federal Bureau of Investigation.  Other key partners include the Centers for Medicare & 
Medicaid Services (CMS) and the Medicaid Fraud Control Units (MFCUs).      
 
OIG Structure and Organization 
 
As one of the largest OIGs in the Federal Government, our more than 1,500 full-time 
auditors, evaluators, investigators, and attorneys contribute their diverse expertise and 
skills to carry out our mission to protect the integrity of HHS programs.  To ensure 
national coverage and presence, our staff are located in Washington, DC, Baltimore, 
Maryland, and 9 regional offices and 80 smaller field offices throughout the country.   
 
Although OIG has five functional units, we take a comprehensive and multifaceted 
approach to protect the integrity of the Departments programs.  These units are the:   
(1) Office of Audit Services, (2) Office of Evaluation and Inspections, (3) Office of 
Investigations, (4) Office of Counsel to the Inspector General, and (5) Office of 
Management and Policy.  These units work closely together to accomplish a wide range 
of oversight and enforcement work involving audits, evaluations, investigations, and 
fraud enforcement and prevention efforts.   
 
The Office of Audit Services (OAS) is instrumental in identifying improper payments 
and reimbursements and conducts financial and performance audits of departmental 
programs, operations, grantees, and contractors.  This includes investigative audit work 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 2  performed in conjunction with other OIG components.  Much of OASs work in 
identifying improper payments is complementary to that of the Office of Evaluation and 
Inspections (OEI), which identifies systemic vulnerabilities in program operations and 
processes.      
 
OEI conducts national evaluations to provide HHS, Congress, and the public with timely, 
useful, and reliable information on significant issues.  Specifically, these evaluations 
focus on preventing fraud, waste, or abuse and promoting economy, efficiency, and 
effectiveness in departmental programs.  To promote impact, the reports also present 
practical recommendations for improving program operations.   
 
The Office of Investigations (OI) conducts and coordinates investigations of fraud and 
misconduct to safeguard the Departments programs and beneficiaries.  The size and 
complexity of Federal health and human service programs require OI to leverage its 
resources with those of its law enforcement partners.  As such, OI collaborates closely 
with the Department of Justice on investigations of HHS programs and personnel and 
interacts with CMS, State Licensing Boards, MFCUs, and other entities with regard to 
program exclusion, compliance, and enforcement activities.  These investigative efforts 
lead to criminal convictions, civil settlements, program exclusions, or civil monetary 
penalties and assessments.   
 
The Office of Counsel to the Inspector General (OCIG) performs three major functions 
within OIG.  First, it provides general legal services to OIG, including advice and 
representation on HHS programs and operations, administrative law issues, criminal 
procedure, and internal OIG management matters.  The second major function involves 
coordinating OIGs role in the judicial and administrative resolution of fraud and abuse 
cases involving HHS programs, including the litigation and imposition of administrative 
sanctions, such as program exclusions and civil monetary penalties and assessments; the 
global settlement of cases arising under the Civil False Claims Act; and the development 
and monitoring of corporate integrity agreements (CIA) for certain providers that have 
settled their False Claims Act liability with the Federal Government.  Finally, OCIG 
plays an equally important role in assisting the regulated health care industry in 
complying with the fraud and abuse laws by issuing voluntary compliance program 
guidance, advisory opinions, fraud alerts and bulletins, and safe harbor regulations 
under the Federal anti-kickback statute.        
 
The Office of Management and Policy provides mission support services to OIG and its 
components.  Its principal responsibilities include formulating and executing the 
organizations budget and strategic plan, developing internal policy, and managing 
information technology resources.  
 
Our staff expertise, national presence, organizational structure, and collaboration with 
law enforcement partners enable OIG to leverage scarce resources to achieve maximum 
return for the oversight dollars invested.  For the 3-year period from FYs 2004-2006, 
average return on investment was nearly 13 to 1.  
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 3  OIG Funding 
 
HHS OIGs funding mechanisms are unique.  Since 1997, our funding has come from 
two primary sources:  (1) the Health Care Fraud and Abuse Control Account (HCFAC) 
allocation, which was established by HIPAA, and (2) a discretionary appropriation.  OIG 
has also benefited from additional temporary funding that Congress has appropriated to 
augment existing resources. 
 
