The Department of Health and Human Services 
  and 
  The Department of Justice 
  Health Care Fraud and Abuse Control Program 
  Annual Report for Fiscal Year 2011 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
February 2012  TABLE OF CONTENTS 
 
 
Page 
 
Executive Summary  1     
Introduction  3   
Monetary Results                  5   
Program Accomplishments  7   
   
Department of Health and Human Services       
Office of Inspector General    37   
Centers for Medicare & Medicaid Services        53 
Administration on Aging  67   
Office of the General Counsel  69   
Food and Drug Administration Pharmaceutical Fraud Program  73   
Assistant Secretary for Public Affairs  75   
 
Department of Justice     
United States Attorneys  77   
Civil Division  79   
Criminal Division  82   
Civil Rights Division  85   
 
 
Appendix: Federal Bureau of Investigation  90     
        Return on Investment Calculation          93   
 
Glossary of Terms                                                                                                      94     
 
 
 
 
 
 
    GENER AL NOTE   
   
All years are fiscal years unless 
otherwise noted in the text.    EXECUTIVE SUMMARY 
 
 
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national 
Health Care Fraud and Abuse Control Program (HCFAC or the Program) under the joint 
direction of the Attorney General and the Secretary of the Department of Health and Human 
Services (HHS)1, acting through the Inspector General, designed to coordinate Federal, state and 
local law enforcement activities with respect to health care fraud and abuse.  In its fifteenth year 
of operation, the Program=s continued success again confirms the soundness of a collaborative 
approach to identify and prosecute the most egregious instances of health care fraud, to prevent 
future fraud or abuse, and to protect program beneficiaries. 
 
Monetary Results 
 
During Fiscal Year (FY) 2011, the Federal government won or negotiated approximately $2.4 
billion in health care fraud judgments and settlements2, and it attained additional administrative 
impositions in health care fraud cases and proceedings.  As a result of these efforts, as well as 
those of preceding years, in FY 2011, approximately $4.1 billion was deposited with the 
Department of the Treasury and the Centers for Medicare & Medicaid Services (CMS), 
transferred to other Federal agencies administering health care programs, or paid to private 
persons during the fiscal year.  Of this $4.1 billion, the Medicare Trust Funds3 received transfers 
of approximately $2.5 billion during this period, and over $599.9 million in Federal Medicaid 
money was similarly transferred separately to the Treasury as a result of these efforts.  The 
HCFAC account has returned over $20.6 billion to the Medicare Trust Funds since the inception 
of the Program in 1997. 
 
Enforcement Actions 
 
In FY 2011, the Department of Justice (DOJ) opened 1,110 new criminal health care fraud 
investigations involving 2,561 potential defendants.  Federal prosecutors had 1,873 health care 
fraud criminal investigations pending, involving 3,118 potential defendants, and filed criminal 
charges in 489 cases involving 1,430 defendants.  A total of 743 defendants were convicted of 
health care fraud-related crimes during the year.  Also in FY 2011, DOJ opened 977 new civil 
health care fraud investigations and had 1,069 civil health care fraud matters pending at the end 
of the fiscal year.  In FY 2011, Federal Bureau of Investigation (FBI) heath care fraud 
investigations resulted in the operational disruption of 238 criminal fraud organizations, and the 
dismantlement of the criminal hierarchy of more than 67 criminal enterprises engaged in health 
                                                 
1Hereafter, referred to as the Secretary. 
2The amount reported as won or negotiated only reflects Federal recoveries and therefore does not reflect state 
Medicaid monies recovered as part of any global, Federal-State settlements.  
3Also known as the Medicare Hospital Insurance (Part A) Trust Fund and the Supplemental Medical Insurance (Part 
B) Trust Fund.  
 
  1  care fraud. 
 
In FY 2011, HHS Office of Inspector General (HHS/OIG) excluded 2,662 individuals and 
entities.  Among these were exclusions based on criminal convictions for crimes related to 
Medicare and Medicaid (1,015); or to other health care programs (233); for patient abuse or 
neglect (206); or as a result of licensure revocations (897).   In addition, HHS/OIG imposed civil 
monetary penalties against, among others, providers and suppliers who knowingly submitted 
false claims to the Federal government.  HHS/OIG also issued numerous audits and evaluations 
with recommendations that, when implemented, would correct program vulnerabilities and save 
program funds. 
 
 
 
  2    INTRODUCTION 
   
 
  ANNUAL REPORT OF  
  THE ATTORNEY GENERAL AND THE SECRETARY 
  DETAILING EXPENDITURES AND REVENUES 
  UNDER THE HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM 
  FOR FISCAL YEAR 2011 
 
  As Required by  
  Section 1817(k)(5) of the Social Security Act 
 
  STATUTORY BACKGROUND 
 
 
The Social Security Act Section 1128C(a), as established by the Health Insurance Portability and 
Accountability Act of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud 
and Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, 
including both public and private health plans.   
 
As was the case before HIPAA, amounts paid to Medicare in restitution or for compensatory 
damages must be deposited in the Medicare Trust Funds.  The Act requires that an amount 
equaling recoveries from health care investigations  including criminal fines, forfeitures, civil 
settlements and judgments, and administrative penalties  also be deposited in the Trust Funds. 
All funds deposited in the Trust Funds as a result of the Act are available for the operations of 
the Trust Funds.   
 
The Act appropriates monies from the Medicare Hospital Insurance Trust Fund to an expenditure 
account, called the Health Care Fraud and Abuse Control Account (the Account), in amounts that 
the Secretary and Attorney General jointly certify as necessary to finance anti-fraud activities.  
The maximum amounts available for certification are specified in the Act.  Certain of these sums 
are to be used only for activities of the HHS/OIG, with respect to the Medicare and Medicaid 
programs.  In FY 2006, the Tax Relief and Health Care Act (TRHCA) (P.L 109-432, 303) 
amended the Act so that funds allotted from the Account are available until expended.  
TRHCA also allowed for yearly increases to the Account based on the change in the consumer 
price index for all urban consumers (all items; United States city average) (CPI-U) over the 
previous fiscal year for fiscal years for 2007 through 2010.2  In FY 2010, the Patient Protection 
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, 
collectively referred to as the Affordable Care Act (P.L. 111-148, ACA) extended permanently 
the yearly increases to the Account based upon the change in the consumer price index for all 
urban consumers or CPI-U. 
 
                                                 
4 The CPI-U adjustment in TRHCA did not apply to the Medicare Integrity Program (MIP). 
 
  3  In FY 2011, the Secretary and the Attorney General certified $297.7 million in mandatory 
funding for appropriation to the Account.  Additionally, Congress appropriated $310.4 million in 
discretionary funding.  A detailed breakdown of the allocation of these funds is set forth later in 
this report.  HCFAC appropriations generally supplement the direct appropriations of HHS and 
DOJ that are devoted to health care fraud enforcement and funded approximately three-fourths of 
HHS/OIGs appropriated budget in FY 2011.  (Separately, the FBI received $128.4 million from 
HIPAA which is discussed in the Appendix.) 
 
Under the joint direction of the Attorney General and the Secretary, the Programs goals are:  
 
(1)  to coordinate Federal, state and local law enforcement efforts relating to health care fraud 
and abuse with respect to health plans; 
 
(2)  to conduct investigations, audits, inspections, and evaluations relating to the delivery of 
and payment for health care in the United States; 
 
(3)  to facilitate enforcement of all applicable remedies for such fraud; 
 
(4)  to provide guidance to the health care industry regarding fraudulent practices; and 
 
(5)  to establish a national data bank to receive and report final adverse actions against health 
care providers and suppliers. 
 
The Act requires the Attorney General and the Secretary to submit a joint annual report to the 
Congress which identifies both: 
 
(1)  the amounts appropriated to the Trust Funds for the previous fiscal year under various 
categories and the source of such amounts; and 
 
(2)  the amounts appropriated from the Trust Funds for such year for use by the Attorney 
General and the Secretary and the justification for the expenditure of such amounts. 
 
Additionally, this report addresses language in the annual discretionary HCFAC appropriation 
(Public Law 111-117, made applicable in FY 2011 by Public Law 112-10, DOD and Full-Year 
Continuing Appropriations Act of 2011) requiring that this report include measures of the 
operational efficiency and impact on fraud, waste, and abuse in the Medicare, Medicaid, and 
CHIP programs for the funds provided by this appropriation.   
 
This annual report fulfills the above statutory requirements.   
 
 
 
  4    MONETARY RESULTS 
 
As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited 
to the Medicare Trust Funds, and the source of such deposits.  In FY 2011, approximately $4.1 
billion was deposited with the Department of the Treasury and the Centers for Medicare & 
Medicaid Services (CMS), transferred to other Federal agencies administering health care 
programs, or paid to private persons during the fiscal year.  The following chart provides a 
breakdown of the transfers/deposits:  
Total Transfers/Deposits by Recipient FY 2011 
Department of the Treasury    
  Deposits to the Medicare Trust Funds, as required by HIPAA   
            Gifts and Bequests  $5,399 
            Amount Equal to Criminal Fines  $1,195,736,438 
            Civil Monetary Penalties  $16,495,458 
            Asset Forfeiture   $22,401,515 
            Penalties and Multiple Damages  $578,413,099 
Subtotal  $1,813,051,909 
   
Centers for Medicare & Medicaid Services   
  HHS/OIG Audit Disallowances  Recovered - Medicare  $74,057,438 
  Restitution/Compensatory Damages  $660,522,078 
             Subtotal*    $734,579,516 
   
Grand Total of Amounts Transferred to the Medicare Trust Funds  $2,547,631,425 
   
Restitution/Compensatory Damages to Federal Agencies   
TRICARE  $74,423,629 
Veterans Administration  $20,238,404 
 HHS/OIG Cost of Audits, Investigations and Compliance Monitoring  $8,949,927 
Office of Personnel Management  $53,035,272 
Other Agencies  $11,276,161 
   
Federal Share of Medicaid  $599,911,275 
HHS/OIG Audit Disallowances  Recovered - Medicaid  $354,092,195 
Subtotal  $1,121,926,863 
Relators= Payments**  $419,484,976 
      TOTAL ***  $4,089,043,264 
*   Restitution, compensatory damages, and recovered audit disallowances include returns to both the Medicare 
Hospital Insurance (Part A) Trust Fund and the Supplemental Medical Insurance (Part B) Trust Fund. 
**These are funds awarded to private persons who file suits on behalf of the Federal government under the qui tam 
provisions of the False Claims Act, 31 U.S.C. ' 3730(b). 
***State funds are also collected on behalf of state Medicaid programs; only the Federal share of Medicaid funds 
transferred to CMS are represented here. 
 
  5   
The above transfers include certain collections, or amounts equal to certain collections, required 
by HIPAA to be deposited directly into the Medicare Trust Funds.  These amounts include: 
 
(1)  Gifts and bequests made unconditionally to the Trust Funds, for the benefit of the Account 
or any activity financed through the Account; 
 
(2)  Criminal fines recovered in cases involving a federal health care offense, including 
collections under section 24(a) of Title 18, United States Code (relating to health care 
fraud); 
 
(3)  Civil monetary penalties in cases involving a federal health care offense; 
 
(4)  Amounts resulting from the forfeiture of property by reason of a federal health care 
offense, including collections under section 982(a)(7) of Title 18, United States Code; and 
 
(5)  Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the 
general fund of the Treasury obtained under sections 3729 through 3733 of Title 31, 
United States Code (known as the False Claims Act, or FCA), in cases involving claims 
related to the provision of health care items and services (other than funds awarded to a 
relator, for restitution or otherwise authorized by law). 
 
  6  PROGRAM ACCOMPLISHMENTS 
  
EXPENDITURES 
 
In the fifteenth year of operation, the Secretary and the Attorney General certified $297.7 million 
in mandatory funding as necessary for the Program.  Additionally, Congress appropriated $310.4 
million in discretionary funding.  The following chart gives the allocation by recipient: 
 
FY 2011 ALLOCATION OF HCFAC APPROPRIATION 
  Organization  Mandatory  Discretionary  Total 
Allocation5  Allocation  Allocation 
Department of Health and Human Services       
Office of Inspector General6  197,998,020  29,730,420  227,728,440 
Office of the General Counsel  8,887,870  0  8,887,870 
Administration on Aging  3,312,080  0  3,312,080 
Food and Drug Administration  3,377,220  0  3,377,220 
Centers for Medicare & Medicaid Services  22,292,322  250,917,160  273,209,482 
  Subtotal  235,867,512  280,647,580  516,515,092 
Department of Justice            
 U  n  i t  e d   States Attorneys  31,400,000  9,770,759  41,170,759 
 C  i v  i l Division  18,972,139  2,396,624  21,368,763 
Criminal Division  1,580,000  4,258,579  5,838,579 
Civil Rights Division   3,432,688  2,091,312  5,524,000 
 Nursing Home and Elder Justice Initiative  1,000,000  0  1,000,000 
Federal Bureau of Investigation 7  0  3,946,994  3,946,994 
Justice Management Division  200,000  0  200,000 
Department of Justice - Other  5,235,606  7,266,152  12,501,758 
Subtotal  61,820,433  29,730,420  91,550,853 
TOTAL8  297,687,945  310,378,000  608,065,945 
 
ACCOMPLISHMENTS 
                                                 
5 In FY 2007, mandatory funds became available until expended.   Discretionary funding is two-year funding. 
 
6In addition, HHS/OIG obligated $11.3 million in funds received as Areimbursement for the costs of conducting 
investigations and audits and for monitoring compliance plans@ as authorized by section 1128C(b) of the Social 
Security Act, 42 U.S.C.  1320a-7c(b).   
7In addition, in FY 2011, the FBI received $128.4 million in mandatory HIPAA funding. 
8Amounts only represent those that are provided by statute, and do not include other mandatory sources or 
discretionary appropriated sources provided through Departments annual appropriations. 
  
 
 
  7   
Overall Recoveries 
 
During this fiscal year, the Federal government won or negotiated approximately $2.4 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Funds received transfers of approximately $2.5 
billion during this period as a result of these efforts, as well as those of preceding years; and 
another $599.9 million in Federal Medicaid money was transferred to the Treasury separately as a 
result of these efforts. 9  
 
In addition to these enforcement actions, numerous audits, evaluations and other coordinated 
efforts yielded recoveries of overpaid funds, and prompted changes in federal health care 
programs that reduce vulnerability to fraud.10   
 
The return-on-investment (ROI) for the HCFAC program, since 1997, is $5.1 returned to every 
$1.0 expended.  The 3-year average (2009-2011) ROI is $7.2 to $1.0, which is $2.1 higher than 
the historical average.  Due to the fact that the annual ROI can vary from year to year depending 
on the number of cases that are settled or adjudicated during that year, DOJ and HHS use a three-
year rolling average ROI for results contained in the report.  Additional information on how the 
ROI is calculated can be found in the Appendix. 
 
Departmental Collaboration  
 
Health Care Fraud Prevention & Enforcement Action Team (HEAT) 
 
The Attorney General and the HHS Secretary maintain regular consultation at both senior and 
staff levels to facilitate, coordinate and accomplish the goals of the HCFAC Program.  On May 
20, 2009, Attorney General Holder and Secretary Sebelius announced the Health Care Fraud 
Prevention & Enforcement Action Team (HEAT), a new effort with increased tools and resources, 
and a sustained focus by senior level leadership to enhance collaboration  between the Departments 
of Health and Human Services and Justice.  With the creation of the new HEAT effort, DOJ and 
HHS pledged a cabinet-level commitment to prevent and prosecute health care fraud.  HEAT, 
which is jointly led by the Deputy Attorney General and HHS Deputy Secretary, is comprised of 
top level law enforcement agents, prosecutors, attorneys, auditors, evaluators, and other staff from 
DOJ and HHS and their operating divisions, and is dedicated to joint efforts across government to 
both prevent fraud and enforce current anti-fraud laws around the country.  The Medicare Fraud 
Strike Force teams are a key component of HEAT.     
 
The mission of HEAT is: 
                                                 
9 Note that some of the judgments, settlements, and administrative actions that occurred in FY 2011 will result in 
transfers in future years, just as some of the transfers in FY 2011 are attributable to actions from prior years.  
10 HHS collected approximately $428.1 million in HHS/OIG recommended recoveries which are included in the 
total $2.5 billion transferred to the Trust Funds in FY 2011 and to the Treasury. 
 
 
  8   
o  To marshal significant resources across government to prevent waste, fraud and 
abuse in the Medicare and Medicaid programs and crack down on the fraud 
perpetrators who are abusing the system and costing us all billions of dollars. 
 
o  To reduce skyrocketing health care costs and improve the quality of care by ridding 
the system of perpetrators who are preying on Medicare and Medicaid beneficiaries. 
 
o  To highlight best practices by providers and public sector employees who are 
dedicated to ending waste, fraud, and abuse in Medicare. 
 
o  To build upon existing partnerships between DOJ and HHS, such as our Medicare 
Fraud Strike Force Teams, to reduce fraud and recover taxpayer dollars. 
 
Since its creation in May 2009, HEAT has focused on key areas for coordination and 
improvement.  HEAT members are working to identify new enforcement initiatives and areas for 
increased oversight and prevention to increase efficiency in pharmaceutical and device 
investigations.  DOJ and HHS have expanded data sharing and improved information sharing 
procedures in order to get critical data and information into the hands of law enforcement to track 
patterns of fraud and abuse, and increase efficiency in investigating and prosecuting complex 
health care fraud cases.  The departments established a cross-government health care fraud data 
intelligence sharing workgroup to share fraud trends, new initiatives, ideas, and success stories to 
improve awareness across the government of issues relating to health care fraud.  
 
Both departments also have increased training to prevent honest mistakes and help stop potential 
fraud before it happens.  This includes CMS compliance training for providers, HHS/OIGs 
HEAT Provider Compliance Training series, ongoing meetings at U.S. Attorneys Offices 
(USAOs) with the public and private sector, and increased efforts by HHS to educate specific 
groups  including elderly and immigrant communities  to help protect them.  DOJ launched a 
new Medicare Fraud Strike Force training program designed to teach the Strike Force concept and 
case model to prosecutors, law enforcement agents, and administrative support teams, with 
involvement from both DOJ and HHS.  CMS and HHS/OIG are providing ongoing training to 
DOJ and HHS staff on the use of new technology to catch and quickly turn off funding to those 
who are defrauding the system. 
 
To achieve the mission and objectives of HEAT, the Attorney General and HHS Secretary 
promoted several HEAT initiatives during the fiscal year:   
 
  Expanded the Medicare Fraud Strike Force to Chicago, IL, and Dallas, TX, which brought 
the total number of cities with Strike Force teams to nine. 
 
  In the largest-ever federal health care fraud takedown, measured by number of defendants, 
Strike Force prosecution teams charged 115 defendants in nine cities, including doctors, 
nurses, health care company owners and executives, and others, for their alleged 
participation in Medicare fraud schemes involving more than $240 million in false billing. 
 
  9   
  In the largest-ever federal health care fraud takedown, measured by fraudulent billings, 
Strike Force prosecution teams charged 91 defendants in eight cities for their alleged 
participation in a Medicare fraud scheme involving more than $290 million in false 
billings. 
 
  From September 28 through September 30, DOJ hosted a three day health care fraud 
training conference for approximately 175 federal prosecutors, FBI agents, HHS/OIG 
agents, and others. 
 
  Continued a series of regional fraud prevention summits around the country to improve 
the exchange of information with partners in the public and private sector and educate 
beneficiaries, providers, and the public to better identify and prevent health care fraud.  
Summits were held in Brooklyn (November 2010), Boston (December 2010), Detroit 
(March 2011), and Philadelphia (June 2011). 
 
In addition to the activities of HEAT, CMS and law enforcement agency representatives, such as 
members of the Civil and Criminal Divisions, the USAOs and Executive Office for United States 
Attorneys (EOUSA), the FBI, and HHS/OIG, have met on a periodic basis through numerous 
local or regional health care fraud working groups and task forces.   
 
EOUSA and CMS also sponsor a monthly national conference call during which Assistant United 
States Attorneys (AUSAs) from all districts have the opportunity to interact directly with CMS 
representatives, receive timely reports on CMS operations, and obtain answers to questions 
related to specific issues regarding current investigations.  The Departments also convene 
interagency staff-level working groups as needed to develop mutual proposals for improving our 
health care fraud fighting capabilities.  
 
In addition, attorneys from HHS/OIG have been detailed to the Fraud Section of the Criminal 
Division as Special Trial Attorneys and to USAOs as Special Assistant U.S. Attorneys to provide 
USAOs with additional prosecutorial resources. 
 
During FY 2011, the many significant HCFAC Program accomplishments included the following:  
 
Medicare Fraud Strike Force  
 
The first Medicare Fraud Strike Force (Strike Force) was launched in March 2007 as part of the 
South Florida Initiative, a joint investigative and prosecutorial effort against Medicare fraud and 
abuse among Durable Medical Equipment (DME) suppliers and Human Immunodeficiency Virus 
(HIV) infusion therapy providers in South Florida.  The Strike Force teams use advanced data 
analysis techniques to identify high-billing levels in health care fraud hot spots so that interagency 
teams can target emerging or migrating schemes along with chronic fraud by criminals 
masquerading as health care providers or suppliers.  Based on the success of these efforts and 
increased appropriated funding for the HCFAC program from Congress and the Administration, 
 
  10  DOJ and HHS expanded the Strike Force to include teams of investigators and prosecutors in a 
total of nine cities  Miami, FL; Los Angeles, CA; Detroit, MI; Houston, TX; Brooklyn, NY; 
Baton Rouge, LA; Tampa, FL; Chicago, IL; and Dallas, TX.  The Departments plan to expand the 
Strike Force teams where Medicare claims data reveal aberrant billing patterns and where 
intelligence data analysis suggests that fraud may be occurring, contingent on available resources.   
 
Each Medicare Fraud Strike Force team combines the data analysis and administrative action 
capabilities of CMS, the investigative resources of the FBI and HHS/OIG, and the prosecutorial 
resources of the Criminal Divisions Fraud Section and the USAOs.  Strike Force 
accomplishments from cases prosecuted in all nine cities during FY 2011 include11:  
 
  132 indictments, informations and complaints involving charges filed against 323 
defendants who allegedly collectively billed the Medicare program more than $1 billion;  
 
  172 guilty pleas negotiated and 17 jury trials litigated, winning guilty verdicts against 26 
defendants; and  
 
  Imprisonment for 175 defendants sentenced during the fiscal year, averaging more than 47 
months of incarceration.  
 
In the four and a half years since its inception, Strike Force prosecutors filed more than 600 cases 
charging more than 1,150 defendants who collectively billed the Medicare program more than 
$2.9 billion; 663 defendants pleaded guilty and 74 others were convicted in jury trials; and 543 
defendants were sentenced to imprisonment for an average term of nearly 42 months.12   
 
Examples of successful cases initiated or concluded in districts where Strike Force prosecution 
teams were operational during FY 2011, as well as other successful cases, organized by provider 
or fraud type follow. 
 
Phase 1: Miami (Southern District of Florida) 
 
  In September 2011, the U.S. District Court in Miami sentenced the owner of a mental 
health care company (American Therapeutic Corporation, or ATC) to 50 years in prison 
for orchestrating a $205 million Medicare fraud scheme involving fictitious mental health 
services.  The court also sentenced a co-owner to 35 years in prison and a third co-
defendant to 91 months in prison following guilty pleas to their roles in the scheme.  The 
defendants paid kickbacks to assisted living facilities and halfway houses in exchange for 
patients being brought to ATC facilities so they could bill Medicare for intensive mental 
health treatments that were medically unnecessary or never provided.  ATC pleaded guilty 
to the charges in April and May of this year.   
                                                 
11 The accomplishments figures presented in the bullets include all reported Strike Force cases handled by DOJ 
Criminal Division attorneys and AUSAs in the respective USAOs during FY 2011.     
 
12 These statistics are for the period of May 7, 2007 through September 30, 2011. 
 
  11   
  In June 2011, the U.S. District Court in Miami sentenced a physician to 235 months in 
prison for his role in a $23 million injection and HIV infusion scheme.  The physician, 
who was convicted on multiple charges following a three-week trial, diagnosed almost all 
patients with the same rare blood disorders, which the patients did not have, and 
prescribed expensive medications to the patients for the sole purpose of receiving 
Medicare reimbursements.  The court also found that the physician obstructed justice by 
testifying falsely at his trial, and that he caused a risk of serious bodily injury to his 
patients.  The court sentenced the clinics owner/operator to 82 months in prison.  The two 
medical assistants, who falsified patient files to indicate that injection and infusion 
treatments were medically necessary, received 70 and 57 months in prison, respectively.  
The physician assistant, who instructed the clinic owner/operator as to which medications 
and in what amounts to bill Medicare to ensure that the clinic received the maximum 
reimbursement, was sentenced to 54 months in prison.   
 
  In August 2011, the court sentenced a registered nurse employed by a Miami-Dade based 
home health care agency to 120 months in prison following a jury conviction in May for 
his role in the submission of $230,000 in false claims to Medicare for services that were 
not medically necessary or actually provided to Medicare beneficiaries.  Between 2007 
and 2009, the nurse completed hundreds of documents in which he claimed that he had 
injected Medicare beneficiaries with insulin two times a day, seven days per week.  Trial 
evidence, however, showed that some beneficiaries were neither in need of insulin nor 
homebound.   
 
  In November 2010, the court sentenced an owner/operator of an HIV infusion clinic to 
120 months in prison for her role in a $23 million HIV infusion Medicare scheme.  The 
defendant hired a physician and caused the physician to order unnecessary tests, sign false 
medical analyses and diagnosis forms, and authorize treatments to make it appear that 
medical services were being provided to patients who were Medicare beneficiaries.  The 
services included medically unnecessary injection and HIV infusion therapies.  The 
defendant paid Medicare beneficiaries kickbacks to induce them to claim that they had 
received legitimate services at the clinic when in fact the HIV infusion services were 
either not provided or were not medically necessary.  The defendant laundered the 
proceeds of the fraudulent Medicare claims by transferring thousands of dollars in 
proceeds to two shell corporations that the defendant owned and controlled.   
 
  In December 2010, the owner and operator of a medical clinic in Miami was sentenced to 
60 months in prison for his role in a $16.6 million Medicare fraud scheme.  Another 
owner and operator was sentenced to 60 months in prison.  The clinic allegedly provided 
unnecessary prescriptions, plans of care and medical certifications to Miamiarea home 
health agencies in return for kickbacks and bribes, and falsified patient files to make it 
appear as if Medicare beneficiaries qualified for daily skilled nursing visits. 
 
Phase 2: Los Angeles (Central District of California)  
 
 
  12    In August 2011, a jury in Los Angeles convicted three defendants, a DME owner, his 
wife, and an employee, for their roles in billing Medicare $14.2 million in fraudulent 
DME claims after a two-week trial.  According to trial evidence, the owner and his wife 
were pastors of a Los Angeles area church where they also operated a DME supply 
company.  The defendants purchased fraudulent prescriptions and documents, including 
Medicare numbers and identities of beneficiaries, including dead beneficiaries, from illicit 
sources to bill Medicare for expensive, high-end power wheelchairs and orthotics that 
were medically unnecessary or never provided.  When it appeared that the owner would 
have to close the DME company due to an audit by Medicare, the owner persuaded his 
sister and a member of the church to allow him to use their names and identities to open 
two new fraudulent DME companies.  After closing the first DME company, the 
defendants and their co-conspirators continued to operate the fraud scheme from the two 
new fraudulent DME companies. Two co-defendants pleaded guilty previously and three 
defendants were convicted at trial in August 2011.  All five defendants await sentencing in 
2012.  
 
  In July 2011, a jury in Los Angeles convicted the co-owner of a DME company and a 
purported home health agency for his role in causing approximately $11.9 million in 
fraudulent DME billings and $8 million in fraudulent home health billings to Medicare. 
The DME co-owner and a second co-owner conspired with others to defraud Medicare by 
paying marketers for access to Medicare beneficiary information and fraudulent 
documents in order to submit and cause the submission of false claims to Medicare for 
DME and home health services that were not medically necessary, and that often were not 
provided at all.  The second co-owner pleaded guilty prior to the trial to multiple health 
care fraud charges in connection with his participation in the scheme.  
 
  In April 2011, the U.S. District Court in Los Angeles sentenced a patient recruiter to 57 
months in prison for her role in a scheme to submit more than $1.2 million in false claims 
to Medicare.  Trial evidence established that the patient recruiter worked the streets of 
low-income and senior living communities in Oakland to recruit Medicare beneficiaries 
for the purpose of filing false claims to Medicare for expensive power wheelchairs that the 
beneficiaries did not want, need, or use.  Beneficiaries testified at trial that the defendant 
approached them on the street, at stores, or in the lobbies of their apartment buildings and 
offered to get them power wheelchairs from Medicare for free.  The defendant 
photocopied the Medicare card and other identity information for each Medicare 
beneficiary.  The defendant sold the beneficiaries Medicare information to a co-
conspirator for between $400 and $500 each.  Over a four-year period, she recruited and 
sold the Medicare information of approximately 200 different beneficiaries.  The court 
sentenced the co-conspirator in this case, who sold the Medicare beneficiary information 
to Los Angeles area DME companies, to 46 months in prison.  
 
Phase 3: Detroit (Eastern District of Michigan)  
 
  In March 2011, the U.S. District Court in Detroit sentenced the owner/operator of a 
Detroit-area HIV infusion and injection therapy clinic to 120 months in prison, and his 
 
  13  wife, a physician, to 97 months in prison, for their roles in a $2.3 million Medicare 
scheme.  The owner/operator and his co-conspirators imported the concept of infusion 
fraud to Detroit from South Florida after increased law enforcement scrutiny in Miami by 
creating an outpatient clinic in Detroit for the sole purpose of defrauding Medicare, 
recruiting beneficiaries with kickbacks, and money laundering.  According to evidence 
presented at trial, the physician recorded fictitious symptoms in the patient charts 
maintained by the clinic in order to justify expensive and exotic medications that the clinic 
billed to Medicare.  Patients were prescribed medications at the clinic based not on 
medical need, but rather on what medications were likely to generate the highest Medicare 
reimbursement.  Evidence at trial also showed that Medicare beneficiaries were not 
referred to the clinic by their primary care physicians, or for any legitimate medical 
purpose, but rather were recruited to come to the clinic through the payment of cash 
kickbacks and prescriptions for narcotic drugs.  Three co-conspirators were sentenced to 
prison terms of 63 months, 37 months, and 10 months, respectively; and three other co-
conspirators were sentenced to serve probation or time served in pre-trial detention plus 
supervised release.   
 
