DepartmentofHealth
andHumanServices
OfficeofInspectorGeneral
SemiannualReport
October1,1998 -March31,1999
JuneGibbsBrown
InspectorGeneral Call1-800-HHS-TIPS
(1-800-447-8477) A MESSAGE FROM THE SECRETARY
Because it is critical that every Federal dollar spent on programs of the Department of
Health and Human Services (HHS) goes to meet the needs of the beneficiaries we serve, we
must do all we can to eliminate fraud, waste and abuse in those programs. In the last few
years, we have made great strides in that effort through a comprehensive strategy of tougher
oversight and stricter enforcement.  And the Office of Inspector General (OIG) has been at
the forefront of that battle.
Forging partnerships within and beyond the Department, OIG has worked with others to
develop innovative methods of preventing fraud when possible and prosecuting it when
necessary.  In the health care arena, OIG has sought ways to inform and educate the public,
including the provider and beneficiary communities, and enlist their support in avoiding
improprieties.  In one such effort, OIG is encouraging health care providers to strengthen
their internal controls and helping them do so through the issuance of model compliance
guidance.
Although HHS still has a great deal to accomplish, I am heartened by our successes.  In a
recent audit of the Health Care Financing Administrations financial statements, OIG found
that improper Medicare payments to health care providers dropped dramatically last year.
The error rate in Fiscal Year (FY) 1998 was 7.1 percent; that amounts to a remarkable 45
percent reduction in overpayments in just 2 years.
The OIG is also collaborating with the HHS Office of Child Support Enforcement to
sponsor a multiagency, multijurisdictional task force whose mission is to identify,
investigate and prosecute the most egregious violators of the Federal and State child support
laws.  Based on the success of the initial task force in the Midwest, the President has
announced expansion of this model to four additional areas of the Nation.
I share the Inspector Generals pride in OIGs achievements.  Her office has repeatedly
proven its value to the American public and the Nations decision-makers.  I am confident
that OIG will continue to be a solid investment for the taxpayers as it works with the
Department to safeguard HHS programs for future generations.
Donna E. Shalala FOREWORD
This semiannual report summarizes the activities and accomplishments of the Department of
Health and Human Services (HHS) Office of Inspector General (OIG) for the 6-months
ending March 31, 1999.   As evidenced by the achievements discussed throughout the
report, this has been a highly productive period for OIG.
As an organization whose statutory mission is to prevent and detect fraud, waste and abuse
and promote economy, efficiency and effectiveness in agency programs and operations, we
play a pivotal role in assisting the Department to work better and spend its vital resources
wisely.  The issues confronted by the Department are often complex and defy easy solutions.
In past audits of the Departments financial statements, for example, we found that the
controls needed to ensure the integrity of program payments were not sufficiently reliable.
However, we are beginning to see real progress in that area.  Our most recent review of the
Health Care Financing Administrations financial statements indicated a significant decrease
in the Medicare payment error rate in Fiscal Year 1998.
Clearly, we cannot eliminate the errors, waste and fraud in HHS programs and operations
without relentless oversight through audits, investigations and evaluations.  But we can
further heighten our effectiveness by collaborating with others who share our goals.  
Authorized by the Health Insurance Portability and Accountability Act of 1996, the Health
Care Fraud and Abuse Control Program established an antifraud partnership between our
office and the Department of Justice (DOJ).  We have recently filed our second joint report
on  the  accomplishments  of  that  collaborative  crackdown  on  health  care  fraud  and  are
pleased at the progress made as a result of the new statutory tools and dedicated funding
provided  us.
While enforcement remains one of our key resources, we are also expanding those activities
that are designed to prevent fraud and abuse.  In keeping with that posture, we have reached
out to the health care industry in our antifraud efforts.  We are seeking a constructive
collaboration with health care providers that fosters compliance with program requirements.
Therefore,  in  addition  to  publishing  compliance  guidance  in  the  areas  of  clinical
laboratories, hospitals, home health agencies and third-party billing companies, we have
issued special fraud alerts, advisory opinions and a provider self-disclosure protocol.
We have employed a similar partnership approach in the area of child support enforcement,
and are gratified at the Administrations decision to expand the child support enforcement
task force based on its initial success. The formation of these and other alliances has greatly enhanced our ability to pursue OIGs
mission.  I am proud of the teamwork, diligence and professionalism of my staff and am
certain that we are equal to the challenges that lie ahead.
June Gibbs Brown
Inspector General HIGHLIGHTS
Introduction
During the 6-month period ending March 31, 1999, the Department of Health and Human
Services (HHS) Office of Inspector General (OIG) carried out a number of initiatives in
furtherance of its mission to protect HHS programs and the health and welfare of the
beneficiaries served by them.  Highlights of OIGs accomplishments for this period follow.
Statistical Accomplishments
For the first half of FY 1999, OIG reported savings of $6.8 billion, comprised of $6,446.1
million in implemented recommendations and other actions to put funds to better use,
$140.5 million in audit disallowances and $175.8 million in investigative receivables.  (See
Appendix  A  and  the  sections  entitled  "Resolving  Office  of  Inspector  General
Recommendations, A. Questioned Costs" and "Investigative Prosecutions and Receivables"
in the General Oversight chapter of this report for details.)
In addition, for the first half of FY 1999, OIG reported 1,287 exclusions of individuals and
entities for fraud or abuse of the Federal health care programs and/or their beneficiaries, 179
convictions of individuals or entities that engaged in crimes against departmental programs,
and 287 civil actions.  (See sections entitled "Fraud and Abuse Administrative Sanctions" in
the  Health  Care  Financing  Administration  chapter  and  "Investigative  Prosecutions  and
Receivables" in the General Oversight chapter of this report.)
Mental Health Payment Abuse
As authorized by the Omnibus Budget Reconciliation Act of 1990, the Medicare partial
hospitalization  program  pays  for  intensive  outpatient  psychiatric  services  provided  to
acutely ill individuals who would otherwise require hospitalization.  These services can be
provided by either hospital outpatient departments or community mental health centers.
Several OIG reports issued this reporting period point out abuses in provider charges to the
program.
Community Mental Health Centers
With the Health Care Financing Administration (HCFA), OIG reviewed Medicare payments
for partial hospitalization services to community mental health centers (CMHCs) in five
States.   The OIG estimated that for the 12-month period ending September 30, 1997,
Medicare paid these CMHCs $229 million for unallowable and highly questionable services.
This equaled 91 percent of the total $252 million paid to all CMHCs in the five States
(Florida,  Texas,  Colorado,  Pennsylvania  and  Alabama).    In  response  to  OIGs
recommendations, HCFA developed a 10-point initiative which included both immediate
and  long-term  actions,  such  as  termination  of  egregious  CMHCs,  intensified  medical
reviews, overpayment collections and various legislative actions.  (See page 11)
i Outpatient Psychiatric Services
The  OIG  determined  that  over  $600,000  in  charges  for  outpatient  psychiatric services
claimed by one Massachusetts hospital did not meet Medicare criteria for reimbursement.
The OIG also found that a New England Medicare carrier failed to apply the 62.5 percent
Medicare limit for certain outpatient mental health services; as a result, the carrier overpaid
providers  an  estimated  $1  million  in  Calendar  Year  1996.    Appropriate  recovery  was
recommended in both situations.  (See pages 12 and 13)
Medicare Managed Care
As of September 1998, almost 7 million Medicare beneficiaries received their health care
services through managed care plans, such as health maintenance organizations (HMOs).
During this reporting period, OIG looked at several aspects of managed care:
Payment Methodology
The OIG pointed out that the new payment methodology authorized by the Balanced Budget
Act  of  1997  still  links  managed  care  capitation  rates  to  Medicare  fee-for-service
expenditures -- which past OIG financial statement audits determined to be substantially
inflated with improper payments.  While HCFA agreed that Medicare payments to managed
care organizations have been overstated and should be reduced, it disagreed with OIGs
recommended legislative correction.  The OIG estimated that annual savings associated with
a corrected 1997 base year could be $5 billion in 2002 and increase to over $10 billion in
2007.  (See page 9)
Administrative Costs
An OIG review of administrative costs included in the adjusted community rate proposals
submitted by five Medicare managed care contractors identified millions in administrative
costs that would be considered inappropriate in other Medicare reimbursement situations.
These results are being shared with HCFA for its consideration of appropriate legislative
changes.  (See page 10)
Patient Dumping
Referrals of potential Patient Anti-Dumping Statute (PADS) violations have continued to be
received by OIG at a steady pace.  A violation of PADS occurs if a Medicare participating
hospital, or a physician associated with that hospital, did not provide an emergency medical
screening examination and/or appropriate stabilizing treatment for an emergency medical
condition to a patient who presented at that hospital.  Currently, OIG is investigating over
140 cases of alleged patient dumping.  These cases, however, represent more than 490
instances of potential violations.  During the first half of FY 1999, OIG settled 34 cases and
imposed $985,000 in civil monetary penalties.  The OIG also required community outreach
obligations.  In addition, OIG is litigating six PADS cases.   These cases involve two
hospitals and four physicians.  (See page 21)
ii Drug Reimbursement
In a report that compared Medicare drug reimbursement to Department of Veterans Affairs
(VA) drug costs, OIG found that Medicare and its beneficiaries could save $1 billion per
year if the Medicare allowed amounts for 34 drugs were equal to prices obtained by VA.
This potential savings represents almost half of the $2.07 billion that Medicare and its
beneficiaries paid for these drugs in 1997. Shortly after the reports release, the President
called  for  a  reduction  in  reimbursement  for  Medicare  prescription  drugs,  which  was
supported by this study and a number of previous studies on the same issue.  (See page 32)
Outreach Efforts
The OIG has engaged  in  numerous proactive  outreach initiatives designed  to help the
medical industry avoid fraud and waste, and to increase compliance with Medicare rules.  In
addition, OIG has sought to enlist the help of the public in fighting fraud and waste.
Compliance Guidance
The  OIG  continues  its  efforts  to  promote  voluntarily  developed  and  implemented
compliance  programs  by  providing  guidance  to  the  health  care  industry.    During  this
reporting  period,  OIG  developed  and  released  a  compliance  program  guidance  for
third-party medical billing companies; published in the Federal Register a draft guidance for
the durable medical equipment industry; and issued notices with respect to its plan to
develop  compliance  guidance  for  the nursing  home  and hospice  industries, as  well  as
Medicare+Choice organizations that offer coordinated care plans.  (See page 25)
Beneficiary Outreach 
On February 24, HHS joined the Department of Justice and the American Association of
Retired Persons to launch a new national initiative against waste, fraud and abuse in the
Medicare program.  The OIG has spearheaded that effort from the beginning, working with
HCFA and the Administration on Aging to develop educational materials, promote the OIGs
fraud hotline and set up networks to get the campaigns message out.  The campaign has
been in development for 2 years.
Titled, "Who Pays? You Pay," the campaign is aimed at reducing  waste, including simple
billing errors as well as unnecessary or excessive spending, and criminal fraud and abuse
against the Medicare program.  It asks beneficiaries to raise billing questions first with their
providers or Medicare insurance companies, since most problems can be resolved there.  If
beneficiaries  believe  they  have  detected  fraud,  or  if  they  are  not  satisfied  with  the
explanation of the Medicare carrier, they are asked to call the HHS Inspector General
Hotline at 1-800-HHS-TIPS.  (See page 26)
Youth Use of Cigars
The OIG issued a pair of inspection reports warning about cigar use among teenagers and
recommending mandatory warning labels similar to those on cigarettes and other tobacco
products.  The study included 18 focus groups involving a mix of 227 young cigar users and
nonusers of different backgrounds and locations across the country.  The OIG found that 19
iii percent of the teenagers in the focus groups admitted to having smoked a cigar in the past 30
days, and half the smokers said they expect to be cigar users 5 years into the future.  The
participants reported widespread cigar  use and experimentation among their peers, and
disclosed that some teens create modified cigars called "blunts" by removing some or all of
the core tobacco and replacing it with marijuana.  The OIG also found that State level
enforcement is uneven and is generally given a lower priority than enforcement of unlawful
cigarette and spit tobacco sales.  (See page 46)
Misuse of Grant Funds
Two significant cases involving allegations of misuse of departmental grant funds were
resolved during this reporting period:
Sale of Unlicensed Drug
The University of Minnesota agreed to pay $32 million to resolve its civil liability for the
sale of an unlicensed, experimental drug over a period of more than 20 years.  The lawsuit
sought  recovery  of  profits  and  damages  for  alleged  violations  of  Food  and  Drug
Administration  regulations  prohibiting  the  commercial  sale  of  unlicensed  drugs,  and
departmental rules governing the handling of program income earned with grant funds.  This
represents the largest settlement of allegations of grant fraud against a college or university.
(See page 42)
Foster Care
The City and State of New York agreed to pay $49 million to settle charges that a city
agency had misused $39 million over a 4-year period.  The agency had not provided
required  foster  care  services,  such  as  developing  case  plans  and  conducting  periodic
reviews.  (See page 54)
Child Support Enforcement
The  OIG  has  made  the  detection  and  prosecution  of  absent  parents  who  fail  to  pay
court-ordered child support an agency priority in the last several years.  Through audits,
inspections  and  investigations,  OIG  has  worked  with  the  Office  of  Child  Support
Enforcement (OCSE) and other Federal, State and local partners to develop programmatic
and operational procedures to expedite the collection of child support and to bring to justice
those who willfully disregard their obligations.  In the area of investigations, OIG has
opened 559 child support cases nationwide since 1995.  These cases have resulted in 112
convictions and court-ordered restitution of over $7.8 million.
In 1998, as part of its effort to further increase child support collections, OIG and OCSE
initiated  a  multiagency,  multijurisdictional  investigative  task  force  which  consisted  of
enforcement units from different States.  The task force is designed to identify, investigate
and prosecute criminal nonsupport cases both on the Federal and State levels through the
coordination of law enforcement, criminal justice and child support office resources.  The
goal  of  the  task  force  is  to  create  a  streamlined  system  of  referral,  investigation  and
prosecution that will bring to justice the most egregious offenders.  The success of this first
iv task force resulted in widespread interest in exporting the concept to more areas of the
country.  With the support of the Department of Justice, the Secretary and the White House,
4  more  task  force sites  covering  an  additional 16  States  have been  chosen.   The first
additional site, Baltimore, Maryland, is now operational, and it is expected that all five task
forces will be functioning by the end of this fiscal year.  (See page 50)
Departmental Oversight
As  part  of  its  oversight  responsibilities  for  departmental  activities,  OIG  assessed  the
Departments  progress  toward  Year  2000  computer  system  readiness  and,  through  the
financial statement audit process, accountability for taxpayer dollars.
Year 2000 System Compliance
As the millennium approaches, OIG is monitoring the Departments progress in renovating
its mission-critical computer systems to recognize and process four-digit dates.  This effort is
part  of an  initiative by  the Presidents Council on Integrity and Efficiency to monitor
preparations throughout the executive branch.
To allow time for dealing with unanticipated problems, the Department set December 31,
1998 as its deadline for system compliance.  Most Operating Divisions met this due date.
(See page 60)
Federal Financial Accountability
Although OIGs recent audit of the departmentwide consolidated financial statements for FY
1998  noted  an  improvement  in  Federal  financial  accountability,  OIGs  opinion  on  the
statements  continues  to  be  qualified.    Continuing  problems  in  documenting  Medicare
accounts receivable activity and difficulty in having available all accounting information
needed for audit of statements of budgetary resources, financing, and custodial activity are
the primary reasons for the qualification.
On a positive note, OIG reported a significant reduction in the estimated amount of improper
Medicare fee-for-service payments in FY 1998 -- a 45 percent reduction since FY 1996.  The
error rate  for FY  1998 was an  estimated 7.1 percent,  representing  estimated  improper
payments of $12.6 billion.  This compares with an error rate of 11 percent in FY 1997,
representing  $20.3  billion,  and  14  percent  in  FY  1996,  representing  $23.2  billion  in
improper payments. 
In addition, OIG identified systemic internal control problems that were related to material
financial statement amounts which affected a number of Operating Divisions.  The OIG
continues to work with the Department in its efforts to achieve full financial discipline.  (See
pages 2, 3, and 61)
v OIG Work in Performance Measurement
In order to identify work done in the area of performance measurement, OIG has labeled
some items throughout this report as performance measures with the symbol            .
Performance measures are used to evaluate the achievement of a program goal, such as the
efficiency of an immunization program which is measured by the number of inoculations
provided per dollar of cost.  In OIGs opinion, the audits, inspections and investigations
identified  with  the  performance  measure  symbol  offer  management  information  about
whether  some  aspect or all of the programs  or  activities reviewed are achieving their
missions and goals.  These proposals are provided to management for their consideration as
they develop their performance measures.  (See Appendix F)
Internet Address
This semiannual report and other OIG materials may be accessed on the Internet at the
following address: http://www.dhhs.gov/progorg/oig
vi Table of Contents
Chapter I  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1
Improper Fiscal Year 1998 Medicare Fee-for-Service Payments  . . . . . . . . . . . . . . . . . . .2
Financial Statement Audit of the Health Care Financing Administration
for Fiscal Year 1998  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
A.  Physicians at Teaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
B.  Diagnosis Related Group Three-Day Window Project  . . . . . . . . . . . . . . . . . . . .4
C.  Hospital Outpatient Laboratory Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
D.  PPS Patient Transfer Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
E.  Pneumonia Upcoding Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Other Hospital Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Monitoring the Accuracy of Hospital Coding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Medicare Payments for DRG 475:  Respiratory System Diagnosis with
Ventilator Support   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Hospital Closure:  1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Medicare Beneficiary Interest in Health Maintenance Organizations 
in 1997  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Inflated Capitation Rates for Medicare Managed Care Plans . . . . . . . . . . . . . . . . . . . . . .9
Adjusted Community Rate Proposals for Risk-Based Managed Care
Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Risk-Based Medicare Health Maintenance Organization Payments for
Out-of-Area Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Partial Hospitalization Services Provided through 
Community Mental Health Centers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Outpatient Psychiatric Services Provided by a Massachusetts Hospital . . . . . . . . . . . . .12
Payment Edits for Outpatient Psychiatric Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Prospective Payment System for Hospital Outpatient Department
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Beneficiary Hospice Eligibility at Michigan Provider  . . . . . . . . . . . . . . . . . . . . . . . . . .13
Medicare Contractor Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
A.  Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
B.  Termination and Severance Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Fiscal Intermediary Fraud Units  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Fraud and Abuse Sanctions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
B.  Civil Penalties for Patient Dumping  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
C.  Civil Penalties for False Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
D.  Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Outreach Campaign to Educate Medicare Beneficiaries About Fraud
and Abuse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Provider Self-Disclosure Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Clinical Laboratory Tests Performed by Hospital Outpatient
Department Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Laboratory Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Bad Debts Reported Under Medicares End Stage Renal Disease
Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Medicare Reimbursement for Hospital Beds in the Home  . . . . . . . . . . . . . . . . . . . . . . .29
Ordering Medicare Equipment and Supplies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .30
Special Fraud Alert:  Physician Certifications  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Comparing Drug Reimbursement: Medicare and Department of
Veterans Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Medical Necessity of Medicare Ambulance Services . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Chiropractic Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Chiropractic Services Covered by Medicare Managed Care
Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Beneficiary Awareness of Health Care Financing 
Administration Publications in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Federal and State Partnership: Joint Audits of Medicaid  . . . . . . . . . . . . . . . . . . . . . . . .36
A.  New York  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
B.  New Jersey  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Follow-Up to Detoxification Services for Medicaid Beneficiaries . . . . . . . . . . . . . . . . .38
Medicaids Use of External Quality Review Organizations  . . . . . . . . . . . . . . . . . . . . . .38
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .41
Settlement of Allegations of Grant Fraud and Sale of Unlicensed
Experimental Drug  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Low-Volume Institutional Review Boards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Food and Drug Administration Warning Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Centers for Disease Control and Preventions Year 2000 Remediation  . . . . . . . . . . . . .43
Disclosure Statements of Major Research Universities  . . . . . . . . . . . . . . . . . . . . . . . . .44
Superfund Financial Activities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
A.  Agency for Toxic Substances and Disease Registry  . . . . . . . . . . . . . . . . . . . . .44
B.  National Institute of Environmental Health Sciences  . . . . . . . . . . . . . . . . . . . .44
Medicare Pricing for Indian Health Services Contract Health Services
Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Indian Health Service: Program Integrity and Ethics Functions . . . . . . . . . . . . . . . . . . .45
Mental Health Clinical Training Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Youth Use of Cigars  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .46
Chapter III  ADMINISTRATION FOR CHILDREN AND FAMILIES,
AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .49
Child Support Enforcement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Child Support Enforcement Annual Report to Congress  . . . . . . . . . . . . . . . . . . . . . . . .53
Interstate Compact on the Placement of Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Foster Care Eligibility in California:  Follow-On Review  . . . . . . . . . . . . . . . . . . . . . . .54
Misuse of Grant Funds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Tribal Child Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Early Efforts by States to Monitor Outcomes of Welfare Reform  . . . . . . . . . . . . . . . . .55
Dual Payment of Welfare Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Discretionary Grants Awarded to Alleviate Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
A.  California Grant  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
B.  Oregon Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Atlanta Empowerment Zone Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Health Care Anti-Fraud, Waste, and Abuse Community Volunteer
Program:  First Year Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Chapter IV  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Year 2000 System Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
A.  Interim Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
B.  Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Financial Statement Audit of the Department for Fiscal Year 1998  . . . . . . . . . . . . . . . .61
Results Act Review Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
A.  Office of Inspector Generals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .63 B.  Quality Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .65
A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
B.  Funds Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .67
A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
B.  Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Employee Fraud and Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
APPENDIX A - Savings Achieved Through Policy and Procedural 
Changes Resulting from Office of Inspector General
Audits, Investigations and Inspections
October 1998 through March 1999  . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - Unimplemented Office of Inspector General 
Recommendations to Put Funds to Better Use . . . . . . . . . . . . . . .B-1
APPENDIX C - Unimplemented Office of Inspector General 
Program and Management 
Improvement Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the
Inspector General Act of 1978, as Amended . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1 Health Care 
Financing 
Administration Chapter I
HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General
Activities
The Health Care Financing Administration (HCFA) is responsible for administering the
Medicare and Medicaid programs.  Medicare Part A provides hospital and other institutional
insurance for persons age 65 or older and for certain disabled persons, and is financed by the
Federal  Hospital  Insurance  Trust  Fund.    Medicare  Part  B  (Supplementary  Medical
Insurance) is an optional program which covers most of the costs of medically necessary
physician and other services, and is financed by participants and general revenues.
The Medicaid program provides grants to States for medical care for low-income people.
Eligibility for Medicaid is, in general, based on a persons eligibility for cash assistance
programs.    State  expenditures  for  medical  assistance  are  matched  by  the  Federal
Government using a formula that measures per capita income in each State relative to the
national average.  The Federal/State Childrens Health Insurance Program (CHIP), created
under the new title XXI of the Social Security Act, will expand health coverage to uninsured
children whose families earn too much for Medicaid but too little to afford private coverage.
The CHIP program is a partnership between the Federal and State governments in which
States may choose to expand their Medicaid programs, design new child health insurance
programs or create a combination of both.
The Office of Inspector General (OIG) has devoted significant resources to investigating and
monitoring  the  Medicare  and  Medicaid  programs.    These  activities  have  often  led to
criminal, civil and/or administrative actions against perpetrators of fraud and abuse.  They
also have helped ensure the cost-effective delivery of health care, improved the quality of
health care and reduced the potential for fraud, waste and abuse.
Over the years, OIG findings and recommendations have contributed to many significant
reforms in the Medicare program.  Such reforms include implementation of the prospective
payment system (PPS) for inpatient hospital services and a fee schedule for physician
services; regional consolidation of claims processing for durable medical equipment (DME);
establishment of fraud units at Medicare contractors; prohibition on Medicare payment for
physician self-referrals; and new payment methodologies for graduate medical education.
1 The OIGs documentation of excessive payments led to recent statutory changes in the way
and/or the amount Medicare reimburses rural health clinics, skilled nursing facilities, home
health  agencies,  hospices,  ambulance  services,  oxygen  suppliers,  clinical  laboratories,
suppliers of certain Medicare-covered drugs and biologicals, teaching hospitals for indirect
medical education costs and the States for Medicaid disproportionate share payments.  To
ensure quality of patient care, OIG has assessed clinical and physiological laboratories;
evaluated the medical necessity of medical equipment and of services provided by home
health agencies; analyzed various State licensure and discipline issues; reviewed several
aspects of medical necessity and quality of care under PPS, including the risk of early
discharge; and evaluated the care rendered by itinerant surgeons and the treatment provided
by physicians performing in-office surgery.
The OIG also audits HCFAs financial statements, which account for more than 84 percent
of Department of Health and Human Services (HHS) outlays.  In addition to issuing an
opinion on the statements, OIG has assessed compliance with Medicare laws and regulations
and the adequacy of internal controls.
Improper Fiscal Year 1998 Medicare 
Fee-for-Service Payments
The OIG reports that improper payments under Medicares fee-for-service system totaled an
estimated $12.6 billion during FY 1998.  This years estimate is $7.7 billion less than last
years estimate of $20.3 billion and $10.6 billion less than the previous years estimate of
$23.2 billion - a 45 percent decline since FY 1996.  
The OIG developed the estimate of improper payments with the support of medical experts
who  together  reviewed  a  comprehensive,  statistically  valid  sample  of  Medicare
fee-for-service claim expenditures and supporting medical records to determine the accuracy
and legitimacy of the claims.
The OIG attributes the decline in improper payments to several factors:  HCFAs efforts
under  the  Medicare  Integrity  Program;  fraud and  abuse  initiatives;  improved provider
compliance with Medicare reimbursement rules; HCFA/OIG outreach efforts emphasizing
Medicare documentation requirements; and implementation of HCFAs corrective action
plan.  Although significant progress has been made, recommendations call for HCFA to
continue its diligence in reducing past identified problems and to keep abreast of those
issues that could negatively affect future error rates.  The HCFA generally concurred with
OIGs findings and recommendations.  (CIN:  A-17-99-00099)
2 Financial Statement Audit of the Health Care 
Financing Administration for Fiscal Year 1998
In its audit report on HCFAs FY 1998 financial statements, OIG issued a qualified opinion
on the statements, because again OIG was unable to express an opinion on the reliability of
the Medicare accounts receivable balances.
Medicare contractors reported about $23 billion in accounts receivable activity during the
year, which resulted in gross accounts receivable of approximately $5.8 billion, or about
$3.3 billion net, at fiscal year end.  Because the contractors did not maintain adequate
documentation, OIG could not determine whether these estimates and balances were fairly
presented.  Deficiencies were found in nearly all facets of Medicare accounts receivable
activity at the 12 contractors in OIGs sample.
The HCFA concurred with OIGs recommendations and is in the process of taking corrective
action.    The  OIGs  report  appears  in  HCFAs  FY  1998  Financial  Report.    (CIN:
A-17-98-00098)
Major Hospital Initiatives
The OIG has launched five national projects involving civil actions at hospitals that were
falsely billing the Medicare program.  Three of the five grew from OIG hospital audits that
identified irregularities in Medicare billing practices.
A.  Physicians at Teaching Hospitals
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules
governing reimbursement to physicians at teaching hospitals (also known as the PATH
initiative).  The specific objectives of the PATH audit initiative are to verify compliance with
the Medicare rules governing payment for physician services provided by residents and
teaching physicians, and to ensure that all claims for physician services accurately reflect the
level of service provided to the patient.
Medicare pays the costs of training residents through the graduate medical education (GME)
program.  Medicare also pays an additional amount in recognition of the additional costs
associated with training residents (also known as indirect medical education or IME).  These
payments can total over $100,000 per resident per year.  Medicare paid approximately $8.1
billion to teaching hospitals in 1996 for the costs of training residents.  The Medicare
payments  described  above  include  payments  to  teaching  physicians  for  their  role  in
supervising residents.
The fundamental tenet of the PATH initiative is that in order to receive reimbursement from
Medicare Part B for a service rendered to a patient, the teaching physician must have
personally provided that service or have been present when the resident furnished the care.
3 Physicians claiming reimbursement for services performed by the resident alone are making
a duplicate claim -- one that has already been paid for under Part A through the GME and
IME payments.
The PATH audits also include a review of Part B claims information and medical records to
determine if the teaching physician claimed the appropriate reimbursement for the level of
service provided.  The Medicare billing systems vulnerability to upcoding is a longstanding
concern at OIG.  The PATH reviews are designed to detect patterns or practices of upcoding,
resulting in unwarranted loss to the Medicare Trust Fund.
In sum, the PATH initiative has been undertaken as a result of OIGs extensive audit and
investigative work in this area.  To date, four institutions have entered into settlements with
the Federal Government to resolve potential False Claims Act liability related to improper
claims for Part B physician services submitted in the teaching setting.  These settlements
have  resulted  in  the  Governments  recovery  of  over  $67  million.    As  a  condition  of
settlement, these institutions have also implemented corporate integrity programs to prevent
and detect future improper claims.  Reviews completed at four other institutions disclosed
no major problems with either billings in the teaching setting or upcoding, demonstrating
that providers can and do bill the Medicare program correctly, and a review at one institution
resulted in an administrative overpayment settlement with the carrier.
To determine whether, and to what extent, problems similar to those noted above were
present  at  other  teaching  institutions  throughout  the  Country,  the  PATH  project  was
expanded into a national initiative, but limited to those institutions that received clear
guidance before December 30, 1992 from the Medicare Part B carriers communicating the
applicable HCFA reimbursement standards.  As an alternative to OIG auditors conducting
the audits, these providers are given the opportunity to conduct self-audits by contracting
with an independent third party for a review of their Medicare billing practices, with
Government oversight, and to report the audit results to OIG.
B.  Diagnosis Related Group Three-Day Window Project
In 1995, OIG and the Department of Justice (DOJ) launched a national project to recover
overpayments made to hospitals as a result of claims submitted for nonphysician outpatient
services that were already included in the hospitals inpatient payment under the PPS.