HIPAA established an annual dollar amount to be funded from the Medicare Trust Fund 
to combat fraud, waste, and abuse in the Medicare and Medicaid programs.  Our HCFAC 
allocation was determined jointly by the Secretary of HHS and the Attorney General, 
within the annual ranges specified under HIPAA.  HCFAC funds comprise a major 
portion of OIGs annual operating budget, generally between 75 to 80 percent, which 
means that most of our activities involve the Medicare and Medicaid programs.  In fiscal 
year (FY) 2003, OIGs HCFAC allocation was capped at $160 million.  However, the 
Tax Relief and Health Care Act of 2006 established a set annual HCFAC funding amount 
for OIG beginning in FY 2007.  It also establishes annual increases to that funding 
through FY 2010 by the percentage increase in the Consumer Price Index for all urban 
consumers.          
 
Discretionary funding represents dollars appropriated by Congress each year to be used 
for activities related to departmental management issues and the Departments programs 
other than Medicare and Medicaid.  Discretionary funds typically comprise 
approximately 20 percent of OIGs annual operating budget and in FY 2007 amounted to 
nearly $40 million. 
 
Additionally, Congress has provided special funding for Medicare and Medicaid 
oversight over and above the HCFAC amount.  For example, in FY 2005, OIG received 
$25 million to fight fraud, waste, and abuse associated with the implementation of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).  In 
addition, the Deficit Reduction Act of 2005 (DRA) increased OIGs funding for 
Medicaid fraud and abuse control activities.  Pursuant to the requirements of the DRA, 
beginning in FY 2006 and continuing through FY 2010, OIG will receive an additional 
$25 million annually for Medicaid integrity activities.   
 
Given the expansion of the Medicare and Medicaid programs, and increases in health 
care expenditures, OIG acknowledges how critical these additional resources are to 
meeting increased responsibilities for protecting these programs and their beneficiaries.    
 
OIG Priority Setting, Reporting, and Followup 
 
Each year, OIG develops a work plan, which guides our activities for the upcoming fiscal 
year.  This plan is available to the public on our Web site.  Although resource constraints 
preclude us from reviewing all 300-plus programs of the Department annually, OIG 
engages in a comprehensive work-planning process to identify the most important and 
timely issues for the upcoming fiscal year and to direct our resources accordingly.  
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 4  Among the things that OIG considers in setting its work priorities are findings from 
previous OIG and external reviews (e.g., Government Accountability Office (GAO) and 
Medicare Payment Advisory Commission), size of the program (i.e., expenditures, 
number of beneficiaries served), specific requests from Congress and the Department, 
and the need to review program areas that warrant revisiting.   
 
As part of the Departments mandated annual Performance and Accountability Report, 
each year our office identifies the most significant management and performance 
challenges facing the Department based upon OIGs body of work.  This assessment also 
factors into the determination of work priorities for the upcoming fiscal year.  For 
example, in our most recent assessment, OIG identified the integrity of Medicare 
payments, quality of care in long-term services, and Medicare Part D as three areas that 
warrant scrutiny and monitoring.  I will elaborate on these areas later in my testimony. 
 
In addition to identifying and planning the priorities for the upcoming fiscal year, OIG 
must also remain flexible enough to accommodate issues that emerge throughout the 
year.  There is no clearer example of the need for this flexibility than the devastating Gulf 
Coast hurricanes of 2005.  Following the hurricanes, we promptly redirected resources to 
address critical needs arising in the aftermath of the storms.  Unexpected events of the 
magnitude of the 2005 Gulf Coast hurricanes are fortunately rare.  However, each year 
brings new and emerging issues and our priorities and work-planning efforts evolve to 
meet new challenges as they arise.   
 