  In December 2010, the owner and vice president of a clinic that purported to specialize in 
physical and occupational therapy were sentenced to prison terms of 151 months and 108 
months, respectively, for their roles in a $23 million Medicare fraud scheme.  The owner 
instructed her staff to create false documents and to add those documents to medical files 
to make it appear that the clinics therapists had performed physical and occupational 
therapy services when she knew they had not.  When Congress enacted a cap on physical 
and occupational therapy services to control costs in January 2006, the defendants devised 
a scheme to avoid the cap by billing for psychotherapy services.  The defendants launched 
a lobbying effort to repeal the cap, which included the clinic staff drafting letters and 
petitions to Congress purportedly on behalf of Medicare patients.  They then instructed the 
clinics staff to bill Medicare for their lobbying efforts as psychotherapy evaluations and 
visits.  Three other co-defendants pleaded guilty and were sentenced to probation.  
 
  In October 2010, the court sentenced a patient recruiter and operator of a Detroit-area 
home health agency to 63 months in prison for his role in submitting fraudulent claims for 
home health care and physical and occupational therapy services they purported to provide 
to homebound Medicare beneficiaries.  The defendant admitted that he became the 
exclusive beneficiary recruiter at the home health care agency and that he recruited 
hundreds of patients, who were neither homebound nor in need of physical therapy 
services, through the payment of cash kickbacks in exchange for their Medicare 
information and signature on medical documents.  The defendant also admitted that he 
knew that the beneficiaries Medicare information was used to bill Medicare for physical 
therapy that was medically unnecessary and/or never preformed.  The court also sentenced 
a co-defendant who was an unlicensed medical assistant to 46 months in prison for his role 
the conspiracy.  Ten co-defendants await trial and nine other co-defendants have pleaded 
guilty and await sentencing.   
  
 
  14    In June 2011, an employee of an HIV infusion clinic was sentenced to 77 months 
incarceration for his role in a health care fraud and money laundering scheme.  The 
individual recruited and paid Medicare beneficiaries to act as patients, and the patients, in 
return, signed medical documentation and reimbursement forms that the clinic could use 
to bill Medicare for services never rendered.  Additionally, the individual owned a 
company which he used to launder over $400,000 in Medicare payments.  He fled the 
United States to avoid being apprehended, but was arrested in the Dominican Republic on 
November 29, 2010, and transferred into custody of U.S. officials. 
 
  In June 2011, the co-owner of two Michigan nerve conduction clinics was sentenced to 15 
months incarceration for her role in a Medicare fraud scheme.  Between September 2007 
and June 2008, the individual and co-conspirators used the clinics to bill Medicare for 
unnecessary tests and services, including nerve conduction studies.  Patient recruiters were 
paid $100 to $150 for every patient that was brought into the clinic, and the patients 
received $50 to $75 in exchange for subjecting themselves to the medically unnecessary 
tests. 
Phase 4: Houston (Southern District of Texas)  
 
  In May 2011, the U.S. District Court in Houston sentenced the owner of a Houston-area 
DME company to 84 months in connection with a $2 million Medicare fraud scheme.  A 
DME company co-conspirator was sentenced to 70 months in prison.  The DME owner 
admitted that she paid kickbacks, sometimes $1,000 per patient, to recruiters who brought 
patients to her DME company.  The owner then billed Medicare for medical equipment 
that the patients either did not need or never received, including power wheelchairs and 
orthotic devices.  A physician co-conspirator was sentenced to 41 months in prison.  Two 
patient recruiters were sentenced to 46 months in prison. 
 
  In February 2011, the court sentenced a DME owner/manager to 57 months in prison in 
connection with a $2.8 million conspiracy to commit health care fraud.  The defendant 
billed Medicare for arthritis kits for more than 683 beneficiaries, some of whom were 
deceased.  None of the beneficiaries interviewed knew of the defendant, the co-defendant, 
or the DME provider.  The sentencing of a physician co-conspirator, who signed purported 
prescriptions ordering DME that served as the basis for the owners fraudulent claims to 
Medicare, remains pending.  A third co-conspirator who was charged in a separate case 
pleaded guilty in August and is awaiting sentencing.  
 
  In November 2010, the court sentenced a manager of a Houston-area DME company to 
120 months in prison for his role in a $1.1 million Medicare fraud scheme.  The defendant 
submitted false claims to Medicare for power wheelchairs and accessories as catastrophe-
related in connection with Hurricanes Katrina, Rita, Ike, and Gustav.  Many of the 
Medicare beneficiaries, including some who testified at trial, had never owned a power 
wheelchair during these catastrophes or had owned one that was damaged during these 
catastrophes.  According to trial evidence, the defendant was previously convicted of 
fraud, and he failed to admit that previous conviction on documents he submitted to 
 
  15  Medicare.  A co-defendant who was a DME delivery driver was sentenced to 41 months in 
prison for delivering medically unnecessary DME, including power wheelchairs, to 
Medicare beneficiaries whom he knew did not need, and in some cases did not even want, 
the DME.   
 
  In January 2011, a physician and five other individuals in Texas were sentenced to 41 
months, 21 months, 26 months, 46 months, 70 months, and 41 months of incarceration, 
respectively, for their roles in a multi-million dollar DME fraud scheme.  Two others were 
sentenced to 10 months of community and home confinement and 3 years of probation, 
respectively.  Evidence presented at trial showed that from 2003 to 2009, these individuals 
billed Medicare for fraudulent DME, including power wheelchairs and orthotic devices.  
The physician ratified prescriptions for medically unnecessary DME, while others created 
fraudulent patient files, paid kickbacks to recruiters, and delivered DME, such as power 
wheelchairs and orthotics, to beneficiaries who had no medical need for the equipment.  
The owner of the DME supplier and the other remaining defendants have pleaded guilty 
for their participation in various parts of the fraud scheme.  Judicial proceedings continue 
for those individuals.  This Medicare Fraud Strike Force investigation was a joint 
investigation with the Texas Medicaid Fraud Control Unit (MFCU). 
 
Phase 5: Brooklyn (Eastern District of New York) 
 
  In July 2011, a neurologist who owned and operated a Brooklyn medical clinic pleaded 
guilty for his role in a health care fraud scheme.  The neurologist admitted that from 
January 2006 to December 2009, he caused false and fraudulent claims to be submitted to 
Medicare, the U.S. Department of Labor Office of Workers Compensation Programs, 
New York State Workers Compensation Board and Insurance Fund, and others.  The 
defendant submitted claims for services that were not provided, misrepresented the 
services he provided by billing for a level of service higher than that which he performed, 
double billed different health care benefit programs for the same service provided to the 
same beneficiary, and billed for services purportedly performed when he was out of the 
country.  
 
  In July 2011, a jury convicted two Brooklyn-area doctors of podiatric medicine on 
multiple health care fraud charges.   Between January 2005 and March 2009, the 
defendants solicited Medicare and Medicaid beneficiaries and provided them with a 
variety of podiatric services.  In many cases, beneficiaries came to the defendants offices 
to have their feet cleaned and moisturized, and their toenails cut and cleaned with alcohol.  
The defendants then submitted, or caused to be submitted to Medicare and Medicaid, 
claims falsely billing for chemical cauterizations, a surgical procedure that involves the 
burning of living tissue by a caustic chemical substance, when in fact those procedures 
were not necessary and had not been provided to beneficiaries.   
 
  In May 2011, a Brooklyn physical therapist pleaded guilty for his role in a $11.9 million 
Medicare fraud scheme.  Between January 2005 and July 2010, the physical therapist 
caused the submission of false and fraudulent claims to Medicare for physical therapy 
 
  16  services that were not performed and were not medically necessary.  In addition, the 
defendant hired individuals who were not certified as physical therapy assistants to 
purportedly provide physical therapy to Medicare beneficiaries.    
 
  In February 2011, Strike Force prosecutors filed charges in the Eastern District of New 
York against seven defendants, including a physician, several medical clinic owners, and 
several ambulance drivers, for their roles in billing Medicare for $56.9 million in 
fraudulent claims.  According to the indictment, the seven defendants allegedly paid 
kickbacks for Medicare beneficiaries to be transported by two ambulance services before 
billing Medicare for physical therapy and diagnostic tests that were medically unnecessary 
or not provided.  
 
Phase 6: Baton Rouge (Middle District of Louisiana) 
 
  In August 2011, following a two-week trial, a jury in Baton Rouge found guilty all four 
defendants in a $4.7 million Medicare fraud.  Trial evidence established that between 2003 
and 2009, the owner/operator of a Baton Rouge area DME company paid two patient 
recruiters to locate and solicit Medicare beneficiaries to attend health fairs hosted at 
churches and other locations.  At the health fairs, doctors prescribed the beneficiaries 
power wheelchairs that were medically unnecessary.  The DME owner then used the 
prescriptions to submit false and fraudulent claims to Medicare.  The patient recruiters 
paid the doctors illegal kickbacks based on the number of power wheelchair prescriptions 
generated at the health fairs.  The DME owner also paid kickbacks to the recruiters on a 
per prescription basis when beneficiaries received prescriptions for medically unnecessary 
power wheelchairs for which the owners company fraudulently billed Medicare.  
 
  In June 2011, the U.S. District Court in Baton Rouge sentenced an owner of a Baton 
Rouge DME company to 60 months in prison for his role in a $5.4 million health care 
fraud scheme.  The DME owner and three co-conspirators admitted to their roles in a 
multi-year scheme to defraud Medicare by routinely submitting claims to Medicare 
seeking reimbursement for a set of expensive braces (including a back brace, knee braces, 
and other items) when they knew that the braces were not medically necessary and had not 
been prescribed for the beneficiaries by their physicians.  The court sentenced one co-
conspirator to 48 months in prison, a second to 30 months in prison, and another to 24 
months probation.   
 
  In January 2011, the court sentenced a DME owner/operator to serve 48 months in prison 
for his role in a $775,000 DME fraud scheme.  The court sentenced the co-defendant, a 
physician, to 30 months in prison.  The physician wrote prescriptions for medically 
unnecessary DME, such as power wheelchairs, wheelchair accessories, and feeding 
nutrients.  The majority of the DME companys fraudulent claims were based on 
prescriptions for medically unnecessary DME that were written and provided by the 
physician.  
 
Phase 7: Tampa (Middle District of Florida) 
 
  17   
  In October 2010, the U.S. District Court in Tampa sentenced a physician and physician 
assistant to serve 108 months and 120 months in prison, respectively, for conspiring to 
defraud Medicare and for illegally prescribing controlled substances, primarily 
Oxycodone, Morphine, Hydrocodone, and Alprazolam.  The court also ordered the 
forfeiture of the physicians Drug Enforcement Administration (DEA) Registrations and 
Florida Medical License, and forfeiture of the physician assistants Florida Physician 
Assistant License.  According to court documents, the physician allowed the prescribing 
of controlled substances to patients by unauthorized employees, including the physician 
assistant, without his presence, participation, and adequate supervision.  The defendants 
used blank prescription forms signed by the physician.  Many of these prescriptions were 
issued for controlled substances to patients without conducting adequate physical exams, 
making proper diagnosis, or considering alternative treatment options, and often with the 
knowledge that the patients receiving the controlled substances were misusing or abusing 
them, asking for drugs to support their own addictions, or sharing or giving the controlled 
substances away to others.  Undercover detectives visited the clinic on six occasions, 
posing as patients and often asking for particular types of drugs; they were given 
prescriptions for those drugs with no medical basis and even after making clear that they 
had shared or intended to share the drugs with others.  The physician assistant previously 
pleaded guilty in a separate, but related, case as an organizer and leader of an Oxycodone 
trafficking conspiracy and was sentenced to 120 months in prison to be served 
concurrently with the sentence in this case.  The court sentenced a third co-defendant, who 
was an employee in the lead defendants clinic, to 24 months in prison.  
 
  In June and July 2011, five defendants pled guilty to conspiracy and other charges for 
their roles in a $757,000 scheme to defraud Medicare and were sentenced to prison terms 
ranging from 6 months to 46 months.  According to court documents, three Miami-area 
residents and two other co-conspirators purchased an existing physical therapy business 
from its previous owners, along with the medical records of its patients, and used the 
names of a physical therapist and Medicare beneficiaries in the files without their 
permission.  The defendants transformed the clinic into a fraudulent enterprise, purporting 
to provide physical therapy services to Medicare beneficiaries, but in reality used the 
stolen identities of a physical therapist and scores of patients to bill Medicare for physical 
therapy services that were never provided.  According to court documents, from fall 2009 
to summer 2010, the co-conspirators submitted and caused the submission of more than 
$757,000 in fraudulent claims to the Medicare program.  The owner and president of the 
clinic admitted that he and his co-conspirators submitted claims to Medicare for physical 
therapy services that were never provided.  The defendants also controlled corporate bank 
accounts into which Medicare deposited reimbursements based on the fraudulent claims.  
The reimbursements are alleged to have been transferred to the defendants, their co-
conspirators, and family members.   
 
  In January 2011, the court sentenced two licensed physical therapists from Lakeland, 
Florida, a married couple, to 46 months and 42 months in prison, respectively, for making 
false statements in connection with health care benefits and aggravated identity theft.  One 
 
  18  defendant owned and the other defendant operated two companies in Lakeland that 
purported to provide physical therapy, speech therapy, and occupational therapy services 
to Medicare and Medicaid beneficiaries and recipients. According to court documents, the 
defendants defrauded Medicaid by submitting fraudulent claims for reimbursement for 
services that were not performed by qualified, enrolled Medicaid providers, and falsely 
represented that the services were performed by qualified, enrolled Medicaid providers.  
They also submitted inflated claims and billed Medicaid for more services than were 
performed.  They submitted claims for reimbursement for work they falsely claimed was 
performed on days when patients were not even present at their clinic and did not receive 
any treatment at all, and also submitted fraudulently created treatment notes during the 
course of the investigation. 
 
Phase 8: Dallas (Northern District of Texas) 
 
  In February 2011, Strike Force prosecutors filed an indictment charging the 
owner/operator of a DME supplier and her husband with conspiracy to commit health care 
fraud and five counts of health care fraud in connection with a $1.8 million Medicare 
fraud scheme.  The indictment alleges that from September 2008 through December 2010, 
the defendants and other co-conspirators caused claims to be submitted to Medicare for 
DME that was never actually provided or was more expensive than the DME that was 
actually provided to beneficiaries.  The defendants and co-conspirators submitted claims 
to Medicare for DME when, in fact, their company did not provide the equipment for 
which Medicare was billed.  This case is scheduled for trial in January 2012.  
 
  In February 2011 Strike Force prosecutors filed an indictment charging a CEO and 
, 
Administrator of a home health care service and four co-defendants with conspiracy and 
kickback charges.  A patient recruiter was also charged with paying and receiving health 
care kickbacks in connection with a $1 million Medicare fraud scheme.  The CEO and his 
wife, as well as another CEO and his wife, paid kickbacks to a patient recruiter for 
referring Medicare patients to the home health service.  From November 2008 through 
November 2010, the home health service billed Medicare for home health care when such 
services were not medically necessary and were not provided.  This case is scheduled for 
trial in December 2011.   
Phase 9: Chicago (Northern District of Illinois)  
 
  In June 2011, a pharmacist pleaded guilty to charges filed in February that he fraudulently 
caused more than $200,000 in prescription drug claims to be paid by Medicare, Blue 
Cross Blue Shield of Illinois, and other private insurers for medications that were never 
dispensed to plan beneficiaries.  The defendant owned the pharmacy through which he 
caused fraudulent claims for prescription medication to be submitted to health care benefit 
programs and pharmacy benefit management companies, when he knew that the pharmacy 
had not dispensed the prescription medications to the Medicare beneficiaries and private 
health plan subscribers.   
 
 
  19    In June 2011, prosecutors filed an indictment charging a Chicago man who operated two 
home health care businesses, one of which was among the states largest recipients of 
Medicare payments, on federal fraud charges for allegedly swindling Medicare of at least 
$20 million between 2006 and 2011.  The defendant, who had no formal medical training, 
medical degrees, or licenses to practice as a health care professional, allegedly schemed 
with others to submit millions of dollars in false claims for reimbursement of home health 
care services purportedly provided to Medicare beneficiaries, which allegedly were never 
provided, were not medically necessary, or were inflated in price so that he and others 
could profit from the fraudulently-obtained funds.  The defendant and his co-conspirators 
allegedly used the proceeds for various purposes, such as: using more than $5.5 million in 
cash to maintain lavish lifestyles, including gambling at casinos in the Chicago area and 
Las Vegas; buying automobiles, jewelry, and real estate in the United States and the 
Philippines; perpetuating the businesses by paying his employees and providing them with 
gifts; and bribing physicians and paying kickbacks to others in exchange for patient 
referrals. 
 
Fraud by Pharmaceutical and Device Manufacturers and Related Individuals 
 
  In October 2010, GlaxoSmithKline LLC (GSK) paid $600 million to resolve FCA 
allegations and related state claims in connection with its manufacturing and distribution 
of certain adulterated drugs made at GSKs now-closed Cidra, Puerto Rico, facility.  In 
addition, SB Pharmco Puerto Rico Inc., a GSK subsidiary, pled guilty to a criminal felony 
for releasing into interstate commerce adulterated Kytril, Bactroban, Paxil CR, and 
Avandamet, in violation of the Food, Drug, and Cosmetic Act (FDCA) and paid a criminal 
fine of $150 million.  A criminal information charged that SB Pharmcos manufacturing 
operations failed to ensure that Kytril and Bactroban finished products were free of 
contamination from microorganisms.  The criminal information further charged that SB 
Pharmcos manufacturing process caused Paxil CR two-layer tablets to split, which led the 
company to distribute tablets that did not have any therapeutic effect and tablets that did 
not contain any controlled release mechanism. 
 
  In December 2010, Abbott Laboratories Inc., B. Braun Medical Inc., Roxane Laboratories, 
Inc., n/k/a Boehringer Ingelheim Roxane, Inc. and Dey, Inc., Dey Pharma, L.P., and Dey 
L.P., Inc., and affiliated entities paid $701 million to settle FCA allegations that they 
engaged in a scheme to report false and inflated prices for numerous pharmaceutical 
products knowing that federal health care programs relied on those reported prices to set 
payment rates.  The actual sales prices for the products were far less than what defendants 
reported.  By inflating the prices they reported to the drug pricing publications used by 
Medicare and Medicaid to set reimbursement rates, these manufacturers caused the 
government to set payment rates far above the actual prices paid to them by their 
customers, such as retail pharmacies.  The manufacturers would then market the spread 
between the actual prices they charged their customers and the amount the government 
would later reimburse the customers in order to induce higher sales.  
 
 
  20    In August 2011, Par Pharmaceutical, Inc. paid $90.9 million to resolve allegations that Par 
knowingly reported inflated drug prices and thereby caused the submission of false claims 
to the Medicaid program. 
 
  In February 2011, the Irish pharmaceutical manufacturer Elan Corporation, PLC paid $60 
million to resolve FCA allegations arising from its off-label marketing of the epilepsy 
drug Zonegran for a variety of uses other than those approved by the Food and Drug 
Administration (FDA) as adjunctive therapy for the treatment of partial seizures in 
epilepsy for adults over the age of 16.  The United States alleged that this conduct caused 
false claims to be submitted to federal health care programs for off-label uses of the drug 
between April 2000 and April 2004.  A subsidiary, Elan Pharmaceuticals, Inc., pled guilty 
to a misdemeanor violation of the FDCA.  It paid a criminal fine of $97 million and 
forfeited $3.6 million in substituted assets. 
 
  In December 2010, Kos Pharmaceuticals, a subsidiary of Abbott Laboratories, paid more 
than $41 million to resolve criminal and civil liabilities arising from conduct relating to its 
drugs Advicor and Niaspan.  The civil settlement resolved allegations that Kos offered and 
paid doctors, other medical professionals, physician groups, and managed care 
organizations illegal kickbacks in the form of money, free travel, grants, honoraria, and 
other valuable goods and services in violation of the Anti-Kickback Statute (AKS) to get 
them to prescribe or recommend Niaspan and Advicor.  In addition, the settlement 
resolved allegations that Kos promoted the sale and use of Advicor for use as first-line 
therapy for management of mixed dyslipidemias (a disruption of the lipids in the blood), a 
use not approved by the FDA.  As part of the global resolution, Kos also entered into a 
DPA and agreed to the filing of a criminal information charging the company with one 
count of conspiracy to violate the AKS. 
 
  In June 2011, UCB, Inc. paid $34.4 million to resolve criminal and civil FCA liability 
arising from the illegal marketing of the epilepsy drug, Keppra, for off-label uses that 
were not medically accepted indications and ineligible for coverage, including headache, 
migraine, pain, bipolar, mood disorders, and anxiety.  Under the terms of a separate 
criminal agreement, UCB pled guilty to one count of misdemeanor misbranding under the 
FDCA and paid an $8.6 million criminal fine.  
 
  In June 2011, Novo Nordisk paid $25 million to resolve allegations that it engaged in off-
label promotion of NovoSeven, a recombinant biologic drug that is FDA approved to treat 
hemophilia.  The United States alleged that Novo Nordisk paid military physicians 
remuneration for questionable research to support and promote the use of NovoSeven for 
use in trauma-related hemorrhage, even in the face of mounting evidence of harm.  As part 
of the settlement, the defendant has agreed to enter into an expansive Corporate Integrity 
Agreement (CIA) with HHS/OIG. 
 
  In October 2010, Synthes, Inc., a major international medical device manufacturer, pled 
guilty to a criminal violation of the FDCA by introducing into interstate commerce 
medical devices that were adulterated and misbranded.  Its subsidiary, Norian Corp., pled 
 
  21  guilty to 110 criminal FDCA counts for related conduct and also pled guilty to one felony 
count of a multi-object conspiracy including to defraud the United States and its agencies 
by impeding, impairing, and defeating the lawful functions of the FDA to protect the 
health and safety of the public.  The corporate defendants paid more than $23 million in 
criminal fines, forfeiture, and other penalties.  From May 2002 until fall 2004, the 
defendants conducted unauthorized clinical trials of Synthes medical devices in surgeries 
to treat vertebral compression fractures of the spine (VCF), a painful condition commonly 
suffered by elderly individuals.  These surgeries were performed despite a warning on the 
FDA cleared label for the device against this use, and in the face of serious medical 
concerns about the safety of the devices when used in the spine.  Before the marketing 
program began, pilot studies showed the company that the bone cement reacted 
chemically with human blood in a test tube to cause blood clots. The research also 
showed, in animals, that such cement caused clots became lodged in the lungs.  The 
company did not stop marketing the product until after a third patient had died on the 
operating table.  After the death of the third patient in January 2004, Norian and Synthes 
did not recall the product from the market  which would have required them to disclose 
details of the three deaths to the FDA  but, instead, compounded their crimes by carrying 
out a cover-up in which they made false statements to the FDA during an official 
inspection in May and June 2004.   The companies also agreed to a $138,000 civil 
settlement for submission of claims to various health care programs resulting from the use 
of the companys bone cement in VCFs when such use was neither reasonable nor 
necessary, and such unapproved use was explicitly warned against.  On November 21 and 
December 13, 2011, four former executives with Synthes, Inc., were each sentenced to 
terms of imprisonment. Two were each sentenced to nine months in prison; one was 
sentenced to five months, and the fourth to eight months.  All four previously pleaded 
guilty to one misdemeanor count of shipping adulterated and misbranded Norian XR in 
interstate commerce. Three of the sentences were above the guidelines range of 0-6 
months, but the court found the conduct of the executives, which resulted in at least three 
patient deaths, so egregious as to warrant an upward variance.  Each was also sentenced to 
pay a $100,000 fine. 
 
  In September 2011, Guidant LLC, a wholly owned subsidiary of Boston Scientific Corp. 
of Natick, MA, paid the United States $9.3 million to resolve FCA allegations that the 
company inflated the cost of replacement pacemakers and defibrillators to federal health 
care programs by knowingly failing to grant warranty credits and rebates to hospitals for 
pacemakers and defibrillators that were explanted while covered under a product warranty 
or another credit program.   
 
Hospital Fraud 
 
  In December 2010, privately-owned Archbold Memorial Hospital, Inc. (Archbold), of 
Thomasville, GA, paid $13.8 million to resolve FCA liability related to allegations that 
from November 2002 through July 2008, it made false representations to the Georgia 
Department of Community Health, the  agency that administers the Medicaid program in 
that state, that it was a public hospital in order to participate in the Medicaid Upper 
 
  22  Payment Limit (UPL) program and to receive additional Disproportionate Share Hospital 
(DSH) program funds that are not available to private hospitals. 
 
  In January 2011, seven hospitals paid $6.3 million to resolve FCA liability related to 
kyphoplasty claims.  The settling facilities included: Lakeland Regional Medical Center, 
Lakeland, FL; The Health Care Authority of Morgan County  City of Decatur dba 
Decatur General Hospital, Decatur, AL; St. Dominic-Jackson Memorial Hospital, Jackson, 
MS; Seton Medical Center, Austin, TX; Greenville Memorial Hospital, Greenville, SC; 
Presbyterian Orthopaedic Hospital, Charlotte, NC; and The Health Care Authority of 
Lauderdale County and the City of Florence, AL, d/b/a the Coffee Health Group, f/k/a 
Eliza Coffee Memorial Hospital.  The settlements resolved allegations that each hospital 
overcharged Medicare from 2001 to 2008 by performing kyphoplasty, a minimally-
invasive procedure used to treat certain spinal fractures, on an inpatient basis.  The 
procedure can be performed safely as an outpatient procedure, but the government alleged 
that the settling hospitals performed the procedure on an inpatient basis in order to 
increase their Medicare billings. 
 
  In November 2010, Simi Valley Hospital in Simi Valley, CA paid $5.2 million to resolve 
FCA allegations related to billing outpatient detoxification services as inpatient 
psychiatric care.   The United States alleged that Simi Valley Hospital submitted false 
claims for inpatient psychiatric care to Medicare from 1996-2000.  
 
  In September 2010, Santa Clara Valley Medical Center (SCVMC) agreed to pay  
$4.3 million to resolve its liability under the FCA in connection with improper billing for 
oneday hospital admissions that did not meet medical necessity criteria for inpatient 
services.  SCVMC is an acutecare hospital owned and operated by the County of Santa 
Clara, CA.  SCVMC disclosed through the OIG Self Disclosure Protocol that it had billed 
Medicare and MediCal for oneday inpatient hospital stays which, instead, should have 
been billed as outpatient observation services. 
 
  In April 2011, AHS Hillcrest Medical Center LLC; AHS Tulsa Regional Medical Center 
LLC, Ardent Health Services LLC; and Ardent Medical Services, Inc. (collectively the 
Ardent Entities) entered into a FCA settlement agreement and agreed to pay $3.9 million 
to resolve allegations that, between January 2003 and December 2009, the Ardent Entities 
caused false claims to be submitted to Oklahoma Medicaid.  Specifically, the Children and 
Adolescent Behavioral Health Services Unit of the Tulsa Regional Medical Center 
(renamed Oklahoma State University Medical Center in 2006) allegedly failed to provide 
inpatient psychiatric services to patients under the age of 21 in the intervals of time 
required by state regulations.  Instead, shorter therapy sessions were allegedly provided 
and documented as if they had been appropriately provided.  In connection with this 
settlement, AHS Hillcrest Medical Center, which assumed ownership and operation of the 
Unit in 2009, entered into a five-year CIA.  The CIA obligations include oversight by a 
board of directors and an Independent Review Organizations review of the Units claims 
and quality control systems. 
 
 
  23    In April 2011, North Carolina-based Rex Healthcare paid $1.9 million in order to resolve 
FCA liability related to a variety of medically unnecessary inpatient admissions, including 
those related to kyphoplasty procedures.  The settlement resolved allegations that the 
hospital overcharged Medicare from 2001 to 2008 for a variety of minimally-invasive 
procedures performed on an inpatient basis despite any medical need for more costly 
inpatient care.  The government alleged that Rex Hospital performed the procedures on an 
inpatient basis in order to increase their Medicare billings.  
 
  In September 2010, Christus Health and seven of its hospitals (collectively, Christus) 
agreed to pay $970,987 to resolve their civil liability for allegedly violating the FCA, the 
Civil Monetary Penalties Law (CMPL), and certain common law causes of action.  
Christus is a health system that operates hospitals throughout the southwestern United 
States.  At the advice of a consulting firm, Healthcare Financial Advisers (HFA), Christus 
allegedly filed inflated cost reports.  HFA allegedly prepared and Christus filed cost 
reports that sought reimbursement for various categories of items of unallowable costs, 
while simultaneously preparing a second set of cost reports, which more accurately 
represented the amount of reimbursement to which the hospitals were entitled.  In addition 
to the settlement amount, Christus also refunded to Medicare a $649,210 overpayment 
which it received as a result of improperly seeking reimbursement for unallowable costs 
on past cost reports. 
 
  In April 2011, Masonicare Health Center (Masonicare) agreed to pay $447,776 to resolve 
its liability for allegations under the FCA.  The settlement agreement resolved allegations 
that Masonicare  improperly overcharged the Medicare and Medicaid programs from 
January 1, 2001 through May 31, 2010 for Lupron injections, which are commonly used to 
treat prostate cancer in men and manage endometriosis in women.  Using the health care 
procedure coding system (HCPCS), Masonicare allegedly billed Medicare and Medicaid 
for Lupron injections provided to its male patients under an HCPCS code designated for 
female beneficiaries, which is reimbursed at double the rate.  HHS/OIG reserved its right 
to exclude the entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
 
  In November 2010, St. Johns Health System (St. Johns) agreed to pay the United States 
$318,364 to resolve its liability under the FCA for submitting fraudulent claims to 
Medicare and Medicaid for psychotherapy services.  The settlement resolves allegations 
that, from January 1, 2005 through December 31, 2008, St. Johns billed for multiple units 
of psychotherapy services under the code for group medical psychotherapy.  The Federal 
government contends that the services that were provided were not psychotherapy 
sessions, but group counseling meetings, including Alcoholics Anonymous meetings 
provided by unqualified professionals.  The settlement also resolved allegations that St. 
Johns billed for services provided by lowerlevel practitioners without using modifiers to 
indicate who provided the services, resulting in a 25 percent higher payment under 
Medicare and Medicaid. 
 
