Testimony of:  
Gary Cantrell 
Deputy Inspector General for Investigations 
and 
Stuart Wright 
Deputy Inspector General for Evaluation and Inspections 
Office of Inspector General 
U.S. Department of Health and Human Services 
 
 
 
Hearing: 
Curbing Prescription Drug Abuse in Medicare 
 
Senate Committee on Homeland Security  
and Governmental Affairs 
 
June 24, 2013 
Dirksen 342 
3:00 PM 
 
  Testimony of:  
 
Gary Cantrell 
Deputy Inspector General for Investigations 
and 
Stuart Wright  
Deputy Inspector General for Evaluation and Inspections 
Office of Inspector General 
U.S. Department of Health and Human Services 
______________________________________________________________________________ 
 
Good afternoon Chairman Carper, Ranking Member Coburn, and other distinguished Members 
of the Committee.  The Office of Inspector Generals (OIG) testimony today discusses 
prescription drug fraud schemes; vulnerabilities in the Medicare Part D Prescription Drug 
program (Part D); and recommendations to protect the program against fraud, waste, and abuse 
and to protect program beneficiaries from harmful and unsafe prescribing.  
 
With $66.9 billion in expenditures and 37.4 million beneficiaries enrolled,1 it is essential that 
various players work together to protect the integrity of the Part D program and the health and 
welfare of the people it serves.  Combating fraud, waste, and abuse involves a number of key 
partners, including the Centers for Medicare & Medicaid Services (CMS), CMSs contractor 
called the Medicare Drug Integrity Contractor (MEDIC), Part D plan sponsors, the Drug 
Enforcement Administration (DEA), State Medicaid agencies, and State and local law 
enforcement.  CMS is responsible for overseeing the program and paying plan sponsors; the plan 
sponsors are responsible for preventing and detecting fraud, waste, and abuse and appropriately 
paying for drugs under Part D; and the MEDIC is responsible for identifying and investigating 
potential fraud and abuse, as well as referring cases to law enforcement.  OIG often partners with 
DEA, the agency responsible for enforcing the controlled substances laws and regulations, on 
cases where we have dual jurisdiction.       
 
Since the inception of Part D, OIG has extensively examined the monitoring and oversight of the 
program and the effectiveness of controls to ensure appropriate payment and patient safety.  Our 
work has found limitations in program safeguards that leave Part D vulnerable to fraud, waste, 
and abuse and Medicare patients vulnerable to potentially harmful prescribing.  Notably, OIG 
has uncovered extreme prescribing patterns by hundreds of general-care physicians and 
questionable billing by thousands of retail pharmacies.  Moreover, in a report we are releasing 
today, we found that Medicare paid millions of dollars for prescriptions from unauthorized 
prescribers, such as massage therapists and athletic trainers.  
 
These vulnerabilities are even more concerning in light of our increasing investigations into drug 
diversion.  Since 2008, OIGs investigations relating to Medicare Part D have nearly quadrupled.  
                                                 
1The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 
2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary 
Medicare Insurance Trust Funds, p. 10.  2 The Centers for Disease Control and Prevention (CDC) characterized 
prescription drug abuse as an epidemic.  In 2010, for example, overdoses of prescription painkillers were among the 
leading causes of accidental death in the United States. 
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  The serious and growing problem of prescription drug abuse lends a greater urgency to address 
drug diversion and to improve monitoring and oversight of the Part D program.2   
 
Drug Diversion Is a Complex Crime Involving Many Co-Conspirators 
 
Prescription drug diversion is a complex crime that can involve many co-conspiratorsdrug 
distributors and traffickers, health care professionals, drug-seeking patients, and pharmacies may 
all play a role, and criminal enterprises are becoming an increasing presence in prescription drug 
diversion.   
 
