Department of Health and Human Services
 
OFFICE OF  

INSPECTOR GENERAL  

F A S
RAUD AND  BUSE  AFEGUARDS  

S S C 
IN  EPARATE  TATE  HILDREN S 
 
H I P
EALTH  NSURANCE  ROGRAMS 

Daniel R. Levinson
 
Inspector General  

March 2007 

OEI-06-04-00380 
 Office of Inspector General 
 
http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers.  The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.    E X E C U T I V E   S U M M A R Y   
  
OBJECTIVES 
1. To assess the extent to which six selected States with separate 
State Children's Health Insurance Programs (SCHIP) have 
established methods and procedures to meet Federal requirements 
regarding SCHIP fraud and abuse prevention, detection, and 
investigation; and 
2. To assess these States oversight of SCHIP contractors and Centers 
for Medicare & Medicaid Services (CMS) oversight of States 
regarding SCHIP fraud and abuse prevention, detection, and 
investigation in the six selected States. 
BACKGROUND 
Federal and State governments jointly fund SCHIPs to provide health 
care assistance to low-income children who do not qualify for Medicaid.  
States may structure SCHIP as an expansion of Medicaid, as a program 
separate from Medicaid, or as some combination of these.  Thirty-nine 
States have all or some part of their SCHIP separate from Medicaid.  To 
protect the integrity of these separate SCHIPs, Federal regulations 
require States to establish safeguards against fraud and abuse. 
However, little is known about the arrangements these States have 
made to establish fraud and abuse safeguards. 
To determine the extent to which States have met requirements to 
establish fraud and abuse safeguards, we examined documentation and 
interviewed staff from 6 States with separate SCHIPs and 17 health 
plans contracted by these selected States.  Using this material, we also 
assessed State oversight of separate SCHIP contractors regarding fraud 
and abuse issues.  Finally, we assessed CMS oversight by interviewing 
staff of CMS central and regional offices and by reviewing 
documentation regarding CMSs onsite compliance reviews of the 
selected SCHIPs and other oversight mechanisms.  
FINDINGS 
The six selected States met requirements for prevention and detection 
of fraud and abuse by assigning responsibility to SCHIP contractors 
that have established such procedures. Each of these States has 
assigned to SCHIP health plans or administrative contractors 
responsibility for establishing safeguards through which fraud and abuse 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  i  E X E C U T I V E   S U M M A R Y
  E X E C U T I V E   S U M M A R Y   
  
might be prevented or detected, including safeguards associated with 
beneficiary eligibility and enrollment, provider enrollment, and detection 
of fraud and abuse.  In each of the six States selected, these contractors 
have established safeguards that meet the Federal requirements in these 
areas. 
One of the six States has not met Federal requirements for 
investigating suspected SCHIP fraud and abuse cases and referring 
cases to law enforcement. Five of the six States have established 
procedures to meet Federal investigation and referral requirements, and 
one State has not.  In this State, SCHIP staff reported that the State has 
not identified a State law enforcement entity that will accept SCHIP-only 
fraud and abuse cases. State staff would not investigate such cases 
because they would not be prosecuted even if fraud were substantiated. 
Although oversight mechanisms in the six States address Federal 
requirements, they do not always enable States to know how well 
health plans are performing safeguard activities.  All six States in our 
review require SCHIP health plans to establish and submit written plans 
for the prevention, detection, and investigation of fraud and abuse; to 
attest to the accuracy of claims for payment; and to provide the State 
access to relevant SCHIP data.  All of these States also have procedures to 
conduct audits of beneficiary eligibility processes and enrollment data.  
However, the current level of these States oversight of SCHIP contractors 
does not always provide States with the means to know how well health 
plans are performing on some critical fraud and abuse matters, including 
provider enrollment, detection of fraud and abuse, investigation and 
referral to law enforcement, service delivery to beneficiaries, and execution 
of fraud and abuse plans. Further, it appears that dispersal of SCHIP 
oversight responsibilities within States and State staff perceptions about 
limited exposure to fraud and abuse may inhibit State oversight of SCHIP 
health plans regarding fraud and abuse safeguards. 
CMS relies primarily on States for oversight of SCHIP fraud and 
abuse safeguards, although it has completed some onsite reviews 
of States.  The SCHIP statute allows CMS discretion regarding Federal 
oversight of separate SCHIP fraud and abuse safeguards, neither 
prescribing nor prohibiting particular oversight activities. In 
interviews, CMS officials expressed that, rather than being prescriptive 
regarding oversight of fraud and abuse activities, SCHIPs statute and 
regulations focus on programmatic oversight at the Federal level.  
According to CMS officials, SCHIP has limited exposure to fraud and 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  ii  EEE XXX EEE CCC UUU TTT III VVV EEE     SSS UUU MMM MMM AAA RRR YYY
abuse because Federal allotments are capped and managed care 
arrangements provide protections against fraud and abuse. 
Despite its reliance on States for oversight, CMS has used its authority 
to conduct onsite reviews of separate SCHIP fraud and abuse 
safeguards. Since SCHIPs were established in 1997, CMS has 
conducted at least one onsite review that included some aspect of fraud 
and abuse safeguards for five of the six States we reviewed. However, 
these onsite reviews typically examined only a few fraud and abuse 
issues. Further, although CMS cited five of these States during these 
onsite reviews for having insufficient fraud and abuse safeguard 
procedures reviews, CMS staff reported requiring execution of a 
corrective action plan for only one of the five States. CMS used less 
formal follow-up methods, such as telephone conversations, in the other 
four States in which problems were noted. 
RECOMMENDATIONS 
To address the noncompliance by one State identified in this report, as 
well as other potential areas of improvement, CMS should: 
o	  Ensure that the noncompliant State institutes procedures to 
meet Federal requirements for investigating cases of suspected 
SCHIP fraud and abuse and referring cases to law enforcement, 
and 
o	  Take steps to strengthen Federal and State oversight of 
separate SCHIPs fraud and abuse safeguards. 
AGENCY COMMENTS 
In its comments to the draft report, CMS stated that it does not dispute 
the findings in the report and suggested clarifying language to 
emphasize that the SCHIP statute is not prescriptive in describing 
Federal oversight of fraud and abuse. CMS also noted its recent efforts 
to assist States in strengthening fraud and abuse efforts. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
We made changes to the final report to clarify that the SCHIP statute 
allows CMS discretion regarding its oversight of SCHIP fraud and 
abuse activities, neither prescribing nor prohibiting particular oversight 
activities. 
OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  iii    T A B L E   O F   C O N T E N T S   
  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i 
  
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6 
  
Six sample States met requirements for preventing and detecting 
 
fraud and abuse by assigning responsibilities to contractors . . . . .  6 
  
One of the six States has not met requirements for investigation  
 
and referralof suspected fraud and abuse cases. . . . . . . . . . . . . . .  8 
  
Oversight in six States addresses requirements, but does not always   

enable States to know how well health plans perform  . . . . . . . . .  10 
  
CMS relies primarily on States for oversight of separate SCHIP   
 
fraud and abuse safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15 
  
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17 
  
E N D NO T ES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20 
  
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24 
  
A:  Expanded Methodology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24 
  
B:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30 
  
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32 
     I N T R O D U C T I O N   
  