Moreover, along with our work-planning process, and consistent with the requirements of 
the IG Act, OIG reports to Congress semiannually on our activities.  Unlike the work 
plan, which sets forth OIGs ongoing work and work to be undertaken in the upcoming 
fiscal year, the semiannual report provides a 6-month summary of OIGs completed body 
of work during the reporting period.  The semiannual report covers the spectrum of OIG 
audit, evaluation, and enforcement accomplishments.   
 
Each semiannual report identifies significant recommendations described in previous 
semiannual reports for which corrective action has not been completed.  Thus, appendices 
to each semiannual report list significant unimplemented recommendations.  Because of 
the abbreviated nature of that list in the semiannual reports, OIG has historically issued 
two complementary publications:  (1) the Red Book, to further highlight the potentially 
significant impact of cost-savings recommendations resulting from previous audits and 
evaluations, and (2) the Orange Book, a compilation of nonmonetary recommendations 
to improve economy and efficiency in departmental programs and operations.   
 
In an effort to present a comprehensive listing of all recommendations that have not been 
fully implemented by the operating divisions of the Department, OIG is presently in the 
process of combining the Red Book and Orange Book into one publication that will 
be a Compendium of Unimplemented Office of Inspector General Recommendations.  
This document will serve as a useful tool for Congress, the Administration, and the 
Department in their respective efforts to identify ways to contain costs, maximize the 
effectiveness of programs and services, and improve the efficiency of departmental 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 5  programs.  Full implementation of the recommendations in this document could achieve 
substantial savings and increased effectiveness in the operation of the Medicare program.  
OIG expects to release this compendium in May 2007.  We look forward to providing the 
Department and Congress with this compendium, as they seek to achieve significant 
programmatic savings and enhanced program effectiveness. 
 
Medicare Program Size and Complexity 
 
The Medicare program has grown dramatically since its inception in 1965 and now 
provides comprehensive health care insurance for more than 43 million persons.  More 
than 1 billion fee-for-service claims are processed annually, and Medicare is the largest 
purchaser of managed care services in the country.  Total Medicare expenditures have 
grown from $206 billion in FY 1996 to over $382 billion in FY 2006.   
 
With Medicares expansive network of health care activities comes a tremendous 
responsibility to protect the programs integrity.  In a program as complex as the 
Medicare program, incorrect payments to providers will occur.  OIG has worked 
extensively with CMS to develop a process to estimate incorrect fee-for-service payments 
and institute corrective actions to reduce erroneous payments.  In 1996, OIG estimated 
that over $23 billion (about 14 percent of expenditures) in improper payments had been 
made by the Medicare fee-for-service program.  CMS has reported that the estimate of 
incorrect Medicare fee-for-service payments was reduced to $10.8 billion (4.4 percent of 
expenditures) in 2006. 
 
Although the Medicare program relies on the provider community to submit accurate and 
appropriate claims for payment, and the vast majority of providers are honest and 
trustworthy, provider efforts alone are not sufficient to ensure the integrity of the 
program.  OIGs oversight responsibility plays a key role in protecting scarce program 
resources and the health and welfare of beneficiaries.   
 
Medicare Vulnerabilities and Related OIG Activities 
 
We are committed to proactively identifying program weaknesses and vulnerabilities to 
help prevent fraud, waste, and abuse and to improve quality of care.  We also bring our 
investigative tools and enforcement authorities to bear against those who seek to defraud 
the Medicare program and its beneficiaries. 
 
As noted above, the overall Medicare fee-for-service payment error rate has decreased in 
recent years.  However, the size and complexity of the Medicare program place it at high 
risk for payment errors.  Improper payments and problems in specific parts of the 
program continue to be identified by OIG audits and evaluations and by CMSs 
assessment of the Medicare payment error rate.  These reviews have revealed payments 
for unallowable services, improper coding, and other billing errors.   
 
During the course of our most recent annual assessment of the Departments Top 
Management Challenges, we highlighted three broad areas of vulnerabilities related to 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 6  the Medicare program.  These areas are:  (1) integrity of Medicare payments, (2) quality 
of care in nursing facilities, and (3) Medicare Part D.  Within the broad category of 
Medicare payments, we have also identified more specific vulnerabilities within certain 
services and provider types, some of which are outlined below.  The following sections 
highlight selected areas of vulnerability and OIGs work to identify and mitigate risks 
and to pursue cases of fraud or abuse. 
 