Fraud by Physicians 
 
 
  24    In June 2011, a physician in Las Vegas, Nevada, paid the United States $5.7 million to 
settle allegations that he submitted false claims to Medicare, TRICARE, and the Federal 
Employees Health Benefits Plan (FEHBP).  The United States alleged that the defendant 
upcoded various radiation oncology services, unbundled several procedures affiliated with 
radiation treatment plans, and billed for other medically unnecessary radiation oncology 
services. 
 
  In February 2011, a Missouri physician pled guilty to health care fraud and conspiracy to 
distribute OxyContin and oxycodone.  The defendant admitted that he participated in a 
conspiracy with others, who have also pled guilty to distributing OxyContin and oxycodone 
from July 2006 to January 2010 and are awaiting sentencing.  The defendant began 
operating a mobile physician business to make house calls to hotels and businesses, but 
used the business to write prescriptions for Schedule II controlled substances for 
individuals without a medical examination or medical need.  The defendant agreed to 
forfeit $1.2 million which represented the proceeds from a drug-trafficking conspiracy and 
health care fraud.  He also agreed to relinquish his Missouri and Kansas medical licenses.  
 
  In December 2010, a Grand Rapids dermatologist was sentenced to 120 months in prison 
following his jury conviction on 31 counts of health care fraud.  The charges in the 
indictment involved the upcoding of a variety of dermatological procedures and the 
fraudulent billing of office services for skin diseases that did not exist.  The evidence at 
sentencing included expert testimony that many patients had undergone unnecessary 
surgical procedures to have benign skin lesions removed in order to fuel the 
dermatologists various fraud schemes.  The investigation and prosecution also revealed 
that the dermatologist had reused sutures on multiple patients, resulting in the notification 
and testing of thousands of patients for HIV and Hepatitis C by the county health 
department.   
 
  In May 2011, a Florida physician was convicted of 17 counts of health care fraud and 126 
counts of unlawful dispensing of controlled substances.  At trial, the government 
presented evidence that, while operating a medical business, the physician prescribed 
controlled substances to patients without sufficient medical necessity, and did so in 
quantities and dosages that caused his patients to abuse, misuse, and become addicted to 
the drugs.  Through the testimony of more than 76 witnesses, the government established 
that the defendant continued to prescribe controlled substances even after he learned that 
the patients were addicted to the drugs, had suffered overdoses from them, were doctor 
shopping to get more drugs, or were, in some cases, selling the drugs on the street.  The 
jurys verdict included a finding that the defendants dispensing of controlled substances 
resulted in the deaths of two patients.  The defendant faces a maximum sentence of 10 
years imprisonment for each of the health care fraud convictions, a sentence of up to 20 
years imprisonment on each of the controlled substance dispensing counts, and a 
mandatory 20 years to life term of imprisonment on the one count of dispensing a 
controlled substance resulting in death. 
 
 
  25    In November 2010, an Arkansas doctor, affiliated with d/b/a Arkansas Center for Women, 
was convicted of health care fraud and misbranding.  The indictment charged the 
defendant with obtaining Mirena intrauterine devices (IUDs), which were not approved 
by the FDA, from outside the United States via Canadian pharmacy websites for 
approximately half the cost of the FDA-approved IUDs.  The defendant provided the 
IUDs to patients and billed the Arkansas Medicaid Program, as well as private insurance 
companies and self-pay patients, as if patients were provided with the more expensive, 
FDA-approved version of Mirena.   
 
Fraud by Other Practitioners 
 
  In November 2010, a surgical monitoring company and its former President and CEO 
agreed to pay more than $2.7 million to resolve allegations that the company fraudulently 
billed Medicare for intra-operative monitoring services provided to hospital patients 
undergoing complex surgical procedures.  Intra operative monitoring services are used to 
help reduce the risk of complications during surgery by identifying changes in the brain, 
spinal cord, and peripheral nerve function prior to irreversible damage.  The governments 
investigation found that the physicians employed by the company were improperly billing 
for monitoring multiple surgeries at one time and were billing for more time than they had 
actually spent monitoring the surgeries.  In addition to paying almost $2.8 million to 
resolve this matter, the former President and CEO agreed to a three-year voluntary 
exclusion from all federal health care programs.  
 
  In September 2010, a formerly licensed nurse in Puerto Rico was sentenced to 18 months 
of incarceration after pleading guilty to four counts of misbranding of a drug with the 
intent to defraud.  Though not licensed as a physician, this individual presented himself as 
a physician specializing in wound care, treated several beneficiaries suffering from skin 
ulcers, and regularly provided patients with prescriptions for medications to treat such 
conditions.  These pharmacy claims were paid by health care benefit programs, including 
Medicare Advantage (MA) plans.  When writing the fraudulent prescriptions, the nurse 
used his expired U.S. Virgin Islands nursing license number, which matched that of a 
legitimate Puerto Rican physician with no knowledge or involvement in the scheme.  This 
case involved HHS/OIG and FDAs Office of Criminal Investigations. 
 
Fraud by Pharmacies 
 
  In April 2011, CVS Pharmacy paid the United States and 10 states $17.5 million to 
resolve FCA allegations that CVS submitted inflated prescription claims to the 
government by billing the Medicaid programs in Alabama, California, Florida, Indiana, 
Massachusetts, Michigan, Minnesota, New Hampshire, Nevada, and Rhode Island for 
more than what CVS was owed for prescription drugs dispensed to Medicaid beneficiaries 
who were also eligible for benefits under a primary third party insurance plan (excluding 
Medicare as the primary payor).  The United States alleged that rather than billing the 
government for what the insured would have been obligated to pay had the claims been 
 
  26  submitted solely to the third party insurer (typically the co-pay), CVS billed and was paid 
a higher amount by Medicaid. 
 
  In September 2010, Specialized Pharmacy Services, which  provides services to residents 
of long term care facilities, agreed to pay $11.6 million, and entered into a settlement 
agreement with the state of Michigan to resolve allegations that from 2002 to 2009 it 
charged Medicaid a greater amount for prescription medications than it did private 
insurance companies.  Under Michigan law, a pharmacy cannot bill Medicaid more than it 
customarily accepts from a private health insurer for prescription medications.  This case 
was jointly investigated with the Michigan MFCU. 
 
  In December 2010, Woodhaven Pharmacy Services, Inc., d/b/a Remedi Seniorcare, a long 
term care pharmacy company located in Baltimore, Maryland, paid the United States $1.3 
million to settle claims that it violated the FCA by failing to credit federal programs and 
Medicaid for medications that were dispensed to patients in long term care facilities and 
later returned and re-dispensed to other nursing home and assisted living patients. 
 
  In January 2011, CVS Pharmacy, agreed to pay $969,230 to resolve liability under the 
FCA for billing federal health care programs for services provided by excluded 
individuals.  From September 20, 2005 through July 31, 2009, three CVS Pharmacy stores 
in New York and New Jersey allegedly submitted or caused to be submitted to the 
TRICARE and Medicare programs claims for prescription drugs that were dispensed by 
an excluded pharmacist.  The pharmacist was excluded in 2004 from participating in 
federal health care programs based on his conviction for attempted criminal sale of a 
controlled substance in New York. 
 
  In April 2011, eTEL-Rx, Inc., (eTEL-Rx), a pharmacy that provides drugs to nursing 
home facilities throughout the state, entered into a settlement agreement which included 
restitution in the amount of $650,000 to resolve its alleged liability under the civil FCA.  
Between January 1999 and December 2007, eTEL-Rx allegedly billed Medicaid directly 
for medications and nutritional supplements of terminally ill patients that should have 
been billed to the appropriate hospice providers.  In addition, eTEL-Rx accepted the return 
of unused drugs paid for by Medicaid without crediting Medicaid for the returns.  They 
subsequently re-dispensed the returned drugs, resulting in Medicaid paying eTEL-Rx 
again for the drugs already reimbursed by Medicaid.  As part of the settlement, eTEL-Rx 
entered into a CIA with OIG. 
 
Fraud by Clinics 
 
  In April 2011, Dartmouth Hitchcock Clinic, Mary Hitchcock Memorial Hospital, and 
related entities (collectively Dartmouth), agreed to pay $2.2 million to resolve its liability 
under the FCA for allegedly submitting improper claims to Medicare, Medicaid, 
TRICARE, and the Veterans Administration.  Between February 1, 2001 and September 
30, 2007, Dartmouths Anesthesiology Department (AD) allegedly submitted improper 
claims for services not supervised by attending physicians in the ADs Pain Clinic, 
 
  27  submitted improper claims for services not supervised by attending physicians related to 
bedside procedures, and submitted improper claims for time based billings in the ADs 
Critical Care Unit.  According to federal regulations and related guidelines, physicians are 
allowed to bill for certain services provided by residents, but only if those services are 
performed while a physician is present and the medical record documents physician 
presence.  
 
  In August 2011, the United States entered into a settlement agreement for $1.4 million 
with Treehouse Pediatric Clinic of Texas and related entities, to resolve allegations that 
the clinic presented claims for payment with TRICARE for services provided to autistic 
children by non-certified, unlicensed behavioral therapists.  As a condition for payment, 
TRICAREs rules and regulations specifically required that these services be provided by 
licensed behavioral therapists.  In filing claims, the licensed provider represented that she 
alone provided one-on-one behavioral therapy, when, in fact, unlicensed and unsupervised 
persons provided the therapy to the children.  
 
Fraud by Medical Equipment Suppliers 
 
  In May 2011, the United States District Court for the Middle District of Tennessee entered 
a judgment of $82.6 million in favor of the United States in a FCA case alleging that 
Renal Care Group (RCG), Renal Care Group Supply Company (RCGSC) and Fresenius 
Medical Care Holdings, Inc. violated the FCA when they submitted claims from 1999 
through 2005 to the Medicare program for home dialysis supplies provided to patients 
with end stage renal disease (ESRD) for reimbursement of the supplies and equipment.  
All of these claims, as well as related claims for support services rendered by RCG 
dialysis clinics were false because the defendants were prohibited from and not qualified 
to bill Medicare for these home dialysis patients.  Under Federal law, the Medicare 
program pays companies that provide dialysis supplies to ESRD patients only if the 
companies that provide the supplies are truly independent from dialysis facilities and the 
ESRD patient chooses to receive supplies from the independent supply company.  The 
government alleged that the defendants set up a sham billing company, RCGSC, which 
was not independent from RCG.  Further, RCG interfered with ESRD patients' choice of 
supply options, requiring patients to move to RCGSC.  Even after RCG employees 
raised concerns and industry competitors closed their supply companies, RCG kept 
RCGSC open because of the illicit revenue it created. 
 
  In September 2011, Hill-Rom Company, Inc (Hill-Rom), a national DME supplier, paid 
the United States $41.8 million to resolve allegations that Hill-Rom submitted false 
Medicare claims for bed support surfaces for patients who no longer needed or were no 
longer using this DME.  Bed support surfaces are generally used to relieve pressure on 
bed-bound patients suffering wounds or other sores.  
 
  In April 2011, a former officer of Rikco International paid $27 million to resolve FCA 
allegations that it sold shoe inserts for diabetic patients that did not conform to Medicares 
requirements for those products.  Also, as part of the global resolution of this matter, the 
 
  28  defendant also agreed to plead guilty to a felony charge of mail fraud for this conduct.  
Despite being advised that the inserts did not conform to Medicares requirements, the 
defendant continued to sell the non-compliant inserts in 2006. 
 
  In May 2011, the owner and operator of a Florida pharmacy was sentenced to 52 months 
incarceration for health care fraud.  Between August 2006 and April 2007, the individual 
used his pharmacy to submit false claims to Medicare, including claims for deceased 
beneficiaries.  These claims sought reimbursement for the cost of DME prescription 
medications, and other items and services for Medicare beneficiaries in Florida that were 
not prescribed by doctors or provided as claimed. 
 
  In May 2011, a Florida man was sentenced to 55 months incarceration for defrauding the 
Medicare program.  Between July 2006 and January 2007, the individual, the owner of a 
DME supply company, caused the company to submit false and fraudulent Medicare 
claims for DME items such as pressure support ventilators, therapy pumps, and other 
DME that were not prescribed by physicians nor received by Medicare beneficiaries. 
 
  In October 2010, a consent judgment was entered against a defendant for $657,708 for 
causing the submission of false claims by the defendants former company Orthoscript, 
Inc. to Medicare, TRICARE, and FEHBP from 1999 through 2004.  Orthoscript 
improperly billed the programs under the wrong, higher paying codes for certain DME.  
The defendant was earlier tried and convicted for fraud in connection with the scheme. 
 
Quality of Care 
 
  In April 2011, Arete Sleep, LLC, Arete  Sleep Therapy, LLC, and Arete  Holdings LLC 
(collectively Arete ), agreed to pay $650,000 in a settlement to resolve FCA allegations.  
Between November 2002 and December 2009, Arete  allegedly made false claims to 
Medicare for diagnostic sleep tests performed by technicians in its Arizona and Texas 
facilities who lacked the licenses or certifications required by Medicare rules and 
regulations.  The settlement also resolves allegations that Arete  further submitted false 
claims for medical devices, such as continuous positive airway pressure devices, resulting 
from the uncertified technicians tests.   
 
Fraud by Nursing Homes 
 
  In April 2011, Genesis Rehabilitation Services (GRS), an affiliate of Genesis HealthCare 
LLC, agreed to pay $1.5 million to resolve its liability under the FCA for allegedly 
submitting claims to Medicare and Medicaid for services provided by an unlicensed 
speech therapist.  Between October 2006 and June 2010, GRS allegedly employed an 
unlicensed speech therapist who provided forged licenses and documentation to GRS in 
order to maintain her employment.  GRS failed to verify the documentation.  As a result, 
GRS routinely submitted claims to Medicare and Medicaid for services for licensed 
speech therapy services that were provided by an unlicensed therapist. 
 
  29   
  In January 2011, Senior Care Group, Inc., of Tampa FL, agreed to pay the United States 
$953,375 to settle allegations that the nursing home company, which operated two skilled 
nursing facilities in the western mountains of North Carolina, defrauded the Medicare Part 
A program.  Senior Cares rehabilitation contractor placed intense management pressure 
on employees to maximize billings, billed for services that were unnecessary and then 
forwarded the billings for those unnecessary services to Senior Care for submission to 
Medicare.  As an example of the unnecessary services performed, occupational therapy to 
elderly Alzheimers Syndrome patients who could never expect to return to the workforce 
was regularly provided.  As a condition of settlement, Senior Care was required to enter 
into a CIA with HHS/OIG under which the company will be monitored for a period of five 
years to ensure that the company does not commit fraud against government health care 
programs in the future. 
 
Kickbacks and Self-Referrals 
 
  In March 2011, Medline Industries, Inc. and The Medline Foundation paid the United 
States $85 million to resolve allegations that they improperly paid kickbacks to health care 
providers in violation of the FCA and the AKS.  In particular, the settlement resolved 
allegations that Medline offered or paid unlawful remuneration to induce health care 
providers to purchase, lease, or order medical goods and supplies from Medline.  
 
  In May 2011, Serono Laboratories, Inc., EMD Serono, Inc., Merck Serono S.A; and Ares 
Trading S.A. paid $44.3 million to resolve FCA allegations that, from January 2002 
through December 2009, Serono paid health care providers kickbacks to induce them to 
promote or prescribe Rebif, a recombinant interferon injectable that is used to treat 
relapsing forms of multiple sclerosis.  Serono is alleged to have made payments to 
providers for hundreds of speaker training meetings and programs, as well as payments for 
attending consultant, marketing, and advisory board meetings, all at upscale resorts and 
other locations. 
 
  In December 2010, Detroit Medical Center, a non-profit company that owns and operates 
hospitals and outpatient facilities in Detroit, paid the United States $30 million after it 
reported to the government improper financial relationships with referring physicians.  
The physician self-referral law (Stark Law) and the AKS restrict the financial 
relationships that hospitals may have with doctors who refer patients to them.  Most of the 
relationships at issue in this matter involved office lease agreements and independent 
contractor relationships that were either inconsistent with fair market value or not 
memorialized in writing.  
 
  In November 2010, Ameritox Ltd. paid $16.3 million to resolve FCA allegations that the 
laboratory paid kickbacks to induce its physician clientele to refer drug testing services to 
the lab that were reimbursable by Medicare.  In particular, the settlement resolves 
allegations that the Baltimore-based company made cash payments to physician clients to 
induce referrals from January 1, 2003 through December 31, 2006, and that laboratory 
 
  30  testing service offered collector personnel at no cost to the labs physician clients in order 
to induce referrals from January 1, 2003 through June 30, 2010.  
 
  In January 2011, St. Jude Medical Inc. of St. Paul, MN, paid the United States  
$16 million to resolve FCA allegations that the company used post-market studies and a 
registry to pay kickbacks to induce physicians to implant the companys pacemakers and 
defibrillators.  Post-market studies are intended to assess the clinical performance of a 
medical device or drug after that device or drug has been approved by the FDA.  
Registries are collections of data maintained by a device manufacturer concerning its 
products that have been sold and implanted in patients.  The United States contended that 
St. Jude used three post-market studies and a device registry as vehicles to pay 
participating physicians kickbacks to induce them to implant St. Jude pacemakers and 
defibrillators.  Although St. Jude collected data and information from participating 
physicians, it is alleged that the company knowingly and intentionally used the studies and 
registry as a means of increasing its device sales by paying certain physicians to select St. 
Jude pacemakers and implantable cardioverter defibrillators for their patients.  In each 
case, St. Jude paid each participating physician a fee that ranged up to $2,000 per patient.  
The United States alleged that St. Jude solicited physicians for the studies in order to 
retain their business and/or convert their business from a competitors product. 
 
  In April 2011, Cardinal Health, Inc. paid $8 million to settle FCA allegations that it paid 
two relators (a pharmacy owner and pharmacy consultant) substantial up-front payments 
to induce them to refer orders for prescription drugs to Cardinal Health in violation of the 
AKS and that the illegal inducement infected all claims submitted by the relators to 
Medicare, Medicaid, and other federal health care benefit programs and resulted in the 
submission of false claims to the United States. 
 
  In October 2010, Wright Medical Technology, Inc. paid $7.9 million in a civil settlement 
agreement with the United States to resolve allegations that the companys fraudulent 
marketing practices caused false claims to be submitted to the Medicare program in 
violation of the FCA.  The government alleged that Wright used consulting agreements 
with orthopedic surgeons as an inducement to use its artificial hip and knee reconstruction 
products.  As part of the global resolution, Wright entered into a 12 month Deferred 
Prosecution Agreement (DPA), consenting to institute and continue corporate compliance 
procedures and federal monitoring. The company has also entered into five-year CIA with 
HHS/OIG, which requires additional reforms and monitoring under HHS/OIG 
supervision.  
 
  In September 2011, Ohio Valley Health Services and Education Corporation, a West 
Virginia company, paid the United States $3.8 million to settle claims that it engaged in 
improper financial relationships with referring physicians.  The company operates 
hospitals in Wheeling, WV, and Martins Ferry, OH.   
 
  In June 2011, Midtown Imaging, LLC and its former owners Midtown Imaging, P.A. and 
PBC Medical Imaging (collectively Midtown Imaging) paid $3 million to resolve  
 
  31  allegations that the radiology clinic violated the FCA and the Stark Law by submitting 
Medicare claims from 2000 through 2008 arising from certain leasing and professional 
services agreements with referring physicians and physician groups. 
 
  In December 2010, Exactech, Inc. paid the United States $2.9 million to settle allegations 
that the companys fraudulent marketing practices caused false claims to be submitted to 
the Medicare program for its artificial hip and knee reconstruction products in violation of 
the civil FCA.  As part of the global resolution, Exactech entered a 12-month DPA with 
the government, and the current Director of Sales for Exactechs Northeast Region pled 
guilty to conspiracy to violate the AKS. 
 
  In November 2010, St. Elizabeth Medical Center (St. Elizabeth) agreed to pay $1.2 
million to resolve its liability under the CMPL and the Stark Law.  On January 23, 2009, 
St. Elizabeth disclosed through HHS/OIGs Self-Disclosure Protocol an improper billing 
arrangement for providerbased services involving a rural vascular outreach program that 
had occurred at one of the St. Luke Hospitals prior to its merger with St. Elizabeth.  St. 
Elizabeth also disclosed several improper financial relationships between St. Luke and a 
referring physician involving the provision of free and belowfairmarketvalue space and 
support services without written agreements, which created potential liability under the 
Stark Law and the AKS. 
 
Home Health Fraud 
 
  In September 2011, Maxim Healthcare Services, Inc., one of the nations leading 
providers of home health care services, executed a DPA, and agreed to pay more than 
$150 million, to resolve criminal and civil charges relating to a nationwide scheme to 
defraud Medicaid programs and the Veterans Affairs program.  The settlement is the 
largest ever involving a home health care company.  A related criminal complaint filed on 
September 12, 2011, alleges Maxim conspired to commit health care fraud in submitting 
more than $61 million in fraudulent billings to government health care programs for 
services not rendered or otherwise not reimbursable.  The investigation revealed that the 
submission of false bills to government health care programs was a common practice at 
Maxim from 2003 through 2009.  To date, nine individuals  eight former Maxim 
employees, including three senior managers, and the parent of a former Maxim patient  
have pled guilty to felony charges arising out of the submission of fraudulent billings to 
government health care programs, the creation of fraudulent documentation associated 
with government program billings, or false statements to government health care program 
officials regarding Maxims activities.  During that time period, Maxim received more 
than $2 billion in reimbursements from government health care programs in 43 states.  
Provided Maxim meets all of the obligations set forth in the DPA, the agreement will 
expire in 24 months and the Complaint will be dismissed.  The company has also entered 
into a five-year CIA with HHS/OIG, which requires additional reforms and monitoring 
under HHS/OIG supervision. 
 
 
  32    In September 2011, LHC Group, Inc. paid the United States $65 million to resolve 
allegations that it violated the False Claims Act by submitting false home health care 
billings to Medicare, TRICARE, and the FEHBP.  The company also agreed to be bound 
to the terms of a CIA with HHS/OIG.  The settlement resolves claims that, between 2006 
and 2008, LHC billed for home health services that were not medically necessary and for 
services rendered to patients who were not homebound.   
 
  In November 2010, the two owners of a Mississippi home health agency were each 
sentenced to 120 months of incarceration for making false statements relating to a health 
care matter, theft of government funds, and conspiracy to commit money laundering.  
Between 2001 and 2004, the agency submitted false claims for inhome physical therapy 
and physical medicine services to Medicare and Medicaid falsely purporting that the 
services had been rendered by a physician or a qualified employee under the physicians 
direct supervision when, in fact, they had not.  The agency also inflated the time billed by 
claiming that beneficiaries received as many as 10 hours of therapy per session. 
 
  In May 2011, Gentiva Health Services, Inc. (Gentiva) paid $12.5 million to settle 
allegations that it fraudulently billed Medicare for costs not covered by the program.  
Gentiva is a home health care service provider with over 200 agencies nationwide that 
provide skilled-nursing and home-health aide services to patients, many of whom are 
Medicare beneficiaries.  Between 1998 and 2000, Gentiva allegedly improperly billed 
Medicare for salaries and other costs of employees performing sales designed to increase 
patient utilization of its services, which violates Medicare regulations. 
 
Other Medicare/Medicaid Fraud 
 
  In January 2011, CareSource, CareSource Management Group, Co., and CareSource USA 
Holding, Co., agreed to pay the United States and the state of Ohio $26 million to resolve 
allegations that, between January 2001 and December 2006, they caused Medicaid to 
make payments for health care services they failed to provide to children and adults with 
special health care needs and that they submitted false data to the state of Ohio so that it 
appeared they were providing these required services to improperly retain incentives 
received from Ohio Medicaid and to avoid penalties. 
 
  In February 2011, BlueCross BlueShield of Illinois (BCBSIL), a division of Health Care 
Service Corporation, paid the United States and the state of Illinois $25 million to settle 
FCA and consumer fraud allegations.  The settlement resolves claims by the United States 
that BCBSIL wrongly terminated insurance coverage for private duty skilled nursing care 
for medically fragile, technologically dependent children, in order to shift the costs of such 
care to the Medicaid program; Medicaid funds a special program designed to provide 
home care for children at risk of institutionalization.  Children, whose specialized care 
should have been covered by BCBSIL under the terms of existing insurance policies, were 
shifted to the government-funded Home and Community Based Services Medicaid 
program.  As a result, Medicaid spent millions of dollars providing care that should have 
been paid for by private insurance. 
 
  33   
  In November 2010, two defendants, and Medical Resources, LLC paid $22.6 million to 
resolve allegations that the defendants and MR caused Americas Health Choice Medical 
Plans, Inc., a Medicare Advantage Organization (MAO), to falsely increase the severity of 
beneficiary diagnoses to obtain higher Medicare payments.  Under MA, MAOs are paid 
more to provide services for members with serious and/or chronic medical conditions then 
they are for relatively healthy members.   
 
  In February 2011, APS Healthcare agreed to pay $13 million to resolve FCA liability 
arising out of its Medicaid management contract with the state of Georgia.  Under its 
Georgia Medicaid Management Program contract, APS Healthcare agreed to provide case 
and disease management services to Georgia Medicaid recipients and was paid a monthly 
fee for each member receiving such services.  APS Healthcare resolved allegations that it 
submitted false claims to the Georgia Medicaid program because it did not provide those 
specialty services to Medicaid recipients. 
 
  In June 2011, the City of Dallas agreed to pay $2.5 million and enter a three-year CIA to 
resolve its liability under the FCA related to allegations that it and ambulance billing 
company Southwest General Services of Dallas, LLC, improperly billed and obtained 
reimbursements from Medicare and Texas Medicaid for upcoded ambulance transports.  
The transports were provided by Dallas Emergency Medical Service between January 
2006 and May 2010.  HHS/OIG alleged that Dallas caused false claims to be submitted to 
federal programs that were improperly coded as Advanced Life Support, when, in fact, no 
such services were rendered and the patient did not require an Advanced Life Support 
transport.    
 
  In September 2011, Universal American Corp., doing business in Wisconsin as Todays 
Health/ABRI, paid the United States $4.8 million to resolve allegations that, between 
January 1, 2007 and December 31, 2009, Universal American billed Medicare Part C for 
claims for beneficiaries in Wisconsin that resulted from violations of the Medicare Part C 
marketing regulations and the AKS.  More specifically, the United States alleged that 
Universal American provided various forms of remuneration to physicians in exchange for 
referrals, made payments to beneficiaries in exchange for enrolling in its Medicare Part C 
plan, provided misleading information to beneficiaries about the scope of coverage and 
benefits, and enrolled beneficiaries in its plan without their consent.  As part of the 
settlement, the defendant agreed to enter into a CIA with HHS/OIG. 
 
  In September 2011, Janzen, Johnston & Rockwell Emergency Medicine Management 
Services Inc. (JJ&R), a provider of billing services for physicians, hospitals, and other 
health care providers, paid the United States $4.6 million to settle allegations that it 
submitted false claims to Medicare and Louisianas Medicaid program.  In particular, the 
settlement resolves allegations that JJ&R inflated claims that it had coded on behalf of 
emergency room physicians in Louisiana and California.  
 
 
  34    In April 2011, Dartmouth-Hitchcock Clinic and Mary Hitchcock Memorial Hospital in 
New Hampshire paid over $2 million to settle FCA claims that they knowingly submitted 
false claims to Medicare by billing the services of resident physicians, fellows, and others 
as if the services were provided by doctors, and by billing physician services as critical 
care services when in fact the services were not critical care services. 
 
  In October 2010, Northwest Mobile Services, LLC, and Northwest Mobile Imaging 
(collectively, Northwest Mobile) agreed to pay $950,000 to settle allegations that they 
utilized unlicensed/unqualified xray technicians to provide xray services.  Between 
January 2003 and July 2007, Northwest Mobile allegedly caused claims to be submitted to 
the Medicare program for services provided by xray technicians that did not meet formal 
education requirements for xray technicians. 
 
 
 
 
Transportation Fraud 
 
  In September 2011, American Medical Response, Inc. (AMR) agreed to pay $2.7 million 
plus interest and enter a five year CIA to resolve its liability under the FCA.  This 
settlement resolves allegations that, between January 1, 2001, and December 31, 2005, 
AMRs three Brooklyn locations submitted upcoded claims for ambulance transportation 
services to federal health care programs.  Upcoding occurs when a provider bills for a 
level of service higher than medically necessary.  This was a joint investigation with the  
OIG for the Department of Veterans Affairs. 
 
  In June 2011, two owners of a Texas ambulance transport business were sentenced to 108 
months incarceration for submitting false claims to Medicare and Medicaid.  Between 
January 2004 and November 2007, the owners submitted and instructed others to submit 
claims to Medicare and Medicaid to obtain reimbursements for transporting dialysis 
patients who did not meet the required criteria for ambulance transportation.  This was a 
joint investigation with the Texas MFCU. 
 
  In October 2010, the owner of two ambulance service suppliers in Texas was sentenced to 
15 years of incarceration after being convicted of 12 counts of health care fraud, 
conspiracy to commit health care fraud, and money laundering.  The ambulance service 
suppliers provided medically unnecessary transports of Medicare and Medicaid 
beneficiaries to and from dialysis treatments.  This case was investigated jointly with the 
Internal Revenue Service (IRS), FBI, the Texas MFCU, and the Office of Personnel 
Management (OPM). 
 
Other Fraud 
 
  In September 2011, TriWest Healthcare Alliance Corp., a federal TRICARE program 
contractor that coordinates medical services for the military and their dependents, paid $10 
 
  35  million to resolve its potential liability under the FCA.  The United States alleged that, 
between 2004 and 2010, TriWest frequently failed to give TRICARE, the benefit of 
discounts negotiated under Letters of Agreement (LOAs).  TriWest entered into LOAs 
with medical providers to provide services at discounted rates to the government.  
Notwithstanding the LOAs, TriWest submitted claims to TRICARE at higher rates 
claimed by the providers, which TRICARE paid.  
 