Drug distributors, traffickers, and criminal enterprises 
 
Prescription drug diversion often involves drug distributors and traffickers.3  Criminal 
enterprises have also historically been engaged in the illegal drug trade.  Of concern is that they 
are becoming an increasing presence in OIGs prescription drug diversion cases and represent a 
greater risk to our law enforcement officers, witnesses, and others engaged in investigating this 
crime.  They frequently associate with and use other criminals, such as identity thieves and 
money launderers, to facilitate the fraud scheme.   
 
Health care providers 
 
Medical doctors, physician assistants, nurse practitioners, and other health care professionals can 
also be involved in drug diversion.  Some health care providers become so entangled in the 
financial gain from prescription drug diversion that their entire practices are focused on writing 
illicit prescriptions.  Clinics or health care practices that focus primarily on prescription drug 
diversion are known as pill mills.  While some providers bill for medical services that were 
never rendered and simply provide prescriptions to the patients, others may provide medically 
unnecessary and potentially harmful services to increase their financial profits.  Some health care 
providers that engage in drug diversion schemes also struggle with prescription drug addiction.   
 
Drug-seeking patients  
 
Drug-seeking patients often visit multiple health care providers and pharmacies to obtain 
medically unnecessary prescriptions.  Some use multiple false identities and may themselves be 
identity thieves.  Drug-seeking patients often consume the drugs, sell them on the street for 
profit, or both.   
 
                                                 
2 The Centers for Disease Control and Prevention (CDC) characterized prescription drug abuse as an epidemic.  In 
2010, for example, overdoses of prescription painkillers were among the leading causes of accidental death in the 
United States. 
3 According to DEA, a prescription drug distributor is a person who is selling, furnishing, or delivering a controlled 
substance.  The offense of drug trafficking refers primarily to the weight of the substances involved.  Both 
distributors and traffickers may use multiple false identities in committing  the crime.   
http://www.getsmartaboutdrugs.com/identify/what_is_distribution_whats_drug_trafficking.html 
 
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  Some criminals, often known as recruiters, target locations where drug-seeking patients are 
known to gather and offer them money for the use of their Medicare or Medicaid numbers.  In 
some cases, recruiters offer several hundred dollars to drug-seeking patients to be transported to 
multiple medical appointments and then bill Medicare or Medicaid for those services.   
 
Of particular concern are those cases when patient deaths occur as a result of the prescription 
drug diversion scheme.  These are generally associated with pill mills, which are sometimes 
advertised as pain management clinics.  One particular pain management clinic was associated 
with the deaths of over 60 patients in a 5-year period.  The patients were billed for minimal  
services or services that were not rendered and were required to return monthly to receive their 
prescriptions, without regard for medical necessity.  The doctor and his wife were sentenced to 
over 30 years of imprisonment and ordered to pay $114,772, 524 in restitution to several 
government and private insurance plans and individuals.  
 
Pharmacies 
 
Pharmacies also play a role in drug diversion.  Fraudulent pharmacies have been known to use 
patient Medicare numbers to bill for tens of thousands of dollars in unneeded prescriptions.  In 
some fraud schemes, pharmacies stock or re-label expired and counterfeit medications and bill 
for them and sell them as legitimate prescriptions to unsuspecting patients.  They may also bill 
for recurring refills that were never filled.  Other pharmacies contribute to the fraud by filling 
prescriptions despite clear indicators they have been fraudulently obtained.  Some pharmacies 
are even complicit in the scheme by paying patients with cash or narcotics to fill illegitimate and 
expensive prescriptions at their locations.   
 
In one particular case, a licensed pharmacist who owned 26 pharmacies was the mastermind of a 
scheme that used an elaborate web of physicians, pharmacists, and patient recruiters to 
fraudulently bill Part D, Medicaid, and private health insurance carriers.  This pharmacist paid 
kickbacks, bribes, and other inducements to physicians to write prescriptions for controlled drugs 
and expensive noncontrolled drugs.  In addition, the physicians billed for services that were 
medically unnecessary or were never provided.  The physicians directed their patients to fill their 
prescriptions at 1 of the 26 pharmacies, which then billed Medicare and Medicaid for expensive 
noncontrolled drugs but did not dispense them.  The pharmacist then took his existing physical 
inventory of expensive noncontrolled drugs, repackaged them, and sold them to pharmaceutical 
suppliers.  The pharmacist responsible for this egregious scheme was convicted along with 5 
other connected individuals at trial, and an additional 14 conspirators have entered into plea 
agreements and await sentencing.   
 