Integrity of Medicare Payments 
 
Medical Equipment and Supplies 
 
OIG and others have found significant vulnerabilities in Medicares oversight of 
suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) 
and in Medicare payments for certain types of DMEPOS.  Over the past 10 years, OIG 
and GAO have reported on weaknesses in Medicares enrollment standards for and 
oversight of DMEPOS suppliers, and we have made recommendations to improve 
oversight, such as increasing unannounced site visits to DMEPOS suppliers.   
 
In previous work, OIG determined that in 2001, Medicare and its beneficiaries paid an 
estimated $96 million for claims that did not meet Medicares coverage criteria for any 
type of wheelchair or scooter and also spent an estimated $82 million in excessive 
payments for claims that could have been billed using a code for a less expensive 
mobility device.  In addition, OIG has found that over the 36-month rental period, 
Medicares total allowed rental payments for oxygen concentrators are 12 times higher 
than the average price to purchase a new concentrator.  If Medicare limited rental 
payments for concentrators to 13 months, like other capped rental items, we estimated 
that the program and its beneficiaries could save more than $3 billion over 5 years.  We 
recommended that CMS work with Congress to limit the rental period for concentrators. 
 
We are continuing our examination of enrollment, compliance, and oversight of 
DMEPOS suppliers, including collaborations with CMS and the Department of Justice on 
specific efforts in high risk geographic areas.  In addition, we also have ongoing work to 
determine the appropriateness of Medicare payments for certain medical equipment and 
supplies, such as wound care equipment. 
 
A recent example of our collaborative enforcement efforts involved a DME company that 
was ordered to pay $8.4 million pursuant to its guilty plea to false statements relating to 
health care matters.  This company provided equipment almost exclusively to 
beneficiaries residing in assisted living facilities.  Over a period of several years, the 
DME supplier billed Medicare and Medicaid for equipment provided to beneficiaries 
who did not meet coverage criteria, created false documents to support the false claims, 
and routinely misled assisted living facility personnel and physicians when marketing and 
servicing the equipment. 
 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 7  Home Health Agencies 
 
Our office has had long-standing concerns with the accuracy of payments made to home 
health agencies (HHAs).  For example, we found that in developing the prospective 
payment system rates for HHAs, CMS did not adjust for substantial unallowable costs 
claimed by HHAs, which were identified in our prior audits.  As a result, we are 
concerned that the base rates are inflated and that improper payments may ensue. 
 
We have several reviews planned or underway that examine Medicare payments made to 
HHAs.  We plan to review the extent to which Medicare HHAs accurately coded 
information on the assessment form that is used to determine payment rates and to 
identify the extent of inappropriate payments made to HHAs.  We will also determine 
whether rehabilitation services provided by HHAs were provided by appropriate staff and 
were medically necessary.  In addition to addressing our concerns about payments to 
HHAs, we are assessing the quality of care provided by HHAs.  For example, we are 
examining trends and patterns in HHA survey and certification deficiencies and 
determining whether CMS is taking appropriate action against noncompliant HHAs. 
 
We have also pursued cases of alleged fraud by HHAs.  One recent enforcement case 
involved a corporation that operated home health care and medical staffing businesses 
across the country.  The agency agreed to pay $8 million to resolve its liability for 
allegedly submitting false claims to Medicare, Medicaid, TRICARE, and CHAMPUS 
over a period of several years.  The Government alleged that the company submitted 
claims for home health services that were not provided by a qualified person; lacked 
physician orders and plans of care; lacked sufficient documentation of the patients 
homebound status; lacked an Outcome Assessment and Information Set evaluation; 
and/or were improperly coded.   
 