OBJECTIVES 
1. To assess the extent to which six selected States with separate 
State Children's Health Insurance Programs (SCHIP) have 
established methods and procedures to meet Federal requirements 
regarding SCHIP fraud and abuse prevention, detection, and 
investigation; and 
2. To assess these States oversight of SCHIP contractors and Centers 
for Medicare & Medicaid Services (CMS) oversight of States, 
regarding SCHIP fraud and abuse prevention, detection, and 
investigation in the six selected States. 
BACKGROUND 
The Balanced Budget Act of 1997 established SCHIP under Title XXI of 
the Social Security Act.1  To implement SCHIP, Congress appropriated 
nearly $40 billion over 10 years to help States provide health care 
assistance to uninsured, low-income children whose family income is too 
high to qualify for Medicaid.  The Federal and State governments jointly 
finance the program and States are provided a capped allotment of 
Federal funds each year.  States administer their SCHIPs and CMS 
provides Federal oversight.   
Title XXI allows States to design their SCHIPs using one of three 
program options:  a Medicaid expansion program, a separate SCHIP 
program, or a combination of both. Medicaid expansion programs, 
which relax the financial rules of existing Medicaid eligibility 
categories, are subject to Federal and State Medicaid requirements. In 
contrast, Federal requirements that govern separate SCHIPs allow 
States more flexibility in eligibility criteria; cost sharing; and type, 
amount, and scope of services covered.  In 39 States, all or some part of 
SCHIP is separate from Medicaid. 
Federal Fraud and Abuse Safeguard Requirements 
Federal regulations regarding fraud and abuse safeguards differ among 
the Medicaid program and separate SCHIPs.  Medicaid expansion 
programs are subject to the program integrity rules and requirements 
specified under Title XIX.2 Safeguards for Medicaid are more 
structured. They include Medicaid Eligibility Quality Control reviews 
of beneficiary enrollment processes;3 tools for detecting fraud and abuse 
in provider billing, e.g., Medicare-Medicaid data match4 and State 
Surveillance Utilization Review Subsystems;5 Medicaid Fraud Control 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  1  I N T R O D U C T I O N  
Units to investigate and prosecute cases of suspected fraud and abuse;6 
External Quality Reviews of Medicaid managed care entities;7 and the 
recently created Medicaid Integrity Program.8 
By contrast, Federal regulations for separate SCHIPs allow States 
considerable flexibility in how they safeguard their programs against 
fraud and abuse.  Separate SCHIPs are not required to have equivalent 
Medicaid structures.  Rather, as a general Federal requirement, States 
must establish procedures for ensuring program integrity and 
detecting fraudulent or abusive activity in separate SCHIPs.9  Further, 
Federal regulations contain a number of standards related to 
safeguarding SCHIPs from fraud and abuse, but these regulations 
typically do not specify the procedures States should use to meet the 
requirements. States are allowed, but not required, to establish a 
program integrity unit for monitoring and maintaining the integrity of 
separate SCHIPs.10 
Federal regulations relevant to safeguarding against fraud and abuse in 
separate SCHIPs include provisions regarding criteria for beneficiary 
eligibility and enrollment in SCHIP,11 rules regarding provider 
participation in SCHIP,12 and requirements for States and their health 
plan contractors to have structures to detect potential fraud and 
abuse.13  Federal regulations also address investigation of suspected 
SCHIP fraud and abuse cases and their referral to law enforcement.14 
Additionally, Federal regulations address program oversight, including 
States oversight of SCHIP contractors15 and CMSs oversight of States 
regarding SCHIP.16 
Oversight of Separate SCHIPs 
By Federal law and regulations, States and CMS share responsibility 
for oversight of SCHIP fraud and abuse prevention, detection, and 
investigation. 
States must ensure that SCHIP health plans have arrangements or 
procedures designed to safeguard against fraud and abuse and to verify 
the accuracy of health plan claims for payment.  In this report, the term 
health plans refers to a variety of entities that these six States have 
contracted with to provide health care services to SCHIP beneficiaries, 
including fee-for-service insurance plans and managed care plans.  
States must also safeguard against potential fraud and abuse by SCHIP 
health plans themselves.17  Federal regulations also contain a number of 
provisions regarding State contracts with health plans.18  Federal 
regulations provide States flexibility to design procedures for ensuring 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  2  I N T R O D U C T I O N  
program integrity and detecting fraud and abuse that are based upon 
the needs of their unique SCHIP programs.19 This flexibility allows 
States to use a variety of methods in establishing their procedures, 
including contractually assigning certain responsibilities to SCHIP 
health plans or other contractors. 
Federal regulations provide CMS with three tools for oversight of 
SCHIPs fraud and abuse prevention, detection, and investigation.  
First, Federal regulations specify that CMS reviews State and local 
administration of the SCHIP plan through analysis of the States 
policies and procedures, on-site reviews of selected aspects of agency 
operation, and examination of samples of individual case records.20 
Second, CMS receives from States annual SCHIP reports which contain 
prescribed program information that CMS can use for monitoring.21 
Third, the Payment Error Rate Measurement program, which became 
effective November 4, 2005, and was preceded by a series of CMS pilot 
projects, is designed to measure improper SCHIP payments.22  In part 
to facilitate CMSs use of these tools for oversight of SCHIPs, Federal 
law requires States to collect, maintain, and furnish program 
information to enable CMS to monitor State program administration 
and compliance and to evaluate and compare the effectiveness of State 
plans . . .23 
METHODOLOGY 
Scope 
To meet the study objectives, we examined fraud and abuse safeguards 
in 6 of the 39 States that have all or part of their SCHIPs separate from 
Medicaid.24  Within these 6 States, we examined fraud and abuse 
safeguards established by 17 selected SCHIP health plans and other 
contractors. Although States may use many of the methods and 
procedures we examined to oversee additional issues related to program 
integrity, our review focused primarily on the prevention, detection, and 
investigation of suspected fraud and abuse cases.  We also assessed 
these States oversight of SCHIP contractors and CMSs oversight of the 
six selected SCHIPs regarding fraud and abuse.  
Selection of States 
We purposively selected six States with separate SCHIPs.  Factors 
considered for State selection included diversity in program design 
(fully separate from Medicaid or a combination of separate and 
Medicaid expansion programs), number of program enrollees, primary 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  3  I N T R O D U C T I O N  
type of service delivery (managed care or fee-for-service), geographic 
location, and States locations within CMS regions.  The six selected 
States are Iowa, Massachusetts, Michigan, New York, Pennsylvania, 
and Texas.  Within each of these States, we selected the 3 health plans 
with the largest SCHIP enrollment (except Iowa, which contracts with 
only 2 health plans), for a total of 17 health plans.  The selected States 
accounted for 31 percent of national enrollment in separate SCHIPs as 
of December 2004.25  Appendix A contains a detailed description of the 
six States and additional information about our study methodology. 
Data Collection and Analysis 
From each selected State and selected health plan, we requested 
documents demonstrating their methods and procedures for 
safeguarding the separate SCHIPs against fraud and abuse.  We also 
inquired about States use of SCHIP contractors to prevent, detect, and 
investigate fraud and abuse, including States oversight of contractors, 
and safeguards against fraud and abuse by health plans themselves.  
From CMS, we requested copies of reports for compliance reviews it had 
conducted of these six States since the inception of SCHIP, associated 
review protocols, and State annual reports.   
We received initial responses and documentation from the 6 States and 
17 health plans from May to July 2005.  We also received 
documentation after interviews and other follow-up activities from July 
to January 2006.  Most data collection from CMS occurred in August 
and September 2005. 
We interviewed staff from the six States, from selected health plans, 
from the CMS central office, and from each CMS regional office 
responsible for oversight of these States.  We conducted these telephone 
interviews to clarify any questions about previously submitted 
documents, to request additional documents when needed, and to 
discuss the experiences and perceptions of staff regarding fraud and 
abuse in separate SCHIPs.  We also discussed preliminary findings and 
an early draft of the report with CMS SCHIP officials during a meeting 
in July 2006. 
We reviewed documents and other information provided by respondents 
to determine what safeguards and oversight mechanisms had been 
established.  For purposes of this report, the term established means 
that we obtained documentation that, in our best judgment, 
demonstrated that the mechanism was in place and available for use.   
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  4  II NN TT RR OO DD UU CC TT II OO NN
Based on our review of documentation and interviews of key personnel, 
we completed the following analyses: 
o	  To assess State compliance with Federal requirements to 
establish separate SCHIP fraud and abuse safeguards, we 
determined what safeguards the six States and their SCHIP 
contractors had established and assessed whether these 
safeguards met applicable Federal requirements. 
o	  To assess States oversight of separate SCHIP contractors 
regarding fraud and abuse safeguards, we determined what 
methods and procedures States had established for oversight, 
whether State procedures met Federal requirements for State 
oversight, and whether potential program vulnerabilities 
existed. 
o	  To assess CMS oversight of States separate SCHIPs, we 
determined how frequently and to what extent CMS compliance 
reviews and other CMS oversight mechanisms addressed fraud 
and abuse issues. 
Limitations 
Because the 6 States and 17 SCHIP health plans were purposively 
selected for review, findings and conclusions cannot be generalized 
beyond these entities. Additionally, because measuring outcomes of 
established procedures was beyond of the scope of the study, the report 
does not draw conclusions regarding the effectiveness of these separate 
SCHIPs fraud and abuse safeguards. Finally, although we made every 
effort to obtain all relevant information and documentation for our 
analysis, it is possible that States have established additional 
procedures for which they did not provide documentation. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
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  F I N D I N G S 
   