A unique set of fraud schemes involves what are termed as phantom pharmacy and bust-out 
schemes.  Phantom pharmacies exist virtually or perhaps in an abandoned warehouse or office 
storefront.  There is no legitimate pharmacy that provides services, but the pharmacy itself has an 
address or a P.O. box, a Medicare billing number, a bank account, and an electronic funds 
transfer number for transferring funds into the bank account.  The identities of doctors, 
pharmacists, and patients are often stolen to perpetuate the fraud.    
 
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  Another variation of this theme involves bust-out pharmacies, i.e., usually a small pharmacy 
that is about to go out of business.  The pharmacy owner may advertise online or in the 
newspaper that the pharmacy is for sale with an active Medicare number.  If the pharmacy is 
purchased by a criminal involved in the prescription drug diversion trade, it bills Medicare a 
large amount in a short period of time, collects the proceeds, and disappears.  
 
It is important to note that prescription drug diversion cases investigated by OIG are not limited 
to controlled substances.  OIG also has investigated matters that involve noncontrolled but high-
cost prescriptions, such as respiratory, anti-psychotic, and HIV/AIDS medications.  In one 
particular case, a pharmacy billed for very expensive medications that included anti-psychotics 
and respiratory and cardiac drugs but never dispensed the drugs.  The perpetrators of this scheme 
were sentenced to 57 months of imprisonment and ordered to pay $4.9 million in restitution.    
 
With the rise in prescription drug abuse, concerns about Medicare fraud, particularly pharmacy 
and prescriber fraud, have increased.  These concerns are reinforced by OIGs recent evaluations, 
which focus on unauthorized prescribers, questionable prescribing patterns, and questionable 
billing by pharmacies for Part D drugs.   
 
Medicare Paid for Drugs Ordered by Individuals Without the Authority To Prescribe 
 
In the report that we are releasing today, OIG found that one of the most basic safeguards  that 
an item or a service was performed, provided, or prescribed by an appropriate medical 
professional  is not always operating effectively.   
 
To be covered under Part D, drugs must be prescribed in accordance with State law, which 
specifies the types of health care providers that have the authority to prescribe drugs in the State.  
We found that, nationwide, Part D inappropriately paid $5.4 million in 2009 for 72,552 
prescriptions ordered by individuals who clearly did not have the authority to prescribe.  These 
individuals included massage therapists, athletic trainers, dental hygienists, and contractors 
responsible for home repairs.  We even found that interpreters, lodging companies, and 
veterinarians ordered prescriptions.  Medicare should never pay for drugs ordered by these 
individuals.   
 
Additionally, in 10 States that we reviewed in depth, Part D inappropriately paid for drugs 
ordered by others who did not have the authority to prescribe.  These included counselors, social 
workers, chiropractors, registered nurses, physical therapists, occupational therapists, and 
speech-language pathologists.  In total, we identified almost 350,000 prescriptions ordered by 
these prescriber types in the 10 States.  Part D paid $26.2 million for these drugs.  It is important 
to note that our review focused on selected types of providers; they do not represent all provider 
types without the authority to prescribe.  
 
Further, tens of thousands of drugs ordered by individuals without prescribing authority were 
controlled substances.  These drugs are of particular concern because they have potential for 
abuse. 
 
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  We found many examples in which Medicare paid for drug claims in which the prescribers were 
individuals without the authority to prescribe: 
 
  One Florida massage therapist was listed as the prescriber on 3,756 prescriptions, amounting 
to $183,132.   
 
  An Ohio social worker was listed as the prescriber on 1,639 prescriptions, which were all 
filled at 1 retail pharmacy. 
 
  A registered nurse from California was listed as the prescriber on 1,111 prescriptions, which 
were filled at a single retail pharmacy in New York. 
 