Hospital Payments and Operations 
 
OIG has also identified a number of vulnerabilities in hospital operations and has made 
recommendations to recover overpayments and improve payment accuracy and payment 
systems.  For example, OIG audits identified more than $72 million in improper 
payments to hospitals that incorrectly coded claims as discharges to home rather than 
transfers to postacute care facilities.  We recommended recovery of these overpayments, 
and CMS implemented claims processing system edits to identify future miscoded 
claims.   
 
OIG audits of specific hospitals have also found hundreds of millions of dollars in 
misreported wage data, which are used to calculate wage indices that affect Medicare 
payments.  Hospitals that overstate their wage data will receive higher payments at the 
expense of hospitals that report accurate or understated wage data.  Our reviews found 
that there were wide-spread inconsistencies among hospitals in reporting certain wage-
related costs.  As a direct result of our work, CMS clarified in regulation its requirements 
for reporting these types of costs.   
 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 8  Our review of hospital outlier payments showed that changes were needed in how outlier 
payments were calculated to eliminate hospitals ability to construct and manipulate 
charges, allowing them to receive payments to which they were not entitled.  CMS issued 
a regulation to correct these problems, resulting in an estimated savings to the Medicare 
trust fund of $9 billion over 5 years.   
 
To illustrate OIGs enforcement efforts involving hospitals, a hospital chain recently 
agreed to pay $265 million and enter into a 6-year CIA to resolve its civil liability.  The 
Government alleged that the chain artificially inflated its cost-to-charge ratio, triggering 
the outlier payments to which it was not entitled. 
 
We will continue to focus attention on hospital payments and operations to ensure the 
integrity of Medicare payments and to protect the health and welfare of Medicare 
beneficiaries. 
 
Part B Prescription Drugs 
 
Over the past decade, OIG has produced a large body of work on payments for 
prescription drugs under Medicare Part B.  OIG has consistently found that Medicares 
drug reimbursement methodology led to overpayments and was vulnerable to abuse.  For 
example, one OIG review found that Medicare and its beneficiaries would save $761 
million a year by paying for 24 drugs at the prices available to physicians and suppliers.  
For four of the drugs, the median catalog prices available to physicians and suppliers 
were less than half of the Medicare reimbursement amount.  And for one drug, the 
Medicare reimbursement amount was more than 6 times higher than the median catalog 
price.   
 
Consistent with the recommendations in our body of work, the MMA included provisions 
that instituted a new drug reimbursement methodology for Part B.  Recognizing the 
critical role OIG played in reforming Part B drug reimbursement, Congress also included 
provisions in MMA mandating that OIG monitor Part B drug reimbursement and certain 
market prices for Part B-covered drugs on an ongoing basis.  In addition to this required 
price monitoring, OIG has undertaken audits of the prices reported by pharmaceutical 
manufacturers to CMS for purposes of Part B reimbursement. 
 
In addition to our substantial audit and evaluation work on Part B drug pricing issues, we 
have pursued a number of enforcement cases involving pharmaceutical manufacturers.  
For example, one drug manufacturer paid more than $875 million to resolve criminal and 
civil liability resulting from the sales and marketing of a prostate cancer drug.  The 
company pled guilty to conspiring to violate the Prescription Drug Marketing Act by 
causing the sale of free samples and entered into a civil settlement related to the 
companys pricing, sales and marketing practices for the drug. 
 
Another drug manufacturer agreed to enter a global criminal, civil, and administrative 
settlement that included the payment of $704 million plus interest and a 5-year CIA.  The 
global settlement resolved allegations that included the illegal promotion of an 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 9  HIV/AIDS-related drug.  The Government alleged that the company offered and paid 
illegal remuneration to Medicare participating physicians and pharmacies to induce them 
to prescribe and/or purchase the drug. 
 
Quality of Care in Nursing Facilities 
 
With the expected growth and vulnerability of the long-term care population, ensuring 
quality of care provided to beneficiaries in long-term care facilities warrants significant 
attention to ensure that Federal dollars are spent on appropriate care that meets 
Medicares conditions of participation. 
 