Hospitals that submit claims for the outpatient service in addition to the inpatient admission
are, in effect, double billing for the outpatient services.  In addition, the project seeks to
recover for those services rendered to beneficiaries during the inpatient admission that
should be included in the diagnosis related group (DRG), but are separately charged.  A
prevalent pattern of abuse was identified through repeated OIG audits of hospital claims for
inpatient services under PPS.  Prior to the inception of this project, OIG had issued four
reports to HCFA identifying approximately $115.1 million in Medicare overpayments to
hospitals caused by these improper billings.
4 This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for
outpatient services.  The project is primarily coordinated by the U.S.  Attorneys Office -
Middle District of Pennsylvania.  As of the end of the reporting period, settlements had been
executed with 2,550 hospitals and about $66 million had been recovered.
One of the most important aspects of this project is the stipulation in each settlement
agreement that each hospital will assure compliance with proper billing for inpatient and
outpatient services.  Such compliance measures are designed to prevent and detect erroneous
billing.  It is hoped that the deterrent effect of possible civil actions, along with promised
compliance, will remove this source of improper claims.
C.  Hospital Outpatient Laboratory Project
The OIG, DOJ and multiple States have joined forces to target false or fraudulent Medicare
and Medicaid claims in hospital outpatient laboratories.  A project begun in Ohio by OIG,
DOJ, the State of Ohio and the Medicare fiscal intermediary proved so successful, United
States Attorneys Offices in other States began their own investigations as part of an
expanded effort.  This project involves the recovery of multiple damages, when appropriate,
for improper and excessive claims submitted for hematology and automated blood chemistry
tests by hospital outpatient laboratories.  These abuses stem from the improper unbundling
and double billing of laboratory tests, and, in certain cases, the billing for certain medically
unnecessary tests.  The investigations have also shown numerous instances of billing for
hematology complete blood count additional indices that were not ordered by physicians and
were not medically necessary.
Clinical laboratory services were particularly vulnerable to these abuses because of the
multiple number of tests ordered at one time and the capability of automated equipment to
run numerous tests from one sample of blood at a low cost.  Under Medicare guidelines, the
hospitals were required to bill certain groupings of blood chemistry tests using a bundled
code.  The reimbursement for blood chemistry tests bundled into a panel is significantly less
than the sum of the costs for each test run separately.
The OIG and DOJ, and in some districts, authorities from other Federal programs such as
Tricare  and Federal Employees  Health  Benefits  Program, are working  together on the
national project to provide targeting data to the United States Attorneys offices interested in
pursuing this recovery initiative in their districts.  The OIG also collaborated with DOJ to
produce a model settlement agreement that includes compliance measures, which has been
disseminated to all participating districts throughout the United States.
Thus far, 206 hospitals have entered settlements in the Hospital Outpatient Laboratory
Project, with settlements totaling more than $47.8 million.  More hospitals are expected to
settle in the near future.
5 D.  PPS Patient Transfer Project
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for
patient transfers between two PPS hospitals.  Under Medicare reimbursement rules, the
hospital transferring a patient is to receive a per diem payment based on the length of stay,
and the hospital receiving the transferred patient is to be paid a diagnosis-related payment
based on the final discharge code.
Since 1986, however, OIG has found that many transferring hospitals inappropriately claim
full diagnosis-related payment rather than the per diem payment.  The HCFA has already
acted on OIGs first report, which identified $227 million in recoveries and savings.  The
OIGs second report, issued in November 1996, and a more recent computer analysis of
claims disclosed additional overpayments of approximately $202 million.  Currently, OIG is
working with U.S.  Attorneys offices nationwide to address this continuing problem.
E.  Pneumonia Upcoding Project
Medicare  inpatient  hospital  stays  are  reimbursed  based  on  the diagnosis-related  group
(DRG) that is assigned to the patients illness.  The determination of the appropriate DRG
for a particular case depends upon the hospitals assignment of diagnosis code(s) from the
th
International Classification of Diseases, 9  Revision, Clinical Modification to the inpatient
stay.  Most pneumonia cases are grouped into one of four DRGs, one of which results in
significantly higher payment to the hospital than do the others.  Most pneumonia cases are
grouped into the lower-paying DRGs.  The OIG has found that a small percentage of
hospitals across the country have assigned a disproportionate number of pneumonia cases
diagnosis codes that result in an admission being assigned the higher paying DRG.  Review
of the medical records has demonstrated that most of the cases assigned these specific
diagnosis codes at these hospitals should have been assigned a diagnosis code that would
result in assignment of a lower-paying DRG.
The OIG is currently investigating the coding for bacterial pneumonia at over 100 hospitals.
To date, five hospitals have settled their liability for such coding by paying over $7.7 million
and agreeing to corporate integrity requirements.
Other Hospital Investigations
The following cases are significant examples of other hospital cases resolved during this
period which were not part of the special projects described above:
(cid:127) A California corporation agreed to pay $7.3 million to resolve its civil and
administrative  liability  for  submitting  Medicare  claims  for  unnecessary
services.  The main subjects in the case were two hospitals owned by the
corporation.  Allegations included the payment of kickbacks to physicians at
one  of  the  hospitals  for  patient  referrals,  and  the  submission  of  false
6 Medicare  claims,  resulting  in  improper  payments  to  "management
companies"  involving  psychiatric  programs  at  the  other  hospital.    The
corporation also entered into a corporate integrity agreement for 5 years.
(cid:127) A Pennsylvania hospital agreed to pay the Government $415,000 to settle
allegations  the  hospital  submitted  claims  to  Medicare  for  noncovered
surgical procedures.  The case involved billing for lung volume reduction
surgery  (LVRS),  a  surgical  procedure  not  covered  by  Medicare.    The
hospital submitted inpatient bills for LVRS under the billing code of a
Medicare-covered surgical procedure.  As a result, the hospital improperly
obtained Medicare reimbursement for LVRS.  The established overpayment
in this case totaled $175,000.  The hospital also agreed to enter into a
corporate  integrity  agreement  requiring  new  policies  and  procedures,
training, auditing and reporting.
(cid:127) A New York hospital agreed to pay $290,000 to resolve its civil liability
under the False Claims Act and the Civil Monetary Penalties (CMP) law for
certain ancillary pharmacy charges that were billed but not covered under
Medicare.    Most  of  the  improper  charges  occurred  when  a  particular
management consulting firm was in charge of the hospitals billing.
Monitoring the Accuracy of Hospital Coding
In an examination of HCFAs monitoring of hospital coding accuracy under Medicares
DRG payment system, OIG found that the system is vulnerable to abuse by providers who
wish to increase reimbursement inappropriately through upcoding, particularly so within
certain DRGs.  The OIGs analysis identified noticeable, detectable and curable upcoding
abuses among providers and within specific DRGs.  The OIG recommended that HCFA
perform  routine  monitoring  and  analysis  of  hospital  billing  data  and  clinical  data  to
proactively identify aberrant patterns of upcoding.  Further, OIG identified approaches for
the agency to consider as it works to detect upcoding.  The HCFA concurred with the
recommendations and outlined actions it will take to increase monitoring of hospital coding.
(OEI-01-98-00420)
Medicare Payments for DRG 475:  Respiratory System Diagnosis
with Ventilator Support 
This DRG report identified a small number of hospitals (46) as having atypically high
Medicare billings for DRG 475.  The OIG estimated that potential overpayments in these
hospitals for DRG 475 could be as high as $11.5 million.  However, the true impact of
upcoding can only be determined by undertaking a detailed claims review at each hospital.
7 In the report described above, OIG recommended that HCFA  monitor and analyze hospital
billing data and clinical data to proactively identify problems of DRG upcoding.  The HCFA
agreed with the recommendation and outlined an extensive program to respond to it.  The
information in this report is offered for insight into another possible problem DRG for
HCFA to consider when refining its plan. (OEI-03-98-00560)
Hospital Closure:  1997
The closure of hospitals generates public and congressional concern.  The OIG has issued 10
annual reports on hospital closures in the U.S. for 1987 through 1996.  The 1997 report
continues  OIGs  analysis  to  determine  the  extent  and  effects  of  hospital  closures.
Thirty-seven hospitals closed in 1997 -- 0.8 percent of all hospitals.  One more hospital
closed in 1997 than in the previous 2 years.  At the same time, three hospitals opened.  Most
of the hospitals that closed were small and had low occupancy rates.  The average daily
patient load in the year prior to closure was 13 in rural hospitals and 47 in urban hospitals.
Although residents of a few communities had to travel greater distances for hospital care,
most had emergency and inpatient medical care available within 10 miles of a closed
hospital.  After closure, 66 percent of the hospitals were being used for other health-related
services,  such  as  24-hour  urgent  care  clinics  and  long-term  care  facilities.
(OEI-04-98-00200)
Medicare Beneficiary Interest in Health 
Maintenance Organizations in 1997
The 1997 beneficiary satisfaction survey also asked beneficiaries enrolled in fee-for-service
plans  about  their  awareness  of  Medicare-contracted  health  maintenance  organizations
(HMOs) and their interest in joining one.  Comparing the results to those of earlier years,
OIG found that general awareness of HMOs had increased each year.  However, about 75 of
those surveyed were unaware that they could appeal HMO decisions about their health care.
Also, there was no change in the percentage of beneficiaries who said they knew whether
there was a local HMO they could join.  Only 23 percent of those surveyed expressed an
interest in joining an HMO, a statistically significant decrease from 1995; of those who cited
a reason for not joining an HMO, approximately 46 percent said that inability to select their
own physician was the main reason.
Since the Balanced Budget Act (BBA) of 1997 expanded the types of managed care plans
that will be available to beneficiaries, HCFA is currently negotiating contracts with managed
care providers and developing educational materials for beneficiaries.  In preparing those
materials, OIG proposed that HCFA consider providing beneficiaries with information on
managed care plans in their areas.  Further, OIG suggested that those materials emphasize
beneficiaries rights to appeal managed care decisions.  (OEI-04-97-00032)
8 Inflated Capitation Rates for Medicare Managed Care Plans
Under  the  Medicare  risk-based  program,  managed  care  organizations  (MCOs)  assume
responsibility for providing all Medicare-covered services in return for a predetermined
capitated rate.  Enrollment in managed care plans, particularly risk-based plans, has been
steadily increasing, especially during the last 5 years.  As illustrated below, Medicare
payments to risk-based managed care plans have also grown significantly in this period and
the Congressional Budget Office estimates large increases to come.
While the BBA of 1997 revised the payment calculation methodology for MCOs effective
January 1998, the new methodology still links capitation rates to Medicare fee-for-service
(FFS)  expenditures.    In  auditing  HCFAs  financial  statements,  OIG  estimated  that  the
Medicare FFS program improperly paid providers $23.2 billion and $20.3 billion for Fiscal
Years (FYs) 1996 and 1997, respectively.  Accordingly, OIG recommended that HCFA
pursue legislation to allow modifications to MCO capitation rates, which would include an
adjustment for the estimated amounts of unrecovered improper payments currently included
in these calculations.
In response to the draft report, HCFA agreed that Medicare payments to MCOs have been
overstated and should be reduced, but thought it inappropriate to seek legislation at this
time.  The OIG believes that, without any legislative correction, the FFS payment errors will
9 continue to be locked into all future MCO payments.  Adjusting the capitation payments by
the lower limit of improper payments found in OIGs financial statement audits would result
in managed care payment savings of at least 7 percent.  Based on the anticipated growth of
MCO payments, annual savings associated with a corrected 1997 base year could be $5
billion in 2002 and increase to over $10 billion in 2007.  (CIN:  A-14-97-00206)
Adjusted Community Rate Proposals for Risk-Based Managed
Care Organizations
The adjusted community rate (ACR) process is designed for managed care organizations to
present to HCFA their estimates of the funds needed to cover the costs (both medical and
administrative)  of  providing  the  Medicare  package  of  services  to  enrolled  Medicare
beneficiaries.  In an earlier audit which examined the allocation of administrative costs on
ACR proposals for contract years 1994 through 1996, OIG concluded that the methodology
allowing managed care organizations to apportion administrative costs to Medicare was
flawed  and  that  Medicare  covered  a  disproportionate  amount  of  the  contractors
administrative costs.
During this reporting period, OIG reviewed selected administrative costs included in the
1997 ACR proposals of five Medicare managed care risk contractors.  The OIG identified
millions in administrative costs that would be considered inappropriate and unallowable in
light of the Medicare programs general principle of paying only reasonable costs.  One
contractor,  for  instance,  included  over  $1.4  million  for  lobbying,  entertainment  and
unsupported costs.  Such costs would not have been allowable had they been submitted by
managed care organizations under cost contracts or by health care providers paid under a
Medicare cost reimbursement system.  The OIG believes that these administrative costs
should not be included in the ACR proposal; an unjustifiably increased ACR reduces the
amount available to Medicare beneficiaries for additional benefits or reduced premium
amounts.
Because there is presently no statutory or regulatory authority governing the allowability of
costs  in  the  ACR  process,  OIG  did  not  address  recommendations  to  the  individual
contractors.  However, OIG believes that these results highlight a significant problem and
has shared them with HCFA so that appropriate legislative changes may be considered.
(CIN:  A-01-98-00510; CIN:  A-02-98-01004; CIN:  A-03-98-00022; CIN:  A-05-98-00049;
CIN:  A-06-98-00046)
Risk-Based Medicare Health Maintenance Organization
Payments for Out-of-Area Beneficiaries
The amount of Medicare reimbursement for services provided to a beneficiary enrolled in an
HMO depends, in part, on the beneficiarys county of residence.  Beneficiaries generally
must  reside  in  the  plans  approved  service  area  to  remain  enrolled  in  the  plan.    As
10 demonstrated in an OIG review at a national HMO chain (which had nine Medicare HMO
contracts in effect), HCFA made incorrect payments on behalf of beneficiaries who were
reported living out of the HMOs service areas.  Specifically, for the 2 months reviewed, a
statistical sample showed that payments were incorrect or inconclusive for 158 of 200
beneficiaries (79 percent) who were reported living out-of-area.  The effect of the address
changes on the monthly Medicare payments was a net underpayment to the HMO of almost
$48,000.  The OIG made several recommendations to HCFA to preclude this problem in the
future, and HCFA generally concurred.  (CIN:  A-06-97-00034)
Partial Hospitalization Services Provided through 
Community Mental Health Centers
Community mental health centers (CMHCs) provide treatment and services to mentally ill
individuals in the community.  The Omnibus Budget Reconciliation Act of 1990 authorized
Medicare coverage and payment of partial hospitalization services provided by CMHCs.
From 1993 through 1997, there was rapid growth in total program payments and average per
patient payments, as illustrated below.
NATIONAL MEDICARE PAYMENTS FOR CMHC SERVICES
Calendar Year Number of CMHCs Total Payments Average Per Patient
1993 296 $60,000,000 $ 1,642   
1994 475 108,000,000 2,190
1995 581 142,000,000 3,524
1996 646 265,000,000 6,874
1997 769 349,000,000 10,352 
In collaboration with HCFA, OIG reviewed Medicare payments for partial hospitalization
services to CMHCs in five States.  The OIG estimated that for the 12-month period ending
September 30, 1997, Medicare paid these CMHCs $229 million for unallowable and highly
questionable services; this equaled 91 percent of the total $252 million paid to all CMHCs in
these five States for partial hospitalization services.  The CMHCs in the five States (Florida,
Texas, Colorado, Pennsylvania and Alabama) accounted for approximately 77 percent of
CMHC partial hospitalization payments nationally during Calendar Year (CY) 1996.  
In a program designed to pay for intensive outpatient psychiatric services for acutely ill
individuals who would otherwise require inpatient services, OIG determined that Medicare
was paying for services to beneficiaries who had no history of mental illness or who suffered
11 from mental conditions that would preclude their benefitting from the program.  Further,
Medicare was paying for therapy sessions that involved only recreational and diversionary
activities, such as drawing, arts and crafts, watching television, and playing bingo and other
games.  The OIG found that the lack of State oversight and the use of a self-attestation
process permitted unscrupulous providers to participate in the Medicare program.  
In view of the severity of the problems disclosed, OIG recommended that HCFA evaluate
the propriety of allowing CMHCs to  provide the partial hospitalization benefit and, if
appropriate, recommend a legislative change to repeal Medicare coverage for this benefit in
the CMHC setting.  The OIG also reiterated recommendations, made in an earlier review of
14  CMHCs  in  Florida  and  Pennsylvania,  that  HCFA  either  develop  conditions  of
participation for CMHCs or conduct onsite surveys during the provider enrollment process
to address qualification issues; instruct fiscal intermediaries to perform a detailed medical
review of the first claim submitted for each new beneficiary receiving partial hospitalization
services from a CMHC; and, as part of its oversight activities, perform medical reviews of
selected partial hospitalization claims.  The HCFA developed a 10-point initiative which
included both immediate and long-term actions, such as terminating egregious CMHCs,
conducting intensified medical reviews, collecting overpayments  and undertaking various
legislative actions.  (CIN:  A-04-98-02145; CIN:  A-04-98-02146)
Outpatient Psychiatric Services Provided by a Massachusetts
Hospital
The OIG conducted a review at one Massachusetts hospital to determine whether psychiatric
services rendered on an outpatient basis were billed for and reimbursed in accordance with
Medicare requirements.  The results of this audit will be used in conjunction with OIGs
reviews of Medicares partial hospitalization program at CMHCs to structure its planned
audit of partial hospitalization services in the hospital outpatient setting.  
The OIG determined that at least $646,517 in charges for outpatient psychiatric services
claimed by the hospital did not meet Medicare criteria for reimbursement.  Specifically, OIG
identified nursing home psychiatric services provided by clinical social workers who were
not properly supervised by a physician; charges for psychiatric care not properly supported
by  medical  records  or  otherwise  found  medically  unnecessary;  and  hospital  overhead
charges submitted to Medicare for the associated costs of hospital employees working offsite
at area nursing homes.  The OIG recommended that the hospital strengthen its procedures to
ensure that charges for outpatient psychiatric services are for covered services and are
properly documented in accordance with Medicare requirements.  The OIG will provide the
results to the fiscal intermediary so that it can adjust the hospitals FY 1996 Medicare cost
report.  The hospital disagreed with the audit findings.  (CIN:  A-01-98-00503)
12 Payment Edits for Outpatient Psychiatric Services
Medicare limits reimbursement for certain outpatient mental health services to 62.5 percent
of the Medicare allowed amount.  An OIG review found that the Medicare carrier serving
Maine, Massachusetts, New Hampshire and Vermont failed to apply this limitation to some
services to which it pertained.  As a result, the carrier overpaid providers an estimated $1
million in CY 1996.  The OIG recommended that HCFA initiate overpayment recovery
actions, apprise all Medicare carriers of this potential payment error and take the necessary
steps to prevent future errors from occurring.  The HCFA concurred with OIGs findings and
recommendations.  
Subsequently, OIG expanded its review to include three additional Medicare carriers in
Florida, New York and Texas.  The expanded review showed that the New York and Texas
carriers had edit systems which correctly applied the limitation.  The OIGs review at the
Florida carrier continues.  (CIN:  A-01-98-00520)
Prospective Payment System for Hospital Outpatient Department
Services
The Balanced Budget Act of 1997 requires implementation of a prospective payment system
(PPS) for hospital outpatient department services.  While HCFA has done extensive work to
construct reasonable rates, OIG is concerned that the methodology employed will cause PPS
payment rates to be inflated.  The rate-setting methodology does not adjust for factors such
as unallowable costs and improper payments which were included in the base period when
calculating the fee schedule amounts and targeted expenditure ceiling.  The OIG believes
that hospitals will realize windfall profits at Medicares expense if these factors are not taken
into account.  If further study reveals excessive unallowable costs and improper payments,
appropriate adjustments should be made to the fee schedule and expenditure ceiling.
In addition, since HCFA intends to move toward instituting uniform payment rates across
service  settings,  OIG proposed that  such rates be established to reflect only the costs
necessary to efficiently deliver a Medicare service regardless of the service setting.  The
OIG recommended that HCFA carefully consider the potential efficiencies demonstrated in
various service settings when establishing uniform payment rates.  The HCFA concurred
with OIGs recommendations.  (CIN:  A-14-98-00400) 
Beneficiary Hospice Eligibility at Michigan Provider
At DOJs request, OIG evaluated Medicare eligibility determinations of terminal illness for
beneficiaries  enrolled  in  hospice  care  at  one  Michigan  provider.    Working  with  OIG,
physicians from the Michigan peer review organization determined that 130 of the 180
beneficiaries  whose  files  were  reviewed  were  not  eligible  for  hospice  coverage.
Overpayments  of  Medicare  funds  amounted  to  approximately  $2.6  million  for  these
beneficiaries.
13 The OIG did not recommend that HCFA independently recoup the $2.6 million since these
financial findings are included in a civil complaint filed by DOJ against the providers
previous owners.  However, OIG did reemphasize previous recommendations made in its
November 1997 roll-up report on national hospice audits.  In that report, OIG identified
problems with hospice coverage in nursing facilities as an underlying factor that contributed
to high levels of beneficiary ineligibility.  These problems are further highlighted by the
conditions  found  in  the  current  audit,  where  about  98  percent  of  the  130  ineligible
beneficiaries were residents of nursing facilities.  The OIG believes that HCFA should give
high priority to its work in developing a legislative proposal to address this issue.  (CIN:
A-05-97-00015) 
Medicare Contractor Costs
For a number of years, HCFA contracted with Aetna Life Insurance Company to process
Medicare  Parts  A  and  B  claims  submitted  by hospitals, physicians  and  other  medical
suppliers in various States.  Aetna terminated these contracts as of September 30, 1997.  Two
reviews assessed costs claimed by the contractor before and during its transition from the
Medicare program.
A.  Administrative Costs
From October 1994 through September 1997, Aetna claimed administrative costs of $125
million to process 32 million Part A claims and $198 million to process 136 million Part B
claims.  In a review of these costs, OIG determined that the contractor had generally
established  adequate  systems  of  internal  control,  accounting,  and  reporting  for
administrative costs.  Further, most of the costs claimed for the 3-year audit period were
allowable.  However, OIG recommended adjustments of approximately $2.9 million.  Aetna
agreed with all proposed adjustments.  (CIN:  A-01-97-00529)
B.  Termination and Severance Costs
The  HCFA  agreed  to  reimburse  Aetna  for  reasonable  and  allocable  costs  incurred  in
transferring responsibilities to other contractors and for allocable severance costs.  For the
period through April 1998, Aetna claimed total termination and severance costs of almost
$27 million.  The OIG determined that $1.8 million of this total was either unallowable
under Medicare regulations or represented cost savings to the program.  Specific financial
adjustments were recommended.  After completing audit fieldwork, OIG was informed that
Aetna  and  HCFA  had  reached  a  tentative  cost  reimbursement  agreement.    (CIN:
A-01-98-00509)
Fiscal Intermediary Fraud Units
Fiscal  intermediaries  (FIs),  under  contract  with  HCFA,  are  responsible  for  processing
approximately 75 percent of Medicare claims involving about $130 billion.  While they vary
in many ways, all must meet requirements outlined in the Medicare Intermediary Manual.
14 Both FIs and carriers have discrete units to detect and deter fraud and abuse.  These units are
part of HCFAs overall Medicare integrity program and are monitored by HCFA regional
offices.
In a survey of all 41 FI fraud units under contract in 1996 and still under contract, OIG
found that there were substantial differences in the number of complaints and cases handled,
and that some units produced few, if any, significant results.  Moreover, half the fraud units
did not open any cases proactively and more than a third of them did not identify program
vulnerabilities.
The  variation  in  fraud detection, especially among  units  with  similar resources,  raised
concern  about  possible  poor  performance  by  some  fraud  units.    Accordingly,  OIG
recommended that HCFA refocus its evaluation efforts to include some type of return on
investment analysis.  The OIG proposed that HCFA improve the contractor performance
evaluation system so that it holds contractors accountable for meeting specific objectives;
require  that  all  contractor  performance  evaluations  list  HCFAs  national  and  regional
objectives and address whether or not the fraud unit is meeting those objectives; establish a
standard set of data that can be used to measure fraud units performance in meeting
established objectives and require that all reports contain this data; establish clear definitions
of key words and terms and require program integrity staff and fraud unit staff to use the
same definitions; and provide opportunities for fraud units to exchange ideas, compare
methods and highlight best practices.  In response to the draft report, HCFA concurred with
OIGs recommendations and outlined corrective actions to be taken.  (OEI-03-97-00350) 
Criminal Fraud
One of the most common types of fraud perpetrated against Medicare, Medicaid and other
Federal health care programs involves the filing of false claims or statements.  Such false
claims may be pursued civilly under the False Claims Act (see, for example, the hospital
initiatives described on pages 3-6, above).  In appropriate cases, false claims may also be
prosecuted criminally as Federal offenses such as mail fraud, wire fraud, false statements
and various health care fraud offenses.  Following are descriptions of criminal prosecutions
successfully concluded during the reporting period:
(cid:127) A man was sentenced for his part in a scheme to defraud HCFA.  His
sentencing  resulted  from  a  major  investigation  of  the  former  Medicare
contractor for Illinois and Michigan where he worked as a manager.  He,
along with seven other managers, falsified and altered data used by HCFA
to evaluate the contractors performance.  Misinformed by the contractors
fraudulent performance reports, HCFA awarded the company $1.2 million
in incentive payments which were not earned.  For his part in the scheme,
the manager was sentenced to 8 months imprisonment, 8 months home
confinement, 2 years supervised probation, and fined $6,000.  His sentence
15 was  based  on  an  earlier  guilty  plea  to  conspiracy  to  defraud  the
Government, wire fraud and obstruction of a Federal audit.  Of the other
managers involved in the scheme, five have been indicted and two have
pled guilty (one of whom has been sentenced).  The corporation previously
agreed to pay $140 million in civil fines and penalties and $4 million in
criminal fines.
(cid:127) A man was sentenced in Florida for conspiracy to submit false Medicare
claims  in  connection  with  his  two  DME  companies  and  his  medical
diagnostic  company.    His  sentence  included  21  months  incarceration,
payment of $1 million in restitution (offset by any money the Government
recovers from the sale of his house) and 3 years supervised release.  From
1992 to 1996, the company owner paid patient recruiters to bring Medicare
beneficiaries to certain licensed physicians whom he paid to order DME and
diagnostic testing.  Through his companies, he then submitted Medicare
claims  for  DME  and  oximetry  tests  that  were  not  rendered  or  were
medically unnecessary.
(cid:127) In California, a physician was sentenced to 24 months imprisonment, 2
years supervised release, and payment of a $50,000 fine.  The physician had
previously pled guilty to charges of Medicare fraud related to submitting
false claims for house calls.  Claims were submitted for persons who had
died before the date of claimed services, persons living in other States,
persons who were incarcerated, etc.  He also previously pled guilty to
submitting false documents to the Small Business Administration for a low
cost, disaster loan arising out of the Northridge earthquake.  Additionally,
there was a prior civil judgment of $1.5 million in this case.
(cid:127) In  Illinois,  a  psychologist  was  sentenced  to  5  years and  10 months in
Federal prison for mail fraud, money laundering and obstruction of justice.
She  submitted  approximately  11,000  false  claims  to  Medicare  for
psychological testing and treatment.  In addition, she was ordered to pay
restitution of $480,618.
(cid:127) In Louisiana, two former owners of a home health agency (HHA) were
sentenced  for  participating  in  a  scheme  to  defraud  Medicare.    The
co-owners included $296,000 in expenses not related to patient care in their
cost reports.  These expenses were fictitiously claimed as consulting and
salary  payments  to  family  and  friends.    One  of  the  HHA  owners  was
sentenced to 8 months incarceration followed by 2 months in a halfway
house  as  part of a 3-year  supervised release  program.   The other was
16 sentenced to 5 months imprisonment and 3 years supervised probation.  The
owners were also ordered to pay restitution totaling $244,472.    
(cid:127) A neurologist  was  sentenced  in  California  for  his part in a  scheme to
defraud the Medicare and Medi-Cal programs.  He previously pled guilty to
four felony counts of mail fraud.  The physician submitted claims for nerve
conduction studies and upcoded claims for office visits and EMGs.  He was
sentenced to 6 months home detention and 3 years probation.  He was also
ordered  to  pay  $118,750  in  restitution  and  perform  3,000  hours  of
community service.
(cid:127) A Michigan podiatrist was sentenced to 15 months incarceration followed
by 2 years supervised probation, and ordered to pay $188,860 in restitution
for defrauding the Medicare program.  He billed Medicare for incision and
drainage of wounds and abscesses when he only performed noncovered
routine nail care.  In addition, he prescribed Tylenol #3 to patients although
some of them had not even removed their shoes for examination.  The loss
to the Medicare program was over $180,000.
(cid:127) In New York, two sisters were each sentenced to 5 years probation and
ordered to pay $32,458 in restitution for illicitly cashing stolen checks from
both Medicare and Social Security Administration (SSA) programs.  Among
the  checks  were  three  Medicare  checks  payable  to  Medicare  Part  B
providers totaling $39,717.  The sisters cashed the stolen Medicare and SSA
checks and deposited them into money transfer accounts belonging to their
businesses.    The  money  was  then  funneled  to  family  members  in  the
Dominican Republic.
Kickbacks
Many businesses engage in referrals to meet the needs of customers or clients for expertise,
services or items which are not part of their own regular operations or products.  The
medical profession relies heavily upon referrals  because  of the myriad  specialties and
technologies associated with health care.  If referrals of Medicare or Medicaid patients are
made in exchange for anything of value, however, both the giver and receiver may violate
the Medicare and Medicaid anti-kickback statute.
Among  its  provisions,  the  anti-kickback  statute  penalizes  anyone  who  knowingly  and
willfully solicits, receives, offers or pays remuneration in cash or in kind to induce or in
return for:
17 (cid:127) referring an individual to a person or entity for the furnishing, or arranging
for the furnishing, of any item or service payable under the Medicare or
Medicaid programs; or
(cid:127) purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the
purchasing, leasing or ordering of any good, facility, service or item payable
under the Medicare or Medicaid programs.