 
 
 
  36  DEPARTMENT OF HEALTH AND HUMAN SERVICES 
  
 
Office of Inspector General
 
A certain portion of the funds appropriated under HIPAA are, by law, set aside for Medicare and 
Medicaid activities of HHS/OIG.13  In FY 2011, the Secretary and the Attorney General jointly 
allotted $198 million to the HHS/OIG.  Additionally, Congress appropriated $29.7 million in 
discretionary funding for HHS/OIG HCFAC activities. 
 
HHS/OIG participated in investigations or other inquiries that resulted in 1,105 prosecutions or 
settlements in FY 2011, of which 995, or 90 percent, were health care cases.  A number of these 
are highlighted in the Accomplishments section.  In addition, during FY 2011, HHS/OIG 
excluded a total of 2,662 individuals and entities, the details of which are below 
 
Program Savings 
 
Frequently, investigations, audits, and evaluations reveal vulnerabilities or incentives for 
questionable or fraudulent financial practices in agency programs or administrative processes.  As 
required by the Inspector General Act, HHS/OIG makes recommendations to agency managers to 
address these vulnerabilities.  In turn, agency managers recommend legislative proposals or other 
corrective actions that, when enacted or implemented, close loopholes and reduce improper 
payments or conduct.  The savings from these joint efforts toward program improvements can be 
substantial.  During FY 2011, HHS/OIG reported that legislative and administrative actions to 
make funds available for better use resulted in an estimated $19.8 billion in health care savings 
attributable to FY 2011  $7.5 billion in Medicare savings and $12.3 billion in savings to the 
Federal share of Medicaid.   
 
Additional information about savings achieved through such policy and procedural changes may 
be found in the HHS/OIG Semiannual Report, on-line at http://oig.hhs.gov. 
                                                 
13  In addition to the funds made available to OIG from the HCFAC account under HIPAA, Congress has provided 
funds to OIG specifically for oversight of the Medicaid program.  The Deficit Reduction Act of 2005 (DRA, P.L. 
109-171), the Supplemental Appropriations Act of 2008 (Pub. L. 110-252) at  7001(b), and the American Recovery 
and Reinvestment Act of 2009 (Pub. L. 111-5) at  5007(b) each appropriated funding for Medicaid-related 
oversight efforts.  Therefore, OIGs Medicaid activities cited throughout this report may have drawn from these 
funding sources, in addition to HCFAC. 
 
  37  Exclusions 
 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in the abuse or neglect of patients or fraud 
from participation in Medicare, Medicaid, and other federal health care programs.  During  
FY 2011, HHS/OIG excluded a total of 2,662 individuals and entities.  Among these were 
exclusions based on criminal convictions for crimes related to Medicare and Medicaid (1,015), or 
to other health care programs (233); for patient abuse or neglect (206); or as a result of licensure 
revocations (897).  This list of conduct is not meant to be exhaustive, but identifies the most 
prevalent causes underlying HHS/OIGs exclusions of individuals or entities in FY 2011.  
Exclusion actions by HHS/OIG included: 
 
  District of ColumbiaThe U.S. District Court for the District of Columbia affirmed 
HHS/OIG s determination to exclude three former Purdue Frederick Co. executives: the 
former Chief Operating Officer and Chief Executive Officer; the former Chief Scientific 
Officer; and the former General Counsel. The exclusions were based on the executives 
convictions for their failure, as responsible corporate officers, to prevent or correct the 
fraudulent misbranding and distribution of OxyContin.  
 
  KentuckyAn emergency medical technician was excluded for a minimum of 25 years based 
on her conviction for manslaughter. While under the influence of Methadone, the technician 
was driving an ambulance and swerved off the road striking a utility pole and chain link fence.  
The collision caused blunt force trauma to the patient that she was transporting, which caused 
the patients death.  The technician was sentenced to 10 years of incarceration.  The Kentucky 
Board of Emergency Medical Services revoked her license to practice as an emergency 
medical technician. 
 
  PennsylvaniaA physician was excluded for a minimum of 20 years based on his health care 
fraud conviction.  Over a five year period, the physician submitted false and fraudulent claims 
to Medicare, TRICARE, FEHBP, and private insurers for treatment and services which were 
not rendered because he was not in the office or the patients were being treated by other 
physicians on the dates claimed.  He was sentenced to one year and one day of incarceration 
and ordered to pay $1 million in restitution. 
 
  KansasAn osteopath and a licensed practical nurse were excluded for a minimum of 95 
years each for their convictions related to conspiracy to commit health care fraud resulting in 
death, aiding and abetting the unlawful distribution of controlled substances resulting in 
serious bodily injury and death; unlawful distribution of controlled substances resulting in 
serious bodily injury;  health care fraud resulting in death; health care fraud; and money 
laundering.  The two, who are married, owned and operated a medical clinic which they used 
to distribute and dispense controlled substances illegally and defraud patients of money by 
operating it as, in essence, a prescription mill and a narcotics delivery system, commonly 
known as a pill mill.  The couple engaged in this scheme for a six-year period, during which 
numerous patients were hospitalized and numerous patients died due to overdoses of 
 
  38  prescribed drugs.  Additionally, they were previously ordered to pay restitution in the amount 
of $5 million and sentenced to 360 months and 396 months of incarceration, respectively. 
 
  OregonA certified nurse assistant was excluded for a minimum of 35 years based on his 
convictions of sodomy, attempted rape, sexual abuse, and criminal mistreatment.  The 
individual sexually abused two patients that were incapable of giving consent due to a mental 
disability.  He was sentenced to 175 months of incarceration and his certificate to practice as a 
nurse assistant was revoked by the Oregon State Board of Nursing. 
 
  Florida On July 12, 2011, an HHS Departmental Appeals Board Administrative Law Judge 
(ALJ) upheld HHS/OIGs exclusion of the owner of a radiology company from participation 
in all federal health care programs under section 1128(b)(7) of the Social Security Act for 
eight years.  The exclusion was based on the individuals submission of false claims to the 
Medicare and Medicaid programs for current procedural terminology code 36005, a 
procedural code that corresponds to injection for extremity venography.  The procedure 
denoted by this code was never performed at the radiology company.  Specifically, the ALJ 
found that the individual caused the submission of nearly 9,500 false claims to Medicare and 
Medicaid for reimbursement.  DOJ previously entered into a civil FCA settlement with the 
individual and his radiology company. 
 
Other Administrative Enforcement Actions  Civil Monetary Penalties 
 
HHS/OIG has the authority to impose civil monetary penalties (CMPs) against providers and 
suppliers who knowingly submit false claims to the Federal government, who participate in 
unlawful patient referral or kickback schemes, who fail to appropriately treat or refer patients at 
hospital emergency rooms, or who engage in other activities prescribed in statute.  HHS/OIG has 
continued to pursue its affirmative enforcement actions under these authorities.  Examples 
include:   
 
  North CarolinaLong Term Care, Inc. (LTC), a durable medical supplier, agreed to pay 
$170,000 to resolve its liability under the CMPL.  LTC employed an excluded individual over 
a period of four years.  LTC hired the excluded individual through a contract arrangement 
with a professional employment organization that provided human resources and staffing 
support to LTC. 
 
  FloridaAn orthopedic surgeon agreed to pay $101,000 to resolve his civil monetary penalty 
liability for allegedly soliciting kickbacks from a medical device manufacturer. The 
government contends that the surgeon offered to leverage his product usage and ability to 
influence purchasing decisions through his position as Chief of Orthopedics at a hospital in 
exchange for a personal services contract worth a guaranteed $40,000. 
 
  AlabamaMobile Infirmary paid $45,000 to resolve allegations that it improperly refused to 
accept a patient transferred from another hospital.  The patient came to the transferring 
hospital s emergency room complaining of severe abdominal pain and required immediate 
specialized surgical intervention not available at the hospital.  Mobile Infirmary allegedly 
 
  39  refused to accept the transfer even though it had the capacity and specialized capabilities to 
treat the patients condition.  Ultimately, the patient was transferred to a hospital 60 miles 
away.  The patients condition deteriorated en route and he had to be transported by Life 
Flight helicopter to the receiving hospital, where he later died. 
 
  Massachusetts Beth Israel Deaconess Medical Center (Beth Israel) paid $233,932 to resolve 
its liability under the CMPL for allegedly submitting improper claims to Medicare for Lupron 
drug injections.  Specifically, Beth Israel allegedly submitted claims for Lupron injections 
under a code that reimbursed at approximately double the rate as the code under which the 
claims should have been submitted.   
 
  Florida The owner of a medical supply company paid $124,141 to resolve his liability for 
allegations under the CMPL that he submitted false claims for diabetic shoe inserts through 
his DME company.  The individual allegedly billed Medicare for custom molded diabetic shoe 
inserts but, in fact, provided prefabricated inserts to beneficiaries. 
 
Audits and Evaluations 
 
HHS/OIG conducts numerous audits and evaluations that disclose questionable or improper 
conduct in Medicare and Medicaid, and recommends corrective actions that, when implemented, 
correct program vulnerabilities and save program funds.  Among these were:  
 
Medicaid Rehabilitative Services Claims 
 
HHS/OIG found that New York State improperly claimed an estimated $207.6 million in Federal 
Medicaid reimbursement for rehabilitation services submitted by community residence 
rehabilitation providers during calendar years (CY) 2004 through 2007.  Of the 100 claims in the 
random sample, 31 complied with Federal and state requirements, but 69 did not.  The deficient 
claims lacked one or more elements such as the required physicians authorizations or 
reauthorizations for rehabilitation services, a service duration of at least 15 minutes, and/or a 
service plan reviewed and signed by a qualified mental health staff member. HHS/OIG 
recommended, among other things, that the state refund $207.6 million to the Federal 
government. 
 
Medicaid Payment Error Rates 
 
As a result of a review of the universe of claims submitted by four states to CMS for analysis 
under the Payment Error Rate Measurement (PERM), HHS/OIG found that CMS could not be 
assured that the PERM program produced a reasonable estimate of improper payments.  For 
example, one state paid hospitals for inpatient or outpatient hospital services on a weekly basis, 
rather than a claim-by-claim basis.  Therefore, CMS did not include these payments in its analysis 
of payment errors.  For this, and other reasons, the states Medicaid feeforservice and managed 
care universes for the FY 2008 PERM program were or may have been incomplete or inaccurate.  
HHS/OIG recommended that CMS require the one state that was found not to be maintaining 
hospital payment information on a claimbyclaim basis to begin doing so for use in future PERM 
 
  40  reviews and that CMS continue to work with all states, CMS Regional Offices, and statistical 
contractors on reconciling the PERM universes to state financial reports.  
 
Prompt and Accurate Medicaid Payments 
 
For FYs 2000 through 2008, HHS/OIG estimated that Indiana did not report Medicaid 
overpayments totaling $38.9 million (Federal share), as well as $39,000 (Federal share) in interest 
collected, in accordance with federal requirements.  Federal law requires states to refund the 
Federal share of Medicaid overpayments.  In addition, federal regulations require states to refund 
interest earned on overpayments before requesting additional federal funds.  HHS/OIG 
recommended, among other things, that Indiana include unreported Medicaid overpayments of 
$61.6 million on the Form CMS64, refund the $38.9 million Federal share, and develop and 
implement internal controls to correctly report and refund the Federal share of identified Medicaid 
overpayments and applicable interest.   
 
HHS/OIG found that Illinois did not always comply with prompt-pay requirements for receiving 
the increased Federal Matching Assistance Percentage (FMAP) under the American Reinvestment 
and Recovery Act.  As a result, it improperly received approximately $2.6 million in increased 
FMAP from February 18, 2009, through September 30, 2009.  The state agencys initial prompt-
pay calculations included several inaccuracies related to the 30/90-day prompt-pay requirements 
and the inclusion or exclusion of certain claims in the daily promptpay compliance calculation.  
HHS/OIG recommended that the state refund $2.6 million to the Federal government for 
unallowable increased FMAP and ensure that calculations are performed in accordance with 
prompt-pay requirements.  
 
Medicaid Family Planning Services 
 
HHS/OIG conducted five separate audits of the claims by five states for Medicaid family 
planning services and found an aggregate overpayment of approximately $17.8 million (Federal 
share).  The audits were of the family planning services provided during specified audit periods in 
Oregon, Kansas, Oklahoma, Colorado, and Washington state.  The overpayments occurred 
because the claims for services did not meet state plan requirements, the services did not qualify 
for the enhanced 90 percent federal matching rate for family planning services, or the state 
submitted duplicate claims for the same service.  HHS/OIG recommended, among other things, 
that the state return the identified overpayments to the Federal government. 
 
Medicaid Personal Care Services 
 
HHS/OIG issued several reports examining Medicaid payments for personal care services.  
Personal care services are services provided to the elderly, people with disabilities, and other 
individuals with chronic or temporary conditions and which permit them to remain in their homes.  
Such services typically assist with such activities as bathing, dressing, meal preparation, and 
grocery shopping, and are authorized under the Medicaid State plan or through a waiver approved 
by CMS.  
 
 
  41    HHS/OIGs 10State review revealed that Medicaid paid about $724 million for personal 
care services claims that HHS/OIG determined were inappropriate because personal care 
attendants qualifications were undocumented.  These claims represented 18 percent of the 
total number of claims.  The qualifications most often undocumented were background 
checks, age, and education.  HHS/OIG estimated that Medicaid paid an additional two 
percent of claims inappropriately because the respondents had no record of providing 
services to the beneficiaries.  Respondents were agencies or individuals that state 
Medicaid agency officials indicated HHS/OIG should contact to request documentation to 
support attendants qualifications.  HHS/OIG reviewed claims paid from September 1, 
2006 through August 31, 2007, and based upon that review recommended that CMS work 
with states to ensure that Medicaid claims for personal care services provided by 
attendants with undocumented qualifications are not paid and take action regarding the 
inappropriately paid claims identified in our review.   
 
  In six separate reports of personal care services (PCS) provided under the Medicaid 
programs in the States of North Carolina, New York, Nebraska, and Washington, and in 
the District of Columbia, HHS/OIG found that the states improperly claimed an aggregate 
$164 million (Federal share) in unallowable costs.  HHS/OIG recommended, among other 
things, that the states refund the Federal share of the overpayments. 
 
Medicaid Home and Community Based Services Waivers 
 
HHS/OIG found that Pennsylvania improperly claimed a $2.1 million Federal share of Medicaid 
administrative costs for its Home and Community Based Services (HCBS) waiver for individuals 
aged 60 and over (Aging Waiver).  Pennsylvanias Aging Waiver authorizes HCBS services for 
Medicaid beneficiaries aged 60 or older who are economically distressed and are clinically 
eligible for care in a skilled nursing facility.  The $2.1 million was not allowable because the state 
did not identify the claimed costs in the Aging Waiver or its cost allocation plan.  The state also 
could not support a $371,000 adjustment of a prior improper claim for training of skilled 
professional medical personnel.  Finally, HHS/OIG set aside for further analysis and resolution 
$25.8 million Federal share of local agencies administrative cost claims that were identified in 
the Aging Waiver, but not in the cost allocation plan and which may have included costs that did 
not benefit the Aging Waiver.  HHS/OIGs recommendations included that Pennsylvania refund 
$2.1 million for administrative costs and $371,000 to correct the adjustment error.  HHS/OIG also 
recommended that Pennsylvania work with CMS to resolve the $25.8 million in Federal share it 
claimed for local agencies' costs.   
 
Medicaid School Based Services 
 
HHS/OIG found that West Virginia was overpaid $22.8 million for the Federal share of school-
based services because it included costs in the calculation of its rates that were not included in the 
reimbursement methodology described in the approved state plan.  The errors occurred because 
the state did not provide adequate oversight of its consulting firm during the rate calculation 
process.  HHS/OIG recommended that the state refund $22.8 million to the Federal government 
for FYs 2001 through 2003 and work with CMS to determine unallowable costs for FYs 2004 to 
 
  42  the present, make the appropriate refund, develop more accurate school-based service rates, and 
make necessary revisions to the state plan.   
 
Medicaid Services in an Adult Day Care Setting 
 
HHS/OIG found that for the 12 State Medicaid programs that allow nursing- and therapy-focused 
adult day health services, approximately 43 percent of therapy services were provided by staff 
who lacked required supervision.  Recommendations included directing states to enforce 
supervision requirements for staff who provide therapy services in Medicaid adult day health 
centers, specifying what services are required for Medicaid reimbursement of adult day health 
services, and taking appropriate action to address the service providers that did not respond to 
repeated data requests.   
 
Medicaid Payments to State-Owned Hospitals 
 
HHS/OIG found that Illinois improperly claimed an $82.9 million Federal share of payments it 
made to a State-owned psychiatric hospital that failed to demonstrate compliance with federal 
requirements.  During the audit period, the hospital did not demonstrate compliance with special 
Medicare Conditions of Participation (CoP) because the state agency did not believe that doing so 
was necessary.  HHS/OIG concluded, among other things, that Illinois should refund the $82.9 
million. 
 
Medicaid Hospital Outlier Payments 
 
Eight state agencies reviewed by HHS/OIG did not calculate Medicaid inpatient hospital cost 
outlier payments in a way that would effectively limit the payments to extraordinarily high-cost 
cases.  To protect hospitals against large financial losses from extraordinarily high-cost cases, 
state agencies may supplement base payments with an additional outlier payment.  Medicaid 
outlier payments are calculated using formulas that vary by state.  The states that were reviewed 
used outdated cost-to-charge ratios and did not reconcile Medicaid outlier payments upon 
settlement of cost reports.  HHS/OIG recommended that CMS encourage all state agencies that 
make Medicaid outlier payments to use the most recent cost-to-charge ratios to calculate 
Medicaid outlier payments, reconcile Medicaid outlier payments upon cost report settlement or 
use an alternative method to ensure that outlier payments are more closely aligned with actual 
costs, and amend their state plans accordingly.  The review is a follow-up to similar audits 
conducted in 2004. 
 
 
 
 
Medicaid Drug Rebate Collections 
 
For a covered outpatient drug to be eligible for Federal Medicaid funding under the program, the 
drugs manufacturer must enter into a rebate agreement with CMS and pay quarterly rebates to 
 
  43  the states.  HHS/OIG conducted several studies examining the collection of drug rebates.  Among 
these were the following: 
 
  In a nationwide follow-up to a 2005 review of Medicaid drug rebate programs, HHS/OIG 
found that many states still lack adequate assurance that all drug rebates due them are properly 
recorded and collected.  HHS/OIG also examined the extent to which states had established 
controls over collecting rebates on single-source (brand name) physician-administered drugs, 
as required by the Deficit Reduction Act of 2005.  HHS/OIG recommended continued 
emphasis on states submitting accurate and reliable information, placing priority on their 
billing and collecting of rebates, and collecting rebates for single-source physician-
administered drugs. 
 
  HHS/OIG estimated that California failed to invoice manufacturers for and collect $26.7 
million ($13.6 million Federal share) in rebates for eligible compound drug ingredients for a 
24-quarter period ending June 30, 2009.  Californias Rebate Accounting Information System 
was not designed to invoice rebates for compound drug ingredients, and its electronic claims 
for such expenditures did not comply with federal requirements related to invoicing 
manufacturers for rebates and reporting drug utilization data to CMS.  HHS/OIG 
recommended, among other things, that California invoice manufacturers for the estimated 
$26.7 million in rebates and refund to CMS the Federal share of the rebates. 
 
  HHS/OIG found that most of 49 responding states self-reported that they met or exceeded 
federal requirements to collect rebates for certain physician-administered drugs; however, 29 
states reported difficulties with manufacturer nonpayment of rebates for the drugs.  The states 
attributed the difficulty mainly to inaccuracies in the drug code information that providers 
entered on claims.  Federal law requires that states collect rebates on all claims for certain 
physician-administered drugs for federal matching funds to be available.  HHS/OIG 
recommended five steps to ensure states compliance with rebate-related requirements for 
physician-administered drugs, including working with states to develop guidance for 
implementing system edits that increase the efficiency of physician-administered drug claim 
reviews. 
 
Medicare Program Investment Income 
 
HHS/OIG found that the Medicare program loses potential savings associated with investment 
income that MA organizations earn between the time that they receive Medicare prepayments and 
the time that the MA organizations pay for medical services.  HHS/OIG estimated that in CY 
2007, MA organizations held Medicare funds for about 46 days before paying for medical 
services.  The Medicare Part A and Part B Trust Funds (which finance the MA program) could 
have earned approximately $450 million of interest income in CY 2007 had prepayments to MA 
organizations been delayed until after the beginning of the beneficiarys coverage period by the 
same number of days that HHS/OIG estimated MA organizations held the Medicare funds.  
Alternatively, HHS/OIG estimated that Medicare could have saved about $376 million that 457 
MA organizations earned in CY 2007 had federal requirements been established to require MA 
organizations to reduce their revenue requirements in bid proposals to account for anticipated 
 
  44  investment income.  HHS/OIG recommended that CMS evaluate the audit results and either 
pursue legislation to adjust the timing of Medicares prepayments to MA organizations to account 
for the time that these organizations invest Medicare funds before paying providers for medical 
services, or develop and implement regulations that require MA organizations to reduce their 
revenue requirements in bid proposals to account for anticipated investment income.   
 
Medicare Adverse Events 
 
Of the nearly one million Medicare beneficiaries who were discharged from hospitals in October 
2008, HHS/OIG found that an estimated one in seven (13.5 percent) experienced adverse events 
during their hospital stays.  To establish an estimated adverse events incident rate, HHS/OIG 
included in our review: the National Quality Forums Serious Reportable Events; Medicare 
hospitalacquired conditions (HAC); and events resulting in prolonged hospital stays, permanent 
harm, lifesustaining intervention, or death.  The incidence rate projects to about 134,000 
Medicare beneficiaries experiencing at least 1 adverse event in hospitals during a single month, 
with such events contributing to the deaths of a projected 15,000 beneficiaries.  Physician 
reviewers determined that 44 percent of events were preventable, most commonly because of 
medical errors, substandard care, and inadequate patient monitoring and assessment.  HHS/OIG 
recommended that the Agency for Healthcare Research and Quality and CMS broaden patient 
safety efforts to include all types of adverse events and enhance efforts to identify events.  
HHS/OIG also recommended that CMS provide more incentives for hospitals to reduce adverse 
events through its payment and oversight functions, including strengthening the Medicare HAC 
policy and holding hospitals accountable for adopting evidencebased practices. 
 
Medicare Place-of-Service Coding for Physicians 
 
In two separate reports, HHS/OIG found that two Medicare contractors overpaid physicians an 
estimated $28.8 million for incorrectly coded places of service during CYs 2008 and 2009.  
Physicians incorrectly used nonfacility place-of-service codes for services that were actually 
performed in facilities such as hospital outpatient departments or ambulatory surgical centers.  To 
account for the increased overhead expense that physicians incur by performing certain services 
in nonfacility locations, Medicare reimburses physicians at a higher rate.  However, when 
physicians perform these same services in facility settings, Medicare reimburses the overhead 
expenses to the facility, and the physician receives a lower reimbursement rate.  Our 
recommendations included recovering the overpayments we identified in our sample; and, as 
appropriate, recovering any overpayments  associated with nonsampled services; strengthening 
the physician education process; developing a data match that will identify physician services at 
high risk for place-of-service miscoding, and recovering any identified overpayments.   
 
Medicare Claims for Home BloodGlucose Test Strips and Lancets 
 
In separate audits of three Medicare administrative contractors, HHS/OIG estimated that about 
$169.7 million could have been saved for CY 2007 had controls been in place to ensure that 
claims for bloodglucose test strips and/or lancets complied with certain Medicare documentation 
requirements.  Medicare Part B covers test strips and lancets that physicians prescribe for 
 
  45  diabetics.  Medicare utilization guidelines allow up to 100 test strips and 100 lancets every month 
for insulintreated diabetics and every three months for noninsulintreated diabetics.  Additional 
requirements apply for reimbursements of claims for quantities of test strips and lancets that 
exceed the utilization guidelines.  HHS/OIG recommended, among other things, that the 
contractors implement system edits to identify high-utilization claims for test strips and/or lancets 
and work with CMS to develop cost-effective ways of determining which claims should be 
further reviewed for compliance with Medicare documentation requirements and enforce 
Medicare documentation requirements for claims for test strips and/or lancets.   
 
Independent Diagnostic Testing Facilities Compliance with Medicare Standards 
 
HHS/OIG found in two studies that independent diagnostic testing facilities (IDTF) in the Miami 
and Los Angeles areas did not comply with Medicares requirement that they maintain their 
physical facilities at the locations on file with CMS and be open during business hours.  IDTFs 
that do not comply with Medicare standards are subject to administrative actions, including 
revocation of their Medicare billing privileges.  In prior site visits in 1997, OIG found that 20 
percent of IDTFs were not at the locations on file with CMS.   HHS/OIG recommended, among 
other things, that CMS periodically conduct unannounced visits on IDTFs and that it impose a 
moratorium on the new enrollment of IDTFs in the Los Angeles area. 
 
Medicare Payments for Outpatient Services 
 
In seven reviews of each of seven Medicare contractors, HHS/OIG found that they made incorrect 
Medicare payments to hospitals in excess of their charges for outpatient services for four-year 
audit periods.  Together, the incorrect payments included an estimated $37.9 million and involved 
excessive units of service, HCPCS codes that did not reflect the procedures performed, 
unallowable services, and lack of supporting documentation.  HHS/OIG recommended that the 
contractors recover the unallowable amounts in identified overpayments and use the results of this 
audit in its hospital education activities.   
 
HHS/OIG found that Medicares perbeneficiary spending on outpatient therapy services in 
Floridas MiamiDade County was three times the national average in 2009.  HHS/OIG identified 
20 highutilization counties that had, in 2009, the highest average Medicare payment per 
beneficiary and more than $1 million in total Medicare payments for outpatient therapy.  
HHS/OIG analyzed MiamiDade County separately from the other 19 counties because it had the 
highest average Medicare payments per beneficiary among the highutilization counties and the 
highest total Medicare payments for outpatient therapy in 2009.  Medicares perbeneficiary 
spending on outpatient therapy services in the 19 other highutilization counties as a group was 72 
percent greater than the national average.  HHS/OIG found that for five of six questionable billing 
characteristics that may indicate fraud, MiamiDades levels were at least three times the national 
levels. The other 19 counties also exhibited questionable billing.  As a group, the other 19 
counties had at least twice the national levels for five of the six questionable billing 
characteristics.  HHS/OIG recommended, among other things, that CMS target outpatient therapy 
claims in highutilization areas for further review and target outpatient therapy claims with 
questionable billing characteristics for further review. 
 
  46   
Ambulatory Surgical Center Services Provided During Part A Skilled Nursing Facility Stays 
 
Based on our sample results, HHS/OIG found that Medicare contractors made at least an 
estimated $6.6 million in overpayments to ambulatory surgical centers for services provided to 
beneficiaries during Part A skilled nursing facility (SNF) stays in CYs 2006 through 2008.  All 
100 services that HHS/OIG reviewed were already included in the SNFs Part A payments but 
were nevertheless billed to Medicare Part B.  As a result, Medicare paid twice for these services.  
HHS/OIG recommended, among other things, that CMS instruct its Medicare contractors to 
recover the $103,000 in overpayments for the 100 incorrectly billed services in our sample and 
review the 20,806 services that HHS/OIG did not review and recover overpayments estimated to 
total at least $6.5 million.   
 
Medicare Payments for Ultra-High Therapy at Skilled Nursing Facilities 
 
HHS/OIG found that from 2006 to 2008, SNFs increasingly billed for higherpaying resource 
utilization groups, even though beneficiary characteristics remained largely unchanged.  In that 
period, Medicare payments to SNFs for ultrahigh therapy increased by nearly 90 percent, rising 
from $5.7 billion to $10.7 billion.  For billing purposes, SNFs categorize Medicare beneficiaries 
into resource utilization groups (RUG) based on their care and resource needs at various points 
during their stays.  The RUGs for ultrahigh therapy apply to those beneficiaries needing higher 
levels of therapy, and for which Medicare generally pays more. This review raised concerns about 
the potentially inappropriate use of higherpaying RUGs, particularly those for ultrahigh therapy.  
HHS/OIG recommended, among other things, that CMS monitor overall payments to SNFs and 
adjust rates, if necessary, and change the current method for determining how much therapy is 
needed to ensure appropriate payments. 
 
Employment of Individuals with Criminal Records at Medicare Skilled Nursing Facilities 
 
HHS/OIG found that almost all (92 percent) of the nursing facilities in its review employed at 
least one individual with at least one criminal conviction.  HHS/OIG analyzed criminal history 
records maintained by the FBI and found that overall, five percent of nursing facility employees 
had at least one criminal conviction.  Fortyfour percent of employees with criminal convictions 
committed crimes against property such as burglary, shoplifting, and writing bad checks.  Most 
convictions occurred prior to employment.  HHS/OIG also found that the FBIs records do not 
contain information on whether the victim of a crime was a nursing facility resident and the 
records therefore cannot be used by themselves to determine whether a conviction disqualifies an 
individual from nursing facility employment.  HHS/OIG recommended that CMS develop 
background check procedures, including clearly defining the employee classifications that are 
direct patient access employees and working with participating states to develop a list of 
convictions that disqualify an individual from nursing facility employment under federal 
regulation and timeframes in which each conviction bars the individual from employment.   
 
Medicare Hospices and Nursing Facility Residents 
 
 
  47  HHS/OIG found that Medicare spending on hospice care for nursing facility residents has grown 
nearly 70 percent since 2005 and that hundreds of hospices, most of which were for profit, had 
more than two-thirds of their beneficiaries in nursing facilities in 2009.  Hospices with a high 
percentage of their beneficiaries in nursing homes received more Medicare payments per 
beneficiary than other hospices and had beneficiaries who spent more time in care.  The high-
percentage hospices typically enrolled beneficiaries whose diagnoses required less complex care 
and who already lived in nursing facilities.  HHS/OIG recommended that CMS monitor hospices 
that depend heavily on nursing facility residents and modify the payment system for hospice care 
in nursing facilities.  The current payment structure provides incentives for hospices to seek out 
nursing facility beneficiaries who often receive longer but less complex care.  Medicare currently 
pays hospices the same rate for care provided in nursing facilities as it does for care provided in 
other settings, such as private homes.  However, unlike private homes, nursing facilities (which 
are often paid by third-party payers or Medicaid) are already staffed with professional caregivers 
and are required to provide personal care services that are similar to hospice aide services.    
 