OIGs body of work over several years has led to a number of programmatic and 
legislative changes to improve quality of care in nursing facilities.  For example, in 
response to several OIG reports, CMS promulgated regulations that established training 
requirements for nurse aides in nursing homes and required nursing homes to establish 
processes for handling abuse complaints.  States, localities, and nursing homes also 
employed OIG recommendations to formulate plans and identify activities that will 
reduce the use of chemical and physical restraints used for nursing home residents.  CMS 
issued a program memorandum to fiscal intermediaries designed to clarify Medicares 
guidelines for psychotropic drug use in skilled nursing facilities, including the definition 
of an unnecessary drug, justification for drug use outside guidelines, and antipsychotic 
drugs. 
 
Despite these improvements, we have some continuing concerns regarding oversight of 
nursing facilities.  A recent OIG report found that for the majority of cases requiring 
mandatory termination of nursing facilities, CMS did not apply the remedy due to both 
late case referrals by States and CMSs staff reluctance to impose this severe remedy.  In 
another recent review, OIG found that CMS did not investigate some of the most serious 
nursing home complaints within the required timeframe and that CMSs oversight of 
nursing home complaint investigations is limited.  
 
OIG is currently conducting a series of reviews to further address payment and quality 
issues in nursing homes.  Examples of topics include:  use of psychotherapy services in 
nursing homes, impact of Medicare Part D on dual eligible residents in nursing homes, 
and appropriateness of payments and care for hospice beneficiaries residing in nursing 
homes. 
 
Some nursing home care problems are so serious that they constitute failure of care and 
thereby implicate the civil False Claims Act.  These cases often involve allegations of 
widespread or systemic problems such as excessive falls, medication errors, an undue 
number of residents with facility-acquired pressure ulcers, and chronic staff shortages.  
OIG continues to work with U.S. Attorneys and the Department of Justice on 
development and settlement of these egregious cases.  OIG is also working on more cases 
jointly with the MFCUs to help protect the health and safety of this especially vulnerable 
population.  OIG has developed exclusion actions against individuals and entities whose 
conduct causes the furnishing of poor care, with particular emphasis on higher-level 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 10  officials of nursing facilities and chains.  Additionally, OIG continues to negotiate 
quality-of-care CIAs as part of the settlement of such False Claims Act cases.   
 
In one example of such a case, a nursing home settled with the Government for $750,000 
based upon allegations that the facility provided skilled nursing services that were not 
rendered in accordance with applicable laws, regulations, or rules and were so inadequate 
that they were not reimbursable under Medicare or Medicaid.  The Government alleged 
that poor oversight and management of the facilitys operations led to serious deficiencies 
in the beneficiaries care, including bed sores, malnutrition, and the death of at least one 
beneficiary.  The nursing home agreed to a permanent exclusion from participation in the 
Federal health care programs and also agreed to an indefinite suspension from the State 
Medicaid Program.  Prior to the civil settlement, the facility pled no contest to one count 
of second-degree manslaughter involving the death of a beneficiary. 
 
Medicare Part D 
 
The MMA established the new Medicare prescription drug benefit, known as Medicare 
Part D, which took effect on January 1, 2006.  This voluntary benefit is available to all  
43 million Medicare beneficiaries.  According to a recent Congressional Budget Office 
estimate, Medicare outlays for Part D in 2006 were $28 billion.  The magnitude of 
expenditures and impact of this benefit on beneficiaries, from both a health and financial 
perspective, make it critical that Medicare Part D operate efficiently and effectively and 
be protected from fraud and abuse. 
 
The structure and operation of the Part D benefit contain features that present significant 
management challenges.  Administration of the Medicare Part D benefit depends upon 
extensive coordination and information sharing among a number of diverse entities, 
including Federal and State Government agencies, private drug plan sponsors, 
contractors, and health care providers.  Payments to drug plan sponsors based on bids, 
risk-adjustments, and reconciliations add to the complexities of the benefit.  In addition, 
for standard plan designs, the relative financial responsibilities of Medicare, drug plan 
sponsors, and beneficiaries vary through three distinct phases (the initial coverage period, 
the coverage gap, and catastrophic coverage), depending on the beneficiarys total drug 
costs at a given time.  Alternate plan designs include variations of these relative 
responsibilities.  Finally, the complexities of this benefit also create challenges for 
educating beneficiaries in selecting a Part D plan, because beneficiaries face a wide 
variety of drug plans with varying costs, formularies, and pharmacy networks.   
 