From the claims data, we could not determine whether the drugs were actually ordered by the 
unauthorized individuals listed on the claims or whether the providers identification numbers 
were being misused.  Either scenario is problematic and resulted in inappropriate payments and 
may have put patients health and safety at risk.  
 
These findings build on earlier OIG work that found that Part D paid for prescription drugs for 
which the claims had invalid prescriber identifiers.  Specifically, in 2007, Part D sponsors and 
beneficiaries paid pharmacies $1.2 billion for claims that contained prescriber identifiers that had 
never been assigned or had been retired.  For almost one-fifth of these claims, the prescriber 
identifiers did not meet the format specifications, yet sponsors systems did not include edits to 
reject or flag claims with obviously inaccurate prescriber identifiers.  For example, for some 
claims, the prescriber identification field contained the wrong number of characters.    
 
CMS has reported taking several steps to address the problems we identified with invalid 
prescriber identifiers.  CMS now requires that sponsors ensure that prescriber identifiers on 
Part D claims are active and valid.  Todays report demonstrates the need for further action to 
ensure that each claim for a prescription contains not only a valid prescriber identifier but also 
one that corresponds to an authorized prescriber.   
 
Hundreds of Physicians Had Extreme Prescribing Patterns 
 
Vulnerabilities in the Part D program are not limited to unauthorized prescribers.  In a report 
issued last week, OIG raised concerns about questionable prescribing patterns for 736 general-
care physicians.  These physicians were extreme outliers and prescribed very differently than 
their peersthey ordered an extremely high number of drugs per beneficiary; they had 
prescriptions filled at an extremely high number of pharmacies; they ordered extremely high 
percentages of brand-name drugs; or they ordered extremely high percentages of Schedule II or 
Schedule III drugs, which have the potential for abuse.4  These drugs include oxycodone and 
morphine.   
                                                 
4 Drugs and other substances that are considered controlled substances under the Controlled Substances Act are 
divided into five schedules.  Drugs are placed on a certain schedule on the basis of having a medically accepted use 
in treatment in the United States, their potential for abuse, and the likelihood that dependence will result from that 
abuse. 
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Our analysis identified many examples of questionable prescribing patterns.  A couple of them 
include:  
 
  Medicare paid a total of $9.7 million151 times more than the averagefor 1 California 
physicians prescriptions.  Most of this physicians prescriptions were filled by just two 
independent pharmacies, both of which OIG identified in a prior review as having 
questionable billing.   
 
  Seventy-eight percent of the prescriptions ordered by one Florida physician were for 
Schedule II drugs.  Schedule II drugs have the highest potential for abuse of any prescription 
drugs legally available in the United States.  This physician prescribed massive amounts of 
Schedule II drugs for a single beneficiary, including a 20-month supply of morphine sulfate 
and a 17-month supply of oxycodone HCl.   
 
In total, Medicare paid $352 million for Part D drugs ordered by the physicians with 
questionable prescribing patterns in 2009.  Notably, 110 of these physicians were associated with 
1 or more of the retail pharmacies we identified as having questionable billing as discussed 
below.5  It is important to note that questionable billing does not necessarily mean fraudulent 
billing.  However, these patterns raise flags that warrant further attention. 
 
Thousands of Retail Pharmacies Billed Far Outside the Norm  
 
Our prior analysis of Part D data also uncovered disturbing billing patterns by some pharmacies.  
When we examined the records for Part D drugs, we found that 2,637 retail pharmacies 
nationwide had billing patterns far outside the norm.  These pharmacies billed extremely high 
numbers of drugs per beneficiary or per prescriber or billed extremely high percentages of 
Schedule II or Schedule III drugs, brand-name drugs, or refills relative to other pharmacies.  
While some pharmacies with questionable billing may be billing these amounts for legitimate 
reasons, this type of billing warrants further scrutiny.  Medicare paid these pharmacies a total of 
$5.6 billion in 2009.  
 