Each of these States has met 
The six selected States met requirements for 
Federal requirements for 
prevention and detection of fraud and abuse by 
preventing and detecting fraud 
assigning responsibility to SCHIP contractors that  and abuse in separate SCHIPs, 
have established such procedures  largely by assigning 
responsibility for establishing 
most fraud and abuse safeguards to SCHIP health plans or 
administrative contractors.  Federal requirements governing program 
activities through which fraud and abuse might be prevented and 
detected include beneficiary eligibility and enrollment, provider 
enrollment, and detection of fraud and abuse.  State contractors have 
established safeguards that met the Federal requirements in these 
areas. 
Entities responsible for eligibility determinations have established 
procedures to obtain required applicant information 
Federal regulations require an SCHIP eligibility determination based 
on criteria such as financial need, eligibility for Medicaid (which takes 
precedence over SCHIP), and the existence of other health coverage.26 
The six States have assigned responsibility for SCHIP enrollment 
activities to administrative contractors (three), health plans (two), and 
State staff (one). Regulations also require eligibility redetermination at 
least every 12 months.27 Each entity responsible for determining 
SCHIP eligibility in these States has established procedures that meet 
State and Federal requirements.  The responsible entities use  
self-reported information from a standardized application (a combined 
Medicaid/SCHIP application in five of these States)28 plus any 
supporting documentation required by the State to meet eligibility 
requirements.  Entities in five of the States have procedures to 
redetermine beneficiary eligibility every 12 months, and in the sixth 
State, every 6 months. 
Health plans in our review have established procedures to verify that 
network providers meet criteria for participating in SCHIP 
All six States rely on the SCHIP health plans to determine whether 
providers in their networks meet standards for SCHIP participation.29 
Federal regulations provide a number of criteria that physicians and 
other providers must meet to participate in SCHIP and prohibit States 
from making payments to providers who have been excluded from 
participating in the Medicare and Medicaid programs.30  To meet these 
requirements, the SCHIP health plans we reviewed have established a 
variety of procedures, most commonly a formal enrollment process 
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through which they verify State licensure and check for certain criminal 
convictions31 and exclusions (see Table 1). The 17 health plans that we 
reviewed reenroll providers in their networks every 2 years (3 health 
plans) or every 3 years (14 health plans). 
Table 1.  Provider Enrollment Activities of SCHIP Heath Plans We Reviewed 
Health Plans  
Procedure To Check:  With Procedure  
State Licensure Boards  17 
State Adverse Action Lists  17 
OIG Exclusions  17 
National Practitioner Data Bank  15 
Certain Criminal Convictions  14 
Provider Address [Onsite]  12 
Healthcare Integrity Practitioner Data Bank  10 
Source:  OIG analysis of documentation from 17 SCHIP health plans in 6 States, 2006. 
Health plans have a variety of techniques, data analysis tools, and 
informational tips to satisfy requirements for fraud and abuse detection 
The 6 States pay these 17 health plans on a capitated basis, i.e., a 
predetermined amount for each SCHIP beneficiary.  These health plans, 
in turn, pay health care providers for SCHIP services. Although 
Federal regulations require States to have methods and criteria for 
identifying suspected fraud and abuse cases, the regulations do not 
specify the procedures States should establish.32  Five of the six States 
largely leave it to their health plans to determine the procedures to 
establish for detection of fraud and abuse.  One State was a notable 
exception because its contract specifies a number of activities that 
SCHIP health plans should establish to ensure that provider payments 
are appropriate and to detect potential fraud and abuse.  
The health plans that we reviewed have established a core set of 
techniques for detecting fraud and abuse (see Table 2).  Not all of these 
health plans have established all detection procedures, but most have 
multiple procedures, and a few other procedures were reported to be 
under development during our study. 
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Table 2:  Fraud and Abuse Detection Procedures and       
Safeguards of SCHIP Heath Plans We Reviewed (N = 17) 
Health Plans 
Health Plans With  Developing 
Procedure or Safeguard  Procedure  Procedure 
Targeted Claims Reviews  17  0 
Telephone Hotline  16  0 
Provider Verification of Beneficiary 
15  1 
Eligibility 
Automated Prepayment Edits  15  0 
Utilization Review Staff  13  1 
Random Sampling  13  0 
Aberrant Billing Detection  11  3 
Error Rate Measurement  11  1 
Fraud Reporting Information on Internet   10  0 
Source:  OIG analysis of documentation from 17 SCHIP health plans in 6 States, 2006 
Although all SCHIP health plans we reviewed appear to have a variety 
of data analysis tools that can be used for detecting fraud and abuse,  
5 of the 17 health plans had software systems specifically designed for 
fraud detection.  Health plan staff explained that these fraud detection 
software systems often use automated processes to analyze several 
years worth of billing data and to identify the areas of greatest 
vulnerabilities. 
When cases of suspected fraud 
One of the six States has not met Federal 
and abuse are detected, Federal 
requirements for investigating suspected SCHIP 
regulations require States to 
fraud and abuse cases and referring cases to 
conduct a preliminary 
law enforcement   investigation or take other 
action to determine whether a 
full investigation is warranted.33  For cases that warrant more than 
preliminary investigation, Federal regulations require States to 
establish procedures for conducting full investigations, including 
referral of cases to the appropriate law enforcement agencies if 
necessary.34 
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S 
Five of the six States have established procedures to meet Federal 
investigation and referral requirements and one State has not.35 In the 
State that is not in compliance with Federal requirements, SCHIP staff 
reported that the State has not identified a State law enforcement 
entity that will prosecute SCHIP-only fraud and abuse cases.  SCHIP 
staff in this State explained that, although there is a State unit 
designated for investigating and referring SCHIP fraud and abuse 
cases, this unit would not investigate cases involving only SCHIPs 
because of the lack of a State entity to prosecute if fraud were 
substantiated.  Both State SCHIP staff and CMS regional office staff 
were aware of this situation and the States noncompliance with Federal 
regulations. 
SCHIP health plans typically task designated staff to conduct preliminary 
investigations, including identifying and developing suspicious cases   
All six States assign responsibility for conducting preliminary 
investigations to the separate SCHIP health plans and require health 
plans to have written policies and procedures for detecting and 
investigating fraud and abuse. Beyond the basic requirement to 
investigate suspicious cases, additional requirements among these 
States included that health plans designate specific staff to investigate 
fraud and abuse cases (four States), periodically report their 
investigation activities to SCHIP agencies (four States), and train staff 
regarding fraud and abuse (two States). 
Staff from health plans we reviewed reported that most fraud and abuse 
investigation leads come from tips from employees, such as utilization 
review staff, and tips from telephone hotlines.  To investigate these 
leads, 14 of the 17 health plans we reviewed assign preliminary 
investigations to a special fraud unit or other designated health plan 
personnel.  Investigation procedures for these staffs typically involved a 
general review of the case facts and analysis of relevant claims and 
services.  Of the three remaining health plans, two subcontract for 
investigation services and one was in the process of obtaining these 
services from a subcontractor at the time of our study.36 
Staff assigned to other State agencies or departments are usually 
responsible for full investigations of suspected SCHIP fraud and abuse   
Staff in five of the six States clearly identified State agencies or 
departments responsible for handling full investigations.37  However, as 
previously mentioned, the responsible entity in one of these five States 
does not investigate SCHIP-only cases.  The sixth State listed entities to 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  9  F I N D I N G S  
which fraud and abuse reports are to be made but did not specify which 
State entity is responsible for investigating cases.   
In three of the States, a Memorandum of Understanding (MOU) or an 
Interagency Agreement governs the relationship between SCHIPs and 
entities responsible for conducting investigations.  These MOUs and 
agreements typically specify responsibilities regarding investigations, 
referrals to law enforcement, prosecution, and reporting between 
parties. Three States do not have MOUs or agreements to govern the 
relationship between the separate SCHIPs and the entity responsible 
for conducting investigations.  State staff in two of these States report 
relying on health plans to conduct both preliminary and full 
investigations for some cases of suspected fraud and abuse and to work 
with local law enforcement. 
As mentioned, the six States 
Although oversight mechanisms in the six States 
have assigned many 
address Federal requirements, they do not always 
responsibilities for prevention, 
enable States to know how well health plans are  detection, and investigation of 
performing safeguard activities  fraud and abuse to SCHIP 
health plans and other 
contractors. In these States, oversight mechanisms do not always allow 
these States to know the extent to which SCHIP health plans are 
performing safeguard activities.  Further, State staff responsible for 
investigating fraud and abuse in the six States report receiving few, if 
any, referrals of such cases from their health plans.  This is a possible 
indication that safeguard responsibilities assigned to health plans are 
not carried out as well as they need to be.  For example, one State 
reported having investigated 13 cases of suspected fraud and abuse by 
separate SCHIP providers from 2001 to mid-2005, none of which had 
been referred to State investigators by separate SCHIP health plans.   
The most common State oversight mechanisms address areas specifically 
required by Federal regulations  
All six States have established mechanisms for conducting oversight of 
SCHIP health plans and contractors (see Table 3).  To ensure that 
SCHIP health plans have administrative and management 
arrangements or procedures that meet Federal requirements, all of 
these States contractually require their SCHIP health plans to have 
written fraud and abuse plans.38  All six States also include in their 
contracts federally mandated requirements that SCHIP health plans 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  10  F I N D I N G S  
attest to the accuracy of payment or claims data and provide 
Government officials with access to these data.39 
Table 3:  Common Oversight Mechanisms Established by Six States 
States With 
State Oversight Method  Method 
Health Plans Required To Have Written Fraud and Abuse  6 40 
Plans 
Contracts Require Claims Accuracy Attestation and Access to 
6 
Data 
Monitoring of Summary Data Supplied by Health Plans   6 
State Hotlines for Complaints and Fraud Tips  5 
Periodic Audits of SCHIP Beneficiary Eligibility and 
5 
Enrollment* 
Required Reporting of Health Plan Investigation Activities  4 41 
Verification of Provider Address [Onsite]  6 
* One State does not assign beneficiary enrollment to contractors.  Another State reported 
it had not completed these audits for two of the three health plans we reviewed. 
Source:  OIG analysis of documentation from 6 States, 2006. 
To meet Federal requirements that States have methods to identify, 
report, and verify the accuracy of claims for beneficiaries enrolled in a 
separate SCHIP, the five States that assign beneficiary enrollment to 
health plans or administrative contractors have procedures to 
periodically conduct audits to verify appropriate enrollment.42  The one 
State that enrolls beneficiaries itself has procedures to routinely 
compare health plan enrollment data with its own records to identify 
any discrepancies.  Because SCHIP health plans are typically paid by 
the six States based on the number of beneficiaries enrolled in the 
plans, these beneficiary enrollment audits also serve as one of the 
primary oversight mechanisms these States have established to meet 
the Federal requirement to safeguard against fraud or abuse by health 
plans themselves. 
Current oversight does not always allow States to know how well SCHIP 
health plans are performing safeguard activities in some critical program 
areas 
Our assessment of the primary oversight approaches these six States 
use for the critical areas of fraud and abuse safeguard activities with 
health plans identified the following concerns. 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  11  F I N D I N G
 