Violators are subject to criminal penalties, or exclusion from participation in the Medicare or
Medicaid program, or both.  The following cases are some of the examples of the sentences
for this crime: 
(cid:127) A New York podiatrist was sentenced to 24 months imprisonment and 3
years supervised release for mail fraud and illegal kickback activity.  He was
also ordered to make full restitution to Medicare in the amount of $292,800
and to private insurance carriers in the amount of $103,860.  The podiatrist
accepted kickbacks from a DME supplier for referring Medicare patients for
medically unnecessary lymphedema pumps.  While the podiatrist was on
prepayment review, he hired podiatrists to work at his office and paid them
a salary.  He then billed Medicare for podiatric services using the other
podiatrists  provider  numbers.    In  addition,  he  solicited  several
privately-insured individuals to permit him to bill their insurance carriers in
return for a percentage of the reimbursement checks, and in some instances,
for prescriptions for controlled substances.
(cid:127) In Florida, a DME company was sentenced as a result of pleading guilty to
receiving an illegal kickback of $489,000.  The DME company received the
kickback  payment  as  inducement  to  permit  another  DME  supplier  to
provide incontinence kits to Medicare beneficiaries.  These beneficiaries
lived in a chain of nursing homes owned by the same management as the
DME  company.    As  a  result  of  the  kickback  payment,  Medicare  paid
approximately  $3.6  million  for  incontinence  supplies  which  were  not
medically necessary.  The court ordered that the company pay a fine of
$293,400 and that the defendant corporation be placed on probation for 2
years.  During that period, the company was directed to implement and
submit to the court a corporate compliance program, including a schedule
for implementation.  The court further ordered that the company make
restitution in the amount of $489,000, but noted that the company had
already paid that amount.
(cid:127) A Texas mail-order pharmacy agreed to pay the Government $100,000 to
settle allegations that it submitted false Medicare claims for patients referred
18 through kickback arrangements.  The pharmacy paid kickbacks to DME
companies in exchange for Medicare patient referrals for the purchase of
respiratory medications.  The pharmacy then submitted claims for the sale
of these medications to receive Medicare reimbursement.  The pharmacy
also agreed to adopt a corporate integrity program for a period of at least 3
years.
Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 1,574 administrative sanctions, in the form of
program exclusions or civil actions, on individuals and entities for engaging in fraud or
abuse or other activities deemed to be a risk to Federal health care programs and/or their
beneficiaries.
A.  Program Exclusions
Title XI of the Social Security Act provides for a number of bases for excluding individuals
and  entities  from  participation  in  Medicare,  Medicaid  and  other  Federal  health  care
programs.  Exclusion is mandatory for those convicted of program-related crimes, crimes
related to patient abuse or neglect, felony convictions for defrauding other health care
programs, and felony convictions for the illegal manufacture or distribution of controlled
substances.  Exclusion is discretionary for those who have lost a license to practice or the
right  to  participate  in  a  State  health  care  program  for  reasons  related  to  professional
performance, professional competence or financial integrity, or provided substandard or
unnecessary services.  Exclusions may also be imposed on those convicted of private
insurance fraud, or obstruction of an investigation, and on individuals who have failed to
repay health education assistance loans (HEAL).   
During this reporting period, OIG imposed exclusions on 1,287 individuals and entities.
The following are examples of some of the exclusions that were imposed:
(cid:127) A medical clinic in Florida was excluded for a period of 20 years due to its
affiliation  with  its  excluded  owner.    The  clinic  owner,  excluded  from
participation  for  the  same  number  of  years,    was  convicted  for  his
involvement  in  a  scheme  to  defraud  the  Medicare  program  by  filing
approximately $3 million in false claims for physician services, respiratory
equipment, related medication and cardiovascular testing.  The owner also
solicited and received approximately $85,000 in illegal kickbacks for patient
referrals and fraudulent prescriptions for cardiovascular testing.  He was
ordered to pay restitution of almost $3.5 million and is currently serving a
sentence of 51 months in Federal prison.
19 (cid:127) A  dentist  in  Pennsylvania  was  excluded  for  15  years  following  his
conviction of involuntary manslaughter involving the death of a child who
was  his  patient.    The  dentist  failed  to  perform  a  physical  evaluation
sufficient to determine whether the child was a suitable candidate to receive
general anesthesia.  In addition, he failed to receive informed consent from
the childs parents prior to administering general anesthesia and failed to
supply appropriate equipment to continuously monitor the childs heart
activity,  adequacy  of  respiration,  delivery  of  oxygen  and  continuous
adequacy of tissue perfusion.
(cid:127) A nurses aide in Texas was convicted of recklessly causing bodily harm to a
nursing home patient.  While roughly taking the elderly patient out of his
wheelchair to a whirlpool, the aide caused the patients right foot to get
caught in his wheelchair, resulting in a fractured ankle.  She then dragged
the elderly man across the floor, causing him to sustain rug burns.  The aide
was sentenced to 1 year community supervision and excluded for 10 years.
(cid:127) With  the  expansion  of  exclusion  authority  under  the  Health  Insurance
Portability  and  Accountability  Act  of  1996  (HIPAA)  to  include  the
sanctioning  of  individuals  controlling  previously  sanctioned  entities,  a
Maryland doctor was excluded from program participation for 10 years.
The doctor was the owner of a methadone clinic in Maryland which had
been convicted for knowingly and willfully making false statements in
applications for payment to Medicaid.  The clinic paid restitution in the
amount of $290,000 based upon an overpayment of $95,000, and was
excluded for 10 years.
(cid:127) The HIPAA established OIG mandatory authority to exclude any individual
who  has  been  convicted  of  a  felony  relating  to  controlled  substance
violations.  A pharmacist in Ohio was excluded for a period of 5 years after
pleading guilty in a local court to illegally processing drug documents.  The
pharmacist, a drug user, illegally forged prescriptions for himself.  The court
ordered  that  the  pharmacist  be  required  to  enter  into  a  drug  treatment
program for 3 years.
(cid:127) The HIPAA also expanded the mandatory exclusion authority to exclude
any individual convicted of  a  felony  relating to health  care fraud.  In
Arizona, a certified provider for the developmentally disabled was excluded
for 5 years after being found guilty of a felony related to health care fraud.
The provider submitted documents for reimbursement claiming that she had
purchased clothing for a patient in the disability home in which she worked.
She did purchase clothing; however, the clothing was actually for herself
20 and  not  the  intended  patient.    The  provider  was  placed  on  supervised
probation for a period of 3 years.
(cid:127) An anesthesiologist was indefinitely excluded because his medical license
was  suspended  in  Texas  for  reasons  bearing  on  his  professional
performance.    The  doctors  license  suspension  was  due  to  several
complaints, including placing an epidural catheter in a patients abdomen
during child birth, instead of properly placing the catheter in the spinal
canal.  The patient and her unborn child died.
(cid:127) A podiatrist in Ohio was excluded for a period of 15 years after being found
guilty in a local court of unlawful sexual conduct against a patient and
tampering with evidence.  In addition, the State Medical Board of Ohio
permanently revoked the doctors license to practice podiatric medicine and
surgery.  He was sentenced to serve 6 months in a halfway house which
included work release.
(cid:127) In  Texas,  a  vocational  nurse  was  indefinitely  excluded  because  his
professional license was revoked by the State.  This was predicated on his
felony conviction of aggravated sexual assault of a child.  As a result of the
conviction,  the  nurse  was  sentenced  to  40  years  incarceration  in  State
prison.
(cid:127) After  a  respiratory  care  practitioner  in  California  had  his  professional
license revoked by the State, OIG excluded him indefinitely from program
participation.  The practitioner pled guilty to continuous acts of sexual abuse
of a child under age 14.  He was placed on formal probation for a period of
6 years, forbidden to have unsupervised contact with any minor without the
presence of a responsible adult and ordered to be registered a sex offender.
(cid:127) A clinical laboratory in New Jersey was excluded for an indefinite period
after  the  State  suspended  the  laboratory  from  Medicaid  participation.
Because  of  the  laboratorys  high  earnings  the  previous  year,  the  State
Medicaid agency conducted a prepayment review of all claims which the
laboratory submitted to Medicaid for payment.  The review showed over 70
percent of the claims to be fraudulent.  In addition, a number of claims
reviewed lacked physicians signatures on the requisition forms.
B.  Civil Penalties for Patient Dumping
Section  1867  of  the  Social  Security  Act  (42  U.S.C.    1395dd)  provides  that when  an
individual presents to the emergency room for examination or treatment, a hospital which
has a Medicare provider agreement is required to provide an appropriate medical screening
21 examination to determine whether that individual has an emergency medical condition.  If
an individual has such a condition, the hospital must provide, within the capabilities of the
staff and facilities available at the hospital, treatment to stabilize the condition, unless a
physician certifies that the individual should be transferred because the benefits of medical
treatment elsewhere outweigh the risks associated with transfer.  If a transfer is ordered, the
transferring hospital must arrange for a safe transfer, which includes providing stabilizing
treatment to minimize the risks of transfer, making sure the receiving hospital has agreed to
accept the transfer and effecting the transfer through qualified personnel and transportation
equipment.  A hospital is prohibited from delaying provision of examination or treatment for
an emergency medical condition to inquire about an individuals method of payment or
insurance status.  Further, a participating hospital with specialized capabilities or facilities
may not refuse to accept an appropriate transfer of an individual who needs those services if
the hospital has the capacity to treat the individual.
The OIG is authorized to impose CMPs of up to $25,000 against small hospitals (less than
100 beds) and up to $50,000 against larger hospitals (100 beds or more) for each instance
where the hospital negligently violated any of the section 1867 requirements.  In addition,
OIG may impose a CMP of up to $50,000 against a participating physician, including an
on-call physician, for each negligent violation of any of the section 1867 requirements, and
impose a program exclusion in certain cases.  
Between October 1, 1998 and March 31, 1999, OIG collected $985,000 in CMPs from 34
hospitals and physicians.  The following is a sampling of the alleged violations involved in
the FY 1999 Patient Anti-Dumping Statute settlements from this reporting period:
(cid:127) A Georgia hospital agreed to pay $45,000 to resolve two allegations of
dumping.  The hospital failed to provide an appropriate medical screening
examination and stabilizing treatment to a psychiatric patient.  In addition,
an on-call surgeon refused to accept an appropriate transfer of an individual
who required the hospitals specialized facilities when the hospital had both
the capacity and capability to treat the individual.
(cid:127) An Illinois hospital agreed to pay $50,000 to resolve allegations that it
failed to provide necessary surgery to stabilize a woman who presented with
a piece of meat lodged in her throat.  Instead, the hospital inappropriately
transferred the patient to a hospital approximately 25 miles away.  During
the transfer, the patient suffered cardiac arrest, was diverted to another
hospital and died.
(cid:127) A small California hospital agreed to pay $40,000 to resolve two allegations
that it inappropriately transferred two patients.  An 11-month-old baby, in
unstable condition, was transferred in a private vehicle to a hospital 75
22 miles away.  A 74-year-old man was transferred to another hospital in an
unstable condition in a case where the treating physician did not certify that
the benefits of transfer outweighed the risks.
(cid:127) An urban New Jersey hospital agreed to pay $85,000 to resolve allegations
that it failed to provide appropriate medical screenings to a number of
individuals who presented to its emergency department.  These individuals
had a variety of medical conditions, some of which were serious.  In some
of the cases, the hospital failed to properly document the reasons it failed to
screen and/or treat the patients, and failed to document the treatment that
was offered or provided to the patients.  
(cid:127) A small psychiatric hospital in Virginia agreed to pay $40,000 to resolve
allegations  that  it  failed  to  provide  stabilizing  treatment  and/or  an
appropriate transfer to actively suicidal individuals who presented to the
hospital for treatment.
(cid:127) A large California hospital agreed to pay $40,000 to resolve an allegation
that  it  refused  to  accept  an  appropriate  transfer  of  an  individual  who
required the  specialized capabilities and facilities  of the hospital.  The
decision to refuse the transfer was allegedly due to the emergency room
physicians refusal to call the hospitals on-call specialist.  
(cid:127) Another California hospital agreed to pay $22,000 to resolve allegations that
it failed to provide stabilizing treatment and an appropriate transfer to a
pregnant woman who presented with pre-term labor and bleeding.  She was
transferred to the receiving hospital approximately 30 miles away by private
car.
(cid:127) An Oregon hospital paid $60,000 to  resolve allegations that it did not
provide an appropriate medical screening exam to several patients who
presented to the hospital emergency room for evaluation and treatment.  All
the patients were covered under Oregons Medicaid program and in each
instance, the hospital contacted the patients primary care physician for
payment authorization.  Such authorization was denied and the patients
were sent elsewhere for treatment without first being screened for a medical
emergency.
C.  Civil Penalties for False Claims
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and
assessments against health care providers and others who submit false or improper claims to
the Medicare and State health care programs.  The OIG also assists DOJ in bringing (and
23 settling) cases against wrongdoers under the False Claims Act.  Many providers elect to
settle their cases prior to litigation.  As part of resolving these cases, OIG frequently imposes
corporate integrity agreements on entities as a condition for being allowed to remain as a
provider in the Medicare program.  The integrity programs established by these agreements
are designed to prevent a recurrence of the fraudulent activities that gave rise to the case at
issue.  The Government, with the assistance of OIG, recouped more than $67.2 million
through both CMP and False Claims Act civil settlements related to the Medicare and
Medicaid programs during this reporting period.  Some examples of these cases include:
(cid:127) The former Medicare carrier and intermediary for Massachusetts agreed to
pay  the  Government  $4.75  million  to  resolve  allegations  of  receiving
overpayments  from  Medicare.    Between  1990  and  1997,  the  insurer
improperly paid certain Medicare claims as if Medicare were the primary
payer,  when  in  fact,  Medicare  should  have  been  the  secondary  payer.
Allegedly,  the  insurer  failed  to  properly  develop  these  claims  prior  to
payment  and  to  determine  whether  the  primary  payment  obligation
belonged to Medicare insurance or private insurance in cases where the
patients  were  insured  by  both.    As  a  result,  the  insurer  received
overpayments from Medicare, resulting in a loss to the Federal health care
program.  Under the guidance of a corporate integrity agreement imposed
by OIG, the insurer still retains a Medicare HMO contract.  This represents
the third civil settlement entered into by this insurer and the Government.   
(cid:127) In  Florida,  a  medical  company  and  two  of  its  subsidiaries  signed  a
settlement  agreement  in  response  to  allegations  that  it  submitted  false
Medicare  claims.    The  company  formerly  provided  behavioral  health
services to long term care recipients through group practices in twelve
States.  Its licensed clinical social workers, psychologists and psychiatrists
rendered  individual  and  group  psychotherapy  services  to  Medicare
beneficiaries in Florida nursing homes over a 2-year period.  During that
time,  the  company  allegedly  submitted  false  claims  to  Medicare  for
medically unnecessary individual and group psychotherapy services.  This
fraudulent activity resulted in an estimated Medicare overpayment of $3
million.  The settlement calls for payment of $3 million to the United States
and a comprehensive corporate integrity agreement.  The proceeds from the
companys recent sale of its group practice division will pay the bulk of the
settlement amount.   
(cid:127) In California, an occupational health care firm agreed to pay $306,670 to
resolve  its  liability  for  submitting  false  claims  to  Medicare.    The  firm
submitted claims as though physical therapy services were "incident to"
professional services of the physician, although the physician provided no
24 professional services.  When therapy was performed, the physician had no
initial or subsequent contact with the beneficiaries.
(cid:127) A Texas home health agency and its owners reached a settlement with the
Government totaling $251,000, resolving their civil liability for improper
submission of Medicare claims.  Investigation confirmed that the improper
billings were for submitting home aide service claims without the required
physician authorization.  The owners were unable to obtain signed physician
orders because the beneficiaries were  not homebound.  The defendants
agreed  to  be  excluded  from  participating  in  Medicare,  Medicaid,  and
Federal health care programs for 10 years.
(cid:127) In  Florida,  a  pain  control  center  and  its  president  agreed  to  pay  the
Government  $75,215  to  settle  allegations  of  submitting  false  Medicare
claims.  During the period 1991 through 1994, the center and its president
falsely  represented  acupuncture  services  provided  to  beneficiaries  as
physical therapy treatments in claims submitted to Medicare; Medicare does
not cover acupuncture.  They also submitted claims for physical therapy that
was  not  medically  necessary  or  not  authorized  and  prescribed  by  a
physician.  The settlement additionally called for a 5-year exclusion of the
codefendants.
D.  Compliance Activities
The existence of an "effective" compliance program can offer an organization certain credit
under the Federal Sentencing Guidelines.  This and other benefits have served to encourage
the private sector to develop methods to prevent and detect violations under the False
Claims Act and the CMP law.  The OIG has already initiated significant outreach efforts
with the private sector to discuss these endeavors.
The  OIG  continues  in  its  efforts  to  promote  voluntarily  developed  and  implemented
compliance programs by providing guidance for the various parts of the health care industry.
To this end, OIG has developed and released compliance program guidance for clinical
laboratories, hospitals, home health agencies and third-party billing companies.  The OIG is
currently working on guidance for other sectors of the industry, including DME, prosthetics
and orthotics suppliers, Medicare+Choice organizations that offer coordinated care plans,
nursing homes and hospices.  The seven fundamental elements of an effective compliance
program  are:  implementing  written  policies,  procedures  and  standards  of  conduct;
designating a compliance officer and compliance committee; conducting effective training
and education; developing effective lines of communication; enforcing standards through
well-publicized disciplinary guidelines; conducting internal monitoring and auditing; and
responding promptly to detected offenses and developing corrective action initiatives.  
25 Copies of OIGs compliance program guidances, as well as other materials developed by
OIG as part of its effort to identify and curb health care fraud, are available on the Internet at
http://www.dhhs.gov/progorg/oig.
In addition to developing compliance program guidance, OIG monitors corporate integrity
obligations  imposed  on  health  care  providers  as  part  of  global  settlements  of  OIG
investigations and audits.  Presently, OIG is monitoring 356 Government-imposed corporate
integrity agreements.  These agreements cover the range of providers from small physician
offices to large hospitals and laboratory corporations.  The duration of most corporate
integrity agreements is 5 years and these agreements require a substantial effort by the
provider to ensure that the organization is operating within HCFA rules and regulations and
the parameters established by the corporate integrity agreement.  Failure to adhere to the
corporate integrity agreement could result in exclusion of the provider in addition to other
penalties.
Outreach Campaign to Educate Medicare Beneficiaries About
Fraud and Abuse
On February 24, HHS joined with DOJ and the American Association of Retired Persons
(AARP) to launch a new national initiative against waste, fraud and abuse in the Medicare
program.  The OIG has spearheaded the efforts leading up to the event for 2 years, working
with HCFA and the Administration on Aging to develop educational materials, promote
OIGs fraud hotline and set up networks to get the campaigns message out.
The campaign is titled, "Who Pays?  You Pay."  It is aimed at reducing waste, including
simple billing errors as well as unnecessary or excessive spending, and criminal fraud and
abuse against the Medicare program.  The campaign asks beneficiaries to raise most billing
questions first with their providers or Medicare insurance companies, since most problems
can be resolved there.  If beneficiaries believe they have detected fraud or if they are not
satisfied with the explanation of the Medicare carrier, they are asked to call the HHS
Inspector General Hotline at 1-800-HHS-TIPS.
At the national launching of the campaign, Inspector General June Gibbs Brown joined with
HHS Secretary Donna Shalala, Attorney General Janet Reno and Deputy Attorney General
Eric  Holder,  HCFA  Administrator  Nancy  Ann  DeParle, Assistant Secretary  for Aging
Jeanette Takamura, and AARP President Joe Perkins to help kick off the effort.  In addition,
more than 30 OIG managers and staff participated in local training events for seniors across
the country, speaking to them about Medicare fraud and abuse, and encouraging them to
play close attention to their Medicare statements and call OIGs fraud hotline if they suspect
improprieties.
26 This "event" was just the first step in a campaign to reach not only seniors, but to seek the
participation and cooperation from major health care provider and industry groups as well.
Those efforts will begin in earnest in the second half of 1999.
Provider Self-Disclosure Protocol
In keeping with its longstanding commitment to assist providers and suppliers in detecting
and preventing fraudulent and abusive practices, OIG issued on October 21, 1998 a set of
comprehensive guidelines for voluntary self-disclosures.  These guidelines are known as the
Provider Self-Disclosure Protocol and can be found on OIGs Internet site or as published in
63 Federal Register 58,399 (October 30, 1998).
Essentially, the Protocol guides providers and suppliers through the process of structuring a
disclosure to OIG of matters uncovered that are believed to constitute potential violations of
Federal criminal, civil and/or administrative laws (as opposed to innocent mistakes that may
have resulted in overpayments).  Pursuant to the Protocol, an appropriate submission would
include a thorough internal investigation as to the nature and cause of the matters uncovered
and a reliable assessment of their economic impact (i.e., an estimate of the losses to the
Federal health care programs).
Unlike  prior  voluntary  disclosure  procedures,  such  as  the  Voluntary  Disclosure  Pilot
Program, there are no limitations as to the type of provider or supplier that can avail itself of
the Protocols guidance or with respect to geographical location.  Nor is the fact that a
provider or supplier is under investigation by another Government agency an automatic bar
to submissions under the Protocol.  The OIG will evaluate each submission and reach
conclusions as to the appropriate resolution of the matter on a case by case basis.
Clinical Laboratory Tests Performed by Hospital Outpatient
Department Laboratories
This report presented the results of OIGs nationwide audit of Medicare reimbursement for
clinical laboratory tests performed by hospitals as an outpatient service.  The audit followed
up on HCFAs corrective actions relating to unbundled and duplicative charges for chemistry
and hematology tests, taken in response to a 1994 OIG review of this area.  The current audit
also covered the same type of payments involving urinalysis tests.
The  OIG  estimated  that,  nationwide,  Medicare  fiscal  intermediaries  overpaid  hospital
outpatient  department  laboratories  about  $43.6  million  for  chemistry,  hematology  and
urinalysis tests in CYs 1994 and 1995.  Moreover, OIG determined that an additional $15.6
million could have been saved for the same period if policies had been developed to
preclude payment for additional automated hematology indices.  About 75 percent of the
claims containing these overpayments and potential savings were billed by less than 20
percent of the hospitals reviewed.
27 The OIG also found that HCFAs corrective actions had resulted in a significant decrease in
the number of potential overpayment situations, saving approximately $37.2 million in the
2-year audit period.  However, based on the current audit, OIG determined that further
improvements were needed.  Accordingly, OIG recommended that HCFA direct the FIs to
implement additional procedures and controls to ensure that all clinical laboratory tests
performed by hospital outpatient department laboratories are appropriately grouped together
and not duplicated for payment purposes, as well as recover the identified overpayments.
Also, OIG proposed that HCFA consider eliminating separate reimbursement for additional
hematology indices.  The HCFA concurred and agreed to take corrective action.  (CIN:
A-01-96-00527)
Laboratory Fraud
During this reporting period, OIG successfully completed civil cases related to fraudulent
billings to Medicare, Medicaid and other Federal health care programs on the part of
independent laboratories and physicians.  In addition to settlements reached as part of the
Hospital Outpatient Laboratory Project discussed on page 5, convictions and settlements
were also obtained for other types of fraudulent or abusive activities involving laboratories
and these health care providers.  The following case represents a significant example of
laboratory fraud which resulted in a settlement during this period:
(cid:127) In Florida, a laboratory and its president agreed to settle their civil liability
under the False Claims Act for submitting false Medicare claims.  The
defendants agreed to be permanently excluded from participation in Federal
health care programs and to release claim to approximately $103,675 in
funds administratively suspended by their Medicare carrier.  Although the
defendants documented an inability to pay the judgments against them, both
the laboratory and its president agreed to the entry of judgments against
them in the amounts of $2.85 million and $27,000 respectively.  They
further agreed that about $215,300 in bank accounts frozen by the United
States will be transferred to the Government.  Over a 10-week period, this
clinical  laboratory  submitted  Medicare  claims  for  specified  diagnostic
testing and received approximately $952,000 in payments.  Interviews of
the referring physicians listed on the laboratorys Medicare claims, however,
disclosed that they had not referred patients to the laboratory for testing.
Moreover, most of the physicians had never seen the beneficiaries they
supposedly referred.    
Bad Debts Reported Under Medicares End Stage Renal Disease
Program
An  OIG  review  disclosed  that  an  end  stage  renal  disease  (ESRD)  chain  allocated
approximately $16.1 million in unallowable costs to its facilities in CY 1996.  This resulted
28 in an overstatement of $1.5 million for reimbursable Medicare bad debts claimed by these
facilities.  In addition to a financial adjustment of the $1.5 million, OIG recommended that
the chain establish additional procedures to exclude the unallowable costs identified from
future cost reports.  Both HCFA and the ESRD chain generally concurred with OIGs
findings and recommendations.  (CIN:  A-01-98-00508)
Medicare Reimbursement for Hospital Beds in the Home
Medicare authorizes beneficiaries to obtain hospital beds for use in their homes.  This is
done on the basis of a rental schedule with an option to purchase the beds.  Suppliers receive
monthly  reimbursement  from  the  Medicare  DME  regional  carriers  based  upon  a  fee
schedule.    In  CY  1996,  Medicare  allowed  charges  of  over  $272 million  for  the  four
categories of hospital beds included in this OIG study.
The OIG determined that Medicares monthly rates for the four types of hospital beds
studied, when considered with total rental payments during the 15 month extended rental
period, exceeded the rates of other payers by more than 14 percent.  The BBA provides
HCFA with the necessary tools to immediately reduce rates if there is compelling evidence
that their rates exceed those generally being paid in the marketplace.  If this authority is
exercised for the beds surveyed, OIG estimates that annual savings would total between
$32.7 to $40.9 million; over 5 years, that would save Medicare about $163 to $204 million.
Also,  concluding  that  the  payment  method  used  by  Medicare  inappropriately
overcompensates  for  rental  use  during  the  first  3  months  of  each  rental  period,  OIG
recommended that HCFA seek legislation to correct that aspect of the problem.  The HCFA
concurred with the intent of OIGs recommendations and is undertaking a comparison of
hospital bed rates and a competitive bidding demonstration project as a prelude to making
hospital bed rate changes.  (OEI-07-96-00221; OEI-07-96-00222)
Ordering Medicare Equipment and Supplies
The OIG issued two related reports concerning the ordering of Medicare equipment and
supplies, one on the physician-patient relationship and the other on physician perspectives.
In the first report, OIG found that most medical equipment and supplies were prescribed by
the treating physician, but in 6 percent of cases the physician reported not knowing the
patient and 13 percent of physicians who said they knew the patient did not order the
equipment or supplies.  Fourteen percent of sample medical equipment and supplies was
found to be either questionable or medically unnecessary.  This conservatively represents
$414 million in inappropriate Medicare payments.  Patients medical records were more
often questionable when the physicians reported not ordering the equipment or supplies, and
were less likely to be questioned when there had been a recent encounter between the
physician and patient.  Several recommendations were made to strengthen the role of the
physician in approving medical supplies and equipment.
29 In the second report on physician perspectives, OIG found that two-thirds of physicians
were  satisfied  with  the  current  process  of  ordering  medical  equipment  and  supplies.
Physicians  who  were  more  informed  about  Medicare  requirements  for  coverage  and
payment of medical equipment and supplies were more likely to be satisfied with the
ordering process.  In this report, OIG recommended that HCFA strengthen its efforts to
educate  physicians  regarding  their  ordering  of  medical  equipment  and  supplies.
(OEI-02-97-00080, OEI-02-97-00081)
Fraud Involving Durable Medical Equipment Suppliers
The DME industry has consistently suffered from waves of fraudulent schemes in which
Medicare or Medicaid is billed for equipment never delivered, higher-cost equipment than
that actually delivered, totally unnecessary equipment or supplies, or equipment delivered in
a different State from that billed in order to obtain higher reimbursement.  During this
reporting period, OIG obtained settlements and convictions of unscrupulous suppliers for a
variety of schemes as demonstrated by the following examples:
(cid:127) The ring leader of a scheme to defraud Medicare was sentenced in Florida.
Her  sentence included 78 months imprisonment and 3 years supervised
release for conspiracy to commit money laundering.  She led a scheme
involving  four  parenteral  and  enteral  nutritional  (PEN)  therapy  supply
companies that obtained physician provider numbers and used them to bill
Medicare for medically unnecessary and nonrendered services.  She owned
all these companies in whole or in part, hiding the true ownership of the
PEN companies through nominee owners.  The proceeds of the fraud were
laundered by the company owners through check cashers, or "runners,"
causing a loss to the Medicare program of $750,000.  She represents the last
of 11 defendants, including her husband, to be sentenced in this case.
(cid:127) In California, a DME company owner was sentenced to 1 year incarceration
and 5 years probation, and ordered to pay $400,000 in restitution based on
his earlier plea to grand theft.  The DME company specialized in ventilators
and disposable supplies.  When orders came into the company and the
product was shipped out, the owner would add items to the invoices before
billing.  As a result, supplies were billed each month that were never
delivered.  The owner participated in this scheme with his office manager,
who also pled guilty to grand theft.  The office manager was sentenced to 3
years probation  and  500  hours community  service, and ordered to pay
$152,880 in restitution.
(cid:127) A Pennsylvania DME company and the companys Chief Operating Officer
signed  a  settlement  agreement  with  the  Government,  agreeing  to  pay
30 $265,000  for  submitting  false  claims  to  Medicare.    The  investigation
disclosed that the company billed Medicare for body jackets but actually
provided "E-Z Vests," a product which does not comply with Medicares
criteria  for  reimbursement.    The  agreement  also  called  for  permanent
exclusion of the company and a 3-year exclusion of its Chief Operating
Officer.
(cid:127) In  Illinois,  a  now  defunct  DME  company  and  its  owner  reached  an
agreement  with  the  Government  settling  allegations  of  Medicare  fraud.