We uncovered many examples of pharmacies billing far outside the norm: 
 
  One pharmacy had 85 percent of its total prescriptions for the year ordered by a single 
prescriber.  Billing patterns like this may indicate that the pharmacy and prescriber were 
working together to defraud the Part D program.   
 
  One pharmacy billed an average of $132,845 per prescriber, which is 73 times the national 
average.  Virtually all of these prescriptions were for brand-named drugs.  These included 
Dovonex (a drug that treats psoriasis), Zyprexa (an antipsychotic), and Flovent HFA (a drug 
that treats asthma). 
 
                                                 
5 We considered a physician to be associated with a retail pharmacy if the retail pharmacy billed for at least 25 
percent of the total cost of the Part D drugs that physician prescribed in 2009.  
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  Medicare Paid for Schedule II Drugs Billed as Refills, Which Are Prohibited by 
Federal Law 
 
In another review, we found that Medicare Part D inappropriately paid $25 million for 
Schedule II drugs billed as refills in 2009.  Sponsors should not have paid for any of these drugs 
because Federal law prohibits the refilling of Schedule II controlled substances.  A new 
prescription authorizing the pharmacy to provide the drug is required each time a Schedule II is 
dispensed.  Paying for refills of highly addictive drugs raises public health concerns and may 
contribute to the diversion and resale of controlled substances.  Some of these refills may have 
been inaccurately billed.  However, three-quarters of Part D sponsors paid for these refills, 
indicating that many sponsors do not have adequate controls in place to prevent refills of 
Schedule II drugs.    
 
Oversight and Monitoring by CMS, Plan Sponsors, and CMSs Contractor Are Limited 
 
OIGs findings of claims for questionable, inappropriate, and potentially dangerous Part D drugs 
indicate that safeguards should be strengthened to better protect the program and beneficiaries.  
In addition to analyzing these claims, we have examined Part D oversight and the systems in 
place to protect program integrity.  These reviews have focused on CMSs oversight functions; 
plan sponsors identification of fraud and abuse; and the MEDICs abilities to detect, investigate, 
and refer fraud in the Part D program.   
 
All these reviews have identified vulnerabilities in efforts to combat Part D fraud and abuse.  For 
example, we found that some plan sponsors did not identify any potential fraud and abuse 
incidents and that most potential fraud and abuse incidents were associated with only a small 
number of plan sponsors.   
 
Further, the MEDIC has not fully utilized data analytics to identify potential fraud and abuse.  
CMSs plans had called for data analysis to serve as a cornerstone of its Part D integrity strategy.  
However, OIGs work revealed that only a small percentage of the MEDICs investigations and 
case referrals originated through proactive methods, such as data analysis.   
 
The MEDIC also faces challenges in effectively resolving instances of potential fraud, waste, or 
abuse.  For example, there is no administrative mechanism to recover payments associated with 
inappropriate Part D claims. The MEDIC is also prohibited from sharing specific information 
with program integrity contractors that oversee Medicare Parts A and B and Medicaid.  Further, 
the MEDIC lacks the authority to obtain information directly from pharmacies, physicians, and 
pharmacy benefit managers; it must obtain information through the plan sponsors.  Finally, CMS 
does not require plan sponsors to refer instances of suspected fraud and abuse to the MEDIC, so 
it may be missing opportunities to develop and pursue fraud cases. 
 
OIG Recommends Improvements in Part D Oversight and Monitoring 
 
Taken together, OIGs findings consistently demonstrate the need for CMS to strengthen Part D 
monitoring and oversight.  OIG has recommended numerous improvements to more effectively 
safeguard the Part D program from fraud, waste, and abuse.  We have recommended that CMS:  
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  Require sponsors to verify that prescribers have the authority to prescribe drugs. 
 
  Strengthen the MEDICs monitoring of prescribers and pharmacies so that it systematically 
monitors them using measures such as the ones used by OIG and identifies the prescribers 
and pharmacies with questionable patterns. 
 