S 
One State had not conducted all beneficiary eligibility audits. Although this 
is generally one of the stronger areas for State oversight in these six 
States, one State reported that, despite having procedures in place for 
periodic beneficiary eligibility audits, it has never conducted such an 
audit for two of its three SCHIP health plans included in our study.  
This State relies on its health plans to enroll SCHIP beneficiaries. 
Considering that these audits are a primary oversight mechanism 
reported by this State to verify appropriate enrollment and accuracy 
of payments to its health plans, failure to conduct beneficiary 
enrollment audits leaves this State vulnerable to fraud and abuse.   
States have few methods to verify provider enrollment procedures performed 
by health plans.  Although all six States rely on health plans to ensure 
that providers enrolled in SCHIP meet participation rules, State 
oversight mechanisms typically do not involve States verifying health 
plan performance in this area.  Two States had established protocols for 
verifying health plan provider enrollment processes, but one had used 
its procedures only for health plans that also participated in the 
Medicaid program at the time of our study.  Other common oversight 
mechanisms established by these States include relying on health plan 
accreditation by national organizations and sharing information with 
other States about adverse actions taken against providers.  
States have few mechanisms for oversight of health plans procedures for 
detection of fraud and abuse in improper billing by providers.  Although the 
six States rely heavily on SCHIP health plans to detect potential 
fraud and abuse by providers, these States have generally not 
established oversight mechanisms to monitor this aspect of health 
plan performance.  State SCHIP staff in these States often expressed 
their perceptions that potential fraud and abuse by providers is more 
the concern of health plans than of the State.  However, States also 
reported that SCHIP health plans have referred very few cases of 
suspected fraud and abuse by providers, suggesting that greater 
oversight is needed. 
States rely on self-reported information for oversight of health plan 
investigations and referral activities.  The six States rely to varying 
degrees on SCHIP health plans to investigate and refer cases of 
suspected fraud and abuse.  The primary oversight mechanism 
established by five of the States is to require health plans to 
periodically report their investigation and referral activities, 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  12  F I N D I N G
 