Investigation uncovered that the owner submitted false claims to Medicare,
billing the  program for reimbursable female external urinary collection
devices when he actually provided noncovered adult diapers.  Although the
Medicare  single  damages  amount  totaled  $373,704,  the  settlement
amounted to $188,897, based on an inability to pay.  The owner also agreed
to be permanently excluded from all Federal health care programs.  He will
be sentenced based on a related criminal charge at a later date.
(cid:127) In New York, a DME company owner was sentenced to 3 years probation
and ordered to pay $232,402 in restitution for defrauding Medicare and
private insurance companies.  The owner submitted false Medicare claims
and paid two physicians kickbacks to sign certificates of medical necessity
for patients they never examined.  He also defrauded six private insurance
companies by filing false claims.  In his private  insurance scheme, he
submitted claims for services not rendered.  Insurance companies then sent
reimbursement  checks to a  post office box rented to a DME company
through him.  Previously, he was convicted, sentenced and ordered to pay
restitution of $104,335 for submitting false claims to Medicaid.
(cid:127) The former owner of a DME company with three offices in Arizona was
sentenced  to  15  months  incarceration,  followed  by  3  years  supervised
release and 200 hours of community service. He was also ordered to pay
$120,413 in restitution. The owner had pled guilty to filing false claims and
failure to pay taxes in relation to his DME company.  He billed Medicare
$4,800 each for power wheelchairs but either failed to deliver them, or
delivered less expensive chairs or scooters instead.  He also failed to pay
taxes withheld from employees.
Special Fraud Alert:  Physician Certifications
During this reporting period, OIG issued a special fraud alert entitled "Physician Liability
for Certifications in the Provision of Medical Equipment and Supplies and Home Health
Services."  It was published in the Federal Register on January 12, 1999.   The special fraud
alert was issued to educate and inform physicians of the significance of the certifications
31 they make in connection with the items and services they order for home health services and
DME.  Under the Medicare program, physicians prescribing home health care or DME, such
as hospital beds, wheelchairs and oxygen delivery systems, must certify that the services are
medically necessary and that the beneficiary meets the requirements to qualify for the
benefit.  This special fraud alert is an effort to assist providers in their compliance efforts by
explaining in clear language the physicians responsibilities in making certifications and the
legal significance of the certifications. 
Comparing Drug Reimbursement: Medicare and Department of
Veterans Affairs
The OIG concluded that Medicare and its beneficiaries could have saved $1 billion in 1998
if the allowed amounts for 34 drugs were equal to prices obtained by the Department of
Veterans Affairs (VA) under the Federal Supply Schedule.  The Medicare allowance was
greater than the VA acquisition cost for every drug reviewed.  For 3 of the 34 drugs,
Medicare allowed more than 16 times the VA acquisition cost.  Eleven drugs had Medicare
allowances that were between two and six times higher than the VA cost.  For only two
drugs was the difference between Medicare reimbursement and VA cost less than 25 percent.
The  VA  purchases  drugs  for  its  health  care  system  directly  from  manufacturers  or
wholesalers, whereas Medicare reimburses  doctors  and suppliers  for drugs which they
administer or supply to beneficiaries.  Previous OIG reports found that actual wholesale
prices (AWPs) available to physicians and suppliers are often significantly lower than the
Medicare allowed amounts.  This report provides additional evidence that the published
AWPs used in determining the Medicare allowed amounts for certain prescription drugs can
be many times greater than the actual acquisition costs available in the marketplace.  The
OIG  reiterated  its  earlier  recommendation  that  HCFA  reexamine  its  Medicare  drug
reimbursement methodologies with the goal of reducing payments as appropriate.  Until
legislation can be enacted providing for such reform, HCFA should utilize the new inherent
reasonableness or competitive bidding authorities provided in the BBA of 1997 to reduce
Medicares unreasonably high payments for drugs.  The HCFA concurred and noted that it
has  made  several  efforts  to  reduce  excessive  reimbursement  rates,  including  using  an
inherent reasonableness adjustment for albuterol sulfate.  The OIG believes that HCFA
should continue to use this approach to lower inappropriate payments for other drugs with
excessive reimbursement rates.  (OEI-03-97-00293)
Medical Necessity of Medicare Ambulance Services
This  OIG  inspection  report  assessed  the  medical  necessity  of  a  sample  of  Medicare
ambulance services that did not result in hospital or nursing home admissions or emergency
room care.  Two-thirds of the 30 sampled cases were not medically necessary because
alternative transportation would not have endangered the patients health.  Medicare allows
approximately $104 million each year for these medically unnecessary ambulance services.
32 The  OIG  recommended  that  HCFA  develop  a  prepayment  edit  to  verify  the  medical
necessity  of  ambulance  claims  that  are  not  associated  with  hospital  or  nursing  home
admissions or emergency room care.  The HCFA concurred with the recommendation, but
will not be able to implement it prior to the major overhaul of ambulance payment policies
required by the Balanced Budget Act of 1997.  The OIG suggested that HCFA take whatever
action it can now, consistent with available resources, and also include the issue identified in
this  report  to  its  agenda  during  negotiations  on  the  ambulance  fee  schedule.
(OEI-09-95-00412)
Transportation Fraud
A common Medicare fraud scheme associated with transportation and ambulance companies
is the submission of claims for transportation of patients to a hospital when they are really
taken somewhere else for which claims are nonreimbursable.  Other schemes include billing
singly for patients who were transported as a group and falsely claiming reimbursement for
ambulatory patients.  The following examples of cases involving transportation fraud were
resolved during this reporting period:
(cid:127) In New York, the largest ambulance services provider in the United States
agreed to pay $9.5 million to resolve allegations against it and its potential
liability.  Between 1990 and 1995, the company submitted false Medicare
claims  by  using  false  diagnosis  codes  to  impel  Medicare  to  pay  for
otherwise nonreimbursable services.  It also billed Medicare for ambulance
services that were not medically necessary.  As part of the settlement, the
company entered into a comprehensive institutional compliance agreement
which will be monitored and enforced by OIG for the next 5 years. 
(cid:127) A Mississippi ambulance company entered into a settlement agreement with
the Government, agreeing to pay $1 million for improperly billing the
Medicare and Medicaid programs.  A subsidiary of the company allegedly
billed false claims for services not rendered.  Since 1992, the subsidiary
submitted false claims for transporting ambulatory patients they claimed
were bed-confined and for upcoding the claims in order to meet Medicare
coverage requirements.  The former owners of the subsidiary have already
been sentenced for their part in the scheme.
(cid:127) In Pennsylvania, the corporate secretary of an ambulance company pled
guilty to a charge that the corporation made material false statements to the
Government.  The corporation submitted claims to Medicare for providing
beneficiaries with ambulance trips to area hospitals for services such as
x-rays,  chemotherapy  and  other  types  of  therapy.    In  actuality,  these
beneficiaries were transported to physicians offices for routine visits.  As a
33 result of the corporations improper transportation claims, it was sentenced
to pay the maximum fine of $500,000 and a special assessment of $200.
(cid:127) In Massachusetts, an ambulance company agreed to pay the Government
$120,000  to  resolve  allegations  concerning  improper  billing  practices.
Between 1993 and 1996, the company billed for advanced life support
services when it actually provided basic life support services reimbursed by
Medicare at a lower rate.  Investigation uncovered that during the time
period in question, the company did not employ an emergency medical
technician certified to perform these advanced life support services.  As part
of the settlement, the ambulance company also agreed to implement a
compliance plan which includes performance of an annual audit of claims
submitted to Medicare.
Chiropractic Care
The BBA of 1997 required HCFA to establish new utilization guidelines for Medicare
chiropractic care by January 1, 2000.  It also eliminated the need for an X-ray to document
treatment necessity.  In addition, New York State recently enacted legislation requiring
private  insurers  to  include  chiropractic  coverage  in  its  benefits  packages.    The  OIG
conducted an inspection to better understand the impact of these changes on the Medicare
and Medicaid programs and learn more about utilization controls.  
In one report, OIG described the controls used by Medicare, Medicaid and other payers for
chiropractic benefits.  Utilization caps were the most widely used control  mechanism.
However, neither the utilization caps nor any of the other controls detected and prevented
reimbursements  for  unauthorized  Medicare  chiropractic  maintenance  treatments.
Accordingly, OIG recommended that HCFA develop system edits to detect and prevent such
payments by requiring chiropractic physicians to use modifiers to distinguish the categories
of the spinal joint problems, and requiring all Medicare contractors to implement system
utilization frequency edits to identify beneficiaries receiving consecutive months of minimal
therapy.  The HCFA agreed with OIGs recommendations.  (OEI-04-97-00480)
The second report examined current and expected chiropractic care benefits under State
Medicaid programs.  While thirty States offer some form of coverage for chiropractic care
under their Medicaid fee-for-service plans, States reported that utilization data showed no
discernable trends suggesting explosive growth in Medicaid expenditures.  Also, no State
reported legislative or regulatory plans to expand their Medicaid chiropractic benefit beyond
current coverage.  (OEI-04-97-00490)
Noting that some State Medicaid programs allowed chiropractors to be reimbursed for
services other than manual manipulation of the spine and X-rays, the only chiropractic
34 services  authorized  for  Federal  matching  funds,  OIG  also  issued  a  vulnerability  alert
regarding the potential for overpayments.  (OEI-04-97-00493)
Chiropractic Services Covered by Medicare 
Managed Care Organizations
In this inspection, OIG looked at the policies and practices for providing chiropractic
services to Medicare beneficiaries in seven managed care organizations (MCOs).  The study
also  compared  chiropractic  utilization  in  four  MCOs  with  that  of  fee-for-service
organizations.
The OIG found that policies and practices for allowing chiropractic services varied among
the seven MCOs.  All seven MCOs covered manual manipulation of the spine as required by
HCFA.  However, four required a physician referral, and three allowed direct access.  Six of
the seven required a copayment, and five conducted utilization or post payment reviews to
assure appropriateness of claims.  One MCO referred chiropractors to the Federal Bureau of
Investigation  for  fraudulent  activities.    On  average,  MCO  beneficiaries  who  obtained
chiropractic  care  received  12  treatments  per  year  in  1996,  whereas  fee-for-service
beneficiaries  received  9  treatments.    However,  the  percentage  of  MCO  beneficiaries
receiving  chiropractic  services  was  lower  --  1.5  percent  as  compared  to  4  percent  in
fee-for-service plans. (OEI-04-97-00494)
Beneficiary Awareness of Health Care Financing 
Administration Publications in 1997
As part of its 1997 survey to determine beneficiary satisfaction with Medicare, OIG asked
beneficiaries about their awareness of the Medicare handbook and seven other HCFA
publications.  Eighty-seven percent of those surveyed reported that they knew about the
handbook, a significant increase from the 1995 survey, as illustrated below.
35 While only 38 percent of the beneficiaries aware of the handbook reported using it in 1997,
about the same as in 1995, 95 percent who used it found it helpful.  Few beneficiaries were
aware of HCFAs other free publications, however, and most did not know how to obtain
them.  
The HCFAs publications provide important information that Medicare beneficiaries and
their  families  may  use  to  make  informed  health  care  decisions.    Since  awareness  of
publications other than the handbook has not increased, new methods of informing the
public need to be developed.  As a result of the Balanced Budget Act of 1997, HCFA will
likely update several of its publications.  This presents a good opportunity for HCFA to
intensify  efforts  to make  beneficiaries  aware  of  the  availability  of all its publications.
(OEI-04-97-00033)
Federal and State Partnership: Joint Audits of Medicaid
One of  OIGs major  initiatives has been  to  work  more  closely  with  State  auditors in
reviewing the Medicaid program.  To foster the creation of these joint review efforts and to
provide broader coverage of the Medicaid program, the Partnership Plan was developed.
The partnership approach has been an overwhelming success in ensuring more effective use
of scarce audit resources by both the Federal and the State audit sectors.
To date, partnerships have been developed in 22 States.  Extensive sharing of audit ideas,
approaches and objectives has taken place between Federal and State auditors.  Completed
36 reports have resulted in recovered and/or identified overpayments and potential program
savings of $145 million in Federal and State government funds.  During this reporting
period, the following joint audits were completed:
A.  New York
Medicaid payments for Medicare beneficiaries (dually eligible beneficiaries) in New York
were the subject of two co-issued reports covering CYs 1994 and 1995.  The office of the
New York State Comptroller (OSC) found that the State did not have sufficient controls in
place to ensure that Medicare Part A benefits were used before allowing a Medicaid benefit
payment to be made.  In addition, OSC found that providers billed both Medicare and
Medicaid for the same services without informing Medicaid that a Medicare payment was
received.
The OSC recommended that the State investigate and recoup overpayments totaling $14.9
million ($7.45 million Federal share); determine the feasibility of implementing a mandatory
statewide crossover system; consider developing a system that tracks Medicare lifetime
reserve day balances to ensure that these benefits are exhausted before a Medicaid payment
is made; and take action to educate providers about the proper use of lifetime reserve days.
(CIN:  A-02-98-01015)
B.  New Jersey
The New Jersey Office of the State Auditor assessed whether financial transactions related to
selected Medicaid program areas were reasonable and properly recorded in the accounting
system for the period July 1, 1995 to July 31, 1997.  While the transactions tested were
proper, the State auditor noted certain procedural and reimbursement issues that merited
management attention.
For example, a test of invalid coach transportation costs showed that half the claims did not
have a related claim for a medical procedure during the travel time.  The State auditor was
able to match a portion of these claims to prescription drug claims, which indicated that
Medicaid recipients had used the invalid transportation to pick up prescriptions.  Further
testing showed that 84 percent of the pharmacies that filled these prescriptions offered free
delivery.
The State auditor made a number of recommendations, including implementing prepayment
review processes to ensure that services are appropriate and improving prepayment edits.
The OIG plans to follow up on the actions taken and to keep HCFA informed of the results.
(CIN:  A-02-99-01001)
37 Follow-Up to Detoxification Services for 
Medicaid Beneficiaries
The OIG conducted a study to assess whether Medicaid and other State programs provide
linkages for patient services between substance abuse detoxification programs and follow-up
treatment.  In surveying the Medicaid State agencies, OIG determined that 15 States have
formal processes providing transition from substance abuse detoxification to treatment, and
32 have informal processes.  The States tailor substance abuse programs to complement their
own service delivery systems, using a variety of treatment settings and staff to ensure that
integrated systems of care exist for Medicaid beneficiaries in their States.  The OIG found
that States vary in their capturing of quality and performance data, and concluded that States
which do not capture information on continuum of care linkages have little basis to assess
whether beneficiaries are receiving timely treatment services.  Only one-third of States
conduct performance monitoring of substance abuse programs.
The OIG recommended that HCFA and the Substance Abuse and Mental Health Services
Administration (SAMHSA) work with State agencies to develop appropriate performance
measures.  Both HCFA and SAMHSA expressed a willingness to work with States in these
efforts, though they cannot ensure that States meet goals and provide treatment and outcome
data.  (OEI-07-97-00270)
Medicaids Use of External Quality Review Organizations
The BBA of 1997 increased States authority to establish Medicaid managed care programs
without obtaining Federal approval.  In exchange for this flexibility, the Act required that the
States contract with a qualified outside entity to conduct an annual review of managed care
plans.  The HCFA is working with its own contractors to define the types of external
organizations  qualified  as  External  Quality  Review  Organizations  (EQROs)  and  to
determine the functions these organizations will carry out.  
The seven State Medicaid agencies in OIGs sample charged the EQRO with one or more of
the following activities: focused studies, encounter data validation, Health Plan Employer
Data and Information Set validation, individual case review, technical assistance, evaluation
of health plans internal quality of care studies and administration of satisfaction surveys.
The OIG found in its review that the experienced Medicaid agencies have come to approach
quality oversight as a patchwork of complementary strategies including focused studies,
consumer surveys or interviews, and data analysis.  These agencies have learned to see value
in engaging the services of a variety of contractors with a variety of skill sets, including, but
not limited to, the Medicare peer review organizations.
The OIG also cautioned HCFA regarding the possibility that enhanced Federal funding for
EQROs may create an unintended incentive to overuse external contractors at the expense of
developing and maintaining necessary internal expertise.  (OEI-01-98-00210)
38 Medicaid Fraud
At present, 47 States have Medicaid fraud control units (MFCUs).  Three States, Nebraska,
North Dakota and Idaho, have received waivers from establishing MFCUs as required by the
Omnibus Budget Reconciliation Act of 1993.  The MFCUs conduct investigations and
prosecute providers charged with defrauding the Medicaid program or persons charged with
patient abuse and neglect.
During FY 1998, OIG provided oversight and administered approximately $85.8 million in
funds granted by HCFA to the MFCUs to facilitate their mission.
Although most Medicaid fraud cases are investigated by the MFCUs, OIG occasionally
works with them and/or other law enforcement agencies on such cases.  The following
instances of successful results in these cases bear noting:
(cid:127) In Florida, a hospital health care corporation agreed to pay the Government
$469,000 to resolve its liability under the False Claims Act and entered into
a  corporate  integrity  agreement  with  OIG.    This  agreement  settles
allegations concerning Medicaid claims submitted by one of its component
facilities between 1995 and 1997.  The claims at issue were submitted to the
Florida  Medicaid  program,  by  one  of  the  corporations  hospitals,  for
services rendered to patients in the adolescent psychiatric unit.  Allegedly,
the hospital billed for services not rendered or not provided in accordance
with  Medicaid  requirements;  and,  the  defendants  failed  to  adequately
document the length and nature of the services provided.
(cid:127) A psychologist in Georgia is serving a 2-year prison sentence for defrauding
the Medicaid program of approximately $209,000.  Working with the owner
of a day care center, the psychologist submitted false billings to Medicaid
for services that were not medically necessary and services in excess of the
number actually provided.  In addition to imprisonment, the doctor was
ordered to pay restitution in the amount of $209,000 and was excluded for
15 years.
(cid:127) An alcoholism clinic in New York was excluded for a period of 10 years for
felony larceny.  The two owner/operators of the clinic were involved in a
scheme to defraud Medicaid, which lasted over 5 years.  They submitted
false  claims  which  resulted  in  overpayments  totaling  approximately
$113,000.    Both  owners  were  ordered  to  pay  restitution  in  the
aforementioned amount and were each excluded for 10 years.
39 (cid:127) The OIG excluded a dentist because he surrendered his license to practice
dentistry in California while a formal disciplinary hearing regarding his
professional competency was taking place.  After surrendering his license
and  being  excluded  by  OIG,  the  dentist  moved  to  Oregon.    While  in
Oregon, he applied for a license to practice dentistry with the appropriate
licensing board and then for a provider number to bill Oregons Medicaid
program.  In researching the dentists current practices, OIG determined that
he had not been truthful about his exclusion status and that the Medicaid
agency  had  an  investigation  in  progress  regarding  his  current  billing
practices.  The dentist was subsequently convicted of Medicaid fraud and
falsifying business records.  He has been excluded again for an additional
10 years.
40 Public Health Service
Operating Divisions Chapter II
PUBLIC HEALTH SERVICE OPERATING
DIVISIONS
Overview of Program Area and Office of Inspector General
Activities
The  activities  conducted  and supported  by  the  Public  Health  Service  (PHS)  operating
divisions represent this countrys primary defense against acute and chronic diseases and
disabilities.  These programs provide the foundation for the Nations efforts in promoting
and enhancing the continued good health of the American people.  These independent
operating divisions within the Department include:  National Institutes of Health (NIH), to
advance our knowledge through research; Food and Drug Administration (FDA), to assure
the safety and efficacy of marketed drugs, biological products and medical devices; Centers
for Disease Control and Prevention (CDC), to combat preventable diseases and protect the
public  health;  Health  Resources  and  Services  Administration  (HRSA),  to  support  the
development,  distribution  and  management  of  health  care  personnel,  and  other  health
resources and services; Indian Health Service (IHS), to improve the health status of Native
Americans; Agency for Toxic Substances and Disease Registry (ATSDR), to address issues
related to Superfund toxic waste sites; the Agency for Health Care Policy and Research
(AHCPR), to enhance the quality and appropriateness of health care services and access to
services through scientific research and the promotion of improvements in clinical practice,
and in the organization, financing and delivery of services; and the Substance Abuse and
Mental  Health  Services  Administration  (SAMHSA),  to  assist  States  in  refining  and
expanding treatment and prevention services.
The Office of Inspector General (OIG) has concentrated on a variety of public health
programs and issues such as biomedical research funding, substance abuse, health services
to Indians, drug approval processes and community health center programs.  The OIG has
looked  at  the  regulation  of  drugs,  foods  and  devices,  and  explored  the  potential  for
improving these activities through user fees.  The OIG has conducted audits of colleges and
universities which annually receive substantial research funding from the Department, as
well as audits of the financial statements and operations of the PHS operating divisions.  The
OIG continues to examine policies and procedures throughout the agencies to determine
whether proper controls are in place to guard against fraud, waste and abuse.  These
activities  include  preaward  and  recipient  capability  audits.    This  oversight  work  has
41 provided valuable recommendations to program managers for strengthening the integrity of
agency policies and procedures.
Settlement of Allegations of Grant Fraud and Sale of Unlicensed
Experimental Drug
The University of Minnesota agreed to pay $32 million to resolve its civil liability for the
sale of an unlicensed, experimental drug over a period of more than 20 years.  The lawsuit,
brought under the qui tam provisions of the civil False Claims Act and common law theory
of disgorgement of profits, sought recovery of profits and damages for violating FDA
regulations prohibiting the commercial sale of unlicensed drugs as well as Department
regulations requiring grantees to report, and properly account for, program income earned
with Federal grant funds.  The settlement also resolved disputes involving 29 Federal grants,
most  of  which  were  administered  by  the  Department,  which  the  Court  found  were
fraudulently  billed  by  the  University.    Several  Medicare-related  counts  against  the
University were earlier dismissed by the Court.  The case, which settled on the scheduled
date of trial, was litigated by the Civil Division of the Department of Justice.  In addition to
OIG, contributing to development of the case were NIH, FDA, the Office of the General
Counsel, and the Assistant Secretary for Management and Budget.  The Federal Bureau of
Investigation worked with OIG in an initial criminal investigation of the matter.  One
th
important outcome of the case was a decision by the 8  Circuit Court of Appeals clarifying
that the False Claims Act may be applied against State institutions.  
Low-Volume Institutional Review Boards
In a follow-up to its June 1998 report on the problems facing institutional review boards
(IRBs), OIG noted that there are some unique challenges facing hospital-based IRBs outside
of the academic health centers.  These IRBs tend to oversee considerably fewer research
protocols than those at the large research centers and are referred to as "low-volume" in this
report.
The OIG inspection results indicate that low-volume IRBs, like others, face significant
threats to their effectiveness; they review too much, too quickly, with too little expertise, and
conduct minimal review of approved research.  In addition, they face conflicts that threaten
their independence, provide little training for investigators and board members, and devote
little attention to evaluating IRB effectiveness.  Finally, they face major changes in the
research environment.  
The OIG concluded that the same recommendations set forth in its prior 1998 report apply
to low-volume IRBs.  In implementing these recommendations, OIG suggests that oversight
agencies pay special attention to the particular needs of low-volume IRBs.  Specifically,
OIG  proposes  that  the  Office  of  Protection  from  Research  Risks  and  FDA  address
42 low-volume IRBs relative isolation from the rest of the IRB community by fostering
collaborations between them and others.  (OEI-01-97-00194) 
Food and Drug Administration Warning Letters
The OIG issued two related studies on FDAs warning letter process -- one on trends and
perspectives, the other on timeliness and effectiveness.  The OIG found that the warning
letter process is an effective tool in achieving industry compliance with Federal laws and
regulations.    The  FDA  completed  appropriate  follow-up  in  97  percent  of  the  cases.
However, FDA frequently failed to meet its own timeliness guidelines.  Another concern is
that the Office of Regulatory Affairs/Office of Enforcements warning letter data base does
not match district records of warning letters issued.  The size of a district, the type of firms it
regulates, and the experience and attitudes of its staff contributed to the wide variation
among districts in the number of warning letters issued.  The nationwide decrease in the
number of warning letters issued annually primarily resulted from changes in FDA policies
and practices, as well as from better industry compliance.  The OIG recommended that FDA
improve both its timeliness and the accuracy of its warning letter data base and that it
continue to improve its relations and communication with industry.  (OEI-09-97-00380;
OEI-09-97-00381)
Centers for Disease Control and Preventions Year 2000
Remediation
The OIGs ongoing review of CDCs Year 2000 (Y2K) computer system remediation has
covered, to date, CDCs inventory of major systems, Y2K test methodologies, independent
verification  and  validation,  and  testing  in  Y2K  certified  environment.    The  OIGs
recommendations in each of these areas follow.
With respect to the inventory of major information systems, OIG recommended that CDC
use consistent terminology for reporting Y2K system status and review compliance data
included in the inventory to ensure its accuracy.  Also, OIG proposed that CDC develop a
standardized test plan using guidelines established by the General Accounting Office for
Y2K test methodologies.
The OIG believes that it will be difficult for CDCs Y2K independent verification and
validation (IV&V) contractor to be totally independent and thus ensure a true IV & V
process  because  of  the  contractors  major  involvement  in  non-Y2K  work  at  CDC.
Accordingly, OIG recommended that CDC reevaluate whether it can rely on the current IV
& V process and include additional testing in 1999 to ensure that its systems operate as
intended.  Further, OIG recommended that, to the extent possible, CDC retest in 1999 its
major information systems in environments that have been certified as Y2K compliant to
ensure that they operate as intended.  The CDC generally agreed with OIGs findings and
recommendations.  (CIN:  A-04-98-05006)
43 Disclosure Statements of Major Research Universities
In May 1996, OMB Circular A-21 was revised to require that universities receiving $25
million or more annually in Federal research funds describe their accounting practices in a
disclosure statement prescribed by the Federal Cost Accounting Standards Board.  The
objective of the disclosure statement is to ensure that universities have policies and practices
in place that result in charges to Federal research projects that are accurate, allowable and
properly  allocated  to  institutional  activities.    The  university  is  required  to  submit  its
statement to the cognizant Federal agency, the Department of Health and Human Services
(HHS) in most cases, for a determination that its cost accounting practices are adequately
disclosed and that they comply with cost accounting standards and cost principles set forth
in the Circular.   
The OIG is determining the adequacy and compliance of approximately 140 disclosure
statements submitted to the Department for approval.  As of December 31, 1998, OIG had
reviewed 23 such statements and expects to complete another 32 reviews by the end of FY
1999.  As appropriate, OIG recommended that universities establish new, or revise existing,
policies and procedures or that they revise those practices that are inconsistent with cost
accounting  standards  or cost  principles.   These recommendations will help strengthen
financial controls and ensure the integrity of the billions of  Federal research dollars to be
awarded to major universities in future years. (Various CINs)
Superfund Financial Activities
The Hazardous Substance Response Fund, commonly known as the Superfund, is used to
respond to emergency environmental hazards and to pay for removing toxic substances.
Through  agreements  with the  Environmental  Protection  Agency, certain  HHS agencies
receive Superfund money to carry out health-related activities mandated by law.  During this
reporting period, OIG audited FY 1997 Superfund financial activities at the following
agencies:
A.  Agency for Toxic Substances and Disease Registry
The ATSDR obligated about $63.9 million and disbursed about $58.8 million of Superfund
money.  The OIG found that these funds were generally administered in accordance with
applicable laws and regulations; however, management controls needed to be strengthened.
The ATSDR agreed with most of OIGs recommendations.  (CIN:  A-04-98-04220)
B.  National Institute of Environmental Health Sciences 
The National Institute of Environmental Health Sciences (NIEHS) obligations totaled
about $53.9 million and disbursements totaled about $60.5 million of funds obligated during
and prior to FY 1997.  The OIG determined that NIEHS generally administered the fund
according to Superfund legislation.  (CIN:  A-04-98-04221)
44 Medicare Pricing for Indian Health Services Contract Health
Services Program
The IHS provides or funds comprehensive health services for American Indians and Alaska
Natives.  When IHS cannot provide needed health care in its own facilities, its Contract
Health Services (CHS) program contracts with private providers.  While other Federal
purchasers of health care can require that services be offered at favorable Medicare rates,
IHS does not have this legislative advantage.  Instead it must rely on a hospitals willingness
to offer Medicare rates.
The OIG determined that in FY 1995 IHS paid $8.2 million more than the Medicare rates for
contracted services.  Savings from enactment of the legislative change sought by IHS to
require hospital acceptance of Medicare prices could be used to provide additional health
care.  The OIG anticipates that IHS and the Department will use this report in the legislative
development process.  (CIN:  A-15-97-50001) 
Indian Health Service: Program Integrity and 
Ethics Functions
In  response  to  a  request  by  the  IHS  director,  OIG  evaluated  the  effectiveness  of the
operation of the IHS program integrity and ethics function by comparing these operations to
those of four other organizations.  The program integrity and ethics staff have three major
responsibilities: to investigate complaints and allegations about IHS and tribal employees,
perform ethics activities and coordinate personnel suitability investigations.  
The OIG determined that staff at headquarters seemed to understand the mission, policies
and procedures of the program integrity and ethics functions, but over half the staff at area
offices found them unclear.  Moreover, the current organizational structure obscures the
functions visibility and prominence, and fragments responsibility for personnel suitability.
The OIG found that staffing may be inadequate; the ratio of staff to agency employees was
less than that of any of the other agencies studied.
The OIG made specific recommendations to assist IHS in improving administration of the
program integrity and ethics function by clarifying responsibilities, and enhancing visibility
and prominence within the organization.  (OEI-04-97-00060)
Mental Health Clinical Training Program
Under the Mental Health Clinical Training Program, SAMHSA awards grants to provide
funding to individuals for graduate training or development in psychology, psychiatry,
nursing or social work.  Trainees are generally required to repay each month of financial
support through an equal period of service to underserved mentally ill populations in public
45 facilities.  If trainees fail to satisfy this service obligation, they must repay the Government
three times the cost of the traineeship plus interest.