To address the challenges of this new and complex benefit, OIG has developed and is 
implementing a strategic plan to fight fraud, waste, and abuse in Part D and to protect the 
health and welfare of its beneficiaries.  Our work covers five broad areas:   
(1) enforcement and compliance, (2) payment accuracy and controls, (3) beneficiary 
access and protections, (4) drug pricing and reimbursement, and (5) information 
technology and systems.  We have ongoing investigations of Medicare Part D cases, 
along with audits and evaluations underway.  
 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 11  OIG Outreach and Guidance to Health Care Industry 
 
One of the most significant ways in which OIG has effected change is by reaching out to 
the health care industry to promote a culture of compliance.  Through outreach activities, 
OIG supports industry efforts to prevent fraud and abuse in the Federal health care 
programs.  Over the past decade, OIG has implemented a comprehensive program to 
promote voluntary compliance by health care providers and suppliers.  We have 
developed tools and incentives that encourage providers to prevent or reduce fraud and 
abuse. 
 
OIGs approach to promoting industry compliance is twofold.  First, OIG issues a variety 
of guidance, including advisory opinions, fraud alerts and special advisory bulletins, and 
compliance program guidance designed to assist health care providers and suppliers to 
develop systems and structures to guard against fraud and abuse, ensure appropriate 
billing, and be responsible corporate citizens.  OIG has issued voluntary compliance 
program guidance for 11 major health care sectors.  These guidances have received 
substantial support from the provider community.  OIG has also issued 20 fraud alerts 
and special advisory bulletins, which identify practices in the health care industry that are 
particularly vulnerable to abuse and more than 150 advisory opinions to individuals and 
entities seeking advice on whether specific arrangements implicate the Federal anti-
kickback statute or other fraud and abuse laws. 
 
Second, our approach to compliance addresses health care providers that the Government 
alleges have defrauded Medicare, Medicaid, or other Federal health care programs.  In 
such cases, the Department of Justice may seek money through the civil False Claims Act 
and OIG may seek to exclude the provider from future participation in Federal health care 
programs.  In the context of a civil and administrative settlement of a health care fraud 
case, OIG often agrees not to pursue exclusion in exchange for the provider entering into 
an integrity agreement with OIG.  Such integrity agreements require providers to 
establish or continue a compliance infrastructure, policies and procedures, training 
programs, internal controls and reporting mechanisms, review procedures, and reporting 
to OIG.  OIG integrity agreements have been a catalyst for change in corporate culture 
and result in comprehensive internal control systems.  Over the past decade, OIG has 
executed more than 1,100 integrity agreements. 
 
Conclusion 
 
Innovation continues to improve the efficiency of business, in turn, influencing the 
delivery of health care.  However, as technological advances increase operational 
efficiency, they also create new vulnerabilities and opportunities for fraud.  OIG has 
adapted, and will continue to adapt to, the ever-changing environment in which we 
operate.  Additionally, we will continue to leverage our own resources and those of our 
law enforcement partners.  We remain committed to staying at the forefront in our efforts 
to achieve effective oversight and enforcement in both our existing work and in meeting 
new challenges presented in the 21st century. 
 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 12  Thanks to the dedicated professionals of OIG and the additional funds recently 
appropriated by Congress, we will continue to carry out our mission to protect the 
integrity of HHS programs and their beneficiaries. 
 
I thank you for the opportunity to be part of this important discussion today about the 
integrity of the Medicare program, as well as for the opportunity to highlight in detail the 
mandate, organization, and activities of the HHS Office of Inspector General. 
 
I welcome your questions. 
 
 
House Committee on Ways and Means 
Subcommittees on Health and Oversight  
Hearing:  March 8, 2007    Page 13