S 
including such items as the number and types of cases and referrals, 
amounts of overpayments and recoveries, and other penalties.   
Reliance on self-reported information does not allow States to know 
whether, or how well, health plan staff are investigating cases of 
suspected fraud and abuse. 
States commonly use self-reported, aggregated data for monitoring health plan 
services. The most common oversight mechanism for monitoring SCHIP 
health plan service delivery, established by the six States, relies on 
aggregated data self-reported by health plans.  These data vary across 
the States and include information about beneficiary complaints, 
utilization of services, and/or beneficiary health data.  Although four 
States report requiring or receiving actual encounter data from SCHIP 
health plans, only one State had established procedures for using such 
data to monitor the services provided by health plans.  Additionally, one 
State sends an explanation-of-benefits notice to a random sample of 
beneficiaries.  Although these oversight mechanisms allow these States 
to monitor some aspects of SCHIP health plan service delivery, few 
include means to verify service delivery. 
States have not implemented onsite reviews of the health plan fraud and 
abuse plans. As previously mentioned, all six States require separate 
SCHIP health plans to have written policies and procedures for 
preventing, detecting, and investigating fraud and abuse.43  Four of 
the six States had not adopted onsite reviews regarding fraud and 
abuse safeguards for their separate SCHIPs.  Two States reported 
developing protocols for onsite reviews of health plans to verify 
implementation of their fraud and abuse plans.  However, none of 
these States had formally conducted such a review at the time of our 
study.44 
State oversight regarding fraud and abuse safeguards may be inhibited by 
dispersal of SCHIP oversight responsibilities within States and certain 
perceptions expressed by State staff 
Placement of State oversight functions with several agencies seems to 
create confusion and possible gaps. In all six States, responsibility for 
oversight of separate SCHIP fraud and abuse safeguards is dispersed 
among several agencies. Across the six States, the SCHIP agencies 
are most commonly responsible for oversight of beneficiary eligibility 
and enrollment, whereas oversight of provider enrollment, detection 
of fraud and abuse, and investigation and referrals are often the 
responsibility of other State entities.  Consequently, no single unit 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  13  F I N D I N G
 
S  
within each of the six States had complete information about State 
oversight of SCHIP contractors. 
Coordination and communication among agencies that share SCHIP 
oversight responsibilities in these States also appeared problematic. 
To the extent that these problems are persistent or typical, successful 
oversight will likely be affected.  Coordination difficulties in one State 
resulted in the submission of separate responses to our data collection 
request from two different agencies, which sometimes provided 
conflicting answers.  Within two other States, different agencies 
pointed to each other as the responsible entity for ensuring contractor 
compliance with a particular Federal SCHIP requirement, suggesting 
that neither group was conducting oversight.  Indeed, in one of these 
States, SCHIP staff were unaware that a contract compliance review 
of their largest SCHIP health plan had never been conducted. 
State staff indicate that their SCHIP has limited exposure to fraud and abuse. 
State staff commonly expressed the belief that the capitated nature of 
contracts with SCHIP health plans protects States from exposure to 
fraud and abuse in provider billing, placing the risk instead on health 
plans. Although capitated contracts may insulate States from the 
costs of improper billing by providers during the current contract 
period, health plans may increase capitated rates under subsequent 
SCHIP contracts to account for any losses due to fraud and abuse.   
State staff indicate that oversight of Medicaid health plans benefits the separate 
SCHIP.  Some SCHIP staff in these States noted that the separate 
SCHIPs likely benefited from the more stringent standards and 
oversight in the Medicaid program regarding fraud and abuse.  For 
example, States subject all Medicaid health plans to an annual External 
Quality Review, including those health plans that participate in both 
the Medicaid program and separate SCHIPs.  However, Medicaid 
oversight would seem to have minimal effect on separate SCHIP health 
plans that do not also participate in Medicaid, which was true for 4 of 
the 17 SCHIP health plans we examined.  Further, potential benefits for 
SCHIPs from Medicaid oversight of health plans that participate in both 
programs would be dependent upon the extent and quality of the 
Medicaid oversight itself. 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  14  F I N D I N G S   
  
CMS relies primarily on States for oversight of  The SCHIP statute allows CMS 
SCHIP fraud and abuse safeguards, although it  discretion regarding Federal 
oversight of separate SCHIP 
has completed some onsite reviews of States 
fraud and abuse safeguards, 
neither prescribing nor prohibiting particular oversight activities.  In 
interviews, CMS officials expressed that, rather than being 
prescriptive regarding oversight of fraud and abuse activities, the 
SCHIPs statute and regulations focus on programmatic oversight at 
the Federal level.  According to CMS officials, SCHIP has limited 
exposure to fraud and abuse because Federal allotments are capped 
and managed care arrangements provide protections against fraud 
and abuse.  Therefore, CMS officials report that CMS relies primarily 
on States for oversight of separate SCHIP fraud and safeguards. 
Despite CMSs reliance on States for oversight, it has conducted onsite 
reviews for monitoring separate SCHIP fraud and abuse safeguards.  In 
2002, CMS produced and distributed to its regional offices guidance for 
conducting these onsite reviews.  In this document, we identified 
14 topics related to fraud and abuse that could be reviewed during 
onsite reviews of SCHIPs.45 
From 1997, when SCHIP started, to August 2005, CMS conducted a 
total of 11 onsite reviews of 5 of our 6 States that examined at least  
1 fraud and abuse-related topic.  Ten of the eleven CMS onsite reviews 
of these States examined four or fewer issues related to SCHIP fraud 
and abuse, most often those involving beneficiary eligibility and 
enrollment processes.  
CMS does not always require that corrective action plans be developed 
to address problems noted during onsite SCHIP reviews.  CMS cited 
four of the five reviewed States for having insufficient procedures in at 
least one of the fraud and abuse-related issues. For three of these 
States, CMS staff reported using informal means, such as telephone 
conversations or e-mails, to follow up on concerns raised by the reviews. 
CMS staff reported requiring the one remaining State to execute a 
corrective action plan to address the issues with 10 fraud and  
abuse-related Federal regulations with which CMS found the State to 
be noncompliant. Although CMSs onsite review occurred in 2003, our 
study found that as of 2005 this State remained noncompliant with 
Federal requirements for full investigation and referral of suspected 
SCHIP fraud and abuse cases.  State SCHIP staff provided documents 
indicating that, although its corrective action plan did address many 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  15  FF II NN DD II NN GG
 SS  
issues of noncompliance cited by CMS, it did not fully address the 
investigation and referral issue. 
CMS has not always followed up on the problems in subsequent 
reviews. For the four States with more than one onsite review, the CMS 
reviewers typically did not reevaluate problems identified in prior 
reviews, even when prior review reports did not indicate that States had 
corrected the problems. CMS staff responsible for determining the 
onsite review topics reported that they typically base decisions about 
onsite review topics on their familiarity with State programs, 
discussions with State staff, CMS initiatives, and annual report data, 
but not necessarily on reevaluating past problems. 
OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  16    R E C O M M E N D A T I O N S   
  