Surety Bonds for Medicare Durable Medical Equipment 
 
HHS/OIGs review revealed that Medicare had not recovered any DME overpayments through 
surety bonds.  More than two years after publishing a January 2009 final rule requiring certain 
suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) to obtain 
surety bonds, CMS had not finalized procedures for recovering overpayments through such 
bonds.  The Balanced Budget Act of 1997 mandated that all nonexempt DMEPOS suppliers 
obtain a surety bond of not less than $50,000 to receive Medicare billing privileges.  Requiring 
surety bonds serves as a means for Medicare to guarantee recoupment of some overpayments.  
The report contained no recommendations.   
 
Medically Unnecessary Medicare Durable Medical Equipment 
 
HHS/OIG found that an estimated 61 percent of power wheelchairs provided to Medicare 
beneficiaries in the first half of 2007 were medically unnecessary or had claims that lacked 
sufficient documentation to determine medical necessity.  The estimate was based on records 
submitted by suppliers that provided the power wheelchairs.  HHS/OIG recommended that 
Medicare enhance reenrollment screening standards for current DMEPOS suppliers, review 
records from sources in addition to the supplier such as the prescribing physician to determine 
medical necessity, continue supplier and physician education, and review the suppliers of the 
sampled claims we found to be in error. 
Preventing Improper Medicare Payments 
 
Using the reported error rate data from the Hospital Payment Monitoring Program and the 
Comprehensive Error Rate Testing program for FYs 2005 through 2008, HHS/OIG identified 740 
errorprone providers.  These providers accounted for a significant portion of the total dollars in 
error in the sampled years.  Focusing on errorprone providers for corrective action and 
repayment of improper payments could improve the effectiveness of CMSs efforts to reduce 
improper payments.  HHS/OIG recommended, among other things, that CMS use available error 
 
  48  rate data to identify errorprone providers and require errorprone providers to identify the root 
causes of claim errors and to develop and implement corrective action plans. 
 
HHS/OIG found that CMS used payment suspensions in 2007 and 2008 almost exclusively as a 
tool to fight fraud, though the sanction is available in overpayment circumstances short of fraud, 
and that CMSs guidance on payment suspensions to its contractors has incomplete or 
inconsistent requirements.  After HHS/OIG collected data for this evaluation, the ACA 
established new provisions for payment suspensions.  The ACA states that a providers payments 
may be suspended based on a credible allegation of fraud, unless there is good cause not to 
suspend such payments.  The statute also requires CMS to consult with OIG in determining 
whether a credible allegation of fraud exists.  CMS published final regulations implementing 
these provisions in February 2011. 
 
Medicare Payments for Brand-Name Inhalation Drugs 
 
HHS/OIG found that Medicare payments to South Florida suppliers for the inhalation drug 
budesonide were reduced by almost half after Medicare implemented a utilization edit for the 
drug in September 2008.  However, the decreases were offset by payments for the inhalation drug 
arformoterol (for which there was no edit), which then more than doubled within six months.  
Medicare paid South Florida suppliers for up to 10 times more units of arformoterol than were 
distributed for sale in the geographic area.  The substantial difference between the sales data 
provided by arformoterols manufacturer and the claims data for South Florida suppliers suggests 
that these suppliers were billing for drugs that may not have been actually purchased.  HHS/OIG 
recommended that CMS require DME contractors to implement utilization edits in highfraud 
areas as soon as Medicare begins paying for a brandname drug, monitor utilization changes 
among brandname inhalation drugs, strengthen initial claim review processes to focus on 
prevention of improper payments, and perform site visits and request documentation to support 
budesonide and arformoterol billings from the South Florida suppliers that HHS/OIG will refer 
for further review. 
 
Medicare Claims for Atypical Antipsychotic Drugs 
 
HHS/OIG found that for the period January 1 through June 30, 2007, 51 percent of Medicare 
claims for atypical antipsychotic drugs did not comply with Medicare reimbursement criteria, 
amounting to about $116 million in erroneous payments.  Atypical antipsychotic drugs are 
approved by the FDA for treatment of schizophrenia and/or bipolar disorder.  Recommendations 
included facilitating Medicares access to information necessary to ensure accurate coverage and 
reimbursement determinations and taking appropriate action regarding the erroneous payments 
identified in our sample.  HHS/OIGs review did not evaluate the medical decisions used to 
determine each residents treatment. 
 
Medicare Payment for Drug Treatments for Age-Related Macular Degenerations 
 
HHS/OIG found that if Medicare reimbursement for all beneficiaries treated with Avastin or 
Lucentis for wet age-related macular degeneration (wet AMD) had been paid at the Avastin rate 
 
  49  during CYs 2008 and 2009, Medicare Part B would have saved approximately $1.1 billion and 
beneficiaries would have saved approximately $275 million in copayments.  Our 
recommendations included evaluating coverage and reimbursement policies and seeking such 
additional authorities as are necessary to limit Part B drug and biological expenditures effectively.  
Avastin and Lucentis (both manufactured by Genentech) are the most commonly administered 
Part B biologicals used to treat wet AMD, which is the leading cause of severe vision loss in 
people over the age of 65 in the United States.   
 
Terminated Drugs in Medicare Part D 
 
Of the approximately $115 billion in gross drug costs included in Medicare Part D sponsors 
prescription drug event (PDE) data for CYs 2006 and 2007, HHS/OIG found that CMS accepted 
PDE data totaling $112.1 million associated with 2,967 terminated drugs.  CMS uses final PDE 
data to reconcile prospective payments made to Part D sponsors with actual costs.  Terminated 
drugs are discontinued drugs that have passed their shelf life or drugs that have been pulled from 
the market for health or safety reasons.  Such medications could be weak, ineffective, or 
detrimental to beneficiaries health.  However, federal regulations do not specifically prohibit 
coverage of terminated drugs under the Part D program.  HHS/OIG recommended that CMS issue 
regulations to prohibit Medicare Part D coverage of terminated drugs and, in the interim, publish 
a list of these drugs on its Web site. 
 
Erectile Dysfunction Drugs in the Medicare Part D Program 
 
Of approximately $133 billion in gross drug costs included in private prescription drug plans and 
MA plans (collectively known as sponsors) PDE data for CYs 2007 and 2008, HHS/OIG found 
that CMS improperly accepted PDE data totaling $3.1 million in gross Medicare Part D drug 
costs for erectile dysfunction (ED) drugs approved only for the treatment of sexual or erectile 
dysfunction.  Effective January 1, 2007, Part D should not have covered these drugs. HHS/OIG 
recommended that CMS determine whether it can impose financial adjustments on sponsors that 
were paid for furnishing ED drugs used for the treatment of sexual or erectile dysfunction and 
strengthen internal controls to help ensure that drugs covered by Medicare Part D comply with 
federal requirements by collaborating with FDA to create and maintain a comprehensive list of 
ED drugs that have been approved by FDA for the treatment of sexual or erectile dysfunction, 
regularly disseminating this list to all sponsors, and periodically updating the edit used to reject 
PDE data for ED drugs used for the treatment of sexual or erectile dysfunction. 
 
Identifying Prescribers in Medicare Part D Drug Data 
 
HHS/OIGs audit of PDE records for drugs classified as Schedule II pursuant to the Controlled 
Substances Act revealed approximately 228,000 PDE records with invalid prescriber identifiers, 
accounting for about $20.6 million in gross drug costs for CY 2007.  Without valid identifiers 
from sponsors, CMS and its Part D contractors might not be able to monitor excessive prescribing 
patterns, determine whether a prescription was written by an excluded or deceased provider, or 
identify those physicians who illegally prescribe Schedule II drugs.  Schedule II drugs have a high 
potential for abuse, have an accepted medical use with severe restrictions, and may cause severe 
 
  50  psychological or physical dependence if abused.  Because of invalid prescriber identifiers, 
HHS/OIG was unable to identify top prescribers for oxycodone, Ritalin, and methadone, which 
are three Schedule II drugs that are frequently involved in health care investigations.  HHS/OIG 
recommended that CMS issue specific guidance requiring sponsors to include a valid DEA 
number on standard and nonstandard format PDE records involving Schedule II drugs and 
implement an edit to reject PDE records for Schedule II drugs when the prescriber identifier field 
contains an invalid prescriber identifier number. 
 
Rebates in Medicare Part D 
 
HHS/OIG found that Part D sponsors underestimated rebates in 69 percent of their bids for plan 
year 2008, which led to higher beneficiary premiums and caused both beneficiaries and the 
government to overpay for the benefit.  Part D sponsors bids to participate in Part D include 
estimates of the cost to provide the benefit to each beneficiary.  CMS uses bids to calculate 
beneficiary premiums for each plan.  Sponsors also negotiate drug manufacturer rebates and other 
price concessions to reduce the cost of the program to beneficiaries and the Federal government.  
Sponsors must include an estimate in their bids of the rebates they expect to receive for the plan 
year.  Underestimating rebates increases beneficiary premiums.  HHS/OIG also found that, 
although sponsors may pass rebates on to beneficiaries at the point of sale to reduce beneficiaries 
drug costs and copayments, they commonly did not.  HHS/OIG recommended, among other 
things, that CMS take steps to ensure that sponsors more accurately include their expected rebates 
in their bids. 
  
Other Fraud and Abuse Prevention Activities 
 
In addition to amounts specifically designated by statute for HHS/OIG activities, HHS/OIG was 
allocated $1.5 million in FY 2010 for Compliance Training and Data Mining Activities.  These 
activities continued into FY 2011. 
 
HHS/OIGs HEAT Provider Compliance Training initiative (HEAT PCT) provided free, high-
quality compliance training for providers, compliance professionals, and attorneys in Strike Force 
cities and elsewhere.  HEAT PCT, which included presenters from HHS/OIG, CMS Regional 
Offices, CMS Program Integrity, USAOs, and state Medicaid Fraud Control Units, held sessions 
in Houston, Tampa, Kansas City, Baton Rouge, Denver, and Washington, D.C., training a total of 
737 in-person attendees.  In addition, the final HEAT PCT session in Washington, D.C., was 
webcast live to 2,335 participants.  HHS/OIG developed comprehensive training materials to 
accompany HEAT PCT, and those materials are now available online at no charge, together with 
sixteen video modules dividing the webcast by subject area that will continue reaching the health 
care community with our compliance message. 
 
In FY 2011, HCFAC funding also supported HHS/OIGs continued enhancement of data analysis 
and mining capabilities for detecting health care fraud, including tools that allow for complex data 
analysis.  OIG is using data mining, predictive analytics, trend evaluation, and modeling 
approaches to better analyze and target the oversight of HHS programs.  Analysis teams use near-
time data to examine Medicare claims for known fraud patterns, identify suspected fraud trends, 
 
  51  and to calculate ratios of allowed services as compared with national averages, as well as other 
assessments.  When united with the expertise of OIG agents, auditors, and evaluators, as well as 
our HEAT partners, HHS/OIGs data analysis fosters a highly effective combination of 
technologies and traditional skills to the fight against fraud, waste, and abuse.  
 
OIG also proposed providing MFCUs greater flexibility to conduct their own data mining 
activities.  On March 17, 2011, OIG issued a Notice of Proposed Rulemaking, 76 Fed. Reg. 
14637, that would amend a provision in HHS regulations that prohibits MFCUs from using 
federal matching funds to identify fraud through screening and analysis of state Medicaid claims 
data, known as data mining.   The provision, contained in 42 CFR  1007.19, would be amended 
to permit federal matching for data mining when MFCUs meet certain conditions.  Comments on 
the proposal were due on May 16, 2011. 
 
Industry Outreach and Guidance 
 
Advisory Opinions   
 
Central to the HIPAA guidance initiatives is an advisory opinion process through which parties 
may obtain binding legal guidance as to whether their existing or proposed health care business 
transactions run afoul of the AKS, the CMP laws, or the exclusion provisions.  During FY 2011, 
the HHS/OIG, in consultation with DOJ, issued 22 advisory opinions.  A total of 255 advisory 
opinions have been issued during the 15 years of the HCFAC program. 
 
Corporate and Other Integrity Agreements   
 
Many health care providers that enter agreements with the government to settle potential 
liabilities for violations of the FCA also agree to adhere to a separate CIA, Integrity Agreement, 
or other similar agreement.  Under these agreements, the provider commits to establishing a 
program or taking other specified steps to ensure its future compliance with Medicare and 
Medicaid rules.  At the close of FY 2011, HHS/OIG was monitoring compliance with 245 such 
agreements. 
   
 
 
Centers for Medicare & Medicaid Services
 
In FY 2011, CMS was allocated approximately $22.3 million by HHS, and appropriated $250.9 
million in discretionary funds by Congress to support a variety of projects related to fraud, waste, 
and abuse in the Medicare and Medicaid programs and the Childrens Health Insurance Program 
(CHIP).  With these funds, CMS has continued to build on existing fraud prevention activities and 
implement new advanced technology to ensure that accurate payments are made to legitimate 
providers for appropriate and reasonable services for eligible beneficiaries of the federal health 
care programs. It is important to note that CMS is engaged in many program integrity activities 
that are beyond the scope of this report because they are not funded directly by the HCFAC 
Account or discretionary HCFAC funding.  For example, Medicare Integrity Program (MIP) 
activities, such as audit and medical review functions, Medicare Fee-for-Service error rate 
 
  52  measurement, and Medicaid Integrity program activities are discussed in separate reports.   
 
CMS has taken four major approaches to fraud prevention and organizing its key anti-fraud, 
waste, and abuse activities: 
 
1.  Prevention 
2.  Detection 
3.  Transparency and Accountability 
4.  Recovery 
 
1.   Prevention 
 
The Affordable Care Act (ACA) 
 
The new authorities granted to HHS and CMS under ACA have been instrumental in further 
clamping down on fraudulent activity in the health care sector.  In FY 2011, CMS implemented 
ACA authorities to keep out fraudulent providers and suppliers.  CMS published the Final Rule 
with comment entitled Medicare, Medicaid, and Children's Health Insurance Programs; 
Additional Screening Requirements, Application Fees, Temporary Enrollment Moratoria, 
Payment Suspensions and Compliance Plans for Providers and Suppliers (CMS-6028-FC) on 
February 2, 2011 and it has been effective since March 25, 2011.  First, this rule created a 
rigorous risk-based screening process for all new and re-enrolling providers and suppliers 
enrolling in Medicare, Medicaid, or CHIP.  Under this rule, categories of providers and suppliers 
are assigned to one of three levels of screening based on their risk of fraudlimited, moderate, or 
high. Moderate and high risk providers are subject to announced and unannounced site visits. The 
regulation also imposed a requirement that high risk providers and suppliers undergo a 
fingerprint-based criminal background check.  Second, this rule established a moratorium 
authority to allow CMS to temporarily halt the enrollment of specific categories of providers or 
suppliers when CMS determines there is a significant potential for fraud, waste, or abuse with 
respect to a particular provider or supplier type, a particular geographic area, or both.  Third, this 
rule enabled CMS to suspend payments to a provider or supplier pending the investigation of a 
credible allegation of fraud.  CMS believes that each of these provisions will greatly enhance its 
program integrity efforts.  
 
National Fraud Prevention Program 
 
CMS National Fraud Prevention Program uses two concurrent approaches to fraud prevention in 
Medicare fee-for-service: predictive analytics for claims, which was implemented on June 30, 
2011, and provider screening for enrollment, which will begin in FY 2012.  By leveraging 
sophisticated analytic tools in claims processing and provider enrollment, CMS can better identify 
fraudulent claims and high-risk applicants, and take swift and appropriate action to protect the 
Trust Funds.  CMS anticipates that its continued use and ongoing enhancement of sophisticated 
analytical technologies will enable it to better combat fraud, waste, and abuse in Medicare, 
Medicaid, and CHIP.   
 
 
  53    The Fraud Prevention System: The Fraud Prevention System (FPS), CMS new predictive 
modeling technology, was launched on June 30, 2011 pursuant to the Small Business Jobs 
Act of 2010.  The FPS analyzes all Medicare fee-for-service claims using risk-based 
algorithms developed by CMS and the private sector, prior to payment, allowing CMS to 
take prompt action where appropriate.  While the development of the FPS is not directly 
funded by HCFAC, many activities in this report support the FPS.  Based on the predictive 
technologies used in the credit card industry, the FPS uses historical data and external 
databases to identify unusual patterns and determine the likelihood of fraudulent activity.  
The FPS has been streaming claims on a prepayment basis since June 30, 2011, enabling 
CMS and its investigative partners to stop payment of fraudulent claims and respond to 
emerging trends.  CMS is exploring ways to apply predictive modeling technology to the 
Medicaid program. 
 
  SAS Statistical Programming License: CMS established an analytics lab to develop and 
test new models for the FPS and secure licenses for SAS statistical programming software 
to analyze claims data to identify aberrant billing patterns and program vulnerabilities.  As 
of the end of FY 2011, CMS has added nine new models to the FPS, and nine additional 
models were under active development for future integration in the FPS.  Going forward, 
CMS will develop models on a continuous basis. 
 
  One Program Integrity: In FY 2011, CMS continued to make enhancements, perform 
maintenance, and upgrade analytic tools.  The One Program Integrity (One PI) data project 
provides a fully integrated searchable database of all Medicare paid claims and is used to 
perform data analysis across the centralized Integrated Data Repository (IDR). The IDR 
contains a comprehensive and accurate set of Medicare provider, beneficiary and claims 
data for Medicare Parts A, B, and D back to January 2006.  One PI improves CMS ability 
to detect fraud, waste, and abuse with consistent, reliable, and timely analyses. 
 
CMS has expanded the data repository in order to accommodate the increasing volume of 
data.  CMS added additional data streams and reference data to the IDR and began data 
analysis on an approach for standardized Medicaid data.  CMS is continuing its 
participation in a ten state pilot to explore innovative technologies and methodologies for 
transforming, loading, and analyzing this data.    
 
CMS also continued to train law enforcement on the use of the Medicare analytic tools 
and data systems.  In FY 2011, CMS doubled the number of training courses available and 
significantly restructured the training courses to give users more hands-on instruction. 
 
  Provider Enrollment Screening: To strengthen and help implement the new provider 
enrollment requirements under the ACA, CMS awarded a contract for Automated 
Provider Screening (APS) and began implementing the process in FY 2011 to verify 
Provider Enrollment, Chain and Ownership System (PECOS) enrollment data for CMS 
fee-for-service providers and suppliers.  The APS will evaluate enrollment applications 
against known indicators of fraud; provide access to a rich set of screened data results; be 
accessible through a secure browser user interface; and allow for integration with CMS 
 
  54  systems.  This new process will launch in early 2012 and permitCMS to quickly identify 
 
ineligible, and potentially fraudulent, enrollment applications.  The integration of this 
automated provider screening tool with the enrollment data in the Provider, Enrollment, 
Chain and Ownership System and the claims data in the Fraud Prevention System (FPS) 
will improve CMS ability to screen and identify questionable entities more efficiently, 
which will lead to cost-avoidance and increased savings for Medicare. 
 
  Provider Screening Lab: CMS has worked with Mitre, a Federally Funded Research and 
Development Center (FFRDC), to establish the Mitre Provider Screening Lab.  The 
provider screening lab tests proof of concepts for new provider screening data sources, 
methodologies, and associated algorithms.  To date, the lab has provided effective 
provider screening by utilizing a variety of data sets, including PECOS, the Compromised 
Numbers Checklist (CNC), and HHS/OIGs Medicare Exclusion Database, to name a 
few.  Additional data sources will be evaluated in the future.   
 
Compromised Number Checklist (CNC) 
 
In January 2010, CMS released its first national database of compromised Medicare beneficiary 
and provider ID numbers called the Compromised Number Checklist (CNC). This database is 
populated by monthly submissions from program integrity contractors.  The purpose of the CNC 
is to share compromised ID numbers and any associated corrective actions that have been taken.  
CMS continues to leverage this national CNC database to enhance efforts detecting and 
preventing fraud and abuse in Medicare.   
   
The compromised numbers are updated on a monthly basis.  In 2011, the CNC identified 
approximately 5,000 compromised providers and suppliers and approximately 280,000 
beneficiaries whose Health Insurance Claim Number (HICN) is known or strongly suspected to 
have been compromised.  The CNC also utilizes geomapping analyses to identify clustering of 
compromised numbers, which is extremely valuable in the development of new investigations.    
 
Medicare Beneficiary Compromised Number Checklist Verification Pilot 
 
In FY 2011, CMS began testing a methodology to identify the reasons why beneficiary HICNs 
appear in the CNC.  For the pilot, CMS will contact beneficiaries by letter to determine if their 
HICNs can be validated as compromised.  Once verified, the HICNs will be incorporated into the 
FPS to identify schemes or patterns indicative of fraud.  
 
Next Generation Desktop  
 
CMS began implementation of an enhanced Next Generation Desktop on September 10, 2011.  
CMS collaborated with National Government Services (NGS), a Medicare Administrative 
Contractor (MAC), to respond to requests from law enforcement for enhanced views of provider 
data, including the ability to drill down into actual fraud complaints against the provider and 
display claims associated with a provider tax ID.  CMS and NGS developed tailored training 
material for law enforcement partners and will provide training classes to law enforcement staff 
 
  55  three times a year.  CMS anticipates training up to 75 individuals in FY 2012.  
 
DMEPOS Competitive Bidding and other DME Initiatives 
CMS has undertaken numerous aggressive actions to address program integrity concerns with 
DMEPOS suppliers with a comprehensive strategy: 
 
  DMEPOS Competitive Bidding: The DMEPOS Competitive Bidding Program strengthens 
Medicare by taking an important step towards paying appropriately for medical equipment 
and supplies.  Competitive bidding reduces out-of-pocket costs for consumers and is 
estimated to save the Medicare program billions over 10 years.  All suppliers in the 
competitive bidding program must be licensed, meet strict quality and financial standards, 
and be accredited by a national accreditation organization.  Importantly, DMEPOS 
competitive bidding helps to prevent Medicare fraud because reduction in excessive 
payment amounts makes competitively bid items less attractive targets for fraud and 
abuse.  In addition, suppliers are subject to stricter standards in order to participate in the 
Competitive Bidding program, therefore keeping fraudulent suppliers at bay from 
Medicare. 
 
As of January 1, 2011, CMS DMEPOS Competitive Bidding Program Round 1 Rebid has 
occurred in the following nine Metropolitan Statistical Areas (MSAs):  
 
o  CincinnatiMiddletown (Ohio, Kentucky and Indiana) 
o  ClevelandElyriaMentor (Ohio) 
o  CharlotteGastonia-Concord (North Carolina and South Carolina) 
o  DallasFort WorthArlington (Texas) 
o  Kansas City  (Missouri and Kansas) 
o  MiamiFort Lauderdale  Pompano Beach (Florida) 
o  Orlando  Kissimmee (Florida) 
o  Pittsburgh (Pennsylvania) 
o  RiversideSan Bernardino  Ontario (California) 
 
  DMEPOS Surety Bond: Since 2009, CMS has made it a requirement for DMEPOS 
suppliers to post surety bonds prior to enrollment.  CMS also implemented DMEPOS 
Accreditation Standards which have been in effect since October 1, 2009.  Supplier 
numbers cannot be issued or renewed unless the supplier - assuming it does not otherwise 
qualify for an exception under 42 CFR  424.57(d)(15) - obtains and maintains a surety 
bond of at least $50,000 and meets the accreditation standards on a continuous basis.   
 
  DMEPOS Swipe Card Pilot: The DMEPOS Swipe Card Pilot was designed to test 
strategies for implementation of section 6406 of the Affordable Care Act, which requires 
that physicians and other suppliers maintain, and provide upon request, DMEPOS 
ordering and referring information.  Beginning in FY 2011, physicians and other 
participating suppliers swipe magnetic cards (similar to credit cards) and enter a code into 
existing credit card terminals when placing or filling DMEPOS orders. CMS, through a 
 
  56  contract with National Government Services (NGS), uses this information to confirm that 
the orders were appropriately initiated and filled.  
 
Through FY 2011, over 9,600 swipe cards and informational materials were distributed to 
the providers and suppliers in the Indianapolis area.  Provider outreach was conducted by 
using multiple venues and media formats (list-serve electronic notices, conferences, direct 
provider outreach using traditional mail, cold calling and personal visits).  Because 
participation in the pilot is voluntary, CMS is closely monitoring provider and supplier 
participation levels.   
 
Fraud Prevention Campaign 
 
In FY 2011, CMS continued to work with the Assistant Secretary for Public Affairs (ASPA) to 
build on the Fraud Prevention Campaign to increase public awareness about Medicares fight 
against fraud.  The project was launched in January 2010, and FY 2011 work was supported with 
FY 2010 HCFAC dollars.  HCFAC funding received in FY 2011 will be used in FY 2012 to 
continue outreach tactics to inform Medicare beneficiaries how to prevent, detect, and report 
Medicare fraud.  Findings from this outreach will be reported in the FY 2012 HCFAC report.  
Additional information on the Fraud Prevention Campaign is included in the ASPA section of this 
report. 
 
2.   Detection  
 
Strengthened Program Integrity Activities in Medicare Advantage and Medicare Part D 
 
In FY 2011, CMS established a contract for Medicare Advantage (Part C) and Medicare 
Prescription Drug (Part D) outreach and education.  This contractor is responsible for 
coordinating all Part C and Part D program integrity outreach activities for all stakeholders, 
including plan sponsors and law enforcement.  This contractor also supports compliance audits 
and fraud audits.  Additionally, CMS continued to fund the Program Integrity Technical 
Assistance contractor to support Part C and Part D program integrity strategy, ROI methodology, 
performance measure database maintenance, development of program risk assessment processes, 
and other technical assistance as requested.  CMS also contracted with the Compliance and 
Enforcement Medicare Drug Integrity Contractor (MEDIC) to conduct ad-hoc studies and 
analysis with a special focus on select geographic areas.    
 
Additionally, CMS continued to invest HCFAC discretionary funds to strengthen Medicare Part C 
and Part D oversight.  CMS contracts with the MEDICs for all Medicare Advantage and Part D 
program integrity work, including: 
 
  Managing all incoming complaints about Part C and Part D fraud, waste, and abuse; 
  Utilizing new and innovative techniques to monitor and analyze information to help 
identify potential fraud; 
  Working with law enforcement, MA, and prescription drug plans, consumer groups, and 
other key partners to protect consumers and enforce Medicares rules; 
 
  57    Providing basic tips for consumers on how to protect themselves from potential scams;  
  Identifying program vulnerabilities; and 
  Performing proactive research utilizing all available data to find trends in order to ferret 
out fraud, waste, and abuse activities. 
 
In FY 2011, the national benefit integrity MEDIC received approximately 342 actionable 
complaints (within the MEDICs scope) per month; processed 34 requests for information from 
law enforcement per month; and referred an average of 36 cases per month.  The national benefit 
integrity MEDIC was responsible for assisting HHS/OIG and DOJ (through data analysis and 
investigative case development) in achieving four guilty pleas, seven arrests, and eight 
indictments.  One case produced a 34-count indictment and included a group of 25 individuals 
and 26 pharmacies owned by one individual in the Detroit area involving approximately $38 
million in Medicare funds.  The national benefit integrity MEDIC has also been a key participant 
in investigating a Part D drug scheme that originated in West Hollywood, California.  Many case 
referrals have resulted from this project and formed the basis for multiple future indictments. 
 
In addition to the work of the MEDICs, CMS enhanced other Part C and Part D oversight 
functions in FY 2011 to address new complexities facing law enforcement; contract and plan 
oversight functions; monitor plan performance assessment and surveillance/secret shopper 
activities; audit programs; and conduct routine compliance and enforcement tracking.  In FY 
2011, CMS conducted 11 program audits of sponsoring organizations and tested for compliance 
with program requirements relating to Part D formulary and benefit administration, Part D 
coverage determinations, appeals and grievances, independent agent and broker oversight, and 
compliance program effectiveness.  These audits covered programs that accounted for 25 percent 
of all MA and Prescription Drug Plan contracts and 42 percent of all beneficiaries enrolled as of 
May 2011.  Additionally, in FY 2011 CMS issued more than 1,300 compliance actions to Part C 
and Part D sponsors covering a wide range of topics, such as benefit administration, bid 
submission, call letter requirements, claims processing, formulary administration, low income 
subsidy administration, and payment concerns. 
 
CMS also strengthened program integrity in MA and Part D through marketing surveillance 
activities and compliance actions based on surveillance activities: 
  
  Marketing Surveillance Activities: In FY 2011, CMS conducted many marketing 
surveillance activities, such as secret shopping and examining newspaper ads for 
unreported marketing events and content. These activities have improved plan sponsor 
oversight of marketing activities and lessened incidents of agent/broker marketplace 
misconduct. 
 
For the 2011 Annual Enrollment Period (AEP), CMS conducted 1,938 secret shopping 
events, a record number, and an increase of 125.9 percent from the 2010 AEP.  Secret 
shopping is the undercover surveillance of formal, public MA and Part D plan marketing 
events to ensure agents and brokers are providing accurate information to Medicare 
beneficiaries and are in compliance with our marketing rules for Parts C and D.   CMS 
believes that its significant outreach efforts helped decrease deficiencies for formal 
 
  58  marketing events.  The number of absolute statements (such as we are the best or we 
are number one) made about MA and Part D decreased from 54 instances during the 
2010 AEP season to 32 instances during the 2011 AEP season.  In addition, the number of 
events that were reported to CMS that did not take place decreased from 115 during the 
2010 AEP season to 53 during the 2011 AEP season.  AEP data for 2011 demonstrated 
that the communication efforts were effective and the message was well received by plan 
sponsors and other external stakeholders.  
 