The SAMHSAs Center for Mental Health Services contracts with a private corporation to
monitor and track the appointments and payback activities of trainees.  However, in OIGs
opinion, the contractor did not adequately fulfill this responsibility.  The contractor did not
identify and refer for debt collection the trainees who did not satisfy their service payback
obligations, nor did it audit and report on the service payback status of trainees in debt
collection.  The OIG recommended that SAMHSA ensure that the contractor complies with
contract requirements and audits the status of all trainees service payback activities, and
implement procedures to refer trainees who default on their payback obligations to OIG for
exclusion from participation in the Medicare and Medicaid programs.  In commenting on the
draft  report,  SAMHSA  generally  agreed  with  these  recommendations.    (CIN:
A-15-97-80001)
Youth Use of Cigars
The OIG produced two related inspection reports on youth use of cigars -- one concerning
Federal/State regulation and enforcement, and the other on patterns of use and perceptions
of risk.  The OIG found that 19 percent of teens in its focus groups had smoked a cigar in
the last 30 days, and one-half the smokers said they still expected to be using cigars 5 years
from now.  Teens in the focus groups said their peers use cigars as "blunts" for smoking
marijuana.  Cigars are not subject to the same oversight at the Federal and State levels as
cigarettes and spit tobacco.
In this oversight review of the Departments implementation of rules relating to tobacco use
by minors, OIG recommended that the Office of the Assistant Secretary for Health take
immediate action to inform the public about the health risks associated with cigar smoking
and pursue a collaborative strategy with the Federal Trade Commission and the Congress to
initiate a Surgeon Generals warning label for cigars.  In the longer run, the Department
should address the need for additional research on cigars, including prevalence, patterns of
use,  health  effects,  the  addictive  potential  of  cigars  and  the  practice  of  "blunting."
(OEI-06-98-00020; OEI-06-98-00030)
Exclusions for Health Education Assistance Loan Defaults
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees
commercial loans to students seeking an education in a health-related field of study.  The
students are allowed to defer repayment of these loans until after they have graduated and
begun to earn an income.  The Departments Program Support Center (PSC) takes all steps
that it can to ensure repayment.  However, some loan recipients ignore their indebtedness.
46 After PSC has exhausted all efforts to secure repayment of these debts, it declares the
individual in default.  Once the individual has been declared in default, the Social Security
Act permits, and in some instances mandates, exclusion from Medicare, Medicaid and all
Federal health care programs for nonpayment of these loans.  During this 6-month period,
231 individuals were excluded as a result of PSC referral of their cases to OIG.
Individuals who have been excluded as a result of their default may enter into settlement
agreements whereby the exclusion is stayed while they pay specified amounts each month to
satisfy their debt.  If they default on these settlement agreements, they can then be excluded
until their entire debt is repaid, and they cannot appeal these exclusions.  Some health
professionals, upon being notified of their exclusion, immediately repay their HEAL debt.
At the conclusion of this reporting period, 123 individuals had taken advantage of the
opportunity and entered into settlement agreements or completely repaid their HEALs.  The
amount  of  money  being  repaid,  through  settlement  agreements  or  through  complete
repayment,  totals  over  $69  million.    The  following  are  examples  of  some  of  these
settlements:
(cid:127) After being notified that he was excluded as a result of his failure to repay
his HEAL debt, a New York physician entered into a settlement agreement
to repay almost $400,000 in student loans.
(cid:127) A settlement agreement was signed by a Connecticut physician to repay his
HEAL debt of almost $280,000.
(cid:127) A doctor of osteopathy in Michigan entered into a settlement agreement to
repay his $192,000 HEAL debt.
(cid:127) In California, a podiatrist entered into a settlement agreement to repay his
HEAL debt of over $157,000.
47 Administration 
for Children
and Families,
and Administration 
on Aging Chapter III
ADMINISTRATION FOR CHILDREN AND
FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General
Activities
The Administration for Children and Families (ACF) provides direction and funding for
programs designed to promote stability, economic security, responsibility and self-support
for the Nations families.  The major programs include: Temporary Assistance for Needy
Families (TANF), Child Support Enforcement (CSE), Foster Care, Family Preservation and
Support, Head Start, and the Child Care and Development Block Grant program.  
With respect to TANF, OIG will continue to ensure program integrity, identify opportunities
for  program  improvement,  and  provide  Federal  and  State  management  with  useful
information regarding the goal of moving individuals and families from welfare dependency
to self-sufficiency.
In addition, OIG reviews the Departments programs that serve children, and has issued a
number of reports in this area.  The OIG reports have focused on ways to increase the
efficient use of the program dollar, more effective program implementation, and how to
better coordinate program implementation among the Federal, State and local governments.  
In 1993, the Congress passed the Government Performance and Results Act mandating
Federal agencies to establish strategic planning and to prepare annual performance plans,
beginning with a plan for FY 1999.  The annual performance plan sets out measurable goals
that define what will be accomplished during a fiscal year.  The OIG has initiated a review
of  selected  data  sources  and  information  collection  systems  supporting  ACFs  1999
performance plan.
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants
to  States  for establishment of  comprehensive  community-based  systems  that  assist the
elderly in maintaining their independence and in remaining in their homes as long as
possible.  Socially and economically disadvantaged elderly and low-income minority elderly
are targeted for assistance, including supportive services, nutrition services, education and
training, low-cost transportation and health promotion.  The OIG has reported opportunities
49 for program improvements to target the neediest for services; expand available financial
resources; upgrade data collection and reporting; and enhance program oversight.
Child Support Enforcement
The United States Attorney General has placed enforcement of the Child Support Recovery
Act of 1992 as a top Department of Justice (DOJ) priority.  The Act made it a Federal
misdemeanor crime for a parent in one State to refuse to pay past due support for a child in
another State, when the support has been owed for more than 1 year or exceeds $5,000.  Any
subsequent offense is a felony violation.  A recent amendment to this Act has created two
other felony provisions for the most egregious first time violations.
The OIG has also made the investigation of these matters a high priority.  The OIG and the
Office  of  Child  Support  Enforcement  (OCSE)  are  the  sponsors  of  a  multiagency,
multijurisdictional investigative task force headquartered in Columbus, Ohio, whose mission
is to identify, investigate and prosecute the most egregious violators of the Federal and State
child  support  laws  in  the  Midwest  --  with  special  emphasis  on  the  States  of  Illinois,
Michigan and Ohio.  The task force is comprised of personnel from the OIG Office of
Investigations, U.S.  Marshals Service, U.S.  Attorneys Offices, the Department of Justice,
State and local child support offices, State and local law enforcement, State and local
prosecutors, representatives from the judiciary (both State and Federal), and representatives
from the corrections and probation offices at both the Federal and State levels.
The task force is structured to identify, investigate and prosecute criminal nonsupport cases
both on the Federal and State levels through the coordination of law enforcement, criminal
justice and child support office resources.  There are three investigative units -- one each in
Illinois, Michigan and Ohio -- which conduct the actual investigations.  The units work with
the State child support offices to identify the cases that the States then refer to the task force.
The units also work with prosecutors at State and Federal levels to ensure that the cases
worked are those that will be prosecuted in a volume consistent with the resources of those
offices.
Central to the task force is a screening unit in Columbus, Ohio which is manned by analysts
and auditors from both OIG and OCSE.  This unit receives the child support cases from the
States, conducts preinvestigative analyses of these cases through the use of information data
bases and then forwards the cases to the investigative task force units where they are
assigned and investigated.  This streamlines the process by which the cases best suited for
criminal prosecution are identified, investigated and brought to fruition.  As the task forces
bring in more law enforcement partners on the State level, the number of cases adjudicated
will rise dramatically.  At this point, the task force units have actively investigated over 315
cases  at the  Federal  and State levels  with  over 100  cases still  being evaluated at the
screening unit.  Currently, 31 Federal arrests have been executed and 18 individuals already
50 sentenced.  The total arrearage amount related to the Federal convictions is $467,000.  There
have been 163 arrests on the State level.
Based on the success of this initial task force, plans have been made to start four more in
other areas of the country by the end of this fiscal year.  The first of these additional task
forces has already been established in Baltimore, Maryland, and it will cover the States of
Maryland, Virginia, Delaware and Pennsylvania as well as the District of Colombia.
The Federal arrests, convictions and sentencings resulting from the task force approach,
during this reporting period, include the following: 
(cid:127) An Ohio man was sentenced after pleading guilty to failing to pay past due
child support of $42,000.  Since 1985, the man had paid little child support
for his three children who are now 25, 22 and 21.  He was sentenced to 5
years  probation  with  electronic  monitoring  and  ordered  to  pay  total
restitution.  One of his children is president of the Ohio chapter of the
Association for Children for Enforcement of Support.
(cid:127) In Iowa, a man was sentenced for failure to pay a legal child support
obligation.  He was approximately $43,000 in arrears on his child support
payments.  He was sentenced to 5 years probation and ordered to make
restitution of $36,250.
(cid:127) A  Michigan  man  pled  guilty  to  failure  to  pay  child  support  and  was
sentenced to 4 years probation and ordered to pay $40,436 in restitution.  He
was arrested in May 1998, after voluntarily surrendering to OIG agents in
Massachusetts for failing to meet child support obligations in Michigan.  He
works as the Chief Executive Officer for a technical education firm.
(cid:127) In Minnesota, an individual was sentenced for failure to pay a legal child
support obligation.  His sentence included 5 years probation and an order to
pay $29,447 in restitution, the amount of his child support arrearage.
The OIGs enforcement work also continues in cases of interstate nonpayment of child
support occurring in States outside the task force area, as shown by the following examples:
(cid:127) In Missouri, a man was sentenced for failure to pay child support and for
failure to file a Federal income tax return.  He had previously pled guilty for
failing to meet his child support obligation for his developmentally disabled
son, and his arrearage exceeded $49,000.  Efforts to attach his property and
to garnish his wages were largely frustrated because he placed his assets in
the names of friends and relatives, incorporated his business into another
51 company and failed to file income tax returns.  The man was sentenced to 5
years probation and ordered to pay $425 per month in child support against
his arrearage.  A civil penalty and fine for his tax liability will be determined
at a later date.
(cid:127) In Virginia, a man was sentenced for failure to pay child support.  Prior to
his sentencing, the custodial parent indicated the child feared his father and
had emotional and learning disabilities.  The father was sentenced to 5 years
probation and was ordered to make restitution of $42,975, the amount owed
in past due support.  He was also ordered to pay $438.75 each month
against his arrearage.  It was further ordered that he could not see his son
until the appropriate court approved visitation.  The man was extradited to
Virginia from Oklahoma after resolving State charges of drug possession.
(cid:127) In Texas, a man was sentenced for failure to pay child support in the State of
Nevada.  His sentence included 5 years probation and an order to pay full
restitution of $26,337.  This represents the first conviction involving child
support enforcement in the District of Nevada.
(cid:127) A man was sentenced to 30 days in jail and 1 year probation, and ordered to
pay $20,368 for failure to pay child support.  To avoid meeting his child
support obligation in Oklahoma, he moved from Oklahoma to Florida,
changing residences frequently.  He has a previous conviction for assault
and battery on a police officer.
(cid:127) In Oregon, a man was sentenced for failure to pay child support.  His
sentence included payment of his child support arrearage of $15,060 (in
increments of $300 per month) and 5 years probation.  Since OIG received
this case,  the  man  had  moved from  Hawaii  to Nevada, where he  was
arrested; to Oregon, where he pled guilty; and back to Nevada.  Through a
cooperative  effort  with  Nevada,  California  and  Hawaii  child  support
enforcement authorities, OIG played a role in raising his monthly child
support obligation from $100 to $585.  
To date, OIG has investigated 559 child support cases nationwide.  During this period, these
cases  resulted  in  36  convictions  and  court-ordered  restitution  of  over  $1.2  million.
Prosecutions in this area are unique in that sentences ordered by a judge take into account
the need for the defendant to continue to be able to pay.  Therefore, alternative sentencing
options -- such as work release, home detention and probation where nonpayment is a
violation -- are ordered.
52 Child Support Enforcement Annual Report 
to Congress
The Congress requires that OCSE submit an annual report describing program activities
over the prior year.  While the law specifies much of the data to be included in the report, it
contains a considerable amount of information in addition to what is mandated.  The OCSE
compiles the annual report based on States reports of their child support activities.
In a survey of 36 individual users, OIG found that, overall, users are satisfied with and rely
on the report.  However, most cited the lack of a clearly defined message, timeliness and
data  integrity  as  the  reports  main  weaknesses;  many  identified  opportunities  for
strengthening the report to have it better meet their needs.
Based on this feedback, OIG recommended that, in the future, the annual report focus
primarily on performance.  It should highlight program successes, strengths and weaknesses;
emphasize performance data which demonstrates how well the program is meeting its goals;
and adequately describe program accomplishments that, when used to compare different
program strategies, may be valuable to Federal policymakers and State programs.  Further,
OCSE should review the reports production and distribution processes and identify ways to
improve the reports timeliness.  The ACF agreed to implement OIGs recommendations.
(OEI-02-98-00070)
Interstate Compact on the Placement of Children
At ACFs request, OIG examined States implementation of the Interstate Compact on the
Placement of Children.  The Compact is an agreement among States intended to ensure that
children placed across State lines receive adequate protection and services.  
The OIG determined that States have Compact policies and procedures that are generally
uniform and comprehensive.  However, States are sometimes unaware that children have
been placed in their jurisdiction; this can happen when children have been placed through
the Compact but the receiving State does not know that the placements have been finalized
or when there are placements that ignore the Compact.  Half the States did not know how
many children they had placed through the Compact in 1997.  The OIG determined that the
two main reasons for poor quality and inconsistent State data were the differing standards
among the States and ineffective tracking techniques.
Although the Compact is a promising and viable way for States to fulfill their obligations to
the children they place across State lines, weaknesses in the Compacts structure may leave
some children vulnerable.  Accordingly, OIG encouraged States to abide by the principles of
the Compact and proposed that ACF be prepared where necessary to provide technical
assistance on how to more effectively implement the Compact, especially in regard to
placement notification and uniform data collection.  The OIG will continue its work in this
53 area  and  will  analyze  in  greater  detail  how  well  this  system  is  being  implemented.
(OEI-02-95-00041)
Foster Care Eligibility in California:  Follow-On Review
A previous OIG review estimated that California was incorrectly paid $51.7 million (Federal
share) for title IV-E Foster Care for the 3-year period ending September 30, 1991. However,
OIG did not recommend that ACF recover this amount as a moratorium on such recoveries
had  been  effected  by  the  Omnibus  Budget  Reconciliation  Act  of  1993.    Once  the
moratorium expired, ACF initiated recovery action.  The State then submitted additional
documentation to ACF to contest many of the questionable payments previously identified.
Based on ACFs review of the documentation and an OIG follow-on review made at ACFs
request, it was determined that the State was paid $38.9 million (Federal share) in ineligible
foster care payments for the 3-year period.  The OIG recommended recovery of this amount.
(CIN:  A-09-98-00075)
Misuse of Grant Funds
Resolution of charges of misusing Department of Health and Human Services (HHS) grant
funds occurred in the following case involving foster care services:
(cid:127) The City and State of New York agreed to pay HHS $49 million to settle a
civil lawsuit initiated by an employee of the citys child welfare agency.
Over a 4-year period, the city agency allegedly misused $39 million in HHS
grants by not providing required foster care services.  The defendants failed
to formulate case plans for foster children and to conduct case reviews for
children in foster care every 6 months.  As part of the settlement, certain
compliance and monitoring provisions were imposed to ensure the city and
State provide mandated foster care services in the future.  
Tribal Child Care
Federal Child Care and Development Fund (CCDF) grants enable Tribes to provide child
care subsidies to low-income American Indian and Alaska Native families so they can work,
attend training or return to school.  More than 17,000 American Indian and Alaska Native
children currently receive child care services funded wholly, or in part, by CCDF Tribal
grants.  State CCDF programs also serve American Indian and Alaska Native children, as the
law permits American Indians and Alaska Natives to access the CCDF program through
Tribes or the States.  Tribes in 31 States receive CCDF grants directly from the Federal
Government.  
For this inspection, OIG visited 29 Tribal CCDF programs in 7 States where more than 60
percent of the Tribal CCDF grantees are located.  The OIG found that Tribal CCDF grants
54 provide American Indian and Alaska Native children greater access to affordable child care
by  using  more  expansive  eligibility  criteria  and  offering  culturally  sensitive  services.
However, Tribes and States lack knowledge about each others programs, thus limiting
access to child care services.  Moreover, OIG identified impediments in the coordination of
Head Start and child care programs, and found that child care plans, payment systems and
reporting are uneven.
The  OIG  made  specific  recommendations  to  improve  access  to  child  care,  improve
coordination between Head Start and CCDF, address vulnerabilities in Tribal reporting and
payments, and make the most of resources provided by the technical assistance contractor
and regional ACF staff.  The ACF concurred with OIGs findings and recommendations and
highlighted their ongoing efforts in these areas.  (OEI-05-98-00010)
Early Efforts by States to Monitor Outcomes of 
Welfare Reform
In a final report on States early efforts toward monitoring the impact of welfare reform,
OIG found that two-thirds of States are beginning to use administrative data to track the
short-term outcomes of former welfare clients.  In addition, almost all States are planning or
beginning to conduct evaluations; however, these evaluations vary widely in scope and
methodological rigor with few results currently available.  Only a few States believe that
their current efforts to monitor outcomes of welfare reform are sufficient.
While the report made no recommendations, it raised issues for further consideration.  These
included:    exploring  the  capacity  of  States  to  track  outcome  measures  using  their
administrative data; validating the data used for outcome measures; reviewing the quality
and scope of States evaluations; and assessing the breadth and depth of a States overall
efforts to measure outcomes of welfare reform.  (OEI-05-98-00130)
Dual Payment of Welfare Costs
The TANF block grant legislation inadvertently created a dual payment to the States for
certain  common  administrative  costs  for  the  former  Aid  to  Families  with  Dependent
Children, Medicaid and Food Stamp programs.  To correct this, the Agricultural Research,
Extension and Education Reform Act of 1998 required the Secretary of HHS to determine
the amounts that were now included in States TANF block grants that could be allocated to
Food Stamps and Medicaid.
The  Assistant  Secretary  for  Management  and  Budget  (ASMB)  was  responsible  for
developing  the  methodology  to  be  used  by  the  States  in  calculating  the  amounts  for
adjustment.  At ASMBs request, OIG assisted in evaluating the methodology and was
available for onsite validations.  Onsite validations were conducted in three States -- Ohio,
Virginia and Texas -- and the results were reported to ASMB. 
55 The Secretary issued letters to the 50 States and the District of Columbia identifying the
appropriate adjustments for their Food Stamp and Medicaid programs.  Annual adjustments
to the Food Stamp and Medicaid programs for the next 4 years total $227 million and $295
million, respectively.  It is expected that many States will appeal this decision.
Discretionary Grants Awarded to Alleviate Poverty       
The  ACFs  Office  of  Community  Services  (OCS)  awards  discretionary  grants  to  help
alleviate the causes of poverty in distressed communities.  The OIG reviewed two awards to
determine whether grant objectives were achieved and funds properly expended.
A.  California Grant 
A nonprofit grantee was awarded $500,000, $340,000 of which was to be invested (as a
stock purchase) in a for-profit company that would use the funds to expand its business and
create 40 full-time permanent jobs for low-income persons.  The remaining $160,000 was
retained by the grantee to cover its costs for administering the project.  The OIG found that
the equity investment resulted in neither the intended business expansion nor the expected
new job creation.  The only expansion that occurred was purchase of new equipment.  The
number of new employees on the payroll ranged from 7 in January 1997, shortly after the
initial stock purchase, to 10 in August 1997 and down to 6 as of November 1997. 
Also, the company did not account for or accurately report to the grantee the use of the
$340,000.  The OIG determined that $86,000 was used for the intended purposes of the
project with the balance either unaccounted for or used for other purposes.
The  OIG  concluded  that  the  grantee  did  not  have  the  management  capability  or  the
experience for managing an economic development project of this size.  The for-profit
company did not have the management systems, physical plant or business acumen to
achieve the intended purposes of the grant.  The OIG recommended the grantee obtain a
complete accounting from the company on how the $340,000 investment of Federal funds
were used and seek instructions from OCS transferring fiduciary responsibility to an entity
more capable of protecting the Federal investment.  (CIN:  A-09-98-00065)
B.  Oregon Grant
The OIG reviewed a $250,000 grant awarded to an Oregon nonprofit organization to create
18 permanent full-time jobs through a business development venture.  However,  only four
full-time jobs were created during the grant period and none existed by the end of the grant.
The review also identified unexpended program income and unallowable charges totaling
$27,000.  In addition to a financial adjustment, OIG recommended that before any future
awards  are  made,  the  grantee  has  performance  measurements  in  place  and  control
deficiencies corrected.  (CIN:  A-10-98-00008)
56 Atlanta Empowerment Zone Corporation
The OIG examined whether the Atlanta Empowerment Zone Corporation (AEZC) had the
systems  and  controls  needed  to  manage  its  Empowerment  Zone  (EZ)  grant.    The
Empowerment  Zone  program  is  a  major  Federal  initiative  to  revitalize  economically
distressed areas of the country.  The program encourages job creation while preparing
disadvantaged residents to fill those jobs with a comprehensive range of services.  In
December 1994, Atlanta was designated as a Federal Empowerment Zone and the State of
Georgia was awarded $100 million over the next 10 years.  As fiscal intermediary, the State
provides funds to the City with as few restrictions as possible.
While OIG found AEZCs written accounting and management policies and procedures
adequate, their effective implementation was questionable as AEZC was undergoing a
reorganization as a result of numerous problems identified by the Georgia Department of
Consumer Affairs.  The OIG recommended that the City of Atlanta, which assumed control
of AEZC, expeditiously determine if and how it will continue to implement the EZ strategic
plan through AEZC; assure that adequate policies and procedures are followed and resources
and staff are in place; and diligently monitor the EZ activities.  City officials agreed with
OIGs findings and recommendations.  (CIN:  A-04-98-00121)
Health Care Anti-Fraud, Waste, and Abuse 
Community Volunteer Program:  First 
Year Outcomes
Performance data reported by AoAs community volunteer projects show that the projects
recruited and trained volunteers, educated Medicare beneficiaries and identified instances of
potential fraud, waste and abuse.  The 12 projects recruited and trained 3,682 trainers who
educated nearly 41,800 Medicare beneficiaries to detect and report suspected cases of health
care fraud and abuse.  The projects received a total of 657 allegations of fraud, abuse or
waste and 88 were identified as potential overpayments.  The projects estimated that as
much as $1.16 million in Medicare funds may be recouped.  The OIG believes that before a
new round of grants is awarded, it is important to identify and describe implementation
problems, curricula for training trainers, best practices for tracking trainers activities and
fraud allegations, and efforts to document outcomes.  In addition, OIG believes that AoA
needs to clarify guidance to projects about trainees and community education activities.
(OEI-02-97-00522)
57 General Oversight Chapter IV
GENERAL OVERSIGHT
Introduction
This chapter addresses the Office of Inspector Generals (OIGs) departmental management
and Governmentwide oversight responsibilities.
The Program Support Center (PSC), a separate operating division within the Department of
Health  and  Human  Services  (HHS),  provides  overall  direction  for  departmental
administrative activities as well as common services such as human resources, financial
management, administrative operations and information technology.  The Office of the
Assistant Secretary for Management and Budget (ASMB) is responsible for the development
of the HHS budget and its execution, as well as the related activities of establishing and
monitoring departmental policy for debt collection, cash management, and payment of HHS
grants and contracts.  The Department also has the responsibility, by virtue of the magnitude
of its funding, to negotiate the payment rates and methods that outside entities, such as State
and local governments, charge for administering HHS and other Federal programs.
The OIG has oversight responsibility for these activities at the departmental level.  A related
major responsibility flows from Office of Management and Budget (OMB) Circular A-133,
under which HHS is cognizant agency to audit the majority of the Federal funds awarded to
major research schools, State and local government cost allocation plans, and separate
indirect cost plans of State agencies and local governments.  Also, OIG oversees the work of
nonfederal auditors of Federal money at some 6,700 entities, such as community health
centers and Head Start grantees, as well as at State and local governments, colleges and
universities, and other nonprofit organizations.  In addition, OIG became responsible for
auditing the Departments financial statements beginning with the FY 1996 statements.
The OIGs work in departmental administrative activities and Governmentwide oversight
focuses principally on financial statement audits, financial management and managers
accountability  for  resources  entrusted,  standards  of  conduct  and  ethics,  and
Governmentwide audit oversight, including recommending necessary revisions to OMB
guidance.
59 Year 2000 System Compliance
The OIG has taken an active role in monitoring the progress being made by the Health Care
Financing  Administration  (HCFA)  and  other  HHS  agencies  to  remediate  their  mission
critical computer systems.  The Office has an ongoing presence at agencies central offices,
to oversee the progress on their internal systems.  The OIG has also focused its monitoring
efforts on the Medicare contractors, where OIG staff have participated in over 200 site visits
with HCFA staff and HCFAs Independent Verification and Validation (IV&V) contractor.
During this reporting period, OIG issued a status report to the HHS Chief Information
Officer (CIO), a number of alerts to the HCFA CIO and issued a statement for the record for
a Year 2000 hearing held by the House Ways and Means Committee.
A.  Interim Report
In its second interim report to the HHS CIO, OIG noted some new issues, along with
previously identified issues which continue to present obstacles to Year 2000 compliance.
Overall,  OIG  reported  that  the  operating  divisions  are  expending  significant  time  and
resources to address the year 2000 challenge and have made progress since OIGs initial
report in May 1998.
The OIGs work continued to focus on HCFA because the Departments Tier I status,
indicating insufficient evidence of adequate progress, is a direct result of OMBs concerns
about HCFAs ability to bring its external systems into timely compliance.  The success or
failure of HCFAs overall millennium effort is inseparably linked to the Medicare contractor
systems.  During this reporting period, OIG observed problems relating to two of the
systems shared by contractors.  In addition, the Department had not established a formal
policy on what is required to self-certify mission-critical systems, when recertification is
required or what documentation should be retained.  Also, OIG found persistent problems
with contingency planning.  The OIG made recommendations to deal with these issues and
continues to monitor the Departments progress.  (CIN:  A-17-98-00044)
B.  Statement
The OIG issued a statement for the record on HHS Readiness for the Year 2000 for the
February 24, 1999 hearing held by the House Ways and Means Committee.  Consistent with
the focus of the hearing, OIGs statement principally discussed the remediation efforts at
HCFA and ACF.   The OIG pointed out the significant progress made by these operating
divisions but also noted areas of concern.  For example, OIG noted that the operating
divisions  generally  met  the  Departments  December  31,  1998  due  date  for  system
compliance, but that for HCFA to meet this date it had to accept self-certifications with
"except  for"  statements  from  its  Medicare  contractors.   On  the  surface  some of these
exceptions were significant; however, HCFA expected to have them resolved before the
March 31, 1999 due date set by OMB.  The OIGs statement detailed other problems found
and concluded by saying that OIG would now focus its monitoring effort on testing system
compliance, including "end-to-end" testing of system interfaces with one another.
60 Financial Statement Audit of the Department for 
Fiscal Year 1998 
As  required  by  the  Government  Management  Reform  Act  of  1994,  OIG  audited  the
departmentwide consolidated financial statements for FY 1998, which include the newly
prepared statements of budgetary resource and financing, and custodial activity.  This audit
encompassed individual audits of eight operating divisions financial statements.
The audit report, which appears in the Departments Accountability Report for FY 1998,
indicates a qualified opinion on the FY 1998 statements.  Although the Department has
made progress since the FY 1997 audit, documentation problems continue and compliance
with the reporting requirements of the new combined statements is an emerging issue.
Medicare contractors, for instance, did not maintain adequate documentation to support $23
billion in reported accounts receivable activity during the year.  This amount resulted in
gross accounts receivable of about $5.8 billion, or about $3.3 billion net, at fiscal year end.
Also, a number of operating divisions did not have available all the accounting information
needed for audit of the statements of budgetary resources, financing, and custodial activity.  
In addition, the report noted material internal control weaknesses, problems that are systemic
across a number of operating divisions, as well as significant dollar issues affecting only one
division.  The OIG again reported that the Department and its operating divisions still do not
have  a  fully  functioning,  integrated  financial  reporting  system  capable  of  producing
complete and reliable financial statements in a timely manner.  In some instances, statement
adjustments were still being made in January 1999, about 2 months late.  Also reported was
the need for significant improvements in HCFAs methodology for estimating Medicare
accounts receivable and in the electronic data processing controls at the HCFA central office
and HCFA contractors.
The  Department  generally  agreed  with  OIGs  recommended  improvements.    (CIN:
A-17-98-00015)
Results Act Review Plan
In  1993,  the  Congress  passed  the  Government  Performance  and  Results  Act  (GPRA)
mandating  Federal  agencies  to  establish  strategic  planning  and  to  prepare  annual
performance plans, beginning with a plan for FY 1999.  The annual performance plan sets
out measurable goals that define what will be accomplished during a fiscal year.  The GPRA
also  requires  that  a  program  performance  report  comparing  actual  performance  with
performance goals be submitted no later than March 31 of each year following submission
of the plan.  The first program performance report, for FY 1999, is due March 31, 2000.
Since FY 1999 marks the initial implementation of performance measurement, OIGs work
during this fiscal year focuses on assessing data collection methods and controls over the
61 HHS systems that produce performance data.  For subsequent years, OIG is developing a
cyclical review plan directed toward those measures that are related to mission-critical issues
and high risk areas (fraud, waste and abuse). 
At the Administration for Children and Families (ACF), OIG will focus on two of the
operating divisions data collection systems: the Adoption and Foster Care Analysis and
Reporting System and the National Child Abuse and Neglect Data System.  Both were used
to establish baseline data for selected performance measures contained in the FY 1999 ACF
Performance Plan.  The OIG will evaluate ACFs and selected States systems for collecting,
recording and verifying the performance data reported.
At the Food and Drug Administration and the Centers for Disease Control and Prevention,
two of the Nations principal public health agencies, OIG will evaluate the accuracy of
information reported for those measures that relate to mission-critical issues and high risk
areas.