With one exception, the six States we reviewed comply with Federal 
requirements regarding the establishment of fraud and abuse 
prevention, detection, and investigation safeguards in their separate 
SCHIPs.  One of the six States does not meet Federal requirements for 
investigating cases of suspected fraud and abuse and referring cases to 
law enforcement. 
These States rely extensively on their SCHIP contractors to prevent, 
detect, and investigate fraud and abuse.  However, the current level of 
State oversight of SCHIP contractors does not always provide States 
with the means to know how well contractors are performing on some 
critical fraud and abuse matters, including provider enrollment, 
detection of fraud and abuse, investigation and referral to law 
enforcement, service delivery to beneficiaries, and execution of 
contractor fraud and abuse plans.  It appears that a number of factors 
may inhibit State oversight of SCHIP contractors regarding fraud and 
abuse safeguards. 
CMS reports that it relies primarily on States for oversight of SCHIP 
fraud and abuse safeguards.  CMS has conducted onsite compliance 
reviews of separate SCHIPs in five of the six States we reviewed. 
However, CMSs reviews typically examined only a few of the areas we 
identified in CMS guidance documents as related to fraud and 
abuse safeguards. Additionally, CMS has not typically required States 
to develop formal corrective action plans in response to problems noted 
in its reviews.  
To address the one instance of noncompliance found in this report, as 
well as other potential areas of improvement, CMS should: 
Ensure That the Noncompliant State Institutes Procedures To Meet Federal 
Requirements for Investigating Cases of Suspected SCHIP Fraud and Abuse 
and Referring Cases to Law Enforcement   
Staff in one State reported that it has not identified a law enforcement 
entity that will accept fraud cases involving only SCHIP.  Therefore, 
that States designated investigation unit does not investigate such 
cases or refer them to law enforcement, as required.  CMS should work 
with State officials to bring the State into compliance with Federal 
regulations on this issue.  Options may include additional efforts to 
identify a State law enforcement entity to accept SCHIP fraud cases or 
development of procedures for the State to refer cases to Federal law 
enforcement entities, such as OIG or the Department of Justice, when 
necessary. Although this issue of noncompliance affected only one of the 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  17  R E C O M M E N D A T I O N S  
six States, CMS should determine whether all States with separate 
SCHIPs have appropriate investigation and referral procedures. 
Take Steps To Strengthen Federal and State Oversight of Separate SCHIPs 
Fraud and Abuse Safeguards 
CMS relies heavily on States for oversight of fraud and abuse 
safeguards for separate SCHIPs.  In turn, these six States rely on 
SCHIP contractors to prevent, detect, and investigate potential fraud 
and abuse. However, our findings indicate that the current Federal and 
State oversight approaches have vulnerabilities. 
Options CMS should consider to strengthen its oversight of separate 
SCHIPs include: 
o	  Establishing a specific frequency for onsite reviews and a basic 
set of required review elements to ensure that SCHIP fraud and 
abuse safeguards are routinely examined; 
o	  Requiring States to submit corrective action plans in response to 
problems noted during reviews that involve noncompliance with 
Federal regulations or other serious fraud and abuse-related 
vulnerabilities to better support problem resolution; and  
o	  Requiring States to submit, in their annual SCHIP reports, data 
about separate SCHIP fraud and abuse activities, e.g., the 
number of cases investigated and/or referred. 
Options CMS should consider to strengthen States oversight of SCHIP 
contractors include: 
o	  Providing training and written guidance to States on fraud and 
abuse oversight, including identifying what a full State 
oversight effort might encompass; 
o	  Providing technical assistance to States on how to implement 
more direct methods for assessing contractor performance; and 
o	  Facilitating forums for sharing information among States, 
including sharing practices that States find effective. 
AGENCY COMMENTS 
In its comments to the draft report, CMS stated that it does not dispute 
the findings in the report.  However, CMS suggested clarifying language 
to emphasize that the SCHIP statute is not prescriptive in describing 
Federal oversight of fraud and abuse.  CMS expressed that the SCHIP 
statute and regulations focus on programmatic oversight at the Federal 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  18  R E C O M M E N D A T I O N S  
level.  CMS also noted its recent efforts completed or underway to 
assist States in strengthening fraud and abuse efforts.  The efforts 
described are consistent with our second recommendation.  In its 
comments, CMS did not specifically respond to our first 
recommendation. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
We made changes to the final report to clarify that the SCHIP statute 
allows CMS discretion regarding its oversight of SCHIP fraud and 
abuse activities, neither prescribing nor prohibiting particular oversight 
activities. We also included the full text of CMS comments in  
Appendix B, which includes CMSs descriptions of its recent efforts to 
assist States in strengthening fraud and abuse efforts. 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  19    E N D N O T E S  
1 42 U.S.C.  1397aa1397jj; Social Security Act,  21012110; Pub. Law. No. 105-33, 
 
Subtitle J. 
 
2 42 CFR  457.900(c). 
 
3 42 CFR  431.800. 
 
4 42 U.S.C.  1395ddd(g); Social Security Act,  1893(g); Pub. Law No. 109-171, Title VI,  

Subtitle A, Ch. 3  6034(d)(1). 
 
5 42 CFR  456.3. 
 
6 42 CFR  1007.11. 
 
7 42 CFR  438.310. 
 
8 42 U.S.C.  1396u-6; Social Security Act,  1936; Pub. Law No. 109-171, Title VI, Subtitle A, 
 
Ch. 3  6034(a)(2). 
 
9 42 CFR  457.915(a). 
 
10 42 CFR  457.915(b). 
 
11 42 CFR  457.350(a)(1) and (2); 42 CFR 457.310; 42 CFR 457.320. 
 
12 42 CFR  457.935. 
 
13 42 CFR  457.915(a)(1); 42 CFR  457.955(a). 
 
14 42 CFR  457.915(c); 42 CFR  457.925; 42 CFR 457.930. 
 
15 42 CFR  457.353; 42 CFR  457.950; 42 CFR  457.955; 42 CFR  457.980.
 
16 42 CFR  457.200; 42 CFR  457.720; 42 CFR  457.750(a) and (b). 
 
17 42 CFR  457.955; 42 CFR  457.915; 42 CFR  457.980. 
 
18 42 CFR  457.950; 42 CFR  457.955.
 
19 42 CFR  457.915. 
 
20 42 CFR  457.200(a). 
 
21 42 CFR  457.750. 