Targeted Observations 
During the 2011 AEP, the Targeted Observation (TO) initiative captured observations of 
alleged marketing misrepresentation by agents or brokers in settings outside of formal 
sales presentations.  CMS created this surveillance activity following concerns about plan 
sponsors approaching beneficiaries outside of retail stores, misrepresenting products at 
informal informational tables, and other conduct that would not be captured through CMS 
previous surveillance strategy.  TOs were conducted based on information received from 
internal and external partners.  CMS performed 31 TOs on 11 plan sponsors, and 
performed four TOs not attributed to any particular plan sponsor. The TOs were prompted 
by alleged agent misbehavior at various settings, including kiosks in megastores and door-
to-door solicitations.  Other TOs investigated unsolicited phone calls and the use of lead 
generator websites that appeared to be endorsed by CMS.  
 
Plan sponsors reviewed the results and took appropriate action ranging from training to 
terminating agents.  Without specific direction from CMS, plan sponsors may use the 
information found through the TO process to make a determination to take action against a 
particular agent.  Specifically, two plan sponsors each voluntarily terminated an agent for 
engaging in egregious marketing activities.  One agent was using scare tactics by stating 
that beneficiaries could only receive their prescription drugs through the specific retail 
stores pharmacy.  The agent utilized superlatives in describing the plan sponsors 
products, stated that Medicare was going away, and told the beneficiaries that they needed 
to sign up for his plan or they would not have any drug coverage next year.  CMS believes 
that expanding the use of TOs will provide additional opportunities to monitor agents and 
brokers in settings outside of formal sales presentations to determine if violations occur 
during non-formal public encounters.  
 
Unreported Marketing Events 
The unreported marketing events initiative was an effort to determine if plan sponsors 
were appropriately reporting and representing their sales events activity to CMS.  The 
CMS contractor reviewed daily and weekly print publications in U.S. domestic markets 
nationwide, including advertisements in publications in English, Spanish, Korean, 
Armenian, and Mandarin Chinese. The contractor then determined if event information 
identified in the clipped advertisements was properly reported to CMS in a timely 
manner.  
 
Under CMS direction, a surveillance contractor reviewed advertisements that accounted 
for 5,256 unique events from October to December 2010.  The advertisements reviewed 
 
  59  encompassed a total of 75 plan sponsors, of which 57 submitted 100 percent of the clipped 
marketing events to HPMS in an accurate and timely manner. The remaining 18 plan 
sponsors had one or more deficiencies, with a total of 232 deficiencies identified. 
 
  Compliance Actions Based on Surveillance Activities: In order of severity, potential 
compliance actions consist of Technical Assistance Letters (informal compliance actions), 
Notices of Non-Compliance, Warning Letters with a Request for Business Plan, and Ad-
hoc Corrective Action Plans (CAPs).  Listed below are the compliance actions taken for 
each primary surveillance activity.  
 
Compliance Actions  
 
Compliance Action  Secret  Unreported 
Shopping  Marketing 
Events   Events 
Technical Assistance Letter*   102   17  
Notice of Non-compliance   18   1  
Warning Letter with Business Plan   4   0 
Ad-hoc CAP   0   0 
Total Letters Issued   124   18 
 
*Technical Assistance Letters were sent to plan sponsors that were shopped, but either did 
not meet the minimum number of shops, no matter how many deficiencies were found, or 
had minimal findings. 
 
For non-marketing related issues uncovered during a TO, CMS referred these issues to 
appropriate entities, including state Departments of Insurance and CMS Account 
Managers.  In addition, CMS referred issues to the MEDIC responsible for investigating 
potential fraud, waste, and abuse in the Part C and Part D programs. 
 
Medicaid/CHIP Financial Management Project 
 
Under this project, funding specialists, including accountants and financial analysts, worked to 
improve CMSs financial oversight of the Medicaid program and CHIP.  In FY 2011, through the 
continued efforts of these specialists, CMS removed an estimated $949 million (with 
approximately $915 million recovered and $34 million resolved) of approximately $6.3 billion 
identified in questionable Medicaid costs.   
 
Furthermore, an estimated $223 million in questionable reimbursement was actually averted due 
to the funding specialists preventive work with states to promote proper state Medicaid 
financing.  The funding specialists activities included reviews of proposed Medicaid state plan 
amendments that related to reimbursement; development of financial management reviews; 
research regarding state Medicaid financing policy and practices; collaboration with states to 
resolve the Medicaid and CHIP portions of the A-133 Single State audits; and identification of 
 
  60  sources of the non-Federal share of Medicaid program payments to ensure proper financing of 
Medicaid program costs.    
 
HHS/OIG Hotline Database  
 
In FY 2011, CMS took strides toward the complete automation of the database to which 
HHS/OIG forwards some complaints received on the HHS/OIG Hotline.  CMS also began 
incorporating HHS/OIG Hotline referrals and supporting documentation into the 1-800-Medicare 
fraud complaint workflow and system to foster consistency in CMSs handling of complaints and 
provide improved ability to track the lifecycle of the complaints; CMS and HHS/OIG anticipate 
implementing the new process by mid-2012. 
 
3.   Transparency and Accountability  
 
Measured Error Rate - Payment Error Rate Measurement (PERM)  
 
The Improper Payments Information Act (IPIA) of 2002, amended by the Improper Payments 
Elimination and Recovery Act of 2010 (IPERA), requires each agency to: periodically review 
programs it administers, identify programs that may be susceptible to significant improper 
payments, estimate the amount of improper payments, submit those estimates to Congress, and 
report on actions the Agency is taking to reduce improper payments.  The Medicaid program and 
CHIP are identified as at risk for significant erroneous payments.  To comply with the IPIA and 
IPERA, CMS established the Payment Error Rate Measurement (PERM) to estimate improper 
payment error rates in Medicaid and CHIP.  The error rates are based on reviews of the fee-for-
service (FFS), managed care, and eligibility components of Medicaid and CHIP in the fiscal year 
under review.  CMS uses federal contractors to measure Medicaid and CHIP error rates using a 
17-state rotation so that each state is reviewed once every three years.  In 2006, CMS first 
measured the fee-for-service component of Medicaid.  Starting in 2007, PERM was expanded to 
measure error rates for fee-for-service, managed care, and eligibility in both Medicaid and CHIP.   
 
HHS calculated, and is reporting in the FY 2011 Agency Financial Report, the three-year 
weighted average national Medicaid error rate that includes the rates from fiscal years 2009, 2010, 
and 2011.  This three-year rolling national error rate is 8.1 percent or $21.9 billion in estimated 
improper payments and has decreased from FY 2010 (9.4 percent).  The weighted national error 
components rates are as follows:  Medicaid FFS, 2.7 percent; Medicaid managed care, 0.3 
percent; and Medicaid eligibility, 6.1 percent.  The most common cause of errors in fee-for-
service claims is lack of sufficient documentation to support the payment.  The vast majority of 
the eligibility errors were due to beneficiaries found to be ineligible or whose eligibility status 
could not be determined.  
   
In addition to differences in state programs, CMS notes that some of the agencys initial 
methodologies for classifying errors in PERM, particularly with respect to eligibility, drew 
criticism from states and other stakeholders resulting in Congressional action to revise the 
approach for future years.  Congress included in the Childrens Health Insurance Program 
Reauthorization Act of 2009 (CHIPRA) a provision stating that the payment error rate determined 
 
  61  for a state should exclude certain payment errors as long as the states process for verifying an 
applicants self-declaration or self-certification of income was approved by CMS.  
 
On August 11, 2010, CMS published a final PERM regulation allowing a self-declaration 
statement that is present in the case record to be used to verify eligibility for the PERM reviews if 
it meets certain requirements, such as not being out-of-date.  If it does not meet these 
requirements, states may obtain a new self-declaration statement or verify the applicants 
eligibility using third party sources, such as applicable caseworker notes or information obtained 
by the PERM reviewer. This provision conforms error rate measurement to Federal and state 
policies concerning eligibility process and required verifications.  This revised eligibility review 
process is reflected in the Medicaid 2011 error rate and will be used in future Medicaid and CHIP 
error rates.  Section 601 of CHIPRA prohibited HHS from calculating or publishing any national 
or state-specific error rates for CHIP until six months after the new PERM final rule was effective 
so HHS began CHIP error rate measurement in 2011 and will publish the results in November 
2012.  
 
CMS is currently measuring cycles that will be reported in 2012 and 2013.  CMS expects the 
error rates for Medicaid to decline in future years through program maturation and corrective 
action initiatives implemented at the state and Federal levels.  Additionally, in response to an 
HHS/OIG review of the FY 2008 PERM program described in the HHS/OIG section of this 
report, CMS formed a State Systems Workgroup to promote collaboration between CMS and 
states.  CMS implemented a two-stage reconciliation process beginning with the FY 2009 PERM 
cycle to ensure that states PERM universes are complete and accurate.   
 
As a result of the Presidents Executive Order on Reducing Improper Payments, the PERM 
program has added several new requirements including reporting on the Treasury payment 
accuracy website and reporting comprehensive improper payment measurement and reduction 
activities to HHS/OIG.  
 
Medicare Fee-for-Service (FFS) Error Rate Measurement  
 
The FY 2011 Medicare FFS improper payment rate was 8.6 percent.  While CMS continued to 
review claims according to a significantly revised and improved methodology, as implemented in 
FY 2009 in consultation with the HHS/OIG, the methodology was further refined in FY 2011 to 
reflect the impact that late documentation and the results of appeals activities have on the 
improper payment rate. The unadjusted rate (before factoring in appeals and receipt of additional 
documentation) for 2011 was 9.9 percent.  The adjusted error rate more accurately reflects the 
estimated improper payment rate for the Medicare FFS program.  Medicare Integrity Program 
(MIP) activities, such as measurement of the Medicare FFS error rate and medical review, are 
discussed further in a separate report. 
 
Error Rate Measurement and Increased Accountability in Medicare Advantage (Part C) and 
Medicare Part D 
 
 
  62  In compliance with IPERA, CMS has prepared and implemented a systematic plan regarding 
improper payments for Part C and Part D programs.  Unlike Medicare fee-for-service, CMS 
makes prospective, monthly per-capita payments to Part C organizations and Part D plan 
sponsors.  Each per-person payment is based on a bid amount, approved by CMS, that reflects the 
plan's estimate of average costs to provide benefit coverage to enrollees.  CMS risk-adjusts these 
payments to take into account the cost associated with treating individual beneficiaries based on 
health status.  In addition, certain Part D prospective payments are reconciled against actual costs, 
and risk-sharing rules set in law are applied to further mitigate plan risk.  
 
The Part C payment error estimate reported for FY 2011 (based on payment year 2009) is 11.0 
percent, or $12.4 billion.  This is a reduction from the FY 2010 payment error estimate of 14.1 
percent.  This reduction to 11.0 percent meets and exceeds the target error rate established for FY 
2011 in the FY 2010 Agency Financial Report.  The FY 2011 Part C payment error estimate 
presents the combined impact on Part C payments of two sources of error: Part C payment system 
error and the Risk Adjustment Error.  Most of the Part C payment error is driven by errors in risk 
adjustment data (clinical diagnosis data) submitted by Part C plans to CMS for payment purposes.  
Specifically, the Risk Adjustment Error estimate reflects the extent to which diagnoses that plans 
report to CMS are not supported by medical record documentation.  The improvement in the Part 
C error rate can be attributed to the Administrations emphasis on contract-specific Risk 
Adjustment Data Validation (RADV) audits designed to recover overpayments to Part C plans, 
and to outreach and education to plans.  Further, CMS has initiated outreach and education efforts 
for physicians/providers for FY 2012.    
 
CMS conducts contract-specific RADV audits for the purpose of estimating risk adjustment error 
specific to Part C organizations.  The RADV audits have created a sentinel effect in the industry.  
Part C organizations are more aware of the importance of properly documenting the clinical 
diagnoses they submit to CMS that can lead to enhanced Medicare payments.  Further, Part C 
organizations are now aware that failure to have proper documentation will result in CMS 
identification of overpayments for payment recovery purposes.   
 
CMS is reporting for the first time a payment error estimate for the Part D program.  The Part D 
payment error estimate reported for FY 2011 (based on payment year 2009) is 3.2 percent, or $1.7 
billion.  The FY 2011 Part D error estimate presents the combined impact on Part D payments of 
five sources of error: Part D payment system error; payment error related to low income subsidy 
status; payment error related to incorrect Medicaid status; payment error related to prescription 
drug event data validation; and payment error related to direct and indirect remuneration.  Most of 
the Part D payment error is driven by errors related to prescription drug event data validation 
(PEPV).  The FY 2011 PEPV rate of 2.18 percent represents a decrease of approximately 10 
percentage points from the FY 2010 PEPV rate of 12.7 percent.  This decrease is due largely to 
the Administrations efforts to provide plans with additional guidance to improve their collection 
of prescription documentation from pharmacies.    
 
Probable Fraud Measurement Pilot   
 
While CMS calculates an improper payments error rates in Medicare and Medicaid as described 
 
  63  above, there is no agreed-upon agency estimate of how much fraud is in the Medicare program.  
In collaboration with the HHS Office of the Assistant Secretary for Planning and Evaluation, 
CMS began developing the first nationally representative estimates of the extent of probable fraud 
in the Medicare fee-for-service program in FY 2011.  Documenting the baseline amount of fraud 
in Medicare is of critical importance as it allows officials to evaluate the success of ongoing fraud 
prevention activities.  This pilot project will estimate probable fraud in one service area to pilot 
test the measurement approach and calculate a service-specific estimate.  This pilot is measuring 
probable fraud rather than fraud because fraud is a legal determination that CMS cannot make 
on its own.  A review panel of experienced health care analysts, clinicians, policy experts, and 
fraud investigators will review all collected data and determine if there is sufficient evidence to 
warrant a referral to law enforcement.  After the completion of this pilot, CMS will assess the 
value of expanding the measurement to other areas of the program.  
 
Fraud Summits 
 
On June 8, 2010 President Obama announced a nationwide series of regional fraud prevention 
summits as part of a multi-faceted effort to crack down on health care fraud.  HHS has a strong 
commitment to partnering with the private sector to mutually learn from best practices.  Summits 
were held on July 16, 2010, in Miami; on August 26, 2010, in Los Angeles; on November 5, 
2010, in Brooklyn; on December 16, 2010 in Boston; on March 15, 2011 in Detroit; and on June 
17, 2011 in Philadelphia.  FY 2010 HCFAC funds totaling $1 million were used to fund these 
regional fraud summits and also to underwrite the Fraud Prevention Campaign in both FY 2011 
and FY 2012. More information on the fraud prevention summits is included in the ASPA section 
of this report. 
 
4.   Recovery  
 
Field Offices 
 
CMS has been placing resources in Medicare hot fraud areas with Zone Program Integrity 
Contractors (ZPIC) and CMS program integrity field offices.  The ZPIC contracting strategy 
aligns the antifraud contractors with the MAC zones.  Additionally, the designated program 
integrity field offices are located in or near the HEAT cites of Miami, Los Angeles, and Brooklyn, 
and provide an on the ground presence in high risk fraud areas of the country.  Together, the field 
offices and ZPICs conduct data analysis to proactively identify targets and to coordinate efforts 
among various contractors and agencies to identify local issues and vulnerabilities with national 
or regional impact.  All three field offices have staff that are designated CMS Strike Force 
Liaisons, who coordinate with law enforcement, facilitate data analysis, and expedite suspension 
requests. 
 
Many special projects originate from the field offices that produce significant savings.  These 
efforts have resulted in savings of $313.7 million and resulted in the revocation or deactivation of 
883 provider numbers in FY 2011. 
 
Enrollment Special Study 
 
  64   
The Enrollment Special Study is a project designed to stop the fraudulent providers from 
obtaining new Medicare provider numbers, reduce the number of the habitual bad providers 
from re-entering the Medicare system after they have been kicked out, and shift from the pay and 
chase approach that has existed in years past.  In this project, site visits are conducted prior to 
enrollment and providers are targeted for a closer review.  The project is limited to Community 
Mental Health Centers (CMHCs), Comprehensive Outpatient Rehabilitation Facilities, and 
Independent Diagnostic Testing Facilities in South Florida. Once the MAC conducts a site visit, it 
assesses the providers individual risk.  If the provider appears to be suspect or pose an elevated 
risk of fraud, the provider is referred to the ZPIC for investigation and administrative action, as 
appropriate.  This project began as a one year project in July 2009 and has been extended due to 
its success.   
 
As of August 30, 2011, First Coast Service Operations, Inc. (FCSO), a MAC, has conducted over 
11,795 activity checks to verify providers and suppliers operational status, deactivated 430 
providers, and revoked 410 providers.  Since inception, FCSO saved $30.9 million from 
prepayment review and requested over $156,726 in overpayments.  In addition, SafeGuard 
Services (SGS), the ZPIC, conducted over 1,050 on-site investigations resulting in 492 providers 
being revoked or deactivated.   SGS placed 480 providers on prepayment review saving $15.3 
million and requested $168.5 million in overpayments.  To date, the project has resulted in $46.2 
million in savings, with $24.3 million resulting in activity in the past year.   
 
Florida Infusion Therapy Demonstration Project  
 
CMS initiated the Florida Infusion Therapy Demonstration Project in 2007, to address a pervasive 
problem with clinics and solo practitioners submitting fraudulent intravenous infusion therapy 
claims in Florida.  CMS developed automated fraud edits for those services at medically 
unnecessary frequencies and at lethal dosages to prevent payment for improper or fraudulent 
claims.  During the time period of June 1, 2005, through July, 31, 2011, these edits resulted in 
denials totaling approximately $288.9 million.   
 
South Florida Fraud Hot Line 
 
CMS also continued a successful initiative aimed at increasing fraud reporting in South Florida.  
As part of a two-year infusion therapy demonstration, CMS established a special fraud hotline in 
2007 to protect Medicare beneficiaries in South Florida from fraudulent providers of infusion 
therapy.  As a result of the hotlines success, in FY 2009 CMS expanded the scope of this 
infusion therapy fraud hotline to handle all Medicare fraud-related calls in South Florida; this 
hotline remained in effect in FY 2011.  The fraud hotline number is included on monthly 
Medicare Summary Notices (MSNs) sent to beneficiaries in Miami-Dade, Broward and Palm 
Beach counties.    
 
Trained, bilingual, or trilingual staff fielded and routed calls, as well as acknowledged receipt of 
complaints in writing.  A rapid response team at the ZPIC investigated the highest priority leads 
received from the fraud hotline within 48 hours of receipt of the call and then collaborated with 
 
  65  CMS and/or law enforcement to pursue appropriate follow up action(s).  CMS worked with its 
partners to conduct beneficiary outreach and education to ensure beneficiaries understood the 
types of fraud that may occur and how to read their MSNs to better detect potential fraudulent 
billings. 
 
As of September 2011, the hotline has received more than 54,513 calls leading to 835 new fraud 
investigations.  In addition, the ZPIC has placed 137 providers on prepayment review saving 
$10.7 million, revoked/deactivated 103 provider numbers, requested $58.6 million overpayments, 
referred 30 cases to law enforcement, and sent 106 Immediate Advisements to the HHS/OIG.  
Additionally, law enforcement has seized $3 million in provider bank accounts.   
 
Durable Medical Equipment Prosthetics, Orthotics, and Supplies Stop Gap Plan 
 
The DME Stop Gap Plan was developed in response to the continued escalation in DMEPOS 
fraud and the delay in implementation of DMEPOS competitive bidding.  This two-year project 
was initiated in FY 2009 to enhance detection and prevention activities in connection with fraud, 
waste and abuse in Durable medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) 
in seven high risk states (California, Florida, Illinois, Michigan, North Carolina, New York and 
Texas).  The project is intended to address fraud involving high risk suppliers, ordering 
physicians, DMEPOS items, and beneficiaries in each area.  
 
Under this project, CMS and its contractors identify and interview or conduct site visits to the 
highest paid/highest risk DMEPOS suppliers, ordering physicians; and utilizing beneficiaries; and 
identify and scrutinize the highest billed/highest risk DMEPOS equipment and supplies.  Based 
on the findings, administrative actions, as appropriate, are initiated.  The second year of the 
project concluded on September 30, 2011 and the results to date include onsite interviews/reviews 
of 5,230 high risk providers, suppliers, and beneficiaries; implementation of 15,409 claims 
processing edits to prevent improper payment (with associated $34.9 million in denied claims); 
$66.2 million in requested overpayments; 1,200 new investigations opened; and 469 suppliers 
revoked or deactivated.   
 
Labs & PINs Workgroup  
 
CMS continued to host monthly conference calls for a workgroup comprised of CMS staff 
nationwide, PSCs, ZPICs, the CNC, and law enforcement, including, the FBI, HHS/OIG and 
Railroad Retirement Board/OIG, to share information on false front (sham) providers and 
current fraudulent schemes.  Monthly meetings provided invaluable intelligence on geographic 
shifts and cross-regional schemes.  On October 13, 2010, OIG and the FBI conducted a National 
takedown of 73 individuals connected to related identity theft schemes.  This workgroup provided 
significant information that contributed to the arrests.  As of August 2011, workgroup activities 
resulted in approximately $165.8 million in Part B savings through denied claims, overpayments, 
administrative actions, and seizures by law enforcement.   
 
Medical Director Support  
 
 
  66  In FY 2011, CMS was awarded HHS Wedge funding to hire additional Contractor Medical 
Directors (CMDs) to support CMS anti-fraud and error rate reduction efforts. Currently there are 
a limited number of Medical Directors who have several responsibilities including serving as 
expert witnesses at fraud hearings. 
 
This project supports agency administrative actions and the HEAT initiatives by ensuring there 
are adequate CMDs that can serve as expert witnesses in court.  The funding received in FY 2011 
will be used to hire the CMDs in early FY 2012. Findings from this project will be reported in the 
FY 2012 HCFAC report. 
 
Administration on Aging 
 
In FY 2011, the Administration on Aging (AoA) was allocated $3.3 million in HCFAC funding 
by HHS to support infrastructure, technical assistance, and the other Senior Medicare Patrol 
(SMP) program support and capacity-building activities designed to enhance the effectiveness of 
state-wide SMP programs.  SMP is funded from a separate Congressional appropriation.  These 
dollars support SMP programs that recruit retired professionals to educate and assist Medicare 
beneficiaries to detect and report health care fraud, error, and abuse in the Medicare and Medicaid 
programs.  According to the most recent annual performance report from HHS/OIGs Deputy 
Inspector General for Evaluation and Inspections, dated May 6, 2011, 4,964 active volunteers 
served the 55 SMP projects during 2010.  This represents a 12 percent increase in the number of 
volunteers from that of 2009.  These volunteers performed an essential function of this program, 
contributing 129,662 hours in efforts to educate beneficiaries about how to prevent and detect 
Medicare and Medicaid fraud within local communities.  
 
Outreach to senior consumers is a key element of the SMP program.  During 2010, SMP projects 
held 6,231 community outreach education events reaching close to an estimated 1.5 million 
people, and were responsible for close to 52,000 media airings to increase beneficiary awareness 
about issues related to Medicare and Medicaid integrity.  During this period, 70,789 one-on-one 
counseling sessions were held with or on behalf of a beneficiary on a variety of issues related to 
potential Medicare or Medicaid fraud, error, or abuse, a 109 percent increase over that in 2009.  In 
addition, over 298,097 beneficiaries were educated through 8,300 group educational sessions 
conducted by SMP programs in local communities.  
 
Additionally, the National Hispanic SMP (NHSMP) project continued expanded efforts to prevent 
Medicare fraud among Hispanic older adults, a population especially vulnerable to Medicare 
fraud.  In FY 2011, the NHSMP efforts were centered on a volunteer outreach program and 
community outreach and communications campaign designed for and implemented in South 
Florida.  The NHSMP has partnered with Univision to develop and air television PSAs designed 
to inform the Hispanic population in South Florida that Medicare fraud is a crime.  Additional 
print materials were developed to accompany this media campaign.  In addition, the NHSMP is 
developing a training manual for SMP Hispanic partner organizations and volunteers, designed to 
be culturally and linguistically sensitive.  The training materials will be disseminated to SMP 
projects for their use in local Hispanic communities nationwide.    
 
 
  67  As a result of educating beneficiaries, SMP projects nationwide resolved 89,612 inquiries for 
information or assistance in 2010 from or on behalf of beneficiaries, a 50 percent increase from 
2009.  This included receipt of 2,273 complex issuesi.e., beneficiary complaints requiring 
further research, assistance, case development, and/or referral.   While the SMP program staff was 
able to resolve 1,661 complex issues for beneficiaries during 2010, an additional 922 of these 
issues, with an estimated dollar value of close to $1.5 million, were referred to law enforcement, 
CMS integrity contractors, state Medicaid Fraud Control Units, or other entities for further action.  
During this period, HHS/OIG documented that $248,064 in health care expenditures were 
avoided and over $39,031 in Medicare, Medicaid and other savings resulted from actions taken by 
the SMP program. 
 
Since the programs inception, the program has educated over 4.2 million beneficiaries in group 
or one-on-one counseling sessions and has reached over 25.3 million people through community 
education outreach events.  While SMPs make numerous referrals of potential fraud to CMS 
program integrity contractors, there is no mechanism for tracking the actions (investigation, 
prosecution, collection) required to realize actual savings to the government as a result of these 
referrals.  Therefore, it is not possible to directly track the outcome of most of the cases reported 
and dollars recovered as a result of SMP program activities.  Moreover, the impact of the SMP 
programs primary activitieseducation of beneficiaries to prevent health care fraudis difficult 
to measure and impossible to quantify in dollars and cents.  As HHS/OIG indicated in the May 
2011 report: 
 
 We continue to emphasize that the number of beneficiaries who have learned from the 
Senior Medicare Patrol Projects to detect fraud, waste, and abuse and who subsequently 
call the OIG fraud hotline or other contacts cannot be tracked.  Therefore, the projects may 
not be receiving full credit for savings attributable to their work.  In addition, the projects 
are unable to track substantial savings derived from a sentinel effect, whereby fraud and 
errors are reduced in light of Medicare beneficiaries scrutiny of their bills.   
 
AoA recognizes the importance of measuring the value of the SMP program impact to the fullest 
degree possible.  Toward that end, in 2011 AoA contracted for assistance in  the design of a first-
ever SMP program evaluation that will assess the adequacy of current SMP performance 
measures, and seek to determine the most appropriate measures of SMP program value (benefits, 
results and impact).  It is expected that the SMP evaluation will be conducted starting in 2012. 
 
In addition, during FY 2011, AoA and HHS/OIG initiated a collaborative effort to help ensure 
SMP referrals of beneficiary complaints of potential fraud are received by law enforcement in a 
timely fashion.  This has included development of processes for SMP referral of beneficiary 
complaints to the HHS/OIG hotline, including mechanisms for capturing outcomes related to 
these referrals. 
 
Despite the factors that have limited AoAs ability to quantify the value of the SMP program in 
preventing, identifying, and reporting health care fraud, the OIG has documented close to $106 
million in savings attributable to the program as a result of beneficiary complaints since its 
inception in 1997.  
 
  68   
Office of the General Counsel  
 
In FY 2011, the Office of the General Counsel (OGC) was allocated approximately $8.9 million 
in HCFAC funding by HHS to supplement OGCs efforts to support program integrity activities.  
OGCs efforts in FY 2011 focused heavily on program integrity review, in which OGC reviews 
CMS programs and activities in order to strengthen them against potential fraud, waste, and 
abuse.  OGC also continued to expand its litigation role in order to assist in the recovery of 
program funds.  During FY 2011, OGC was involved in a wide range of HCFAC efforts that 
resulted in Government recoveries of over $1.1 billion in judgments, settlements, or other types of 
recoveries, savings, or receivables described elsewhere in this report.     
 
The Affordable Care Act 
 
The ACA significantly amends existing anti-fraud statutes. These provisions establish 
fundamental expectations for compliance, disclosure, transparency, and quality of care, and are 
matched by corresponding enforcement provisions. Some specific provisions of the ACA that 
particularly support HCFAC priorities and goals amend the AKS provider/supplier Medicare and 
Medicaid enrollment requirements, overpayment provisions to specifically invoke the FCA, and 
create a statutory disclosure protocol for violations of the physician self-referral prohibitions 
known as the Stark Law.  During FY 2011, OGC spent significant time and resources working 
with CMS to implement the program integrity provisions of the ACA.  As new programs from the 
ACA were implemented, OGC was involved in working with the relevant agencies to ensure that 
program integrity issues were reviewed and resolved and assisted the agencies in addressing 
program integrity and compliance problems as they occurred.   
 
HEAT 
 
During FY 2011, OGC was involved in HEAT initiatives and worked closely with other HEAT 
members to combat fraud, waste, and abuse in the Medicare and Medicaid programs by providing 
advice on the myriad legal issues presented as the government works to initiate innovative anti-
fraud programs in various hotspots throughout the country.  OGCs involvement in HEAT 
included advising CMS on provider and supplier revocations, payment suspensions, and 
recoupments that arise from the initiative (as they arose, in addition to criminal and civil fraud 
prosecutions) and defending the administrative appeals that resulted.  OGC continued to assist 
DOJ in prosecuting those seeking to defraud Medicare and Medicaid and defend any Federal 
court challenges that are brought as a result of this initiative.  
 
FCA and Qui Tam Actions 
 
OGC assisted DOJ in assessing qui tam actions filed under the FCA by interpreting complex 
Medicare and Medicaid rules and policies in order to help DOJ focus on those matters which were 
most likely to result in a recovery of money for the government.  When DOJ filed or intervened in 
a FCA matter, OGC provided litigation support, including interviewing and preparing witnesses 
and responding to requests for documents and information.  In FY 2011, OGC participated in 
 
  69  FCA and related matters that recovered over $735 million for the government.  The types of FCA 
cases in which OGC participated included: drug pricing manipulation; illegal marketing activity 
by pharmaceutical manufacturers that resulted in Medicare and Medicaid paying for drugs for 
indications that were not covered; underpayment of rebates to state Medicaid programs; physician 
self-referral and AKS violations; and provider upcoding and outlier cases.   
     