At the Health Care Financing Administration, OIGs continuing financial statement audit
work  is  directly  applicable  to  assessment  of  HCFA-generated,  financially-related
performance data.  For example, in FY 1997, OIG tested over 20,000 claims from the
Medicare National Claims History File which contains individually identifiable data on
beneficiary eligibility and all Medicare services used.  The HCFA is using data from this
system in its FY 1999 performance plan.  In addition, HCFA cites other OIG work in its FY
1999 performance plan.  For example, using OIGs work as its basis, HCFA established such
performance goals as reducing the percentage of improper payments in both the Medicare
fee-for-service and the home health programs.
It should be noted, however, that it has long been OIGs role to conduct audits, inspections
and investigations that identify performance results and offer recommended improvements.
As in past years, these reviews are identified throughout this semiannual report by the ruler
symbol and are itemized in appendix F.
Nonfederal Audits
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
awards.  Under this circular, these entities are required to have an annual organizationwide
audit which includes all Federal money they receive.
These annual audits are conducted by nonfederal auditors, such as public accounting firms
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and
assesses the adequacy of the entitys management of Federal funds.  In the first half of FY
1999, OIGs National External Audit Review Center (located in Kansas City) reviewed
62 about 1,200 reports that covered over $687 billion in audited costs.  Federal dollars covered
by these audits totaled $208 billion, about $97 billion of which was HHS money.
The OIGs oversight of the nonfederal audit activity not only provides Department managers
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any
significant areas of internal control weakness, noncompliance and questioned costs that
require formal resolution by Federal officials.
The OIG has developed a strategy to interrelate the work performed by nonfederal auditors
under the Single Audit Act with that required for financial statement audits.  Reliance on
nonfederal audits wherever possible, such as use of single audits for coverage of Medicaid
program expenditures, has the potential to maximize benefit from the audit effort expended
by the public and private sectors.
A.  Office of Inspector Generals Proactive Role
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of
the Departments programs and provide for greater utilization of the data obtained: 
(cid:127) Through evaluation of reported data, OIG is able to provide basic audit
coverage and analyze reports to identify entities for high-risk monitoring
and trends that could indicate  problems within  HHS  programs.  These
problems  are  brought  to  the  attention  of  departmental  management  to
improve program administration.  In addition, OIG profiles nonfederal audit
findings of a particular program or activity over a period of time to identify
systemic problems.
(cid:127) To ensure audit quality, OIG maintains a quality control program (discussed
below) and has taken steps to ensure that adequate guidance is available to
the nonfederal auditor.  The OIG actively assists the National Association of
State Auditors, Controllers and Treasurers in performing peer reviews of
State audit organizations.
(cid:127) As a further enhancement of audit quality, OIG provides technical assistance
to  grantees  and  the  auditing  profession  through  its  toll  free  number
(800-732-0679) and through training.  In addition, formal training was
provided to certified public accountant societies and State auditor staffs on
issues related to Circular A-133.
(cid:127) The OIG is also very much involved with OMB and the American Institute
of Certified Public Accountants in developing authoritative guidance for
nonfederal auditors.
63 (cid:127) The OIG led the revision of the Initial Review Guide and Quality Control
Review Guide issued by the Presidents Council on Integrity and Efficiency
and used for quality assurance.
B.  Quality Control
To rely on the work of nonfederal auditors, OIG maintains a quality control review process
which  assesses  the  quality  of  the  nonfederal  reports  received  and  the  audit work  that
supports selected reports.  
Uniform procedures are used to review nonfederal audit reports to determine compliance
with Federal audit requirements and Government auditing standards.  During this reporting
period, OIG reviewed and issued 1,153 nonfederal audit reports.  The following table
summarizes those results:
Reports issued without changes or with minor changes 1,055
Reports issued with major changes 21
Reports with significant inadequacies      77
Total audit reports processed 1,153
The  1,153  audit  reports  discussed  above  included  recommendations  for  HHS program
officials  to  take  action  on  cost  recoveries  totaling  $9.9  million  as  well  as  2,746
recommendations for improving management operations.  In addition, these audit reports
provided information for 30 special memoranda which identified concerns for increased
monitoring by departmental management.
64 Resolving Office of Inspector General Recommendations
The tables and schedules below summarize actions taken on OIG recommendations to
recover funds or to put them to better use.
A.  Questioned Costs
The following chart summarizes the Departments responses to OIGs recommendations for
the recovery or redirection of questioned and unsupported costs.  Questioned costs are those
costs which are challenged because of violation of law, regulation, grant conditions, etc.
Unsupported costs are those costs questioned because they are not supported by adequate
documentation.    This  information  is  provided  in  accordance  with  the  Supplemental
Appropriations and Rescissions Act of 1980 (Public Law 96-304) and the Inspector General
Act Amendments of 1988.  These costs are separate from the amount ordered or returned as
a result of OIG investigations (see page 69).
TABLE I
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS
Number  Dollar Value 
Questioned Unsupported
A.For which no management
decision had been made by
the commencement of the
reporting period1 399 $367,370,000 $81,715,000
B.Which were issued during
the reporting period   84 $117,707,000 $5,479,000
Subtotals (A + B) 483 $485,077,000 $87,194,000
Less:
C.For which a management
decision was made during 
the reporting period2: 126 $145,854,000 $21,039,000
(i) dollar value of
disallowed costs3,4 $140,482,000 $19,478,000
(ii)dollar value of
costs not disallowed $5,372,000 $1,561,000
D.For which no management 
decision had been made by the 
end of the reporting period 357 $339,223,000 $66,155,000
E. For which no
management decision was
made within 6 months
of issuance5 280 $247,261,000 $46,200,000
See Appendix D for footnotes.
65 B.  Funds Put to Better Use
The following chart summarizes reports which include recommendations that funds be put
to better use through cost avoidances, budget savings, etc.
TABLE II
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT
TO BETTER USE
Number  Dollar Value 
A.For which no management
decision had been made by
the commencement of the
reporting period1 45 $1,257,606,000
B.Which were issued during
the reporting period 15 $   220,985,000
Subtotals (A + B) 60 $1,478,591,000
Less:
C.For which a management
decision was made during 
the reporting period:
(i) dollar value of
recommendations that
were agreed to by
management
(a) based on proposed
    management action2 21 $226,562,000
(b) based on proposed   0                      0
    legislative action
Subtotals (a+b) 21 $226,562,000
  (ii)dollar value of
recommendations that
were not agreed to
by management  2 $       167,000
Subtotals (i + ii) 23 $226,729,000
D.For which no management 
decision had been made by
the end of the reporting 
period3 37 $1,251,862,000
See Appendix D for footnotes.
66 Legislative and Regulatory Review and Regulatory Development
A.  Review Functions
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review
existing and proposed legislation and regulations, and to make recommendations in the
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the
administration of the Departments programs and on the prevention of fraud and abuse.  In
reviewing  regulations  and  legislative  proposals,  OIG  uses  as  the  primary  basis  for its
comments the audits, inspections, investigations and other activities highlighted in this and
previous semiannual reports.  Recommendations made by OIG for legislative and regulatory
change can be found throughout this semiannual report.  
B.  Regulatory Development Functions
The OIG is responsible for the development and promulgation of a variety of sanction
regulations  addressing  civil  money  penalty  (CMP)  and  program  exclusion  authorities
administered  by  the  Inspector  General,  as  well  as  advisory  opinions  and  safe  harbor
regulations  related  to  the  anti-kickback  statute.    Among  the  regulatory  initiatives
promulgated during the reporting period were:
Final Rulemaking on Revised OIG Exclusion Authorities Resulting From Public Law
104-191 (RIN 0991-AA87) - The rule addresses revisions to OIGs administrative
sanction authorities to comport with sections 211, 212 and 213 of the Health Insurance
Portability and Accountability Act (HIPAA).  The regulatory provisions serve to expand
the scope of certain basic fraud authorities, and revise and strengthen the current legal
authorities pertaining to exclusions from Medicare, Medicaid and all other Federal
health care programs.
Proposed Rulemaking on Revised OIG Sanction Authorities Resulting From Public Law
105-33 (RIN 0991-AA95) - This rule proposes revisions to OIGs exclusion and CMP
authorities resulting from the Balanced Budget Act of 1997. The rule is intended to
protect and strengthen Medicare and State health care programs by increasing OIGs
anti-fraud and abuse authority through new or revised exclusion and CMP provisions.
Proposed Rulemaking on the Health Care Fraud and Abuse Data Collection Program
and the Reporting of Final Adverse Actions (RIN 0991-AA98) - In accordance with
section 221(a) of HIPAA, this rule will establish a national health care fraud and abuse
data collection program for the reporting and disclosing of certain final adverse actions
taken against health care providers, suppliers and practitioners.
In addition, during this period, OIG developed and published a number of Federal Register
notices that addressed development of OIG compliance program guidances, special fraud
alerts and special advisory bulletins in a number of areas.  These included:
67 Solicitation notices on the development of OIG compliance program guidance for
certain Medicare+Choice organizations, the nursing home industry and the hospice
industry, and a Federal Register solicitation notice on the development of new safe
harbor provisions and special fraud alerts.  
The publication of final OIG compliance program guidance for third-party medical
billing companies and OIGs provider self-disclosure protocol; as well as draft
compliance guidance for the durable medical equipment, prosthetics, orthotics and
supply industry.
Publication of the OIG special fraud alert on Physician Liability for Certifications in the
Provision of Medical Equipment and Supplies and Home Health Services, and the draft
special advisory bulletin on the Patient Anti-Dumping Statute.
C.  Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process.  For
example, OIG testified at five hearings and made one statement for the record during this
6-month period, principally on health care fraud and abuse issues.  On several occasions, the
testimony  concerned  OIG  recommendations  which,  if  implemented,  could  produce
significant annual savings to the Government.  These recommendations are contained in the
OIG Cost Saver Handbook, also known as the Red Book.  The hearing process offers OIG
the opportunity to meet its statutory obligation of keeping the Congress informed of its work
with regard to the effective and efficient operation of Department programs.  The OIG
continues to track all relevant congressional hearings and pending legislation relative to a
wide range of issues.
Employee Fraud and Misconduct
The OIG has oversight responsibility for the investigation of allegations of wrongdoing by
Department employees when it affects internal programs.  Most of the persons employed full
time by HHS are dedicated, honest civil servants.  Occasionally, however, individuals
violate their fiduciary responsibilities, as illustrated by the following examples:
(cid:127) A former food inspector with the Food and Drug Administration (FDA) was
sentenced in California to 3 years probation, 6 months home confinement,
250 hours community service and payment of a $20,000 fine.  The FDA
employee previously pled guilty to bribery for allowing uninspected food
into the United States.  He admitted to accepting bribes from an importer in
return for "looking the other way" when shipments, including adulterated
food, entered the country.  In light of the former inspectors voluntary
efforts to identify similar schemes and advice on ways to correct the system
he took advantage of, prosecutors asked for leniency in his sentencing.  His
68 cooperation also included testifying before a U.S. Senate subcommittee
investigating corrupt importers.               
(cid:127) In Georgia, a former employee of the Centers for Disease Control and
Prevention (CDC) was sentenced after pleading guilty to embezzlement.
His sentence included 6 months in a halfway house, 3 years probation, 500
hours community service, and an order to pay a $3,000 fine and $450 in
restitution.  He worked as a Safety and Occupational Health Specialist in the
Radiation Protection Section of CDC.  One of his responsibilities included
purchasing the equipment necessary to ensure safe and proper handling of
radioactive materials at CDC facilities.  Over a 2-year period, the employee
submitted  249  false  vouchers  for  equipment  he  never  purchased.    He
provided  the  cashiers  office  with  forged  receipts  to  document  these
vouchers, and he listed companies on the receipts that did not exist.  His
false voucher scheme resulted in a total reimbursement of $105,360 from
the Cash Imprest Fund.
(cid:127) In Maryland, two former employees of the National Institutes of Health
(NIH) were sentenced for their part in a scheme to defraud the Government
of  more  than  $14,360.    One  of  the  employees,  a  timekeeper  at  NIH,
submitted false and inflated time cards on behalf of another NIH employee.
The timekeeper was paid by this other employee to submit time cards for
him for overtime compensation hours he did not work.  Both employees
were sentenced to 3 years supervised probation and ordered to perform 100
hours  and  50  hours  community  service,  respectively.    In  addition,  the
employee who received improper overtime compensation was ordered to
pay restitution of $6,640.  The timekeeper was terminated from his job for
failing to perform his assigned duties, and the other employee retired from
Government service.
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 179 successful
criminal actions.  Also during this period, 620 cases were presented for criminal prosecution
to DOJ and, in some instances, to State and local prosecutors.  Criminal charges were
brought by prosecutors against 279 individuals and entities.
In addition to terms of imprisonment and probation imposed in the judicial processes, nearly
$175.8  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this
semiannual period.  Civil settlements from investigations resulting from audit findings are
included in this figure.
69 Appendices APPENDIX A
Savings Achieved Through Policy and Procedural Changes Resulting from
Office of Inspector General
Audits, Investigations and Inspections
October 1998 through March 1999
The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary
obligations for expenditures of agency funds or to improve agency systems and operations.  These achievements depend
greatly on the contributions of others, such as OIGs partners within the Department and elsewhere.  The amounts shown
represent funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or
by management in response to OIG audits, investigations and inspections, including:  actual reductions in unnecessary
budget outlays; deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or
operations; and reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or
insurance or bonds.
Legislative savings are annualized amounts based on Congressional Budget Office (CBO) estimates for a 5-year budget
cycle.  Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the
change is effected or for multiple years, if applicable.  Total savings from these sources amount to $6,446.1 million for this
period.
      OIG Recommendation Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Medicare Secondary Payer Extensions:
Establish a centralized database of information The database capacity was achieved $1,700
about private insurance coverage of Medicare through the authorization of a data
beneficiaries.   Extend the Medicare secondary exchange between the Social Security
payer (MSP) provision to include end stage Administration (SSA) and the Health Care
renal disease (ESRD) beneficiaries as long as Financing Administration (HCFA) and
the individual has employer based coverage between the Internal Revenue Service (IRS)
available. (OEI-07-90-00760; and HCFA.  Section 4631 of the Balanced
OEI-03-90-00763; CIN: A-10-86-62016; CIN: Budget Act (BBA) of 1997  permanently
A-09-89-00100; CIN:  A-09-91-00103; CIN: extended current MSP policies for
A-14-94-00391; CIN:  A-14-94-00392)  beneficiaries who are disabled and have
ESRD.  For ESRD beneficiaries, the statute
also increased the time period Medicare is
secondary payer from 18 to 30 months.
A-1       OIG Recommendation Implementing Action Savings
in Millions 
Medicare Part A Payments for Skilled
Nursing Facilities:
Services should be bundled into Medicare and Section 4432 of the BBA of 1997 phased in $1,250
Medicaids payments to nursing homes; Part B a PPS for SNF care.  Covered services
payments for services normally included in the include Part A SNF benefits and all services
extended care benefit should continue to be for which payment may be made under Part
examined for appropriateness; and a legislative B (except physician and certain other
recommendation should be developed to professional services) during the period
prohibit entities other than the skilled nursing when the beneficiary is provided covered
facility (SNF) from seeking coverage on behalf SNF care. 
of persons in Part A covered SNF stays for
enteral nutrition, incontinence care, and surgical
dressings, and limit Medicare coverage of these
services to Part A. In 1997 congressional
testimony, OIG supported establishing a
prospective payment system (PPS) and
consolidated billing.  (OEI-03-94-00790;
OEI-06-92-00863; OEI-06-92-00864; CIN:
A-17-95-00096; CIN: A-14-98-00350)
Capital-Related Costs of Hospital Services:
Extend congressionally mandated reductions in Section 4402 of the BBA of 1997 provided 1,100
hospital costs.  The HCFA should seek for rebasing of capital payment rates for an
legislative authority to continue mandated additional reduction in the rate of 2.1
reductions in capital payments; excess capacity percent.
was not considered in the capital cost policy.
(CIN:  A-09-91-00070; CIN: A-07-95-01127)
Reforming Medicaid Disproportionate
Share Payments:
Disproportionate share payments to hospitals Section 4721 of the BBA of 1997 reformed 980
should be related to costs incurred in treating disproportionate share payments under
Medicaid and indigent patients to correct the State Medicaid programs by placing
inequities and abuses in current payment limitations on Federal financial
methodologies.  (CIN:  A-06-90-00073; CIN: participation.
A-04-92-01025)
Medicare Payments for Oxygen:
The HCFA should reduce Medicare payments Section 4552(a) of the BBA reduced 400
for oxygen concentrators and ensure that Medicare reimbursement for oxygen 25
beneficiaries receive necessary care and support percent until 1999 and by 30 percent for
in connection with their oxygen therapy. each subsequent year; section 4552(c)
(OEI-03-91-00711, OEI-03-91-001710) mandated that the Secretary develop service
standards for oxygen provided in the home.
A-2       OIG Recommendation Implementing Action Savings
in Millions 
Medicare Laboratory Reimbursements:
In July 1989, OIG recommended that HCFA Section 4553 of the BBA of 1997 provided $300
take advantage of economies of scale present in for reducing fee schedule payments by
the laboratory industry by considering lowering the cap to 74 percent of median
competitive bidding or making reductions to the for payment amounts, with no inflation
fee schedule amounts.  In January 1990, OIG update for 1998 through 2002.
recommended that HCFA seek legislation to
allow across the board adjustments in Medicare
laboratory fee schedules, bringing them in line
with the prices which laboratories charge
physicians in a competitive marketplace.  In a
January 1996 follow-up, OIG found that
Medicare continued to pay more to clinical
laboratories than physicians for the same tests.
Although the Omnibus Budget Reconciliation
Act (OBRA) of 1993 reduced the fee schedule
to 76 percent of the average in 1996, OIG
recommended that HCFA periodically evaluate
the national fee schedule to ensure that it is in
line with the prices physicians pay for the same
clinical laboratory services. (OAI-02-89-01910;
CIN:  A-09-89-00031; CIN:  A-09-93-00056)
Medicare Home Health Care Services:
The HCFA should revise Medicare regulations Effective February 1995, Medicare 199.2
to require that the treating physician establish regulations require that a beneficiary be
the plan of care and specifically prescribe the under the care of a physician who
type and frequency of home health services establishes the plan of care and that the
needed. (CIN:  A-04-94-02087) physicians orders for services in the plan
of care specify the medical treatments to be
furnished, the discipline to furnish the
services and their frequency.
Medicare Payments for Prescription Drugs:
The HCFA should reexamine its Medicare drug Section 4556 of the BBA of 1997 reduced 110
reimbursement methodologies, with a goal of Medicare payments for drugs, which are
reducing payments as appropriate. paid based on the average wholesale price,
(OEI-03-95-00420; OEI-03-94-00390; by 5 percent.
OEI-03-97-00290)
Payments for Durable Medical Equipment:
Excessive Medicare Part B payments for enteral Section 4551 of the BBA of 1997 froze 100
and parenteral nutrition, equipment and supplies Medicare payments for enteral and
should be reduced, or competitive acquisition parenteral nutrition and supplies for 1998
strategies should be employed. through 2002, and simplified the process
(OEI-03-94-00021; OEI-06-92-00866; used to reduce inherently unreasonable
OEI-03-96-00230; OEI-06-92-00861) prices by 15 percent.
Medicare Payments to Hospitals for Bad
Debt:
The HCFA should seek legislative authority to Section 4451 of the BBA reduced bad debt 90
modify the bad debt payment policy.  (CIN: payment to providers to 75 percent during
A-14-90-00039) FY 1998, 60 percent during FY 1999 and
55 percent in later years.
A-3       OIG Recommendation Implementing Action Savings
in Millions 
Medicare Payments for Unnecessary and
Poor Quality Endoscopies:
The HCFA should reduce the incidence of The OIG accepted the peer review $54.8 
payments for unnecessary and poor quality organizations Fourth Scope of Work as an
gastrointestinal endoscopies. (OEI-09-88-01006) acceptable corrective action plan for HCFA
to address OIGs recommendation and
reduce payments for unnecessary and poor
quality endoscopies.
Short/Doyle Medicaid Payment Rates:
The State of California should ensure that The HCFA approved a California State plan 5.7
Short/Doyle payments are limited in accordance amendment that modified and clarified the
with the States Medicaid plan and Federal Statess reimbursement policy for
requirements.  (CIN:  A-09-91-00076; CIN: Short/Doyle Medicaid mental health
A-09-92-00094) services.
ADMINISTRATION FOR CHILDREN AND FAMILIES
$50 Child Support Disregard in the Child
Support Enforcement Program:
The $50 disregard provision, which allowed the Section 302 of the Personal Responsibility 121
first $50 collected from absent parents to be and Work Opportunity Reconciliation Act
turned over to the family and not counted of 1996 eliminated the authority which
against Aid to Families with Dependent allowed the recipient to keep the first $50
Children (AFDC) benefits, did not provide the of child support collected in a month.
AFDC family with any incentive to cooperate
more fully with child support officials in
locating the absent parent and should be
eliminated.  (CIN:  A-02-86-72606)
      Other Implementing Action Savings
in Millions
VARIOUS OPERATING DIVISIONS
Results of Investigations:
In addition to any restitution, fines, settlements The operating division takes action based 35.4
or judgments, or other monetary amounts on the results of the OIG investigation to
resulting from successful investigations, suspend or terminate payments to the
additional monetary losses are avoided through offending individual or entity.
timely communication of the investigative
results to the operating division.
A-4 APPENDIX B
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory
action, or policy determinations by management.  (In many cases, these recommendations are beyond the direct authority of
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as
some of the proposals could have interactive effects if enacted together.
      OIG Recommendation Status  Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Modify Formula for Costs Charged to the
Medicaid Program:
The Health Care Financing Administration The HCFA did not agree with the $4,100
(HCFA) should consult with the Congress on recommendation, and no legislative
modification of the Federal medical assistance proposal was included in the Presidents
percentage formula used to determine the current budget.
Federal share of costs for the Medicaid and
other programs which would result in
distributions of Federal funds that more closely
reflect per capita income relationships.  (CIN:
A-06-89-00041)
Laboratory Roll-In:
Fees for laboratory services should be included The HCFA disagreed with the 2,040
in Medicare recognized charges for physician recommendation.  The OIG continues to
office visits.  (OEI-05-89-89150; believe that it should be implemented. 
OEI-05-89-89151)
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital Although HCFA included a proposal to 1,559
insurance contributions for all State and local mandate Medicare coverage for all State
employees, including those hired prior to April and local government employees in the FY
1, 1986.  If this proposal is not enacted, seek 1990 budget submission, no legislative
legislation making Medicare the secondary proposal was included in the Presidents
payer for retirees of exempt State and local current budget.  Also, HCFA did not agree
government agencies.  (CIN:  A-09-88-00072) with the recommendation to make Medicare
the secondary payer.
Clinical Laboratory Tests:
Develop a methodology and legislative proposal The HCFA agreed with the first 1,130*
to pay for tests ordered as custom panels at recommendation but not the second.  The
substantially less than the full price for Balanced Budget Act of 1997 reduces
individual tests, and study reinstating the Medicare fee schedule payments by
beneficiary coinsurance and deductible lowering the cap to 74 percent of the
provisions for laboratory services as a means of median for payment amounts beginning in
controlling utilization.  (CIN:  A-09-89-00031; 1998.  Also, there will be no inflation
CIN:  A-09-93-00056) update between 1998 and 2002.  The
Presidents current budget proposes to
reduce the fee schedule ceiling from 74 to
72 percent.
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined.
B-1       OIG Recommendation Status  Savings
in Millions
Reduce Hospital Capital Costs:
Determine the extent that capital reductions are The HCFA did not agree with the $820
needed to fully account for hospitals excess recommendation.  Although the Balanced
bed capacity and report the percentage to the Budget Act of 1997 reduces capital
Congress.  (CIN:  A-09-91-00070; CIN: payments, it does not include the effect of
A-14-93-00380) excess bed capacity and other elements
included in the base year historical costs.
Medicaid Payments to Institutions for
Mentally Retarded:
The HCFA should take action to reduce The HCFA nonconcurred with OIGs 683
excessive spending of Medicaid funds for recommendation.  The HCFA believes
intermediate care facilities for the mentally Medicaid statutory provisions allow States
retarded (ICF/MRs) by one or more of the to establish their own payment systems.
following:  take administrative action to control This flexibility allows for the variations
ICF/MR reimbursement by encouraging States found among States in their payment rates
to adopt controls; seek legislation to control and the methods and standards used in
ICF/MR reimbursement, such as mandatory cost determining these rates.  The HCFA and
controls, Federal per capita limits, flat per OIG negotiated an agreement for HCFA to
capita payment, case-mix reimbursement or send the report to all State Medicaid
national ceiling for ICF/MR reimbursements; directors.  This action has been taken.
and seek comprehensive legislation to However, pursuant to section 4711 of the
restructure Medicaid reimbursement for both Balanced Budget Act of 1997, the Secretary
ICF/MR and home and community-based shall conduct a study on the effect on
waiver service for developmentally disabled access to, and the quality of services
people via global budgeting, block grants or provided to beneficiaries of the rate-setting
financial incentive programs. methods used by States.
(OEI-04-91-01010)
Flexible Benefit Plans:
The value of flexible benefit plans should be While HCFA agreed with the 291
included in the definition of wages for the recommendation and has submitted a
hospital insurance portion of the Federal legislative proposal to subject flexible
Insurance Contributions Act.  (CIN: benefit plans to the hospital insurance tax,
A-05-93-00066) the proposal was not included in the
Presidents budget.
Hospital Admissions:
Seek legislation to pay for covered services The HCFA proposed to implement OIGs 210
related to 1-day admissions without an recommendation through administrative
overnight stay as outpatient services which are remedies that would designate whether
paid on the basis of the lower of the actual costs specific services are to be covered and paid
or the customary charges in a locality.  (CIN: for as inpatient or outpatient services.  No
A-05-89-00055; CIN:  A-05-92-00006) proposal was included in the Presidents
current budget.
Graduate Medical Education:
Revise the regulations to remove from a The HCFA did not concur with the 157.3
hospitals allowable graduate medical education recommendations.  Although the Balanced
(GME) base year costs any cost center with Budget Act of 1997 contains provisions to
little or no Medicare utilization.  Submit a slow the growth in Medicare spending on
legislative proposal to compute Medicares GME, OIG believes that its
percentage of participation under the former recommendations should be implemented
more comprehensive system.  (CIN: and that further savings can be achieved.
A-06-92-00020)
B-2       OIG Recommendation Status  Savings
in Millions
Chemistry Panel Tests:
The HCFA should update its guidelines by The HCFA agreed with 8 of the 10 tests $130
expanding the national list of chemistry panel recommended for addition to the list and
tests to include 10 tests identified by the OIG added 6 of these tests to its carrier manual.
audit.  (CIN:  A-01-93-00521) The HCFA will periodically review
applicable tests and related equipment.
Also, although a legislative proposal to add
further tests was included in the Presidents
FY 1997 budget, the Congress decided
(through the Balanced Budget Act of 1997)
to achieve savings through other means,
including freezing laboratory payments
through 2002 and reducing the national
payment cap to 74 percent of the median of
all fee schedules. 
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations.  The Presidents current
Medicare claim filing by physicians who submit budget proposes to allow an assessment of a
claims on paper and who have a moderate to $1 fee on any claim not submitted
high level of interest in making the switch.  This electronically.
effort should be coordinated with efforts to
promote further use of electronic data
interchange by providers under the
administrative simplification provisions of the
Health Insurance Portability and Accountability
Act of 1996.  The HCFA should also begin to
plan now for the policy changes that will be
necessary to achieve an almost completely
paperless environment for processing Medicare
claims.  These policy changes can include
targeting a date when all physicians will be
mandated to submit paperless claims, targeting
a date when paperless claims submission will
become a condition for Medicare participation
physician status, or continuing to accept paper
claims but imposing a filing fee to cover the
incremental cost of doing so.  (CIN:
A-05-94-00039; OEI-01-94-00230)
Medicaid Drug Rebate Program:
The best price calculation in the Medicaid drug The OIG is continuing to monitor the 123
rebate program should be indexed to the Medicaid drug rebate program.
consumer price index-urban.  (CIN:
A-06-94-00039)
B-3       OIG Recommendation Status  Savings
in Millions
Medicaid Cost Sharing:
The HCFA should promote the development of The HCFA provided States with program $122
effective cost sharing programs by:  allowing and administrative flexibility through
States to experiment with cost sharing programs waivers for Medicaid programs.  However,
that target new populations and reflect more HCFA has no current plans for providing
substantial cost sharing amounts; and/or information on States cost-sharing
recommending changes to Federal requirements experiences.
allowing for greater State flexibility in
determining exempted populations and services;
allowing for higher beneficiary cost sharing
amounts; and promoting the use of cost sharing
in States that do not currently have programs.
(OEI-03-91-01800)
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The HCFA should propose legislation to expand The HCFA agreed to recover the improper 83.5
the diagnosis related group (DRG) payment Medicare billings and to refund the
window to at least 7 days immediately prior to beneficiaries coinsurance and deductible.
the day of admission.  (CIN:  A-01-92-00521) Collection of the overpayment is being
handled by settlement agreements with the
hospitals through the Department of Justice
working with HCFA and OIG.  The HCFA
did not concur with the recommendation to
further expand the payment window.  No
legislative proposal was included in the
Presidents current budget.
Inpatient Psychiatric Care Limits:
Develop new limits to deal with the high cost The HCFA considered a proposal 47.6 
and changing utilization patterns of inpatient recommending that the Medicare 190-day
psychiatric services.  Apply a 60-day annual lifetime limit for psychiatric admissions be
and a 190-day lifetime limit to all psychiatric extended to general hospitals; however,
care regardless of the place of service.  (CIN: such a proposal was not included as part of
A-06-86-62045) the Presidents current budget.
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to The HCFA is in the process of issuing a 47
allow payment for nonemergency advanced life final regulation which addresses the
support ambulance service only when that level coverage of ambulance services and vehicle
of service is medically necessary; instruct and staff requirements.  The agency intends
carriers to institute controls to ensure that to address advanced and basic life support
payment is based on the medical need of the services as part of the negotiated
beneficiary; and closely monitor carrier rulemaking process on the ambulance fee
compliance.  (CIN:  A-01-91-00513; CIN: schedule which is set to begin in January
A-01-94-00528) 1999.