  Strengthen sponsors monitoring of prescribers and pharmacies by providing additional 
guidance on effective monitoring methods, emphasizing the importance of data analysis, and 
recommending that sponsors routinely generate and review reports on billing.  
 
  Ensure that Part D does not pay for refills of Schedule II drugs, as such refills are prohibited 
by Federal law.  CMS should exclude these drugs when calculating its final payments to 
sponsors at the end of each year. 
 
  Require sponsors to refer potential fraud and abuse incidents that may warrant further 
investigation to CMS and other appropriate entities, instead of relying on sponsors to 
voluntarily report. 
 
  Develop and implement an administrative mechanism to recover payments from plan 
sponsors for inappropriate Part D claims.  CMS currently does not have such a mechanism to 
help safeguard Medicare funds. 
 
  Clarify its policy and instruct the MEDIC regarding the circumstances under which it may 
share specific information with other entities, including State agencies.  This would improve 
the MEDICs ability to effectively identify and investigate potential fraud and abuse. 
 
  Facilitate access to information necessary to ensure accurate coverage and reimbursement 
determinations.  Requiring diagnosis codes on Part D claims could help plan sponsors and 
CMS determine whether a drug is covered under Medicare.   
 
  Amend regulations to authorize the MEDIC to obtain information directly from entities such 
as pharmacies, physicians, and pharmacy benefit managers. 
 
  Provide education and training for prescribers, including issuing reports similar to 
Comparable Billing Reports issued for other services, such as those provided under Part B.  
These reports would provide prescribers with important educational information and insight 
about their prescribing patterns.  
 
CMS has agreed with many of our recommendations and it has taken some steps to strengthen 
Part D monitoring.  While we appreciate CMSs agreement to implement certain 
recommendations, many of the vulnerabilities that OIG has identified stem from a lack of basic 
checks that should be occurring.  It is important that CMS effectively follow through and 
implement these basic checks.  OIGs next steps in oversight will be to review the effectiveness 
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  of sponsors drug utilization programs to ensure that Medicare payments meet program 
guidelines.    
 
Conclusion:  More Needs To Be Done To Safeguard the Program and Protect Patient 
Safety 
 
The Part D program provides outpatient prescription drug coverage for 37 million Medicare 
beneficiaries at a cost of almost $67 billion.  Numerous health care fraud investigations 
involving Part D and drug diversion have revealed complex crimes, some involving criminal 
enterprises.  Ineffective or nonexistent program controls can cost beneficiaries and taxpayers 
millions of dollars.  In addition, serious health consequences can result from inappropriate 
prescription drug use.  Effective monitoring and oversight are essential to ensuring patient safety 
and preventing fraud, waste, and abuse.   
 
To that end, all of the players discussed in OIGs testimony need to do more.  CMS needs to 
improve its oversight and take the specific steps outlined above.  The MEDIC needs to improve 
its monitoring of claims data and effectively develop and refer potential fraud cases to OIG.  
Sponsors need to strengthen their payments controls and reporting of fraud and abuse.  The 
program needs effective controls that prevent problems from occurring and effective and 
aggressive responses in instances when problems occur. 
 
For our part, OIG is committed to continuing our vigilant oversight of Part D integrity and 
investigating cases of suspected fraud to hold perpetrators accountable and protect beneficiaries.  
This mission is challenged by the declining resources that OIG has to bring to bear at a time 
when Part D fraud, waste, and abuse and prescription drug diversion cases are on the rise.  While 
our Part D investigative caseload has almost quadrupled over the past 5 years, we are in the 
process of reducing our staff by about 20 percent as a result of expiring funding sources, 
compounded by the effects of sequestration.  We are leveraging our analytic, investigative, and 
oversight tools as well as our Federal, State, and local partnerships to maximize the impact of our 
efforts. 
 
Thank you for your interest in this important issue and for the opportunity to present the results 
of our most recent work related to Part D.  OIG remains committed to carrying out our oversight 
and enforcement responsibilities in this area as comprehensively and effectively as possible with 
the tools and resources we have available. 
 
 
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