  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  20  22 42 CFR  431.970; 42 CFR  457.720 
23 42 U.S.C.  1397gg(b)(1); Social Security Act,  2107(b)(1). 
24 Based on the most recent information from the CMS Web site, 39 States have either fully 
separate SCHIPs or combination SCHIP/Medicaid programs.  CMS, State Childrens Health 
Insurance Program Plan Activity as of August 9, 2005.  Available online at 
http://www.cms.hhs.gov/LowCostHealthInsFamChild/downloads/SCHIPStatePlan 
ActivityMap.zip. Accessed April 13, 2006. 
25 Based on OIGs analysis of health plan enrollment information obtained from States and
SCHIP enrollment data from the 2004 annual SCHIP report. 
26 42 CFR  457.350(a)(1) and (2); 42 CFR  457.310; 42 CFR  457.320. 
27 42 CFR  457.320(e)(2). 
28 The sixth State does not use a combined application, but has established procedures for 
periodic data matches between SCHIP and Medicaid enrollment files.  Two other States also 
established procedures for SCHIP/Medicaid matches, in addition to their procedures for 
combined applications. 
29 Additionally, State staff in one of the six States are responsible for screening providers 
participating in the Primary Care Case Management portion of the SCHIP.  Procedures 
established for this staff are similar to those of the selected SCHIP health plans discussed in 
this section. 
30 42 CFR  457.935(a) and (b). 
31 Health plans we reviewed used a variety of methods to check for criminal convictions, such 
as checks of various databases that contain criminal conviction data, reliance on State 
licensure boards that check for criminal convictions, and/or law enforcement checks for 
criminal convictions. 
32 42 CFR  457.915(a)(1). 
33 42 CFR  457.925. 
34 42 CFR  457.930. 
35 At the time of our review, one of these five States had recently drafted procedures for 
investigating cases of potential fraud and abuse by beneficiaries, and investigative staff 
reported that they had not yet investigated such a case.  By contrast, procedures for 
investigating cases of potential fraud and abuse by providers appeared to have been long in 
place, and staff reported conducting several investigations in recent years. 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  21  36 This health plan had not yet finalized the contract for these services.  Staff from this small 
SCHIP health plan reported that, in the meantime, staff were doing the best we can to
investigate cases. 
37 These entities include law enforcement agencies (attorneys general, inspectors general),
Medicaid Fraud Control Units, and investigative branches of the State insurance and health 
agencies.   
38 42 CFR  457.955; according to minimum Federal requirements, these arrangements must:  
(1) enforce compliance with all applicable Federal and State standards, (2) prohibit 
unsolicited personal contact with potential enrollees, and (3) include a mechanism for 
reporting information on known violations of law to appropriate Government officials.  In one 
State, fraud and abuse plans became required of separate SCHIP health plans with fewer 
than 60,000 beneficiaries during our study period in January 2006.  Previously, this was a
State requirement only for separate SCHIP health plans with 60,000 beneficiaries or more. 
39 42 CFR  457.950. 
40 One State had recently begun to require development and submission of fraud and abuse
plans by separate SCHIP health plans with fewer than 60,000 beneficiaries effective in 
January 2006 during our study period. 
41 One State had recently begun to require reporting investigation activities by separate 
SCHIP health plans with fewer than 60,000 beneficiaries effective in January 2006 during
our study period. 
42 42 CFR  457.980. 
43 One State had recently begun to require development and submission of fraud and abuse
plans by separate SCHIP health plans with fewer than 60,000 beneficiaries effective in 
January 2006 during our study period. 
44 One State reported that it had conducted an onsite review of Medicaid fraud and abuse
plan implementation at two health plans we reviewed in our selection of States.  These two 
health plans had participated in both the State Medicaid program and the separate SCHIP 
program. 
45 CMS, Title XXI, State Childrens Health Insurance Program Regional Office Monitoring
Handbook, 2002.  The handbook uses the term program integrity to refer to the issues we 
examined and groups them into five areas:  beneficiary eligibility, provider enrollment, 
claims validity, use of managed care entities, and case referral and investigation.  Each of 
these areas has subissues, for a total of the following 14 potential issues: 
General:  Ensuring State Processes for Detecting Program Fraud and Abuse 
1.  Procedures for detecting fraudulent or abusive activity 
2.  Assignment of program integrity responsibilities to staff 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  22  Beneficiary Eligibility:  Ensuring the Integrity of the Eligibility Determination Process 
3.	  Eligibility standards 
4.	  Procedures for screening applicant children 
5.	  Policies for verifying eligibility 
6.	  Procedures for discouraging substitution of SCHIP for private coverage 
7.	  Requirements for reporting changes in circumstance that affect eligibility 
8.  Policies for redetermining eligibility 
Provider Enrollment:  Ensuring the Legitimacy of Healthcare Providers [Practitioners] 
9.	  Procedures to ensure that providers excluded from Medicare/Medicaid program
participation do not receive payment 
10. Application of Title XIX [Medicaid] provider enrollment provisions 
Program Claims:  Ensuring the Accuracy of Claims
11. Systems to identify, report, and verify the accuracy of claims 
Case Referral and Investigation:  State Management of Suspected Cases of Fraud and Abuse
12. Procedures for conducting preliminary case investigations 
13. Procedures for referring cases to State program integrity staff 
14. Procedures for State program integrity staff for conducting a full investigation or 
referring suspected cases to law enforcement 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  23    A P P E N D I X   A   
  
Expanded Methodology 
Scope.  Thirty-nine States had some part of their State Childrens 
Health Insurance Program (SCHIP) separate from Medicaid as of 
January 2005.  We examined fraud and abuse safeguards in 6 of these 
39 States. While many of the methods and procedures examined may 
be used by States for additional types of program integrity activities, 
our review focused primarily on the prevention, detection, and 
investigation of suspected fraud and abuse.  Within each State, we 
examined safeguards established by States and by their SCHIP health 
plans and other contractors.  We also assessed States oversight of these 
contractors, and Centers for Medicare & Medicaid Services (CMS) 
oversight of the six SCHIPs.   
Selection of States. We purposively selected 6 of the 39 States with 
separate SCHIPs. Factors considered for State selection included 
diversity in program design (fully separate from Medicaid or 
combination programs), number of program enrollees, primary type of 
service delivery (managed care or fee-for-service), geographic location, 
and States locations within CMS regions. To prepare for the possibility 
of nonresponse, we selected a seventh State.  Subsequently, one State 
could not provide all requested information and was eliminated, leaving 
six selected States.   
The six selected States are Iowa, Massachusetts, Michigan, New York, 
Pennsylvania, and Texas (see Table A1).   
Within each of the six States, we selected the 3 health plans with the 
largest separate SCHIP enrollment (except Iowa, which contracts with 
only 2 SCHIP health plans), for a total of 17 health plans.  Size of 
reviewed health plans ranged from 622 to 85,229 SCHIP beneficiaries at 
the time of our study. 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  24  A P P E N D I X   A   
  