Limit Reimbursement for Hospital Beds:
The HCFA should take immediate steps to The HCFA concurred with the 40
reduce Medicare payments for hospital beds recommendations and is considering
used in the home.  This should include the options to determine the best approach to
elimination of the higher reimbursement rate achieve a fair price for hospital beds.  The
currently paid during the first 3 months of agency is examining payment allowances
rental.  (CIN:  A-06-91-00080; and methodologies at other payers and is
OEI-07-96-00221; OEI-07-96-00222) reviewing data to determine if Medicare
payments are excessive.
B-4       OIG Recommendation Status  Savings
in Millions
Reduce End Stage Renal Disease Payment
Rates:
The HCFA should reduce the payment rates for The HCFA agreed that the composite $22*
outpatient dialysis treatments to reflect current payment rates should reflect the costs of
efficiencies and economies in the marketplace. outpatient dialysis treatment in efficiently
(CIN:  A-14-90-00215) operated facilities.  While the Omnibus
Budget Reconciliation Act of 1990
prohibited HCFA from changing these
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatment.  A
March 1996 study by ProPAC
recommended an increase to the current
rates, but HCFA did not believe an
across-the-board increase was warranted
and intended to monitor facilities costs and
other factors to determine if a rate increase
would be appropriate.  Toward this end, the
Balanced Budget Act of 1997 requires the
Secretary to audit the cost reports of each
renal dialysis provider at least once every 3
years.  The HCFA said it plans to begin
these audits in FY 1999.
Collect Overpayments from Health
Maintenance Organizations for
Misclassified End Stage Renal Disease
Beneficiaries:
The HCFA should issue clear guidelines for the The HCFA agreed to clarify its policies for 20.5
recovery of overpayments from health collecting overpayments from HMOs.
maintenance organizations (HMOs) and recover However, it collected overpayments
all overpayments occurring at least since 1992 retroactively only to March 1995 for the
that were made to HMOs on behalf of majority of misclassified beneficiaries and
misclassified end-stage renal disease (ESRD) retroactively to October 1993 for the
beneficiaries. (CIN:  A-14-96-00203) remaining beneficiaries who were
misclassified as having ESRD before
enrollment in the HMO.  Due to this limited
recovery schedule, HCFA has not collected
$20.5 million in overpayments which
occurred since 1992.  The HCFA disagreed
with the OIG recommendation to collect the
overpayments retroactively to 1992.
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-5       OIG Recommendation Status  Savings
in Millions
Preclude Improper Medicaid
Reimbursement for Clinical Laboratory
Services:
State agencies should install edits to detect and The HCFA wrote to all State Medicaid $17
prevent payments for clinical laboratory directors on January 15, 1997, alerting
services that exceed the Medicare limits and them to the OIG review, encouraging them
billings that contain duplicate tests, recover to use Medicares bundling policies and
overpayments and make adjustments for the urging them to install appropriate payment
Federal share of the amounts recovered.  (CIN: edits in their claim processing systems.
A-01-95-00005; CIN:  A-05-95-00035; CIN:
A-01-96-00001; CIN:  A-06-95-00078; CIN:
A-06-95-00031; CIN:  A-04-95-01108; CIN:
A-04-95-01109; CIN:  A-07-95-01139; CIN:
A-07-95-01147; CIN:  A-04-95-01113; CIN:
A-07-95-01138; CIN:  A-09-95-00072; CIN:
A-05-96-00019; CIN:  A-10-95-00002; CIN:
A-01-95-00006; CIN:  A-02-95-01009; CIN:
A-03-96-00200; CIN: A-03-96-00202; CIN:
A-03-96-00203; CIN:  A-05-95-00062; CIN:
A-06-96-00002; CIN:  A-06-95-00100)
Medicare Claims for Railroad Retirement
Beneficiaries:
Discontinue use of a separate carrier to process While HCFA has supported legislation in 9.1
Medicare claims for railroad retirement the past, there is currently no legislative
beneficiaries.  (CIN:  A-14-90-02528) proposal before the Congress.
Medicare Orthotics:
Develop guidelines that better define orthotic The HCFA concurred with the 7.9
devices; develop policies for orthotic codes; recommendations and has revised its
develop screens for billing many orthotic national codes to distinguish among
devices on the same day or within a short time categories of devices.  The OIG is currently
frame; pay special attention to billing for conducting a follow-up to this study.
orthotics in nursing facilities; work with the
American Orthotic and Prosthetic Association
to develop a table of devices that should not be
used together, and consider stricter standards to
determine who is allowed to bill for orthotics.
(OEI-02-95-00380)
B-6       OIG Recommendation Status  Savings
in Millions
Third Party Liability Settlements and
Awards:
The HCFA should develop legislative proposals The HCFA agreed that the exception in the $3
to close the loopholes in the Omnibus Budget law contains loopholes.  It indicated that
Reconciliation Act of 1993 that allow Medicaid recommendations could be made to the
beneficiaries, who receive settlements and Congress to amend the exception limiting
awards from third parties as a result of the use of trust funds to certain
accidents, to shelter the assets in irrevocable well-defined necessities (e.g., health care
trusts and retain their eligibility for Medicaid. that is not covered by Medicaid).  The
The HCFA should also develop guidelines to HCFA also agreed to take appropriate
assist States in strengthening Medicaids right action to strengthen Medicaids right to
to recover when trusts are established by third recover from trusts established from third
parties.  (CIN:  A-09-93-00033) party settlements.  In June 1996, HCFA
issued guidelines which set forth advice on
ways in which States can better recover
Medicaid expenditures from established
third-party settlements, especially for the
disabled population.
Indirect Medical Education:
Reduce the indirect medical education (IME) The HCFA agreed with the to be determined
adjustment factor to the level supported by recommendation, and the Balanced Budget
HCFAs empirical data.  Initiate further studies Act of 1997 reduces the IME adjustment
to determine whether different adjustment factor from the current 7.7 percent in Fiscal
factors are warranted for different types of Year (FY) 1997 to 5.5 percent in 2001 and
teaching hospitals.  (CIN:  A-07-88-00111) thereafter.  The OIG believes the factor
should be further reduced to eliminate any
overlap with the disproportionate share
adjustment.
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The HCFA was concerned that an indefinite to be determined
provisions to include ESRD beneficiaries MSP provision might encourage insurers to
without a time limitation.  (CIN: drop uneconomical services, namely
A-10-86-62016) facility dialysis and transplantation.  The
HCFA favored indefinitely extending the
MSP provision for all other services and
included this proposal in an earlier budget
submission.  Although the Balanced Budget
Act of 1997 extends MSP policies for
individuals with ESRD to 30 months, OIG
continues to advocate that when Medicare
eligibility is due solely to ESRD, the group
health plan should remain primary until the
beneficiary becomes entitled to Medicare
for old age or disability.  At that point,
Medicare would become the primary payer.  
B-7       OIG Recommendation Status  Savings
in Millions
Home Health Agencies:
The HCFA should revise Medicare regulations Although the Congress and the to be determined
to require the physician to examine the patient Administration included provisions to
before ordering home health services.  (CIN: restructure home health benefits in the
A-04-95-01103; CIN: A-04-95-01104; Balanced Budget Act of 1997, HCFA still
OEI-04-93-00262; OEI-04-93-00260; needs to revise Medicare regulations to
OEI-12-94-00180; OEI-02-94-00170; CIN: require that physicians examine Medicare
A-04-94-02087; CIN: A-04-94-02078; CIN: patients before ordering home health
A-04-96-02121; CIN:  A04-97-01169; CIN: services.  While agreeing in principle,
A-04-97-01166; CIN: A-04-97-01170) HCFA said it would continue to examine
both coverage rules and conditions of
participation to develop the discipline
necessary for ensuring proper certification.
The OIG will continue to do work in this
area.
Modify Payment Policy for Medicare Bad
Debts:
The OIG presented an analysis of four options The HCFA agreed with the  to be determined
for HCFA to consider, including the elimination recommendation to include a bad debt
of a separate payment for bad debts, the offset factor in the DRG rates.  The Balanced
of Medicare bad debts against beneficiary Budget Act of 1997 provides for some
Social Security payments, the limitation of bad reduction of bad debt payments to
debt payments to prospective payment system providers.  The Presidents current budget
hospitals that are profitable, and the inclusion of proposes to reduce the percentage (from 55
a bad debt factor in the DRG rates.  The HCFA percent to 45 percent) that Medicare pays
should seek legislative authority to further for bad debts and to extend this policy to
modify bad debt policies.  (CIN: providers beyond hospitals.  However,
A-14-90-00339) additional legislative changes are needed to
implement the modifications that OIG
recommended.
Establish Connection Between the
Calculation of Medicaid Drug Rebates and
Drug Reimbursement:
The HCFA should seek legislation that would The HCFA disagreed with the to be determined
require participating drug manufacturers to pay recommendation to seek a legislative
Medicaid drug rebates based on average change, believing that such legislation was
wholesale price (AWP) or study other viable not feasible at the time.  However, HCFA
alternatives to the current program of using stated that changing AMP to AWP would
average manufacturer price (AMP) to calculate reduce the administrative burden involved
the rebates.  This legislation would have in the AMP calculations and planned a
resulted in about $1.15 billion in additional comprehensive study of AWP.
rebates for 100 brand name drugs with the
highest total Medicaid reimbursements in
Calendar Years 1994-96.  (CIN:
A-06-97-00052)
B-8       OIG Recommendation Status  Savings
in Millions
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Institute and Collect User Fees for Food and
Drug Administration Regulations:
Extend user fees to inspections of food In the absence of specific authorizing $189.3
processors and establishments. legislation, the Food and Drug
(OEI-05-90-01070) Administration (FDA) is precluded by
statute from imposing user fees to cover
additional functions.  The FY 2000
Presidents budget request for FDA
proposes that FDA be given new user fee
authority to enhance premarket review
activities for medical devices and food
additive petitions.
Medicare Rates for Indian Health Service
Contracted Health Services:
The Indian Health Service (IHS) should revise The IHS concurred with OIGs 8.2
its legislative proposal to incorporate OIGs recommendations and is revising its
updated savings figures and should identify legislative proposal for submission in the
elements to be included in the implementing FY 2000 legislative cycle, identifying
regulations.  Also, IHS should continue to elements to be developed in its
pursue the most favorable rates at hospitals that implementing regulations and continuing its
have previously offered less than Medicare rates efforts to obtain discount rates throughout
and should strategically identify and pursue its service area.
other opportunities where lower rates may be
negotiated.  (CIN: A-15-97-50001)
Recharge Center Costs:
The Assistant Secretary for Management and The Deputy Assistant Secretary for Grants 1
Budget should propose changes to OMB and Acquisition Management concurred
Circular A-21 to improve guidance on the with the recommendations.  In addition, the
financial management of recharge centers.  The Council on Government Relations generally
revision should include criteria for establishing, agreed and stated that the proposed criteria
monitoring and adjusting billing rates to should be included in the Compliance
eliminate accumulated surpluses and deficits; Supplement to OMB Circular A-133, which
preventing the use of recharge funds for provides guidance to independent auditors
unrelated purposes and excluding unallowable in conducting compliance audits of
costs from the calculation of recharge rates; educational institutions.
ensuring that Federal projects are billed
equitably; and excluding recharge costs from
the recalculation of facilities and administrative
cost rates.  (CIN: A-09-96-04003)
ADMINISTRATION FOR CHILDREN AND FAMILIES
Medical Child Support:
Increase the number of noncustodial parents The Administration for Children and 11.4
providing medical support for their children and Families and HCFA agreed with OIGs
reduce Medicaid costs by either requiring findings and recommendations.  State
noncustodial parents to pay for all or part of the officials will move to consider a legislative
Medicaid premiums or establishing a new change and budget option to address the
comprehensive health insurance plan for recommendation for the 1999 legislative
children with premiums paid by noncustodial session.
parents.  (CIN: A-01-97-02506)
B-9       OIG Recommendation Status  Savings
in Millions
GENERAL OVERSIGHT
Simplify Administrative/Indirect Cost
Allocation Systems:
The OMB should simplify the process for Some of OIGs recommendations are cited $660
charging administrative/indirect costs to Federal in the National Performance Review report
programs through reform of the cost allocation that calls for reform of the cost allocation
plans.  Options for reform include use of block process.  The OMBs revision of Circular
grant awards, a flat percentage rate for A-87 addressed those recommendations.
administrative/indirect costs, and negotiation of However, further reform is needed to
a nonadjustable rate for a predetermined address the bulk of administrative/indirect
number of years.  (CIN:  A-12-92-00014) costs charged to the Federal Government.
B-10 APPENDIX C
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency.  More detailed information may
be found in OIGs Program and Management Improvement Recommendations (the Orange Book).
OIG Recommendation Status
HEALTH CARE FINANCING ADMINISTRATION
Improve the Health Care Financing
Administrations Implementation of the
Federal Managers Financial Integrity Act
Program:
The Health Care Financing Administration (HCFA) The HCFA still does not agree with the need to expand
should reevaluate its review of the Common Working File financial management reviews to other systems, such as the
to ensure that all functional responsibilities of the system Common Working File.
are included in Federal Managers Financial Integrity Act
reviews.  (CIN:  A-14-93-03026)
Implement Proper Accountability over Billing
and Collection of Medicaid Drug Rebates:
The HCFA should ensure that States implement The HCFA concurred with the recommendation.  States
accounting and internal control systems in accordance will now be required to maintain detailed supporting
with applicable Federal regulations for the Medicaid drug records of all rebate amounts invoiced to drug companies
rebate program.  Such systems must provide for accurate, using a formal accounts receivable system.  The HCFA also
current and complete disclosure of drug rebate has a task force to help with rebate resolution.
transactions and provide HCFA with the financial
information it needs to effectively monitor and manage
the Medicaid drug rebate program.  (CIN:
A-06-92-00029)
Ensure that the Medicare Accounts Receivable
Balance Is Fairly Presented:
The HCFA should require contractors to implement or The HCFA has established a Medicare accounts receivable
improve internal controls and systems to provide team to visit several contractors to explore ways in which
sufficient documentation to support reported accounts to strengthen controls and improve contractor reporting.
receivable.  Because of insufficient documentation, OIG
again was not able to satisfy itself as to the fair
presentation of the Medicare accounts receivable balance
($2.5 billion in FY 1997). (CIN:  A-17-95-00096; CIN:
A-17-97-00097)
Consider Recommended Safeguards over
Medicaid Managed Care Programs:
The HCFA should consider safeguards available to reduce The HCFA generally concurred with OIGs
the risk of insolvency and to ensure consistent and recommendations but felt that a broader analysis of
uniform State oversight.  (CIN:  A-03-93-00200) managed care plans was needed to support broad program
recommendations.  The OIG notes that the same concerns
raised in its report have been expressed by the Congress
and the General Accounting Office.  The OIG is continuing
reviews of Medicaid managed care plans.
C-1       OIG Recommendation Status
Provide Additional Guidance to Drug
Manufacturers to Better Implement the
Medicaid Drug Rebate Program:
The HCFA should survey manufacturers to identify the The HCFA did not concur stating that the drug law and the
various calculation methods used to determine average rebate agreements already established a methodology for
manufacturer price (AMP).  The HCFA should also computing AMP.  The OIG disagreed because the rebate
develop a more specific policy for calculating AMP law and agreement defined AMP, but did not provide
which would protect the interests of the Government and specific written methodology for computing AMP.
which would be equitable to the manufacturers.  (CIN:
A-06-91-00092) 
Physician Office Surgery:
The peer review organizations (PROs) should extend The HCFA has issued policy guidance and manual
their review to surgery performed in physicians offices. instructions to explicitly state that PROs have the
(OEI-07-91-00680) responsibility to review all care in physician offices when a
beneficiary complains.
Properly Account for Medicare Secondary
Payer Overpayments:
Although agreement was reached to relieve Blue Cross The HCFA is currently pursuing the recommended
and Blue Shield plans of past due Medicare secondary administrative action through improved information
payer (MSP) overpayments, HCFA should continue to systems to guard against making improper Medicare
implement financial management systems to ensure that payments to the Blue Cross and Blue Shield plans.  Also,
all overpayments (receivables) are accurately recorded. the Presidents FY 1999 budget includes a legislative
(CIN:  A-09-89-00100) proposal to clarify MSP requirements.
Investigate Patient Dumping Complaints:
The HCFA should improve its processes for investigating The HCFA concurred with OIGs recommendations.
and resolving complaints involving potential violations of
the Examination and Treatment for Emergency Medical
Conditions and Workmen in Labor Act, commonly
referred to as patient dumping.  (CIN:  A-06-93-00087)
Medicare Beneficiary Satisfaction with
Durable Medical Equipment Regional Carrier
Services:
The HCFA should evaluate ways to increase beneficiary The HCFA concurred.  The HCFA conducts annual
satisfaction with the one durable medical equipment evaluations to identify ways to improve performance.  The
regional carrier with a low rating, and review effective HCFA is also working to develop new outreach techniques
ways to educate beneficiaries on what constitutes fraud to increase beneficiaries knowledge on detecting fraud and
and abuse.  (OEI-02-96-00200) abuse.
Pressure Reducing Support Services:
The HCFA should establish the requirement for periodic The HCFA did not concur.
review and renewal of the medical necessity for
beneficiaries use of group 2 support surface equipment.
(OEI-02-95-00370)
Excessive Medicare Payments for Prescription
Drugs:
The HCFA should examine its Medicare drug The Balanced Budget Act of 1997 reduced Medicare
reimbursement methodologies.  (OEI-03-97-00290) payments by limiting them to 95 percent of the average
wholesale price.  Additional corrective action is warranted
and called for in the Presidents 1999 and 2000 budget and
legislative programs.
C-2       OIG Recommendation Status
Monitor the Validity of Medicare
Fee-for-Service Payments Made under Title
XVIII of the Social Security Act:
Stronger oversight by HCFA is needed to provide The HCFA generally concurred and is increasing the level
reasonable assurance of detecting and preventing of claims review and the number of contractor medical
improper Medicare payments and to preserve the directors, improving the use of technology and data, and
solvency of the Medicare Trust Funds.  To ensure developing and implementing a substantive testing
provider compliance with Medicare reimbursement rules program.
and regulations, HCFA should develop a national error
rate to objectively measure improper payments and
performance in reducing such payments. (CIN:
A-17-95-00096; CIN: A-17-97-00097)
Medicaid Accounts Receivable and Accounts
Payable:
The HCFA should send its annual State survey well in The HCFA sent the FY 1998 survey to the States well in
advance of the due date and include clear and complete advance of the due date. 
instructions.  Also, procedures should be implemented to
address survey problems, and trend data should be
developed. (CIN:  A-17-95-00096; CIN: A-17-97-00097)
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Require AIDS Drug Assistance Programs to
Participate in the 340B Drug Pricing Program:
To ensure that eligible entities are accessing lower priced The HRSA has issued a Federal Register notice requesting
drugs, which enables them to provide additional services, comments on a proposed condition of grant award that
the Health Resources and Services Administration would require participation in the 340B Program for all
(HRSA) should require State AIDS drug assistance eligible entities.  
programs to participate in the 340B drug pricing program.
(CIN:  A-01-97-01501)
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING
Improve the Federal Foster Care Program:
The OIG provided options for the Administration for The ACF concurred and has field-tested its redesigned
Children and Families (ACF) to consider in its efforts to titles IV-B and IV-E child welfare reviews.  A draft notice
improve its partnership with State and local governments of proposed rulemaking is currently in preliminary
in administering the Federal Foster Care program.  The clearance.  In addition, the child welfare waiver
options included streamlining the process; determining demonstrations are allowing several States to test
whether legislative change is needed; and determining if alternative approaches to the title IV-E requirements.
certain program requirements could be changed to
facilitate compliance.  (CIN:  A-12-93-00022)
Develop Effective Practices for Facility
Purchases by Head Start Grantees:
The ACF should work to develop effective practices for The ACF agreed with OIGs recommendations.
handling facility purchases by Head Start program
grantees, particularly in the areas of review and approval
of purchase requests, and accounting for facility
purchases.  (CIN:  A-09-94-00085)
C-3       OIG Recommendation Status
GENERAL OVERSIGHT
Update Cost Principles for Federally
Sponsored Research Activities:
The Department should act to modernize and strengthen The Department is revising hospital cost principles to be
cost principles applicable to hospitals by either revising consistent with OMB Circulars.
existing guidelines to conform with Office of
Management and Budget (OMB) Circular A-21 or
working with OMB to extend Circular A-21 coverage to
all hospitals.  (CIN:  A-01-92-01528)
Guidelines to Reimburse Educational
Institutions and Nonprofit Organizations:
The Department should work with OMB to revise The OMB has revised Circular A-87 to limit PRB costs to
applicable cost principles to reflect the change in the amount funded, but has no plans to revise Circular
accounting for post retirement benefit (PRB) costs arising A-21.  However, the Department has instructed negotiators
from implementation of Financial Accounting Standards that PRB costs claimed under Circulars A-21 and A-122
Board Opinion 106.  It should also advise negotiators for should be treated in the same manner as the provisions of
the Departments Division of Cost Allocation to pay Circular A-87.
special attention to such costs when reviewing fringe
benefit rates for schools and nonprofit organizations.
(CIN:  A-01-93-04000)
C-4 APPENDIX D
Notes to Tables I and II
Table I
1 The opening balance was adjusted to reflect an upward revaluation of $19.6 million.
2 During the period, revisions to previously reported management decisions included:
CIN:  A-04-89-05136  State of North Carolina:  Grantee provided documentation in the amount of
$1,257,950.
CIN:  A-04-96-40781 State of Alabama:  Duplicate claim resolved with the grantee in the amount of
$170,819.
CIN:  A-04-96-01133 Clinical Labs GA:  Grantee settled with the Federal Government in the amount of
$162,217.
Not detailed are revisions to previously disallowed management decisions totaling $676,444.
3 Included in management decisions to disallow is $645,342 in costs attributable to audits performed by the Defense Contact
Audit Agency.
4 Included in management decisions to disallow is $12,714,000 that was identified in nonfederal audit reports.
5 Audits on which a management decision had not been made within 6 months of issuance of the report:
A. Due to administrative delays, many of which are beyond managements control, resolution of the following
audits was not completed within 6 months of issuance; however, based upon discussions with management,
resolution is expected before the end of the next semiannual reporting period:
CIN:  A-09-96-00054 Blue Cross of California Administrative Costs, August 1996, $-1,653,079
CIN:  A-09-94-01022 Intelligenetics  #N01-GM-72110, October 1994, -$12,400
CIN:  A-06-97-00031 Review of AMP-Searle, Chicago, IL, October 1997, $28,000,000
CIN:  A-09-97-44626 State of California, April 1997, $7,419,900
CIN:  A-09-96-00066 CA Dept. Soc. Serv-Title IV-E Foster Care ADM Costs, September 1997,
$6,611,640
CIN:  A-03-91-00552 Independent Living Program-National, March 1993, $6,529,545 (Related
recommendation of $10,161,742 on Table II)  
CIN:  A-10-97-48849 State of Oregon, July 1997, $6,379,395
CIN:  A-07-92-00578 BC/BS of Texas Inc-Unfunded Pension Costs, October 1992, $6,244,637
CIN:  A-07-97-01213 Pension- Travelers Termination, February 1998, $5,624,747
CIN:  A-04-96-04575 Audit ATSDRS Superfund Finan. ACTS-FY95, ATSDR, June 1997, $5,360,000
CIN:  A-04-04-04599 Audit ATSDRS Superfund ACTs ATSDR/CDC, ATL, September 1997, $4,800,000
CIN:  A-01-97-46859 State of Massachusetts, May 1997, $4,798,706
D-1 CIN:  A-07-96-02001 Medicare Part B Admin Costs at BC/BS Colorado, December 1996, $4,483,104
CIN:  A-07-97-01234 Rocky Mountain Pension-Termination, May 1998, $4,079,171
CIN:  A-05-94-00080 Associated Ins. Medicare Administrative Costs, July 1996, $3,954,632
CIN:  A-09-95-00056 Review of Training Activities-CA Dept. SOC. SVCS., August 1996, $3,934,717
CIN:  A-09-96-00064 ORT - HOSPICE - California, March 1997, $3,450,000
CIN:  A-02-95-01019 Staff Builders Home Office Medicare Cost Rev. ORT, August 1998, $3,434,274 
CIN:  A-05-93-00054 IL-Associated Insurance Group-Contract Audit, October 1993, $3,355,560
CIN:  A-03-94-00029 Veritus Inc. - Admin. Cost, February 1998, $3,140,363
CIN:  A-07-93-00633 Pension Segmentation-AETNA Life Insurance Co., October 1993, $3,011,376
CIN:  A-05-93-00013 MI - Blue Cross /Blue Shield-Contract Medicare Audit, April 1993, $3,010,916
CIN:  A-09-98-50183 State of California, March 1998, $3,000,000
CIN:  A-07-92-00585 Pension Segmentation BC/BS of California, January. 1994, $2,973,504
CIN:  A-01-95-00504 Medicare Parts A&B Admin Costs-AETNA, January 1996, $2,938,223
CIN:  A-04-98-02147 Health Management Network, Inc., January 1998, $2,899,083
CIN:  A-01-96-00508 Medicare Admin. Costs Parts A&B and RRB-Travelers, March 1996, $2,803,260.  
CIN:  A-07-96-01185 BC/BS Rocky Mountain Pension Segmentation, June 1997, $2,743,438
CIN:  A-05-97-00005 Administrative Costs Claimed under Medicare A&B, February 1998, $2,569,067
CIN:  A-05-92-00026 Associated Insurance Co.-Medicare Admin., February 1992, $2,530,409
CIN:  A-04-97-02138 Silver Springs Health Centers Part, January 1998, $2,382,527
CIN:  A-02-91-01006 Blue Shield of Western NY Medicare ADM CTS Porter, September 1991,
$2,379,239
CIN:  A-06-97-46119 Arkansas Dept. Of Human Services-Central Admin., August 1997, $2,054,508
CIN:  A-02-93-02001 Manpower Demonstration RES CORP HHS100890030, October 1994, $2,024,444
CIN:  A-06-96-00009 New Mexico BC/BS Admin. Cost-Contracted, November 1997, $1,879,366
CIN:  A-04-96-00104 Review Refugee Cash & MCal Assistance PMTS IN FL, April 1998, $1,867,382
CIN:  A-05-97-00014 Group Health Plan Inc. (HEALTHPARTNERS) Inst. Benes, June 1998,
$1,808,308.  