Provider/Supplier Suspensions and Enrollment Revocations or Denials 
 
Suspensions play a critical role in protecting against the abuse of program funds because they 
provide a source from which CMS can obtain recoupment after a final overpayment has been 
determined.  Suspensions can also prevent improper payment from being made, thus avoiding the 
need to chase down these funds later.  OGC advised CMS on whether to suspend payments to 
Medicare providers and suppliers and defended the suspensions when challenged.  During  
FY 2011, OGC attorneys were involved in a myriad of suspension and recoupment actions, many 
of which involved fraudulent billings and different segments of the health care industry, including 
DME suppliers, ambulance companies, physicians, infusion clinics, therapists, home health 
agencies, and diagnostic testing facilities.  FY 2011 recoveries in this area totaled over $17.4 
million.  OGC also represented CMS when a provider or supplier appealed CMS denial of 
enrollment or revocation.  During FY 2011, OGC represented CMS in numerous appeals before 
the Departmental Appeals Board (DAB) and typically resolved these cases without formal hear-
ings.  OGC also continued to advise CMS on the interpretation of enrollment regulations and 
reviewed proposed enrollment rules and manual changes.   
 
During FY 2011, OGC also worked with CMS to finalize and then implement new regulations 
governing payment suspension. Previously, CMS regulations authorized a payment suspension 
when CMS or its contractor possessed reliable information that an overpayment ... exists or that 
the payments to be made may not be correct.  The new regulations, which were promulgated 
pursuant to section 6402(h) of the Affordable Care Act, add to this authority and allow CMS to 
suspend payment to a provider or supplier pending investigation of credible allegations of 
fraud.  The new regulations state that [a]n investigation of credible allegations of fraud will be 
considered resolved when legal action is terminated by settlement, judgment, or dismissal, or 
when the case is closed or dropped because of insufficient evidence to support the allegations of 
fraud.  This rulemaking strengthens CMS ability to protect the Trust Funds and helps the 
agency move away from a pay and chase approach to a prevention-focused approach. 
 
Medicare Prescription Drug Program (Part D) & Medicare Advantage Program (Part C) 
Compliance 
 
OGC continued to provide extensive advice to CMS on a variety of Part D and MA-related 
contract compliance issues, including identifying enforcement options against sponsors that are 
noncompliant or violate program rules, such as Marketing Guidelines.  OGC reviewed 
compliance-related correspondence that CMS issued to Part D sponsors and MA plans in the form 
of warning letters, corrective action plan letters, intermediate sanction, and CMP notices and non-
renewal or termination notices.   
 
 
  70  Civil Monetary Penalties 
 
CMS has the responsibility for administering numerous CMP provisions enacted by Congress to 
combat fraud, waste, and abuse by enforcing program compliance and payment integrity.  During 
FY 2011, OGC provided legal advice to CMS regarding the development and imposition of 
CMPs and defended CMS in numerous administrative appeals and judicial litigation resulting 
from these cases, recovering or establishing the right to recover over $22.5 million in CMPs. 
 
Petitions for Remission 
 
OGC collaborated with Federal law enforcement, including the FBI, the USAOs, the Secret 
Service, U.S. Postal Service, and the U.S. Marshals Service in filing petitions for remission 
directed to recover assets subject either to administrative forfeiture by Federal law enforcement or 
civil judicial forfeiture by DOJ.  Each petition set forth the background of the fraudulent scheme, 
the history of Medicares payments, and how the fraudulently induced payments could be traced 
to the seized assets.  During FY 2011, OGC petitioned these agencies to recover funds in both 
criminal and civil litigation matters in which Medicare was a victim of fraud involving about 
$20.7 million seized by law enforcement agencies. 
     
Regulatory Review and Programmatic Advice 
 
During FY 2011, OGC advised CMS regarding compliance related provisions of a proposed rule 
for the Medicare Parts C and D programs.  OGG also advised CMS regarding a variety of contract 
compliance, immediate sanction, and civil money penalty issues, and assisted CMS with a variety 
of law enforcement inquiries related to Parts C and D.  OGC also worked with CMS and the DOJ 
to defend the agency in an ongoing Federal court challenge to the 2010 immediate termination of 
a Medicare Part D sponsor.  Further, OGC advised CMS regarding the development and 
implementation of the appeals process for the Part C risk adjustment data validation audit 
initiative.  In addition, OGC provided legal counsel to CMS regarding a final rule that provides 
CMS with greater discretion in determining when providers and suppliers have met all federal 
requirements and conditions of participation in the Medicare program. 
 
Medicaid Integrity 
 
Continuing recent trends, OGC saw continued increasing involvement in FY 2011 in Medicaid 
integrity issues as CMS devoted more resources to financial reviews and oversight and as states 
continued to present innovative proposals to reconfigure their programs and to draw down federal 
financial participation at or beyond the margins of the regular Medicaid program.  During 
FY 2011, two notable court decisions impacted our work on Medicaid integrity and state FCA 
recovery issues.  An Alabama district court decision vacated on APA grounds CMS State Health 
Official Letter outlining CMS expectations about states return of the Federal share when states 
recover in FCA actions, while a Fourth Circuit decision affirmed CMS recovery of the Federal 
share stemming from Medicaid-related litigation undertaken by West Virginia.  During FY 2011, 
OGC was successful in securing over $304 million in Medicaid program savings.  
 
 
  71  Physician Self-Referral 
 
OGC provided valuable assistance to CMS in navigating the complexities of the Stark physician 
self-referral law.  In FY 2011, OGC reviewed several draft Stark advisory opinions as well as 
various payment or coverage rules and suggested modifications necessary to avoid implicating, or 
to conform the regulation to, the Stark law.  In addition, OGC has been instrumental in advising 
CMS on the newly established (by the ACA) voluntary Self Referral Disclosure Protocol, under 
which providers of services and supplies may self-disclose actual or potential violations of the 
physician self-referral statute.  OGC has advised CMS on how to implement this new provision, 
how to apply the protocol, and how to resolve the specific disclosures (now over 100) that CMS 
has received. 
 
 
 
Medicare Secondary Payer (MSP) Workload 
 
OGCs efforts to recover conditional payments by Medicare that are the primary responsibility of 
other payers directly supports the HCFAC statutory goal of facilitating the enforcement of all 
applicable legal remedies for program fraud and abuse.  During FY 2011, OGC has been 
successful in establishing the right to recover over $4.6 million for Medicare under the MSP 
program.  Recent statutory changes to the MSP law have strengthened and expanded OGCs 
efforts in this area  to the benefit of the Medicare Trust Funds  including substantial CMPs for 
failure to report.   
 
Bankruptcy Litigation 
 
OGC protected Medicare funds when providers sought bankruptcy protections by asserting CMS 
recoupment and set-off rights to collect overpayments, arguing to continue suspension or 
termination actions against debtors, seeking adequate assurances from the bankruptcy court that 
CMS interests in the debtor's estate will be protected, arguing for the assumption of the Medicare 
provider agreement as an executory contract, and petitioning for administrative costs where 
appropriate.  In FY 2011, OGC vigorously asserted CMS interests in numerous bankruptcy and 
receivership actions involving physicans, hospitals, independent diagnostic test facilities, DME 
suppliers, nursing homes, and nursing home chains, negotiated agreements to recover 
overpayments, and aggressively advanced the use of Medicares recoupment and set-off authority, 
collecting or establishing the right to collect over $58 million in recoveries involving bankrupt 
providers. 
 
Denial of Claims and Payments 
 
CMS and its contractors engaged in various activities and initiatives to detect and prevent abusive 
and fraudulent billing practices.  These measures included provider and beneficiary education, use 
of claim sampling techniques, and a more rigorous scrutiny of claims with increased medical 
review.  In FY 2011, OGC played a major role in advising CMS regarding the development and 
implementation of these types of program integrity measures and defended CMS in litigation 
 
  72  brought by providers and suppliers who challenged these efforts.  OGC continued to aggressively 
defend CMS and its contractors in cases seeking damages for the alleged wrongful denial of 
claims, for being placed on payment suspension, and for not being granted extended repayment 
plans.   
 
Food and Drug Administration Pharmaceutical Fraud Program 
 
In FY 2011, the FDA was allocated $3.4 million in HCFAC funding by HHS for the FDA 
Pharmaceutical Fraud Pilot Program (PFPP).  The PFPP has enhanced the health care fraud-
related activities of FDA's Office of Criminal Investigations (OCI) and the OGC Food and Drug 
Division.  OCI, with the support of OGC, investigates criminal violations of the FDCA, the 
Prescription Drug Marketing Act, the Federal Anti-Tampering Act, and related Federal statutes.   
 
The PFPP is designed to detect, prosecute, and prevent pharmaceutical, biologic, and medical 
device fraud.  The PFPP gathers information from sources inside and outside FDA and focuses on 
fraudulent marketing schemes, application fraud, clinical trial fraud, and flagrant manufacturing-
related violations related to biologics, drugs, and medical devices.  The early detection and 
prosecution of fraudulent conduct furthers FDAs public health mission and helps reduce health 
care costs and deter future violators.  As described below, the PFPP has identified multiple 
alleged medical product fraud schemes through various avenues including enhanced intra-agency 
coordination.  
 
In FY 2011, FDA continued the PFPP and hired the approved complement of personnel.  FDA 
continued the coordination and communication between criminal investigators, regulatory 
components of FDA, and the USAOs investigating PFPP-identified health care fraud-
related investigations.  In its first full fiscal year of HCFAC program activity, FDA, through its 
PFPP, secured two indictments relative to clinical trial fraud.  In addition, 16 criminal 
investigations were initiated including the following: 
 
  Four investigations involving allegations of off-label drug promotion by different 
manufacturers of brand name drugs; 
  One investigation involving allegations of off-label drug promotion and other violative 
promotional issues by a manufacturer of brand name drugs including unsubstantiated 
superiority claims and omission of risk information;   
  One investigation involving a medical device manufacturer pertaining to issues involving 
a recalled device product; 
  One investigation involving allegations that a company withheld nonclinical studies from 
FDA regarding Investigational Device Exemption applications because the studies 
demonstrated that the products in the applications could be hazardous to patients; and   
  Nine investigations involving allegations of clinical trial fraud and/or application fraud. 
 
In regards to judicial action on clinical trial fraud, a physician and clinical research coordinator 
were indicted on charges of falsifying study data in a clinical trial.  The pair was charged with one 
count of conspiracy, three counts of mail fraud, and one count of falsifying information required 
by the FDA.  The indictment alleges the defendants were employed by a research institute that 
 
  73  was hired by a pharmaceutical manufacturer to perform a clinical trial on a tablet for the treatment 
of allergies.  The plans for the study called for all test subjects to be 50 years of age or older and 
to suffer from ragweed-induced allergy symptoms.  The pharmaceutical manufacturer required 
that employees of the clinical trial facility who were directly involved with the study be excluded 
as test subjects.  The defendants reported that eight test subjects were qualified, even though they 
knew two of the test subjects were not qualified.  The two test subjects both under 50 years of age 
were employees at the research institute, who were using false names and dates of birth to 
participate in the study.  The indictment alleges the defendants falsely stated physical 
examinations had been conducted on the two unqualified test subjects, signed false statements to 
FDA indicating the clinical study was being conducted in accordance with proper protocol, and 
arranged for the unqualified subjects to have office visits while the executive director was at 
lunch in order to conceal the fact that the test subjects were ineligible. 
  
In addition, FDA developed and conducted a three day training session geared toward Special 
Agents, Supervisors, and Attorneys.  Presenters, consisting of Special Agents, Attorneys, and 
FDA Center personnel, covered multiple HCFAC related topics including off-label promotion, 
clinical trial fraud, application fraud, and the resources and divisions within and external to FDA 
that would be most helpful to case agents working HCFAC cases.   
 
Assistant Secretary for Public Affairs 
 
In FY 2010, the Assistant Secretary for Public Affairs (ASPA) was allocated $690,894 in HCFAC 
funding by HHS to produce a series of live, remote events to promote the awareness of health 
care fraud issues before national and regional public and law enforcement audiences.  Funding for 
this project was a direct result of feedback given at the National Fraud Summit; it addressed 
multiple workgroup recommendations that more be done to raise the public awareness of how 
health care fraud can be prevented.  While funding was allocated to ASPA in FY 2010, these 
events occurred, and the funds were obligated, in FY 2011. 
 
In FY 2011, ASPA produced seven events spanning several months.  The events were held in 
Miami, Boston, Los Angeles, Detroit, Philadelphia, and New York City.  The events targeted 
areas with a high incidence of health care fraud where DOJ and HHS are working to prevent, 
deter, and prosecute such fraud.  These events included presentations with distinguished speakers 
and panel discussions, including participation by the HHS Secretary and Attorney General.  
Additionally, the events were webcast live and involved an open press conference for a public 
forum for the press to ask questions of Administration officials. 
 
The effectiveness of outreach activities can be measured in part by the increase in website activity 
surrounding the dates of the conferences; for example, the government website 
www.stopmedicarefraud.gov experienced a 75 percent increase in activity surrounding the dates 
of the Boston Health Care Fraud Summit.   By surveying participants, ASPA was able to measure 
in part the importance of government in educating the public about health care fraud.  For 
example, in a survey of the Boston and New York Fraud Summits, over half of the respondents 
said they receive information about health care fraud prevention from conferences and events.  
Moreover, over 85 percent of survey respondents use Federal government resources, such as the 
 
  74  website www.stopmedicarefraud.gov, to obtain information about health care fraud.  The health 
care fraud summits have provided an open public forum to promote public awareness and stress 
health care cost savings potential; they have also received an overwhelmingly positive response 
from the media.   
 
Additionally, an initial round of national paid advertising began in October 2010 and a second 
round of a national paid advertising began in August 2011 using HCFAC funding provided to 
ASPA in FY 2010. The advertising was targeted to Medicare beneficiaries and was designed to 
educate Medicare beneficiaries about the importance of keeping Medicare information private and 
where to go for help if fraud is suspected.  The paid advertising referred beneficiaries to 1-800-
MEDICARE or www.stopmedicarefraud.gov for help and ran nationally on national cable 
networks.  This round of advertising also included targeted ethnic advertising in select markets.  
Local print and radio advertising ran in Russian in New York, in Spanish in Miami, and in 
Armenian in Los Angeles. 
 
 
  75  THE DEPARTMENT OF JUSTICE 
 
United States Attorneys 
 
In FY 2011, the United States Attorneys Offices (USAOs) were allocated approximately $41.1 
million in HCFAC funding to support civil and criminal health care fraud and abuse litigation, as 
exemplified in the Program Accomplishments section.  The USAOs dedicated substantial district 
resources to combating health care fraud and abuse in 2011, and HCFAC allocations have 
supplemented those resources by providing funding for attorneys, paralegals, auditors and 
investigators, as well as funds for litigation of resource-intensive health care fraud cases. 
 
The 93 United States Attorneys and their assistants, or AUSAs, are the nations principal 
prosecutors of federal crimes, including health care fraud.  Each district has a designated Criminal 
Health Care Fraud Coordinator and a Civil Health Care Fraud Coordinator.  Civil and criminal 
health care fraud referrals are often made to USAOs through the law enforcement network 
described herein, and these cases are usually handled primarily by the USAOs, although the civil 
referrals are sometimes handled jointly with the Civil Divisions Fraud Section.  The other 
principal source of referrals of civil cases for USAOs is through the filing of qui tam (or 
whistleblower) complaints.  These cases are often handled jointly with trial attorneys in the 
Frauds Section. USAOs also handle most criminal and civil appeals at the Federal appellate level. 
 
USAOs play a major role in health care fraud enforcement by bringing criminal and affirmative 
civil cases to recover funds wrongfully taken from the Medicare Trust Funds and other taxpayer-
funded health care systems as a result of fraud, waste, and abuse.  Civil and criminal AUSAs 
litigate a wide variety of health care fraud matters, including false billings by physicians and other 
providers of medical services, overcharges by hospitals, Medicaid fraud, kickbacks to induce 
referrals of Medicare or Medicaid patients, fraud by pharmaceutical and medical device 
companies, home health fraud, and failure of care allegations against nursing home owners.  
Working closely with their partners in Civil Frauds, several civil health care fraud AUSAs have 
focused their efforts on pharmaceutical fraud, resulting in significant civil recoveries including: 
$701 million from Abbott Laboratories, Roxane Laboratories and Dey, Inc.; $600 million from 
GlaxoSmithKline; $60 million from Elan Corp.; and $25 million from Novo Nordisk.  Most of the 
civil settlements were part of a global resolution, which also addressed the criminal liabilities, 
resulting in criminal pleas, as well as significant fines and forfeitures.  The criminal portion of 
these investigations and resolutions was handled by criminal health care fraud AUSAs.  These 
global settlements resolved allegations including, reporting of false and inflated drug prices, 
manufacturing and distributing adulterated drugs, off-label marketing and kick-backs.  All of 
these cases are detailed earlier in this report.    
 
Turning to other health care fraud, several of the USAOs have dedicated significant resources to 
investigate fraud perpetrated on our most vulnerable citizens.  To this end, the USAOs have 
partnered with Civil Frauds in the Elder Justice and Nursing Home Initiative to address elder 
abuse and neglect, and many USAOs have devoted resources to investigating home health fraud.  
As a result of these efforts, Maxim Healthcare Services, Inc., one of the nations leading providers 
 
  76  of home health care services, executed a DPA, and agreed to pay more than $150 million to 
resolve criminal and civil charges relating to a nationwide scheme to defraud Medicaid programs 
and Veterans Affairs program.  
 
The USAOs partner with the Criminal Division in the Strike Forces, which are currently operating 
in nine USAOs across the country.  Each USAO has dedicated several AUSAs and support 
personnel to work with Criminal Division attorneys in this important initiative.  The MFSFs use 
data analysis to identify high-billing levels in health care hot spots so that emerging or migrating 
schemes can be targeted.  The significant successes of the MFSFs are detailed earlier in this 
report.   
 
Special Focus Teams, consisting of criminal and civil AUSAs, paralegals, and auditors, are 
operational in three districts and focus on pharmaceutical, biologics, and medical device fraud.  
The teams have contributed significantly to the success of the pharmaceutical investigations and 
recoveries this year.  To increase the capacity of other districts to successfully litigate these 
complex health care fraud cases, the Special Focus Teams have organized monthly training 
Webinars and serve as advisors for the USAO community in the various complex areas of health 
care fraud. 
 
In addition to the positions funded by HCFAC, the Executive Office for United States Attorneys 
Office of Legal Education (OLE) uses HCFAC funds to train AUSAs and other DOJ attorneys, as 
well as paralegals, investigators, and auditors in the investigation and prosecution of health care 
fraud.  In 2011, OLE offered an Affirmative Civil Enforcement (ACE) Seminar, which included 
training on health care fraud, and was attended by over 100 AUSAs and DOJ trial attorneys.  In 
addition, an ACE Conference, with a heavy concentration on health care fraud issues, was offered 
for paralegals, auditors, and investigators.  Many USAO attorneys, investigators, auditors, and 
paralegals serve as faculty at these OLE trainings, and also participate in other Federal, state, and 
private health care fraud seminars.       
 
Criminal Prosecutions 
 
In FY 2011, the USAOs received 1,110 new criminal matters involving 2,561 defendants, and had 
1,873 health care fraud criminal matters pending,14 involving 3,118 defendants.  The USAOs filed 
criminal charges in 489 cases involving 1,430 defendants, and obtained 743 federal health care 
fraud related convictions. 
 
Civil Matters and Cases 
 
In FY 2011, the USAOs had opened 977 new civil health care fraud investigations.  At the end of 
FY 2011, the USAOs had 1,069 civil health care fraud investigations pending. 
Civil Division 
 
                                                 
14 When a USAO accepts a criminal referral for consideration, the office opens it as a matter pending in the district.  
A referral remains a pending matter until an indictment or information is filed or it is declined for prosecution. 
 
  77  In FY 2011, the Civil Division received approximately $22.3 million in HCFAC funding to 
support the health care fraud activities of the Commercial Litigation Branchs Fraud Section and 
the Consumer Protection Branch.  This amount also included funding to support the Department 
of Justices Elder Justice and Nursing Home Initiative.   
 
The Commercial Litigation Branchs Fraud Section 
 
The Civil Divisions Commercial Litigation Branch (and, specifically, its Fraud Section) 
investigates health care fraud allegations and brings actions under the FCA to recover money on 
behalf of defrauded federal health care programs including Medicare, Medicaid, TRICARE, and 
the FEHBP.  Working closely with the USAOs, HHS/OIG, and other law enforcement agencies, 
the Commercial Litigation Branchs Fraud Section has recovered over $1 billion almost every 
year since 2000 and $2.35 billion in FY 2011 alone. 
 
The Commercial Litigation Branchs Fraud Section investigates and resolves matters involving a 
wide array of health care providers and schemes.  In recent years, pharmaceutical fraud cases 
have constituted a significant component of the Sections health care fraud efforts.  These cases 
are commonly nationwide in scope, involve legally and factually complex questions, and 
routinely require the dedication of significant resources to investigate and resolve.  As mentioned 
previously in this report, these cases included GlaxoSmithKline, which paid $600 million to 
resolve FCA and related state claims related to its faulty manufacturing practices and distribution 
of certain adulterated drugs.  They also included Abbott Laboratories, Roxane Laboratories and 
Dey, Inc., which paid over $700 million to settle FCA claims that they had knowingly reported 
inflated prices for their drugs products and caused Medicare and Medicaid to overpay for those 
drugs as a result.   
 
In addition to pharmaceutical fraud, the Commercial Litigation Branchs Fraud Section 
investigates hospitals, physicians, and other providers for providing and billing Medicare for 
medically unreasonable and unnecessary services.  These have included the seven hospitals 
mentioned herein that paid over $6 million to resolve FCA claims for submitting false claims 
related to medically unnecessary inpatient kyphoplasty claims, as well as a physician who paid 
$5.7 million to resolve claims involving medically unnecessary radiation oncology services.   
 
The Commercial Litigation Branchs Fraud Section also investigates cases arising from violations 
of the AKS or Stark Law, where hospitals, pharmaceutical companies, other suppliers pay 
kickbacks to doctors and others in order to induce service referrals of Medicare or Medicaid 
patients.  These included the Medline Industries, Inc. case, where the company paid $85 million 
to resolve allegations that it paid kickbacks to induce health care providers to purchase, lease, or 
order medical goods and supplies from it.  It also included the St. Jude Medical, Inc. matter, in 
which the company paid $16 million to resolve allegations that it paid kickbacks to induce 
physicians to implant its pacemakers and defibrillators. 
 
In addition to its investigative responsibilities, the Commercial Litigation Branchs Fraud Section 
plays a critical role supporting and providing guidance to its health care fraud partners.  It 
regularly provides training and guidance to AUSAs and agents on the FCA and health care fraud 
 
  78  issues.  The Section works closely with HHS/OIG, Office of General Counsel, in all settlements 
of health care fraud allegations in order to ensure that the administrative remedies possessed by 
HHS are appropriately considered and to enable the negotiation of compliance terms that diminish 
the risk that the offending conduct will be repeated.  The Section also collaborates with and 
counsels CMS and HHS/OIG on interagency initiatives and proposed rules and regulations.   
 
The Elder Justice and Nursing Home Initiative, which is housed in the Civil Division, coordinates 
and supports law enforcement efforts to combat elder abuse, neglect, and financial exploitation.  
The Initiative supports law enforcement efforts by maintaining an information bank of Elder 
Justice related materials (including briefs, opinions, indictments, plea agreements, subpoenas 
templates); funding medical reviewers, auditors, and other consultants to assist DOJ attorneys and 
AUSAs in their nursing home and/or long term care facility cases; hosting quarterly 
teleconferences with DOJ attorneys and AUSAs across the country to discuss issues or 
developments in connection with our nursing home and failure of care cases; and coordinating 
nationwide investigations of skilled nursing facilities.  Moreover, in January 2011, the Initiative 
developed and organized the very first Elder Justice training program at the National Advocacy 
Center.  This two day training focused on instructing AUSAs and agents on how to investigate, 
develop, and if necessary, litigate, failure of care cases against nursing homes and long term 
care providers.  In addition to supporting law enforcement efforts, the Initiative continues to fund 
research projects awarded by the Office of Justice Programs, National Institute of Justice, to study 
the abuse, neglect, and exploitation of elderly individuals and residents of residential care 
facilities. 
 
The Consumer Protection Branch 
 
The Consumer Protection Branch (CPB) investigates and prosecutes drug and device 
manufacturers and individuals who are illegally promoting and distributing unapproved, 
misbranded, and adulterated drugs and devices in violation of the FDCA.  CPB works closely 
with our counterparts in the Commercial Litigation Branchs Fraud Section, the USAOs, and the 
FDA on a wide variety of health care fraud matters.  In recent years, CPB has convicted dozens of 
companies and individuals.  The prosecutions resulted in significant jail terms and fines, 
penalties, and forfeitures totaling in the billions of dollars. 
 
In the area of pharmaceutical and device fraud, CPB coordinates complex investigations with 
districts nationwide, staffing the cases directly as well as providing assistance to USAOs.  
Because these investigations are complicated, both legally and factually, they demand significant 
resources.  The recent prosecution of Marc Hermelin, a pharmaceutical company executive, is an 
example of the sort of complex health care fraud investigations the Consumer Protection Branch 
handles with USAOs.  This case was handled jointly with the USAO for the Eastern District of 
Missouri.  Mr. Hermelin, the chairman of the board and CEO of KV Pharmaceutical Company 
and an officer of KVs subsidiary, Ethex, pled guilty to two misdemeanor counts of introducing a 
misbranded pain relief and opiate drug, morphine sulfate tablets, into interstate commerce in 
violation of the FDCA.  The morphine sulfate included oversized tablets, which contained more 
active ingredient of morphine than was specified in its labeling, rendering the tablets misbranded 
under the FDCA.  In 2010, Ethex also pled guilty to two felony counts of failing to file field alerts 
 
  79  with the FDA regarding manufacturing problems that led to the oversized tablets.  The company 
paid a total of $27.6 million in fines, restitution, and forfeiture.  By virtue of his roles at KV and 
Ethex, Hermelin was a responsible corporate officer with the authority and responsibility to 
prevent and correct FDCA violations at both companies.  Hermelin was sentenced to 17 days in 
jail, was ordered to pay a $1 million fine, and was ordered to forfeit $900,000.   
 
In addition to prosecuting legitimate businesses and individuals for health care offenses, CPB 
prosecutes illegitimate businesses and charlatans selling fake cures.  For example, in FY 2011, 
CPB prosecuted four individuals and one company who were convicted of conspiracy to market 
medical equipment and drug treatments for a nonexistent epidemic of Lyme disease.  The 
company functioned as an alternative medical provider that disseminated materials claiming 
that Lyme disease was the undiagnosed plague of the 21st century and was a contributing factor 
in many chronic illnesses.  Using misrepresentations and misleading information, the defendants 
conspired to violate the FDCA by selling a microscope that supposedly would diagnose Lyme 
disease, as well as a treatment that included injecting patients with drugs that were neither FDA 
reviewed nor approved.  A Kansas doctor used one of these medicines in one of his patients, 
resulting in that patients death.  
 
CPB has also been a leader in investigating and prosecuting Internet pharmacies, which is, in 
many ways, the leading edge of health care fraud in the United States.  The Internet now provides 
an avenue for the illegal dissemination of prescription drugs and controlled substances for drug 
abusers and others who divert drugs.  Website owners often hire doctors and pharmacists who are 
willing to authorize and dispense prescriptions based on an online questionnaire, without any 
legitimate doctor-patient relationship, thereby permitting these websites to operate as online pill 
mills.  Through the FDCA, CPB prosecutes those who unlawfully distribute prescription drugs 
and controlled substances over the Internet.  As a result of its leadership in this area, CPB is now 
a primary source for legal advice to prosecutors around the country pursuing such cases.  
 
In addition, CPB provides expertise and guidance in the prosecution of those selling counterfeit 
drugswhich are often sold online and are a growing problem in the United States and abroad.  
In addition to advising USAOs on this issue, CPB also serves on the Attorney Generals Task 
Force on Intellectual Property, which has made it a priority to improve law enforcement with 
respect to counterfeit products, such as drugs and devices, which threaten the public health and 
safety.  
 
 
 
 
 
 
Criminal Division 
 
In FY 2011, the Criminal Division was allocated $5.8 million in HCFAC funding to support 
criminal health care fraud litigation and interagency coordination, which is carried out primarily 
 
  80  by two sections with the Criminal Division: the Fraud Section and the Organized Crime and Gang 
Section (OCGS).   
 
The Fraud Section 
 
The Fraud Section initiates and coordinates complex health care fraud prosecutions and supports 
the USAOs with legal and investigative guidance and training, and trial attorneys to prosecute 
health care fraud cases.   Beginning in March 2007, the Criminal Divisions Fraud Section, 
working with the local USAOs, the FBI and law enforcement partners in HHS/OIG, and state and 
local law enforcement agencies, launched the Medicare Fraud Strike Force in Miami-Dade 
County, Florida, to prosecute individuals and entities that do not provide legitimate health care 
services, but exist solely for the purpose of defrauding Medicare and other Government health 
care programs.  Since 2007, DOJ and HHS have expanded the Strike Force to nine cities.  In FY 
2011, the Fraud Section continued to provide attorney staffing, litigation support, as well as 
leadership and management oversight for numerous Strike Force prosecutions in eight of the nine 
cities.  A summary of the Fraud Sections key litigation accomplishments in FY 2011 follows:   
 
  Opened or filed 44 new health care fraud cases involving charges against 152 defendants 
who collectively billed the Medicare and Medicaid programs more than $577 million; 
  Obtained 88 guilty pleas and litigated 11 jury trials, winning guilty verdicts against 19 
defendants;15   
  Prison sentences imposed in the Section=s health care fraud cases during the year averaged 
more than 53 months; and 
  Court-ordered restitution, forfeiture and fines exceeded $184 million.   
 
Fraud Section attorneys staffed and coordinated most of the Division=s health care fraud litigation 
through the existing Medicare Fraud Strike Force teams in Miami, Los Angeles, Detroit, Houston, 
Brooklyn, Baton Rouge, and Tampa, and by implementing the new Strike Force phase in Dallas 
during FY 2011.16 
 
Section attorneys coordinated two major multi-district Strike Force arrest takedowns carried out 
during the fiscal year and handled several of the investigations and indictments that were filed in 
these operations. 
 