Table A1.  Provider Enrollment Activities of SCHIP Heath Plans We Reviewed 
Total FY 2005 
Separate SCHIP 
Selected States  Program Type1  Federal SCHIP 
Enrollment1 
Funds (millions)2 
Iowa  Combined  18,873   $  28 
Massachusetts  Combined  21,382   $  59 
Michigan  Separate  37,350   $  111 
New York  Combined  332,464   $  270 
Pennsylvania  Separate  127,259   $  131 
Texas  Separate  335,751   $  450 
Totals  873,079   $ 1,049 
Percentage of national separate SCHIP enrollment  31% 
Percentage of Federal SCHIP funds in the six States  26% 
1 As of Fiscal Year 2005 (first quarter), http://www.cms.hhs.gov. 
2 CMS Web site http://www.cms.hhs.gov/schip/about-SCHIP.asp, accessed 10/5/2005. 
Source:  OIG analysis of documentation from 17 SCHIP health plans in 6 States, 2006. 
Data Collection.  Because little was previously known about separate 
SCHIP fraud and abuse safeguards, we reviewed the following 
literature to identify safeguards used in the Medicaid program:  
o	  CMS, Review of State Medicaid Program Integrity Procedures: 
National Report, 2002; 
o	  CMS, Resource Guide of State Fraud and Abuse Systems, 
2001; 
o	  CMS, Guidelines for Addressing Fraud and Abuse in Medicaid 
Managed Care, 2000; 
o	  CMS, Guidance and Best Practices Relating to the States 
Surveillance and Utilization Review Functions, undated; 
o	  U.S. Government Accountability Office (GAO), Medicaid 
Program Integrity:  State and Federal Efforts To Prevent and 
Detect Improper Payments, GAO-04-707, July 2004; 
o	  GAO, Medicaid:  State Efforts To Control Improper Payments 
Vary, GAO-01-662, June 2001; and 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  25  A P P E N D I X   A  
o	  U.S. Department of Health & Human Services, Office of 
Inspector General, State Medicaid Fraud Control Units:  
Annual Report, 2003. 
Identifying safeguards used in the Medicaid program was useful 
because, although SCHIP and Medicaid are different programs, they 
both provide health care coverage to low-income populations through a 
Federal/State partnership.  Further, because Medicaid is a more mature 
program than SCHIP, States have more experience in safeguarding 
Medicaid against fraud and abuse.  We used information gained from 
the literature review to develop the data collection instruments and 
interview protocols, and to follow up with respondents regarding 
separate SCHIP fraud and abuse safeguards. 
We used a structured data collection instrument to request State and 
health plan documentation for the methods and procedures established 
to safeguard the separate SCHIPs against fraud and abuse.  
Specifically, we asked for information and documentation from States 
and health plans about safeguards for beneficiary eligibility and 
enrollment, provider enrollment, detection of fraud and abuse in 
provider billing, and investigation and referral of suspected fraud and 
abuse cases. We also inquired about States use of SCHIP contractors to 
prevent and detect fraud and abuse, including States oversight of 
contractors and safeguards against fraud and abuse by managed care 
organizations themselves.   
We received initial responses and documentation from the 6 selected 
States and 17 health plans from May to July 2005.  We also received 
documentation after interviews and other followup from July to January 
2006. 
Data collection from CMS occurred from August to September 2005.  We 
obtained copies of CMS reports related to onsite compliance reviews 
that had been conducted in the six States since the inception of SCHIP, 
associated review protocols, and SCHIP annual reports.   
Document Reviews, Interviews, and Analyses. We reviewed documents by 
States and health plans to identify what safeguards and oversight 
mechanisms had been established, when they were established, and 
what entity was responsible for them.  Where applicable, we determined 
whether the established safeguards and oversight mechanisms met 
Federal requirements for separate SCHIPs.  
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  26  A P P E N D I X   A  
For purposes of this report, the term established means that we 
obtained documents that, in our best judgment, demonstrated that the 
method or procedure was set up and available for use. To judge 
whether documents demonstrated that safeguards and oversight 
mechanisms had been established, we looked for documents that would 
indicate a level of readiness beyond initial development, including such 
items as corporate or departmental procedures.  For States, we also 
asked for documentation demonstrating whether oversight mechanisms 
had been put into use.  For example, if a State reported methods for 
conducting onsite reviews of contractor fraud or abuse plans, we asked 
for copies of the review protocols and reports associated with the latest 
reviews of each health plan we examined.  
We considered respondents to have established safeguards or oversight 
mechanismsas long as documentation supported that the method was 
available for useeven if documents did not demonstrate that the 
methods were actually used.  Whenever we learned that respondents 
were still developing processes, or had not fully implemented 
procedures, we noted those conditions in the report as well. 
Whenever the safeguards or oversight mechanisms reportedly 
established by the six States or health plans were not readily apparent 
in the documents submitted, we followed up on the items during 
interviews with staff from the States and health plans we reviewed, 
often requesting additional documentation.  In addition, we interviewed 
CMS central and regional office staffs responsible for oversight of these 
States. Interviews allowed verification and clarification of document 
review findings.  Interviews of all respondents used standardized 
questions to inquire about additional topics not included in data 
collection instruments, such as inquiries about staff perceptions and 
experiences with fraud and abuse in their separate SCHIPs. 
As mentioned, we examined published reports about fraud and abuse 
safeguards in the Medicaid program to inform our data collection 
instruments. We specifically asked States and health plans about 
several of the techniques identified in these reports, along with more 
general inquiries about all their fraud and abuse safeguards.  Our 
analysis considered all the safeguards and oversight mechanisms 
documented by States and health plans including, but not limited to, 
techniques listed in the initial data collection instruments.   
In some cases, our analysis used more inclusive definitions of 
techniques than those identified during our literature review and 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  27  A P P E N D I X   A  
contained in the survey instruments.  For example, the initial data 
collection instrument specifically asked about criminal background 
checks as a provider enrollment safeguard.  One report we reviewed 
described this safeguard as requiring physicians and other providers to 
supply their fingerprints for a law enforcement agency to conduct a 
check of criminal history.1  Federal regulations require exclusion of 
individuals who have been convicted of certain crimes, but do not 
specify what methods States must use to meet this requirement.2  To 
determine whether a respondent had met the separate SCHIP Federal 
requirement regarding certain crimes, our analysis also considered 
safeguards such as checks of various databases that contain criminal 
conviction data, e.g., the Healthcare Integrity and Protection Data 
Bank, and databases maintained by some of the State licensure boards.  
In another example, we asked respondents about routinely scheduled 
programs that identify aberrant claims or billing practices. Our 
analysis considered all documented aberrant billing detection 
techniques, whether routinely scheduled or otherwise. 
Based on our review of documentation and interview results, we 
completed the following analyses: 
o  To determine the extent to which States have established 
methods and procedures to meet Federal requirements 
regarding fraud and abuse, we determined what safeguards the 
six States (and their SCHIP contractors when these 
responsibilities were delegated) had established, and assessed 
whether these safeguards met applicable Federal requirements.   
o  To assess States oversight of separate SCHIP contractors 
regarding fraud and abuse, we determined the methods and 
procedures States had established for oversight, whether State 
procedures met Federal requirements for State oversight, and 
whether gaps or potential program vulnerabilities existed. 
o  To assess CMS oversight of separate SCHIPs regarding fraud 
and abuse, we determined how frequently and to what extent 
CMS compliance reviews and other CMS oversight mechanisms 
covered fraud and abuse issues. 
1 CMS, Review of State Medicaid Program Integrity Procedures: National 
Report, 2002, p. 8. 
2 42 CFR  457.935(b). 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  28  Limitations. Because the 6 States and 17 SCHIP health plans were 
purposively selected for review, findings and conclusions cannot be 
generalized beyond these entities.  Additionally, because measuring 
outcomes of established procedures was beyond of the scope of the 
study, the report does not draw conclusions regarding the effectiveness 
of separate SCHIP fraud and abuse safeguards.  Finally, while we made 
every effort to obtain all relevant information and documentation for 
our analysis, it is possible that States have established additional 
procedures for which they did not provide documentation. 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  29    A P P E N D I X   B  
Agency Comments 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  30  
 A P P E N D I X   B   

  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  31  
   A C K N O W L E D G E M E N T S   
  
This report was prepared under the direction of Kevin G. Golladay, 
Regional Inspector General for Evaluation and Inspections in the Dallas 
regional office.  Other principal Office of Evaluation and Inspections 
staff who contributed include: 
Blaine Collins, Team Leader 
Deborah McGurk, Project Leader 
Deborah Cosimo, Program Analyst 
Ruth Ann Dorrill, Program Analyst 
Alan Levine, Program Specialist 
Elise Stein, Director, Public Health and Human Services Branch 
Barbara Tedesco, Mathematical Statistician 
  OEI-06-04-00380  FRAUD AND ABUSE SAFEGUARDS IN SEPARATE SCHIPS  32