CIN:  A-05-95-00059 Audit of Administrative Costs-BC/BS Michigan, January 1997, $1,787,345
CIN:  A-04-97-02130 Review FL Adult Care Center. CMHC Part. Hosp. Prog. , April 1998, $1,709,245
CIN:  A-03-97-00200 Virginia/Medicaid/Laboratory Fee Schedules, January 1998, $1,629,750
CIN:  A-02-94-01030 Hospice Eligibility Review in PR, June 1995, 1,598,837
CIN:  A-03-96-00012 BC/BSM PT-B Non-Renewal Costs, August 1998, $1,557,459
CIN:  A-06-96-00008 Arkansas BC/BS Admin Cost-Contracted, September 1996, $1,442,193
D-2 CIN:  A-04-96-00105 Rev. OCS Discretionary. Grants Awarded to Delta Foundation, December 1997,
$1,430,000
CIN:  A-02-96-42454 City of New York City Agency for Child Development, May 1996, $1,410,441
CIN:  A-07-98-02506 AETNA Unfunded Pension Costs, August 1998, $1,407,689
CIN:  A-10-91-00011 WPS-Keystone Computer Acquisition, October 1992, $1,346,681
CIN:  A-05-95-00042 BC/BS Administrative Costs-Contracted Audit, December 1995, $1,333,598
CIN:  A-02-98-52102 Puerto Rico Family Dept. Of Children & Families, March 1998, $1,321,656
CIN:  A-02-96-01016 Empire, Admin. Costs Part B Gardiner, Kamya & Assoc., April 1997, $1,296,098
CIN:  A-07-93-00700 BC/BS of Mass-Unfunded Pension Cost Audit, May 1994, $1,290,740
CIN:  A-07-96-01194 Pension-Community Mutual Segmentation, July 1997, $1,263,188
CIN:  A-10-97-47406 State of Idaho, April 1997, $1,262,577
CIN:  A-07-94-00762 Health Care Service Corp-Unfunded Pension Costs, July 1994 $1,233,337
CIN:  A-07-93-00665 Travelers Insurance Co-Unfunded Pension Cost Audit, October 1993, $1,218,963
CIN:  A-02-98-51817 Municipality of Ponce, Puerto Rico, Mar. 1998, $1,155,022
CIN:  A-02-94-01029 Hospice Eligibility in PR-San German - ORT, June 1995, $1,070,814
CIN:  A-07-94-00763 Health Care Serv. Corp-Pension Segmentation, August 1994, $1,055,458
CIN:  A-07-98-01037 Task Order Report-Hannibal CAA Headstart, August 1998, $1,050,349
CIN:  A-05-94-00047 Nationwide Ins., Medicare Part B Admin. Cost, September 1995, $1,049,309
CIN:  A-07-93-00634 Pension Segmentation-Travelers Insurance Co, October 1993, $1,026,460
CIN:  A-07-97-01208 Pension-Community Mutual FACP, July 1997, $991,972
CIN:  A-06-95-00035 Fees Retained by Child Placing Agencies, February 1996, $988,680
CIN:  A-09-94-01010 Close Out Audit-Cont NO. N01-ES-75196 (STRATAGENE), March 1994 $983,208
CIN:  A-09-98-49528 Hawaii Dept. Of Human Services, October 1997, $952,016
CIN:  A-05-92-00060 Contractor Audit-BCBS-Admin., February 1993, $879,609
CIN:  A-09-96-00088 ORT-Monitor CPA Audit of "The Care Providers" HHA, August 1997, $877,111
CIN:  A-02-94-01022 Blue Cross Shield NJ-Admin. Cost Medicare, September 1997, $864,851
CIN:  A-07-93-00701 BC/BS of Mass-Pension Costs Charged Audit, July 1994, $839,740
CIN:  A-05-91-00136 Community Mutual Ins. Co. Admin. Costs, August 1992, $720,668
CIN:  A-07-96-01195 Pension-New Mexico Segmentation, February 1997, $700,952
CIN:  A-07-93-00699 BC/BS of Mass-Pension Segmentation Audit, April 1994, $658,471
CIN:  A-02-96-01015 Empire Admin. Costs Part A-Gardiner, Kamya & Assoc., April, 1997, $652,492
CIN:  A-04-98-02148 ORT - OAS/HCFA-Fl Behavioral Network, Inc., January. 1998, $645,627
CIN:  A-06-96-00062 South Plains Community Action Association, July 1996, $639,400
D-3 CIN:  A-07-97-02503 Pension Kansas City BC/BS Termination, July 1998, $635,984
CIN:  A-07-96-01178 Medicare Pension Costs Claimed BC MICH, November 1996, $631,248
CIN:  A-04-94-01078 Monitoring Admin. Cost-Audit Medicare PB BC/BS of SC, July 1994, $594,092
CIN:  A-04-93-01069 Monitoring Admin. Cost Audit MCare Part A BC/BS of SC, July 1994, $590,844
CIN:  A-07-93-00679 AETNA-Unfunded Pension Cost Audit, May 1994, $590,207
CIN:  A-02-97-47130 Middlesex County Economic Opportunities Corp., June 1997, $578,550
CIN:  A-07-97-01207 Pension-Community Mutual Unfunded Pension, July 1997, $571,413
CIN:  A-03-97-00009 Peer Review Systems INC/CCAS/Ohio, March 1997, $545,405
CIN:  A-07-96-01198 Pension-Rocky Mountain Unfunded, February 1997, $543,421
CIN:  A-02-91-03508 Audit of NJ Child Care and Supportive Services, June 1993, $506,710
CIN:  A-03-92-16229 State of Pennsylvania, March 1992, $496,876
CIN:  A-10-98-51043 Nooksack Indian Tribe, May 1998, $433,539
CIN:  A-07-96-01188 Pro Closeout-DOSHI CPA, August 1996, $432,698 (Related recommendation of
$5,667 outstanding on Table II)
CIN:  A-07-97-01235 DOSHI-Texas, June 1997, $424,255 (Related recommendation of $51,334
outstanding on Table II)
CIN:  A-09-98-49239 Hermandad Mexicana National Legal Center Inc., November 1997, $419,364
CIN:  A-05-97-00013 Pacific Care of CA-HMO Institutional Status Project, April 1998, $407,784
CIN:  A-09-96-00089 ORT-Monitor CPA Audit of "Med. Care Plus" HHA, August 1997 $389,497
CIN:  A-04-96-01134 HCFA Surv. Team Colonnade MCAL-ORT, February 1997,$358,338
CIN:  A-04-96-01136 Survey Savanah-ORT, December 1996, $354,537
CIN:  A-05-92-00126 Wisconsin Westcap Head Start ACF/RO Request, March 1993, $347,576
CIN:  A-05-93-25697 West Central Wisconsin Community Action Agency Inc., August 1993, $324,759
CIN:  A-04-98-54537 Morris Brown College, August 1998, $319,751
CIN:  A-04-97-01175 Keystone Pro, June, 1998, $310,787
CIN:  A-07-98-02501 CT. BC/BS Unfunded Pension Costs, March 1998, $292,152
CIN:  A-10-97-49306 State of Alaska, August 1997, $287,125
CIN:  A-04-96-01129 HCFA Survey Team-Ameri. Trans. Care (ORT), February 1997, $284,378
CIN:  A-06-97-44962 KI BOIS Community Action Foundation Inc., April 1997, $282,803
CIN:  A-05-96-00069 CPA Audit of Hooper Holmes HHA G&A-OI Case Open, February 1998, $280,515
(Related recommendation of $17,555 outstanding on Table II)
CIN:  A-04-96-00107 Review Selected Head Start Grant Costs-Harambee, May, 1997, $270,863 
CIN:  A-09-94-30178 State of Arizona, June 1994, $267,021
CIN:  A-05-98-53935 Montgomery County Community Action Agency Inc., June 1998, $257,702
D-4 CIN:  A-07-93-00710 BC/BS of Connecticut-Unfunded Pension Cost Audit, March 1994, $237,392
CIN:  A-04-97-01152 Close Out Audit, Michigan Pro, June 1997, $228,630
CIN:  A-04-96-01135 Partic. Part of HCFA Survey Washington Manor Nursing-ORT, February 1997,
$220,483
CIN:  A-09-96-00094 CPA Audit of Dynasty HHA Cost Report, July 1997, $217,720 
CIN:  A-09-95-34788 State of Arizona, August 1995, $209,462
CIN:  A-05-96-00052 Ancillary Costs-NW Community Hospital, June 1997, $206,508
CIN:  A-03-98-00014 Connecticut Pro Inc., CCAS HHS 100-95-0033, February 1998, $202,662
CIN:  A-08-98-51825 Oglala Sioux Tribe South Dakota, May 1998, $200,000
CIN:  A-06-96-00064 ORT SNF Research at Methodist Hospital, January 1997, $200,000
CIN:  A-01-97-00531 Medicare Administrative Costs-MABCBS, June 1998, $198,950
CIN:  A-05-97-00006 MI - Wayne State U, NIH Request, Romero Grant, June 1997, $195,809
CIN:  A-10-96-00007 Idaho Migrant Council Head Start, March 1997, $192,981
CIN:  A-04-98-01181 Massachusetts Peer Review Organization, June 1998, $183,074
CIN:  A-05-94-29229 West Central Wisconsin Community Action Agency Inc., March 1994, $167,977
CIN:  A-05-96-00031 WIPRO/Equipment Depreciation, August 1996, $167,033
CIN:  A-04-98-49312 State of North Carolina, November 1997, $164,792
CIN:  A-03-97-00016 Quality Improvement Pro. Inc. CCAS Puerto Rico, February 1998, $158,925
CIN:  A-09-92-06850 Santa YSABEL Band of Mission Indians, September 1992, $151,081
CIN:  A-06-98-51473 Chaves County Community Action Program Inc., March 1998, $148,751
CIN:  A-04-96-01147 ORT REV. Parker Jewish Geriatric Center, New Hyde, NY, April 1997, $140,188.
CIN:  A-05-92-00048 WI Physician SVCS. Pension Medicare VS. ERISA, October 1992, $130,577
(Related recommendation of $2,068,964 outstanding on Table II)
CIN:  A-07-97-25000 Pension Segmentation BC/BS Connecticut, Mar. 1998, $122,548
CIN:  A-07-93-00709 BC/BS of Connecticut Pension Segmentation Audit, April 1994, $119,472
CIN:  A-05-97-00023 Kaiser Foundation-HMO Institutional Status Project, April 1998, $116,096
CIN:  A-03-95-03329 Henderson Associates CACS ASC 282-91-0012, March 1997, $111,289
CIN:  A-02-96-01001 VNS of NY home care-ORT/HHA Target, September 1997, $110,841
CIN:  A-02-96-02001 International Rescue Committee-Refugee Program, January 1998, $108,604
CIN:  A-09-97-00084 Audit of ADD at Childrens Hospital, July 1998, $108,177 (Related
recommendation of $90,528 outstanding related to Table II) 
CIN:  A-06-98-50301 Community Council of Reeves County, December 1997, $107,609
CIN:  A-03-98-03300 Raymond Maria Group-Contract Closeout, March 1998, $102,476
CIN:  A-02-98-53862 Municipality of Ponce, Puerto Rico, May 1998, $101,325
D-5 CIN:  A-09-98-00051 Colorado Foundation for Medical Care-Pro, January 1998, $97,858
CIN:  A-07-95-01159 NE BC/BS Pension Segmentation, January 1996, $96,955
CIN:  A-09-97-00066 Walter McDonald Indirect Cost Rate Audit, March 1998, $95,733
CIN:  A-10-97-00003 BC ADM Costs Remote Network Activities FY 93&94, February 1998, $94,643
CIN:  A-06-96-43195 Pueblo of ISLETA, June 1996, $92,969
CIN:  A-07-95-01164 Medicare Admin. Costs-General American, December 1995, $89,929 (Related
recommendation of $16,632 outstanding on Table II)
CIN:  A-02-95-34278 Puerto Rico Dept. Of Health, June 1995, $86,064
CIN:  A-02-95-34279 Puerto Rico Dept. Of Health, June 1995, $85,266
CIN:  A-04-96-38655 State of North Carolina, April 1996, $83,237
CIN:  A-01-96-00505 CFO Audit of HCFAS Financial Statements, July 1997, $80,236
CIN:  A-05-97-48402 Montgomery County Community Action Agency Inc., July 1997, $79,374
CIN:  A-04-96-01137 PARTIC. Part of HCFA Survey Team-Daytona Nursing, December 1996, $76,130
CIN:  A-07-95-01166 Unfunded Pension Costs Nebraska BC/BS, Jan. 1996, January $73,509
CIN:  A-05-97-48530 Jackson-Vinton Community Action Inc., July 1997 $75,392
CIN:  A-08-96-42696 Blackfeet Tribe of the Blackfeet Indian Reservation, July 1996, $71,988
CIN:  A-05-98-53935 Montgomery County Community Action Agency Inc., June 1998, $70,193
CIN:  A-01-97-00520 CFO Audit of HCFAS Financial Statements, July 1998, $69,031
CIN:  A-09-93-00091 Walter Mcdonald-Indirect Cost Rate Audit, June 1994, $68,663
CIN:  A-09-97-48489 Pascua Yaoui Tribe of Arizona, June 1997, $68,736
CIN:  A-08-97-44348 Three Affiliated Tribes, January 1997, $68,468
CIN:  A-06-97-43135 State of Texas, February 1997, $67,644 
CIN:  A-02-95-34275 Puerto Rico Dept. of Health, June 1995, $64,841
CIN:  A-08-97-46601 UTE Indian Tribe, April 1997, $62,865
CIN:  A-09-98-52225 Nevada Indian Environmental Coalition, March 1998, $61,645
CIN:  A-05-96-00072 MI Dept. of Community Health/Medicaid Lab Services, August 1997, $59,956
CIN:  A-05-96-00051 ORT Assist-Ancillary Costs-St. Joseph, June 1997, $58,008
CIN:  A-09-97-00059 Health Services Advisory Group, Inc. Pro-AZ, May 1997, $57,925
CIN:  A-04-96-01125 PARTIC-Part of HCFA Survey Team-Rosemont-ORT, February 1997, $55,306
CIN:  A-10-97-47406 State of Idaho, April 1997, $55,012
CIN:  A-05-98-51855 Stark County Community Action Agency, March 1998, $54,933
CIN:  A-07-97-01206 Pension Washington/Alaska, Unfunded, March 1997, $54,000
CIN:  A-07-98-50741 Citizen Housing Information Council Inc., March 1998, $52,758 
D-6 CIN:  A-05-98-51302 Kootasca Community Action Inc., February 1998, $52,000
CIN:  A-09-95-00095 Health Services Advisory Group, Inc. (HSAG), December 1995, $49,589 (Related
recommendation of $1,389,723 outstanding on Table II)
CIN:  A-03-93-03306 Survey Research, Assoc. CACS NO1-ES-45067, December 1993, $48,779
CIN:  A-02-95-34276 Puerto Rico Dept. of Health, June 1995, $46,842
CIN:  A-04-98-54538 NA-Morris Brown College, August 1998, $43,985
CIN:  A-03-97-44742 Association of Teachers of Preventive Medicine Inc., February 1998, $37,260
CIN:  A-07-98-02030 DOSHI - CPA Report, November 1997, $35,703
CIN:  A-07-97-01218 DOSHI- Utah/Nevada FMC, March 1997, $33,752
CIN:  A-06-97-47794 NA-Gulf Coast Community Services Association, July 1997, $32,619
CIN:  A-07-97-01199 BC/BS New Mexico Unfunded Pension Cost, February 1997, $31,372
CIN:  A-09-96-42547 Maricopa County Arizona, April 1996, $30,766
CIN:  A-09-98-49616 State of Arizona, November 1997, $29,746
CIN:  A-05-97-48015 Hoosier Valley Economic Opportunity Corp., May 1997, $29,004
CIN:  A-03-98-03301 AAUAP Incurred Cost Review, HHS 105-95-7011, April 1998, $28,289
CIN:  A-05-97-00025 Health Care Plan-HMO Institutional Status Project, June 1998, $27,201
CIN:  A-10-96-41391 Klamath Family Head Start, April 1996, $26,530
CIN:  A-03-92-00033 Blue Cross of West Virginia Termination, November 1992, $25,200
CIN:  A-09-98-50772 Institute for Black Parenting, April 1998, $24,502
CIN:  A-05-98-51567 State of Ohio, August 1998, $24,000
CIN:  A-09-94-27868 INYO MONO Advocates for Community Action, November 1993, $22,875
CIN:  A-09-98-51231 Tonto Apache Tribe, April 1998, $22,836
CIN:  A-02-97-44455 Community Action Agency of Franklin County Inc., December 1996, $21,395
CIN:  A-10-97-43797 State of Washington, January 1997, $21,241
CIN:  A-05-96-39685 Michigan Family Resources, December 1995, $20,799
CIN:  A-06-97-48531 State of Texas, July 1997, $20,697
CIN:  A-05-96-43041 NA-Hoosier Valley Economic Opportunity Corp., June 1996, $20,438 
CIN:  A-04-97-01163 VIMI MCare Pro. Contract Audit, September 1997, $18,758
CIN:  A-05-93-21928 Wright State University, July 1993, $18,308
CIN:  A-06-96-42704 Eight Northern Indian Pueblos Council Inc., July 1996, $18,165 
CIN:  A-03-97-00007 NE Health Care Quality Foundation-CCAS-N Hampshire, March, $17,045 
CIN:  A-01-97-44143 Brandeis University, January 1997, $16,602
CIN:  A-08-98-51825 Tonto Apache Tribe, May 1998, $15,295
D-7 CIN:  A-05-95-34584 Wood County Head Start Inc., December 1994, $14,896
CIN:  A-03-97-00008 NE Health Care Quality Foundation-CCAS-Vermont, March 1997, $14,596
CIN:  A-06-98-54189 City of Houston Texas, July 1998, $14,146
CIN:  A-09-96-00050 CFO-HCFA 1996, November 1997, $13,924
CIN:  A-07-95-01175 Mutual of Omaha-Administration Costs, August 1996, $13,564
CIN:  A-04-98-52413 Alcorn State University, April 1998, $13,137
CIN:  A-05-95-36498 Hoosier Valley Economic Opportunity Corp., April 1995, $13,116
CIN:  A-03-98-50338 National Medical Association, February 1998, $12,968
CIN:  A-01-97-45487 ABT Associates Inc., January 1997, $12,950
CIN:  A-09-95-00091 Walter R. McDonald and Associates-Direct Cost, September 1995, $11,812 
CIN:  A-01-97-48573 New Opportunities for Waterbury Inc., July 1997, $10,675 (Related
recommendation of $122,126 outstanding related to Table II)
CIN:  A-10-97-00002 Group Health Institutionalized, November 1997, $9,769
CIN:  A-10-97-48639 Nooksack Indian Tribe, August 1997, $9,440
CIN:  A-04-97-01153 MS Foundation-Medical Care Pro Contract Audit, September 1997, $9,070
CIN:  A-04-98-49581 Mid-South Foundation for Medical Care Inc., January 1998, $8,938
CIN:  A-09-97-48966 KARIDAT, July 1997, $8,905
CIN:  A-02-95-34277 Puerto Rico Dept. of Health, June 1995, $8,486
CIN:  A-06-97-47803 Cheyenne-Arapaho Tribes of Oklahoma, $8,321
CIN:  A-10-98-53162 People of Color against AIDS Network, April 1998, $8,289
CIN:  A-07-97-01231 Prowest-Doshi Washington, June 1997, $8,027
CIN:  A-03-96-38803 Skyline Government Service Corp., November 1995, $7,285
CIN:  A-07-97-01227 MT-WY Foundation for Medical Care, June 1997, $7,168
CIN:  A-01-97-49174 Brandeis University, August 1997, $7,068
CIN:  A-02-97-44269 Puerto Rico Department of Anti-Addiction Services, October 1996, $6,586
CIN:  A-06-96-40858 Caddo Community Action Agency Inc., February 1996, $6,557
CIN:  A-08-94-32795 Northern Cheyenne Tribe, September 1994, $6,548
CIN:  A-08-97-43975 Oglala Sioux Tribe, October 1996, $6,494
CIN:  A-09-98-51231 Tonto Apache Tribe, April 1998, $6,373
CIN:  A-07-95-01167 Pension Costs Claimed Nebraska BC/BS, January 1996, $6,075
CIN:  A-01-97-48251 State of Connecticut, June 1997, $6,035, 
CIN:  A-02-96-02001 International Rescue Committee-Refugee Program, January 1998, $6,027
CIN:  A-03-98-53352 Council for Early Childhood Professional Recognition, April 1998, $5,965
D-8 CIN:  A-06-97-48062 SER-Jobs for Progress National Inc., May 1997, $5,924
CIN:  A-06-98-52891 NA-Morton Comprehensive Health Service Inc., April 1998, $5,842
CIN:  A-02-96-39964 State of New Jersey, April 1996, $5,497
CIN:  A-10-98-50308 Coastal Community Action Program, December 1997, $5,274
CIN:  A-05-98-51316 Community Action Program Inc., of Western Indiana, February 1998, $5,202 
CIN:  A-03-97-47731 State of Delaware, May 1997, $5,035
CIN:  A-05-97-48671 Stockbridge-Munsee Community, July 1997, $4,968
CIN:  A-09-97-48829 Community Action Commission of Santa Barbara, August 1997, $4,809
CIN:  A-09-97-44435 Commonwealth of the Northern Mariana Islands, October 1996, $4,767
CIN:  A-02-98-52833 Mental Health & Anti-Addiction Services Administration, April 1998, $4,300
CIN:  A-07-95-01123 Review of CPA Administrative Cost-Blue Cross/Blue Shield of Kansas City, May
1995, $4,045
CIN:  A-06-91-00034 Audit of Collection & Credit Activities at TDHS, January 1992, $3,989
CIN:  A-02-93-26106 Second Street Youth Center Foundation Inc., July 1993, $3,989 
CIN:  A-04-97-01162 HMSA Medicare Pro Contract Audit, September 1997, $3,871
CIN:  A-07-97-01233 Prowest-Doshi Idaho, June 1997, $3,835
CIN:  A-05-96-38947 American Association of Cardiovascular & Pulmonary, December 1995, $3,827
CIN:  A-09-95-39056 Hawaii Department of Health, September 1995, $3,601
CIN:  A-06-98-50840 St. Martin Iberia Lafayette Community Action Agency, February 1998, $3,362
CIN:  A-01-98-00512 CFO of HCFAS FY 1997 Medicare Benefit Payments, June 1998, $3,264
CIN:  A-10-98-52321 Consejo Counseling & Referral Service & Consejo Ho, May 1998, $3,088
CIN:  A-03-95-03318 Trans-Management Systems 105-92-1527, (CCO), May 1996, $3,016
CIN:  A-06-98-53292 Arkansas Enterprise Group, May 1998, $3,000
CIN:  A-07-98-02502 CT. Blue Cross-Blue Shield Pension Cost Claimed, March 1998, $2,725
CIN:  A-03-98-51505 Allied Signal Technical Services Corp., April 1998, $2,722
CIN:  A-03-95-34716 West Virginia Medical Institute Inc., March 1995, $2,688
CIN:  A-07-98-50741 Citizen Housing Information Council Inc., March 1998, $2,678
CIN:  A-02-97-49366 Seneca Nation of Indians, September 1997, $2,655
CIN:  A-05-95-35315 Lake County Economic Opportunity Council, January 1995, $2,650
CIN:  A-01-97-45487 ABT Associates Inc., January 1997, $2,596
CIN:  A-03-97-43996 Actuarial Research Corp., October 1996, $2,561
CIN:  A-06-98-53934 Osage Nation of Oklahoma, August 1998, $2,368
CIN:  A-09-98-53728 Tohono O Odham Nation, August 1998, $2,198
D-9 CIN:  A-01-97-47552 State of New Hampshire, May 1997, $2,184
CIN:  A-09-98-53899 Standford University, June 1998, $2,058
CIN:  A-03-96-44076 St. Pauls College, August 1996, $2,029
CIN:  A-04-96-01161 MRNC M Care Pro Contract Audit - State of SC, July 1997, $1,294
CIN:  A-06-96-43825 Cheyenne-Arapaho Tribes of Oklahoma, September 1996, $892
B.  The following audit is in litigation: 
CIN:  A-03-91-02004 West Virginia Blue Cross Administrative Costs FYs 85-90 and Termination Cost,
November 1992, $7,556
C. The following audits are open pending the resolution of contractors termination audit, related termination
agreements and pending lawsuits:
CIN:  A-05-94-00064 MI Blue Cross/Shield, Audit of Admin. Costs, June 1996, $15,609,718 
CIN:  A-07-96-01176 Medicare Excess Pension Assets-BC MICH, November 1996, $11,904,263 
CIN:  A-05-96-00058 Close-Out Audit of Medicare Contract-BCBS-MI, December 1997, $5,226,443
CIN:  A-07-92-00579 BC/BS of Michigan Inc. - Unfunded Pension Costs, October 1992, $2,535,698 
CIN:  A-05-93-00057 Blue Cross & Blue Shield of MI-Contract Audit, July 1993, $1,409,954
Table II
 1 The opening balance was adjusted to reflect an upward revaluation of $12.9 million.
2 Included in the total recommendations agreed to by management is $304,575 resulting from Defense Contract Audit Agency
recommendations.
3 Management decisions have not been made within 6 months of issuance on 14 reports:
A.  Discussions with management are ongoing and it is expected that the following audits will be resolved by the
next semiannual reporting period:
CIN:  A-04-97-00109 Emergency Assistance Claims-NC, July 1998, $13,000,000
CIN:  A-01-97-02506 Review of the Avail. of Medical Coverage/CSE Support, June 1998, $5,704,585
CIN:  A-09-98-00068 Partnership Plan Report-California Medicaid, March 1998, $1,600,000
CIN:  A-06-97-00052 Study of Medicaid Drug Rebates Based on AWP, May 1998, $1,150,000
CIN:  A-05-95-00055 Medicare Pro Bid Proposal-RFP-HCFA-95-058/BH, September 1995, $700,982
CIN:  A-07-97-01230 OFMO-Doshi Oklahoma, June 1997, $203,510
CIN:  A-05-96-43154 Muskegon-Oceana Community Action Against Poverty I, June 1996, $130,993
CIN:  A-06-96-43307 Nueces County Community Action Agency, June 1996, $22,667
CIN:  A-06-97-45023 Caddo Community Action Agency Inc., November 1996, $8,880
CIN:  A-01-97-00526 Psychiatric Outpatient Services, March 1998, $7,245
CIN:  A-03-98-51565 Mingo County Economic Opportunity Commission Inc., March 1998, $5,434
CIN:  A-05-95-37812 Northeast Michigan Community Service Agency Inc., August 1995, $2,191
D-10 CIN:  A-01-98-00506 Psychiatric Outpatient at Newton-Wellesley Hospital, March 1998, $1,120
B.  The following audit is in litigation:
CIN:  A-07-96-01177 Medicare Post Retirement Claim BC Mich., November 1996, $8,978,998
D-11 APPENDIX E
Reporting Requirements of the
Inspector General Act of 1978, as Amended
The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is
being furnished to the Congress under separate cover.  Copies are available upon request.
Section of the Act Requirement Page
Section 4(a)(2) Review of legislation and regulations 67
Section 5(a)(1) Significant problems, abuses and throughout
deficiencies
Section 5(a)(2) Recommendations with respect to throughout
significant problems, abuses and
deficiencies
Section 5(a)(3) Prior significant recommendations on appendices B and C
which corrective action has not been
completed
Section 5(a)(4) Matters referred to prosecutive authorities 69
Section 5(a)(5) Summary of instances where information none
was refused
Section 5(a)(6) List of audit reports under separate cover
Section 5(a)(7) Summary of significant reports throughout
Section 5(a)(8) Statistical table I - reports with questioned 65
costs
Section 5(a)(9) Statistical table II - reports with 66
recommendations that funds be put to
better use
Section 5(a)(10) Summary of previous audit reports appendix D
without management decisions
Section 5(a)(11) Description and explanation of revised appendix D
management decisions
Section 5(a)(12) Management decisions with which the none
Inspector General is in disagreement
E-1 APPENDIX F
Performance Measures
In order to identify work done in the area of performance measurement, the Office of Inspector General (OIG) has labeled some
items throughout the semiannual report as  performance measures with the symbol                  . Performance measures
are used to evaluate the achievement of a program goal, such as the efficiency of an immunization program which is measured by
the number of inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations
finalized during this semiannual period offer management information about whether some aspect or all of the programs or
activities reviewed are achieving their missions and goals.  
Page
Improper Fiscal Year 1998 Medicare Fee-for-Service Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
Financial Statement Audit of the Health Care Financing Administration for Fiscal Year
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Medicare Beneficiary Interest in Health Maintenance Organizations in 1997 . . . . . . . . . . . . . . . . . . . . . .8
Partial Hospitalization Services Provided through Community Mental Health Centers . . . . . . . . . . . . . .11
Chiropractic Services Covered by Medicare Managed Care Organizations . . . . . . . . . . . . . . . . . . . . . . .35
Beneficiary Awareness of Health Care Financing Administration Publications in 1997  . . . . . . . . . . . . .35
Follow-Up to Detoxification Services for Medicaid Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Low-Volume Institutional Review Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Indian Health Service:  Program Integrity and Ethics Function  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Child Support Enforcement Annual Report to the Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Early Efforts by States to Monitor Outcomes of Welfare Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Discretionary Grants Awarded to Alleviate Poverty  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Health Care Anti-Fraud, Waste and Abuse Community Volunteer Program:  First Year
Outcomes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Financial Statement Audit of the Department for Fiscal Year 1998  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Results Act Review Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
F-1 ACRONYMS
ACF Administration for Children and Families
AHCPR Agency for Health Care Policy and Research
AoA Administration on Aging
ASMB Assistant Secretary for Management and Budget
ATSDR Agency for Toxic Substances and Disease Registry
AWP average wholesale price
BBA Balanced Budget Act of 1997
CBO Congressional Budget Office
CCDF Child Care and Development Fund
CDC Centers for Disease Control and Prevention
CHIP Childrens Health Insurance Program
CMHC community mental health center
CMP civil monetary penalty
CSE child support enforcement
CY calendar year
DME durable medical equipment
DOJ Department of Justice
DRG diagnosis-related group
ESRD end stage renal disease
FDA Food and Drug Administration
FI fiscal intermediary
FY fiscal year
GME graduate medical education
GPRA Government Performance and Results Act of 1993
HCFA Health Care Financing Administration
HEAL health education assistance loan
HHA home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HMO health maintenance organization
HRSA Health Resources and Services Administration
ICF/MR intermediate care facility for the mentally retarded
IHS Indian Health Service
IME indirect medical education
IRB institutional review board
MCO managed care organization
MFCU Medicaid fraud control unit
MSP Medicare secondary payer
NIH National Institutes of Health
OBRA Omnibus Budget Reconciliation Act
OCSE Office of Child Support Enforcement
OMB Office of Management and Budget
PATH physicians at teaching hospitals
PHS Public Health Service
PPS prospective payment system
PRM provider review manual
PRO peer review organization
PSC Program Support Center
SAMHSA Substance Abuse and Mental Health Services Administration
SNF skilled nursing facility
TANF Temporary Assistance for Needy Families STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative
reporting and enforcement responsibilities and authorities are listed below:
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF MANAGEMENT AND
BUDGET CIRCULARS
P.L.   96-304  Supplemental Appropriations and Rescissions Act of 1980
P.L.   96-510  Comprehensive Environmental Response, Compensation and Liability Act
P.L.   97-255  Federal Managers Financial Integrity Act
P.L.   97-365  Debt Collection Act of 1982
P.L.   99-499  Superfund Amendments and Reauthorization Act of 1986
P.L. 101-576  Chief Financial Officers Act of 1990
P.L. 102-486  Energy Policy Act of 1992
P.L. 103-62   Government Performance and Results Act of 1993
P.L. 103-355  Federal Acquisition Streamlining Act of 1994
P.L. 103-356  Government Management Reform Act of 1994
P.L. 104-156 Single Audit Act Amendments of 1996
P.L. 104-191  Health Insurance Portability and Accountability Act of 1996
P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996
P.L. 104-208  Federal Financial Management Improvement Act of 1996
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25 User Charges
A-  50 Audit Follow-up  
A-  76 Performance of Commercial Activities
A-  87 Cost Principles for State, Local and Indian Tribal Governments
A-102 Grants and Cooperative Agreements with State and Local Governments
A-110 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
A-122 Cost Principles for Nonprofit Organizations
A-123 Management Accountability and Control
A-127 Financial Management Systems
A-129 Policies for Federal Credit Programs and Non-Tax Receivables
A-133 Audits of States, Local Governments and Non-Profit Organizations
  A-134 Financial Accounting Principles and Standards
General Accounting Office Government Auditing Standards
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES
Criminal investigative authorities include:
Title   5, United States Code, section 552a(I)
Title 18, United States Code, sections on crime and criminal procedures as they pertain to OIGs oversight of
departmental programs and employee misconduct
Title 42, United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 1320a-7b, the Social Security
and Public Health Service Acts
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as
those at:
Title 31, United States Code, section 3729 et seq., the False Claims Act and 3801 et seq., the Program Fraud Civil
Remedies Act
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320b-10, 1320c-5, 1395l, 1395m, 1395u, 1395dd and
1396b