On February 17, 2011, Fraud Section and USAO Strike Force prosecutors unsealed charges 
against 115 defendants in nine cities, including doctors, nurses, health care company owners and 
executives, and others for their alleged participation in Medicare fraud schemes involving more 
than $240 million in false billing.  More than 700 law enforcement agents from the FBI, 
HHS/OIG, multiple Medicaid Fraud Control Units, and other state and local law enforcement 
agencies participated in the operation, which was the largest-ever federal health care fraud 
                                                 
15 Fraud Section attorneys litigated 11 of the 17 Medicare Fraud Strike Force trials during FY 2010. Several of these 
trials were summarized previously in the Medicare Fraud Strike Force section of this report.  
 
16 The U.S. Attorneys Office for the Northern District of Illinois implemented the Strike Force in Chicago and is 
providing management and oversight for  Strike Force prosecutions in that district. 
 
  81  takedown.  In addition to making arrests, agents also executed 16 search warrants across the 
country in connection with ongoing Strike Force investigations. 
 
On September 7, 2011, the Fraud Section and USAO Strike Force prosecutors unsealed charges 
against 91 defendants in eight cities, including doctors, nurses, health care company owners and 
executives, and others for their alleged participation in Medicare fraud schemes involving more 
than $290 million in false billing.  This was the largest-ever federal health care fraud takedown, 
as measured by total fraudulent billings.  In addition to making arrests, agents also executed 18 
search warrants across the country in connection with ongoing Strike Force investigations. 
 
In addition to Medicare Fraud Strike Force cases, the Fraud Section handles other types of 
complex criminal health care fraud litigation.  Often, such cases are handled in a parallel manner 
by Fraud Section prosecutors along with DOJ Civil Division attorneys and/or AUSAs from the 
USAOs.   
 
In December 2010, Kos Pharmaceuticals, a subsidiary of Abbott Laboratories, agreed to pay more 
than $41 million to resolve criminal and civil liability arising from conduct relating to its drugs 
Advicor and Niaspan.  Kos also entered into a DPA and agreed to the filing of a criminal 
information in the Middle District of Louisiana charging the company with one count of 
conspiracy to violate the AKS.  According to the criminal information, Kos conspired to violate 
the AKS by agreeing to pay physicians kickbacks in exchange for their writing prescriptions for 
Kos drugs.   Specifically, two doctors proposed that they would endorse the use of Kos products, 
including Advicor, for the treatment of cholesterol in exchange for a series of payments.  From 
2002 to 2004, Kos made a series of payments to the two doctors or a third party intermediary in 
the form of sponsorship of continuing medical education classes conducted by the doctors and 
purported speakers fees.  Kos agreed to pay a $3.4 million criminal fine as a condition of the 
DPA.  The department agreed to enter into a DPA with Kos based in part on the companys 
undertaking of a thorough internal investigation of misconduct; its reporting of information from 
the investigation to the department on a regular basis; its continued and ongoing cooperation with 
the departments investigation of the matter; and in recognition of the remedial measures 
undertaken by the company. 
 
The Delaware-based company also agreed to pay more than $38 million to settle civil allegations 
under the FCA that Kos offered and paid doctors, other medical professionals, physician groups 
and managed care organizations, illegal kickbacks in the form of money, free travel, grants, 
honoraria and other valuable goods and services, in violation of the AKS to get them to prescribe 
or recommend Niaspan and Advicor.  In addition, the United States contends that Kos promoted 
the sale and use of Advicor for use as first-line therapy for management of mixed dyslipidemias 
(a disruption of the lipids in the blood). Such an off-label use was not approved by the FDA nor 
was it a medically-accepted indication for which the United States and state Medicaid programs 
provided coverage for Advicor.  The Federal share of the civil settlement is $33.7 million and the 
state Medicaid share exceeds $4.4 million.  
 
In addition to health care fraud litigation, the Fraud Section also provided legal guidance to FBI 
and HHS/OIG agents, health program agency staff, AUSAs, and other Criminal Division 
 
  82  attorneys on criminal, civil, and administrative tools to combat health care fraud.   From 
September 28 through September 30, the Fraud Section hosted a three day health care fraud 
training conference for approximately 175 federal prosecutors, FBI agents, HHS/OIG agents, and 
others.   The Fraud Section also provided advice and written materials on patient medical record 
confidentiality and disclosure issues, and coordinated referrals of possible criminal HIPAA 
privacy violations from the HHS Office for Civil Rights; monitored and coordinated DOJ 
responses to legislative proposals, major regulatory initiatives, and enforcement policy matters; 
reviewed and commented on health care provider requests to the HHS/OIG for advisory opinions, 
and consulted with the HHS/OIG on draft advisory opinions; worked with CMS to improve 
Medicare contractors= fraud detection, referrals to law enforcement for investigation, and case 
development work; and prepared and distributed to all USAOs and FBI field offices periodic 
summaries of recent and significant health care fraud cases. 
 
The Organized Crime and Gang Section (OCGS) 
 
The Criminal Divisions Organized Crime and Gang Section (OCGS) supports investigations and 
prosecutions of fraud and abuse targeting the 2.6 million private sector health plans sponsored by 
employers and/or unions, as well as investigations and prosecutions of health care frauds 
perpetrated by domestic and international organized crime groups.  
 
Private sector employment based group health plans are the leading source of health care 
coverage for individuals not covered by Medicare or Medicaid.   OCGS attorneys provide 
litigation support and advice to AUSAs and criminal investigative agencies to combat corruption 
and abuse of such private employment based group health plans covered by the Employee 
Retirement Income Security Act (ERISA), including health care fraud schemes by corrupt entities 
that sell unlicensed health insurance products and health benefit frauds in violation of the 
prevailing wage fringe benefit laws and regulations.  
 
OCGS attorneys provide health care fraud and abuse training and legal guidance to AUSAs and to 
criminal investigators and agents of the Department of Labors Employee Benefits Security 
Administration and Office of Inspector General.  Such guidance and training has covered 
prosecutions involving abuses targeting private sector employee health plans subject to ERISA, 
health plans sponsored by labor organizations and multiple employer welfare arrangements, as 
well as the use of the Racketeering Influenced and Corrupt Organizations (RICO) statute in 
prosecuting Medicare or Medicaid fraud or private sector health care frauds.  OCGS drafts and 
coordinates criminal legislative initiatives affecting employee health benefit plans and reviews 
and comments on legislative proposals affecting employment based health benefit plans.   
OCGS attorneys provide litigation support and advice in the investigation and prosecution of 
health care fraud perpetrated by domestic and international organized crime groups through the 
long-standing Organized Crime Strike Force Units located within various USAOs.  For example, 
an OCGS attorney is teamed with the OC Strike Force Chief in the Southern District of Florida to 
prosecute a health care fraud perpetrated by a Eurasian organized crime group with alleged ties to 
Russia and Armenia.  In February 2011, this prosecution was brought as part of a three city 
crackdown on activities of Armenian Power, an international organized crime group.  The health 
 
  83  care fraud schemes involved chiropractic clinics that allegedly paid individuals to refer patients 
of staged accidents. The clinics then billed private automobile insurance carriers for treatments 
that were either not medically necessary or were not provided. 
OCGS is also working to improve strategic coordination in the identification and prosecution of 
domestic and international organized crime groups engaged in sophisticated frauds posing a threat 
to the health care industry. 
  
Civil Rights Division 
 
  In FY 2011, the Civil Rights Division was allocated approximately $5.5 million in HCFAC 
funding to support Civil Rights Division litigation activities related to health care fraud and abuse.  
The Civil Rights Division pursues relief affecting public, residential health care facilities and 
service systems.  The Division has also established an initiative to eliminate abuse and grossly 
substandard care in public, Medicare and Medicaid funded nursing homes and other long-term 
care facilities.  Consistent with the Supreme Courts decision in Olmstead v. L.C., 527 U.S. 581 
(1999), the Division has also undertaken initiatives to eliminate the needless institutionalization of 
individuals who require health care supports and services. 
   
  The Division plays a critical role in the HCFAC Program.  The Special Litigation Section of the 
Civil Rights Division is the sole DOJ component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C. ' 1997 (CRIPA).  CRIPA authorizes the investigation of 
conditions of confinement at state and local residential institutions (including facilities for persons 
with developmental disabilities or mental illness, and nursing homes) and initiation of civil action 
for injunctive relief to remedy a pattern or practice of violations of the Constitution or Federal 
statutory rights.  The review of conditions in facilities for persons who have mental illness, 
facilities for persons with developmental disabilities, and nursing homes comprises a significant 
portion of the program.   
 
  The Disability Rights Section of the Civil Rights Division has primary enforcement authority for 
the Americans with Disabilities Act (ADA).  Title II of the ADA authorizes investigation of 
allegations of discrimination by public entities against individuals with disabilities, including 
discrimination in the form of needless institutionalization of persons who require health care 
supports and services.  See Olmstead v. L.C., 527 U.S. 581 (1999).  Title II also authorizes the 
initiation of civil action to remedy discrimination in violation of the ADA.  Both the Special 
Litigation Section and the Disability Rights Section have undertaken initiatives to combat the 
unjustified institutionalization of persons with disabilities.   
 
  The Special Litigation and Disability Rights Sections work collaboratively with the USAOs and 
HHS.   
 
Fiscal Year 2011 Accomplishments 
 
Special Litigation Section staff conducted preliminary reviews of conditions and services at 16 
health care facilities in 13 states during FY 2011.  The task in preliminary inquiries is to 
 
  84  determine whether there is sufficient information supporting allegations of unlawful conditions 
and needless institutionalization to warrant formal investigation under CRIPA.  The Section 
reviews information pertaining to areas such as abuse and neglect, medical and mental health 
care, use of restraints, fire and environmental safety, and placement in the most integrated setting 
appropriate to individual needs.  Separately, in FY 2011, the Section opened or continued formal 
investigations, entered remedial agreements, or monitored existing remedial agreements regarding 
79 health care facilities in 25 states, the District of Columbia, the Territory of Guam, and the 
Commonwealth of Puerto Rico.   
 
The Section found that conditions and practices at three state facilities for persons with mental 
illness, one county nursing facility, and one state facility for persons with intellectual and 
developmental disabilities violate the residents' Federal constitutional and statutory rights.  Those 
facilities are:  Delaware Psychiatric Center, in New Castle, DE; New Hampshire Hospital and 
Glencliff Home, in Concord and Benton, NH, respectively; Maple Lawn Nursing Home, in 
Palmyra, MO; and, Central Virginia Training Center, in Lynchburg, VA.   
 
In Fiscal Year 2011, the Section commenced investigations of 12 Mississippi facilities for persons 
with intellectual and developmental disabilities and/or mental illness, including:  Boswell 
Regional Center, in Magee, MS; Ellisville State School, in Ellisville, MS; Hudspeth Regional 
Center, in Pearl, MS; Southern Mississippi Regional Center, in Long Beach, MS; Mississippi 
Adolescent Center, in Brookhaven, MS; North Mississippi Regional Center, in Oxford, MS; 
Mississippi State Hospital, in Whitfield, MS; South Mississippi State Hospital, in Purvis, MS; 
Central Mississippi Residential Center, in Newton, MS; East Mississippi State Hospital, in 
Meridian, MS; North Mississippi State Hospital, in Tupelo, MS; and the Specialized Treatment 
Center, in Gulfport, MS. 
 
The Section entered two settlement agreements to resolve its investigations of eight state operated 
facilities for persons with mental illness.  Those facilities are:  Georgia Regional Hospital, in 
Atlanta; Georgia Regional Hospital, in Savannah; Northwest Georgia Regional Hospital, in 
Rome; East Central Regional Hospital, in Augusta; Central State Hospital, in Milledgeville; 
Southwestern State Hospital, in Thomasville; West Central Georgia Regional Hospital, in 
Columbus, GA; and Delaware Psychiatric Center, in New Castle, DE.  In addition, the Section 
resolved its investigation of William F. Green Veterans Nursing Home, in Bay Minette, AL, 
through a private agreement. 
 
The Section continued its investigations of 13 residential facilities for persons with intellectual 
and developmental disabilities, including:  Sonoma Developmental Center, in Eldridge, CA; 
Lanterman Developmental Center, in Pomona, CA; Rainier Residential Rehabilitation Center, in 
Buckley, WA; Bellefontaine Developmental Center, in St. Louis, MO; Northwest Habilitation 
Center, in St. Louis, MO; Rosewood Center, in Owings Mills, MD; Clyde L. Choate 
Developmental Center, in Anna, IL; Howe Developmental Center, in Tinley Park, IL; Central 
Virginia Training Center, in Lynchburg, VA, and, five Arkansas facilities, including:  
Arkadelphia Human Development Center, in Arkadelphia, AR; Alexander Human Development 
Center, in Alexander, AR; Booneville Human Development Center, in Booneville, AR; Jonesboro 
Human Development Center, in Jonesboro, AR; and Southeast Arkansas Human Development 
 
  85  Center, in Warren, AR. 
 
The Section also continued its investigations of seven facilities for persons with mental illness, 
including Oregon State Hospital, in Salem, OR; Delaware State Psychiatric Center, in New 
Castle, DE; Ancora Psychiatric Hospital, in Winslow, NJ; and, four facilities in North Carolina, 
including John Umstead Hospital in Butner; Dorothea Dix Hospital in Raleigh; Cherry Hospital in 
Goldsboro; and Broughton Hospital in Morgantown.   
 
The Section also continued its investigations of William F. Green State Veterans Nursing Home, 
in Bay Minette, AL; Maple Lawn Nursing Home, in Palmyra, MO; LaSalle Nursing Home, in 
Ottowa, IL; and, Casa del Veteranos, in Juana Diaz, PR.  In some of these matters, the Section is 
reviewing voluntary compliance to improve conditions.  
 
The Section monitored the implementation of remedial agreements for 20 facilities for persons 
with intellectual and developmental disabilities:  Clover Bottom Developmental Center, in 
Nashville, TN; Greene Valley Developmental Center, in Greeneville, TN; Harold Jordan Center, 
in Nashville, TN; Arlington Developmental Center, in Arlington, TN; Woodbridge 
Developmental Center, in Woodbridge, NJ; Oakwood Community Center, in Somerset, KY; 
Beatrice State Developmental Center, in Beatrice, NE; Lubbock State Supported Living Center, in 
Lubbock, TX; Denton State Supported Living Center, in Denton, TX; Abilene State Supported 
Living Center, in Abilene, TX; Austin State Supported Living Center, in Austin, TX; Brenham 
State Supported Living Center, in Brenham, TX; Corpus Christi State Supported Living Center, in 
Corpus Christi, TX; El Paso State Supported Living Center, in El Paso, TX; Lufkin State 
Supported Living Center, in Lufkin, TX; Mexia State Supported Living Center, in Mexia, TX; 
Richmond State Supported Living Center, in Richmond, TX; Rio Grande State Supported Living 
Center, in Harlingen, TX; San Angelo State Supported Living Center, in Carlsbad, TX; San 
Antonio State Supported Living Center, in San Antonio, TX.  These remedial agreements include 
the provision of adequate community supports and services.   
 
The Section also monitored the implementation of remedial agreements regarding 16 state-
operated residential facilities for persons with mental illness:  Kings County Hospital Center, in 
Brooklyn, NY; Guam Mental Health Unit, in the Territory of Guam; Vermont State Hospital, in 
Waterbury, VT; Metropolitan State Hospital, in Norwalk, CA; Napa State Hospital, in Napa, CA; 
Atascadero State Hospital, in Atascadero, CA; Patton State Hospital, in Patton, CA;  St. 
Elizabeths Hospital, Washington, D.C.; Georgia Regional Hospital, in Atlanta, GA; Georgia 
Regional Hospital, in Savannah, GA; Northwest Georgia Regional Hospital, in Rome, GA; 
Central State Hospital, in Milledgeville, GA; Southwest State Hospital, in Thomasville, GA; West 
Central Georgia Hospital, in Columbus, GA; East Central Georgia Regional Hospital, in Augusta, 
GA; and, Connecticut Valley Hospital, in Middletown, CT.  These remedial agreements include 
the provision of adequate community supports and services.   
 
In addition, the Section continued its monitoring of four nursing facilities, including Reginald P. 
White Skilled Nursing Facility, in Meridian, MS; C.M. Tucker Nursing Care Center, in Columbia, 
SC; Ft. Bayard Medical Center, in Ft. Bayard, NM; and, Laguna Honda Hospital and 
Rehabilitation Center, in San Francisco, CA.   
 
  86   
The Disability Rights Section commenced two statewide investigations.  It is investigating 
whether the State of Utah is institutionalizing persons with physical disabilities and brain injuries 
in nursing homes unnecessarily, or placing individuals in the community at risk of unnecessary 
and costly institutionalization, in violation of the ADA.   It also opened an investigation of North 
Carolinas mental health service system, in response to allegations that the states service system 
relies needlessly on costly, segregated institutions called adult care homes as settings in which to 
provide services to people with mental illness who could instead be served more appropriately in 
community settings.   Following an eight month investigation, the Section issued a findings letter 
to the State of North Carolina notifying it of the Sections findings that it violates the ADA by 
planning, structuring and administering its mental health service system to deliver services to 
thousands of persons with mental illness in institutional settings rather than in more appropriate, 
integrated settings.   
 
The Section moved to intervene in two Olmstead actions.  The Section moved to intervene in 
Jones v. Arnold, (M.D. Fla.), a proposed class action involving claims under the ADA that the 
State of Florida failed to provide community-based services to persons with spinal injuries, 
placing them at risk of unnecessary and more costly institutionalization.  The case was voluntarily 
dismissed without prejudice.  The Section also moved to intervene in Steward, et al. v. Perry, et 
al., (W.D. Tex.) regarding the State of Texas alleged practice of unnecessarily institutionalizing 
individuals with developmental disabilities in nursing facilities, and placing others at risk of 
needless institutionalization, in violation of the ADA.   
 
As plaintiff-intervenor in Disability Advocates, Inc. v. Paterson (E.D.N.Y.), the Section 
participated in the implementation of a court-ordered remedy requiring the State of New York to 
provide community-based services to thousands of persons with mental illness who are 
unnecessarily institutionalized in segregated, costly facilities called adult homes.  The remedy 
was subsequently stayed pending appeal.     
 
The Section is conducting preliminary reviews of services and programs in three states to 
determine whether there is sufficient information supporting allegations of noncompliance with 
the ADAs integration mandate to warrant a formal investigation.   
 
The Division filed fourteen statements of interest or amicus briefs in litigation raising issues of 
needless institutionalization in Alabama, California, Florida, Georgia, Louisiana, Mississippi, 
Missouri, New Jersey, Pennsylvania, Tennessee, Texas and Washington.  These briefs have 
addressed a wide range of issues, including unnecessary institutionalization of individuals in 
state-run and private institutions and cuts to community services placing individuals at risk of 
unnecessary, and more costly, institutionalization.    
 
The Division released a technical assistance document providing answers to frequently asked 
questions regarding the Departments positions on the ADAs integration mandate and the 
Olmstead decision.  The document is designed to assist individuals in understanding their rights 
under title II of the ADA and to assist state and local governments in complying with the ADA.  
The Division also launched a new website, www.ada.gov/Olmstead, providing information about 
 
  87  the integration mandate, the Supreme Courts Olmstead decision and the Divisions Olmstead 
enforcement efforts.     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  88  Federal Bureau of Investigation 
Mandatory Funding & Discretionary Funding 
 
I n FY 2011, the FBI was allocated $132.3 million in funding, including $128.4 million from 
HIPAA and $3.9 million from discretionary HCFAC, for health care fraud enforcement.  This 
yearly appropriation is used to support 794 positions (477 Agent, 317 Support).  In FY 2011, the 
FBI initiated 923 new health care fraud investigations and had 2,690 pending investigations.  
FBI-led investigations resulted in 736 criminal health care fraud convictions and 1,676 
indictments and informations being filed in FY 2011.  In FY 2011, FBI health care fraud (HCF)  
investigations resulted in the operational disruption of 238 criminal fraud organizations, and the 
dismantlement of the criminal hierarchy of more than 67 HCF criminal enterprises.      
 
The FBI is the primary investigative agency involved in the fight against health care fraud that 
has jurisdiction over both the federal and private insurance programs.  Each of the 56 FBI field 
offices has personnel assigned specifically to investigate health care fraud matters.  With national 
health care expenditures projected to exceed $2.7 trillion dollars in FY 2011, it is especially 
important to coordinate all investigative efforts to combat the significant fraud and abuse within 
the health care system.  The FBI leverages its resources in both the private and public arenas 
through investigative partnerships with agencies such as HHS/OIG, the FDA, the DEA, the 
Defense Criminal Investigative Service, the Office of Personnel Management, the Internal 
Revenue Service, state Medicaid Fraud Control Units, and other state and local agencies.  On the 
private side, the FBI is actively involved with national groups, such as the National Health Care 
Anti-Fraud Association, the National Insurance Crime Bureau, as well as many other professional 
associations and private insurance investigative units.   
 
Health care fraud investigations are considered a high priority within the FBI White Collar Crime 
Program and the efforts of field offices are reviewed for effectiveness and compliance.  In 
addition to being a partner in the majority of investigations listed in the body of this report, FBI 
field offices throughout the U.S. have pro-actively addressed significant health care fraud threats 
through coordinated initiatives, task forces, working groups, and undercover operations.  These 
activities identify and pursue investigations against the most egregious offenders, which included 
criminal enterprises and other crime groups.   
 
In an effort to ensure sufficient FBI HCF resources are dedicated to address priority threats within 
the health care system for which the FBI has primary responsibility, the FBI established national 
priorities.  During FY 2011, the FBIs top HCF Program National Priorities were Government 
Sponsored and Private Insurance Programs.  Accordingly, over approximately 85 percent of FBI 
cases primarily involve government sponsored and private insurance program fraud.  The FBI 
also investigated violations involving drug diversion, Internet pharmacy, and other investigations 
that did not include billings to government sponsored or private insurance programs. 
 
A review of the threats to the health care system reveals that many schemes target multiple FBI 
HCF Program National Priority areas, and individual schemes may have considerable impact on 
the health care system.  In response to these threats the FBI has enhanced its focus on threats to 
government sponsored and private insurance programs associated with large scale conspiracies 
 
  89  and major providers, in addition to combating traditional provider fraud.   
 
Large scale conspiracies include criminal enterprises and other crime groups involving significant 
losses, or potential losses, to health care benefit programs.  The criminal activity of these groups 
can cross multiple federal districts and have included the sharing/selling of beneficiary 
information, the sharing/selling of referring provider identifiers, and kickback schemes involving 
invoices, referrals, and medical services/products.  It is not unusual for more complex large scale 
conspiracies to conduct other criminal activity in addition to health care fraud.  The potential 
extent of this type of criminal activity was noted in the October 2010 unsealing of indictments of 
seventy-three defendants, including a number of alleged members and associates of an Armenian-
American organized crime enterprise, in five judicial districts with various health care fraud-
related crimes involving more than $163 million in fraudulent billings.  The FBI is committed to 
addressing this crime problem through the disruption, dismantlement and prosecution of those 
involved in criminal enterprises and other organized criminal activities. 
 
Major Providers can include companies, corporations, hospitals, provider groups, and other 
groups able to significantly bill, or effect billing, to health care benefit programs.  The related 
schemes are frequently complex and challenging to identify.  A principal source of referrals on 
these schemes is the filing of qui tams.  In FY 2011, the FBI continued to aggressively expand its 
involvement in qui tam investigations.  Significant qui tam investigations for FY 2011 included 
the following global resolution:  $750 million for SB Pharmco Puerto Rico Inc. (a subsidiary of 
GlaxoSmithKline, PLC) and the over $313 million for Forest Pharmaceuticals Inc.  In addition to 
the work completed at the field office level and in response to this substantial and increasing 
threat, the FBI will establish a centralized squad to provide investigative assistance on these types 
of cases nationwide.  The FBI will coordinate this effort with the DOJ, HHS/OIG, and the FDA. 
 
In FY 2011, the FBI continued to staff and support Medicare Strike Force operations worked in 
conjunction with DOJ Criminal Divisions Fraud Section, local USAOs, HHS/OIG, and state and 
local law enforcement agencies.  The FBI has assigned a significant number of agents to Strike 
Forces in Miami, New York City, Houston, Tampa, Detroit, Los Angeles, Baton Rouge, Dallas, 
and Chicago.  These Strike Forces have effectively investigated and prosecuted individuals and 
entities that do not provide legitimate health care services, but exist solely for the purpose of 
defrauding Medicare and other Government health care programs.  The continued support of 
Medicare Strike Force operations is a top priority for the FBI.   
 
In addition to its investigative efforts, the FBI actively provides training and guidance on health 
care matters.  The FBI has teamed with the DOJ, the United States Attorneys, and HHS to provide 
training in the priority threat areas of health care fraud.  FBI sponsored training included 
innovative methods of employing sophisticated and advanced investigative techniques; basic HCF 
training for FBI special agent and professional staff newly assigned to HCF; sessions on new and 
current HCF trends and issues; and training for FBI Forensic Accountants.  FBI personnel were 
also provided the opportunity to attend training offered by other government agencies and the 
private sector.  In FY 2011, more than 400 FBI health care fraud investigators and analysts 
received training.  FBI personnel also conducted a wide range of training for external audiences, 
 
  90  including personnel involved in the investigation of health care fraud matters and industry 
representatives. 
 
Funding received by the FBI is used to pay direct and indirect personnel-related costs associated 
with the 794 funded positions.  Funds not used directly for personnel matters, are used to provide 
operational support for major health care fraud investigations, national initiatives, training, 
specialized equipment, expert witness testimony, and Strike Force operations.  
  
 
 
 
 
  91  Return-on-Investment Calculation 
 
  The Return-on-Investment (ROI) for the HCFAC program is calculated by dividing the total 
monetary results to the Federal government (not including relator payments) by the annual 
appropriation for the HCFAC Account in a given year.  
 
  The monetary results include deposits and transfers to the Medicare Part A Trust Fund and the 
Treasury, as well as restitution and compensatory damages to Federal agencies. 
 
  The HCFAC Account is made up of three funding sources: mandatory funding for HHS and 
DOJ, including HHS/OIG, appropriated through Section 1817(k)(3)(A) of the Social Security 
Act; mandatory funding for FBI activities appropriated through Section 1817(k)(3)(B) of the 
Social Security Act; and discretionary funding for the HCFAC Account appropriated through 
the annual Labor-HHS-Education appropriation.  FBI mandatory HIPAA funding is included 
in ROI calculations given the important role the FBI plays in achieving the monetary results 
reflected in the HCFAC annual report and because that statute states that the funds are for the 
same purposes as the funds provided for HHS and DOJ under the Social Security Act, even 
though FBI spending and monetary results are not required to be reported, per the statute.   
 
  While all mandatory HCFAC Account funding is included in the ROI calculation of this 
report, only certain portions of discretionary HCFAC funding is included.  All discretionary 
HCFAC funding for HHS/OIG and DOJ are included in the HCFAC report ROI since they 
spend their discretionary funding on the same types of activities that they support with 
mandatory funding.  Only the portion of CMS Medicare discretionary HCFAC funding that 
supports law enforcement is included in the HCFAC report ROI.  The remainder of CMSs 
HCFAC Medicare discretionary funding supports activities in the Medicare Integrity Program 
(MIP) that are included in the MIP ROI, which is calculated separately and outside of the 
HCFAC report.  All discretionary Medicaid Integrity program funding is included in a 
separate Medicaid Integrity program ROI published in a separate report. 
 
  92  Glossary of Terms 
 
 
The Account - The Health Care Fraud and Abuse Control Account 
 
ACA  Affordable Care Act 
 
AKS  Anti-Kickback Statute 
 
AoA - Department of Health and Human Services, Administration on Aging 
 
ASPA  Assistant Secretary for Public Affairs (HHS) 
 
AUSA - Assistant United States Attorney 
 
CHIP - Childrens Health Insurance Program 
 
CIA - Corporate Integrity Agreement 
 
CMP - Civil Monetary Penalty 
 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid 
Services    
 
CNC  Compromised Number Contractors 
 
CPI  Center Program Integrity 
 
CPI-U  Consumer Price Index  Urban Consumers 
 
CRIPA - Civil Rights of Institutionalized Persons Act 
 
CY  Calendar Year 
 
DAB-Department of Health and Human Services, Departmental Appeals Board  
 
DEA - Drug Enforcement Administration 
 
DME - Durable Medical Equipment 
 
DMEPOS  Durable Medical Equipment Prosthetics, Orthotics, and Supplies 
 
DOJ - The Department of Justice 
 
DPA  Deferred Prosecution Agreement 
 
  93   
DRA - Deficit Reduction Act of 2005 
 
EOUSA - Executive Office for the United States Attorneys 
 
FEHBP  Federal Employee Health Benefits Program 
 
FBI - Federal Bureau of Investigation 
 
FCA - False Claims Act 
 
FDA - Food and Drug Administration 
 
FDCA  Food, Drug, and Cosmetic Act 
 
FI  Fiscal Intermediaries 
 
FLI  Fraud Level Indicator 
 
FY  Fiscal Year 
 
HCFAC - -Health Care Fraud and Abuse Control Program or the Program 
 
HEAT - Health Care Fraud Prevention & Enforcement Action Team 
 
HHA  Home Health Agency 
 
HHS - The Department of Health and Human Services 
 
HHS/OIG - The Department of Health and Human Services - Office of the Inspector 
General 
 
HI - Hospital Insurance Trust Fund 
 
HIPAA, or the Act - The Health Insurance Portability and Accountability Act of 1996, 
P.L. 104-191 
 
HIV - Human Immunodeficiency Virus 
 
IPIA - Improper Payments Information Act of 2002, P.L. 107-300 
 
MEDIC - Medicare Drug Integrity Contractors 
 
MFCU  Medicaid Fraud Control Unit 
 
 
  94  OCRS - Organized Crime and Racketeering Section 
 
OGC - Office of the General Counsel, Department of Health and Human Services  
 
PDE  Prescription Drug Event 
 
PERM - Program Error Rate Measurement 
 
PFPP  Pharmaceutical Fraud Pilot Program 
 
The Program - The Health Care Fraud and Abuse Control Program 
 
Secretary - The Secretary of the Department of Health and Human Services 
 
SMP - Senior Medicare Patrol 
 
TRHCA - Tax Relief and Health Care Act 
 
USAO - United States Attorney=s Office 
 
ZPIC - Zone Program Integrity Contractor 
 
  95