Department of Health and Human Services
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
MEDIC  ARE DRUG INTEGRITY 
 
C  I
ONTRACTORS   DENTIFICATION 
 
 
P P D F
OF  OTENTIAL  ART    RAUD 
 
  A  
AND  BUSE
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
October 2009 
OEI-03-08-00420    
 
 
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 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.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/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 for OIGs internal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.   
  
   
I N T R O D U C T I O N  
 E X E C U T I V E   S U M M A R Y  
OBJECTIVE   
 
(1) To determine the extent to which Medicare Drug Integrity 
Contractors (MEDIC) identified and investigated potential Part D fraud 
and abuse incidents and whether these incidents were identified 
through external sources or proactive methods.  
(2) To describe any issues or barriers MEDICs encountered in 
identifying or investigating potential fraud and abuse incidents.   
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 established Medicare Part D to provide prescription drug 
benefits under the Medicare program beginning January 1, 2006.  As of 
February 2009, 27 million beneficiaries were enrolled in Part D plans.  
Total expenditures for Part D benefits were $49.5 billion in 2007. 
Prior to implementing the Part D benefit, the Centers for Medicare & 
Medicaid Services (CMS) developed a strategy to help combat Part D 
fraud and abuse.  One of the key aspects of this strategy was MEDICs 
use of innovative techniques for data analysis.  Beginning in fiscal year 
(FY) 2007, CMS awarded contracts to three regional MEDICs to address 
potential fraud and abuse related to the Part D benefit.   
According to the MEDICs Statement of Work and their individual task 
orders, MEDICs responsibilities include, but are not limited to, 
identifying potential Part D fraud and abuse through external sources 
and proactive methods; fulfilling requests for information from law 
enforcement agencies; investigating potential Part D fraud and abuse; 
referring cases and making immediate advisements regarding potential 
Part D fraud or abuse to the Office of Inspector General (OIG); 
recommending appropriate administrative actions to CMS; identifying 
program vulnerabilities; and auditing the fraud, waste, and abuse 
programs that are part of plan sponsors compliance plans.  We 
reviewed MEDIC data covering FY 2008, the second year of MEDICs 
operations. 
FINDINGS 
MEDICs identified 4,194 incidents of potential fraud and abuse and 
investigated 1,320 incidents; most incidents were identified through 
external sources rather than proactive methods.  MEDICs identified 
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E X E C U T I V E   S U M M A R Y  
4,194 incidents of potential fraud and abuse in FY 2008.  CMSs 
strategy for combating Part D fraud and abuse emphasized the 
importance of using new and innovative data analysis techniques.  
However, MEDICs identified 87 percent (3,641) of potential fraud and 
abuse incidents through external sources, primarily complaints, in      
FY 2008.  The remaining 13 percent (553) of potential fraud and abuse 
incidents were identified through proactive methods, such as data 
analysis.   
MEDICs conducted 1,320 investigations in FY 2008.  Ninety-six percent 
of these investigations involved incidents of potential fraud and abuse 
identified through external sources.  In addition, MEDICs made           
65 referrals and 34 immediate advisements to OIG, made 257 referrals 
to State insurance commissioners, and made 39 referrals to CMS for 
administrative action in FY 2008.   
Problems with accessing and using data hindered MEDICs ability to 
identify and investigate potential fraud and abuse incidents.  
MEDICs reported that they need both Part D prescription drug event 
(PDE) data and data regarding Medicare Part B to effectively identify 
and investigate instances of potential Part D fraud and abuse.  
However, MEDICs did not receive access to PDE data until August 
2007, nearly a year after their contracts began.  In addition, two 
MEDICs were not given access to Part B data until the fall of 2008,       
2 years after their contracts began.  The third MEDIC did not receive 
access to Part B data before its contract ended.  Once they received 
access to PDE data, MEDICs reported that important variables were 
not part of the PDE data, making effective data analysis difficult.  
MEDICs also indicated that when they accessed PDE data, different 
types of prescriber identifiers were not stored in the correct fields, which 
affected the results of their data analysis. 
MEDICs lack of authority to directly obtain information from 
pharmacies, pharmacy benefit managers, and physicians hindered 
their ability to investigate potential fraud and abuse incidents.  
MEDICs did not have the authority to directly obtain prescriptions and 
medical records from entities, such as pharmacies, pharmacy benefit 
managers, and physicians, in FY 2008.  MEDICs reported that because 
CMS contracts with plan sponsors, MEDICs had the authority to 
request information only from the plan sponsors.  MEDICs indicated 
that these restrictions hindered their ability to investigate incidents of 
potential fraud and abuse. 
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E X E C U T I V E   S U M M A R Y  
MEDICs may not have been aware of some potential fraud and 
abuse incidents because plan sponsors are not required to refer 
them.  Plan sponsors are encouraged to refer potential fraud and abuse 
incidents to MEDICs but are not required to do so.  One MEDIC stated 
it received relatively few referrals compared to the number of plan 
sponsors in its jurisdiction.  The other two MEDICs indicated that while 
some plans referred incidents of potential fraud and abuse, other plans 
had never referred any such incidents.   
CMS did not give MEDICs approval to conduct audits of plan 
sponsors compliance plans in FY 2008.  As outlined in the Statement 
of Work and their individual task orders, MEDICs are responsible for 
conducting audits of plan sponsors compliance plans.  However, none of 
these audits were conducted in FY 2008.  All three MEDICs indicated 
that they were prepared to conduct compliance plan audits in FY 2008 
but were not given approval by CMS to do so.  Between October and 
December 2008, 2 years after MEDICs regional contracts began, the 
two remaining MEDICs did receive approval from CMS to begin           
10 audits of plan sponsors compliance plans. 
RECOMMENDATIONS 
In 2005, prior to the start of the Part D program, CMS outlined a 
strategy in which innovative data analysis, conducted primarily by 
MEDICs, was one of the keys to combating Part D fraud and abuse.  
The Part D program is now in its fourth year, and while CMS has 
reprioritized its oversight activities since 2005 because of budget 
shortfalls, proactive data analysis remains an important tool in its 
efforts to fight Part D fraud and abuse.   
Combating Part D fraud and abuse involves a number of key 
participants, including CMS, plan sponsors, and MEDICs.  Previous 
OIG reviews have focused on plan sponsors identification of fraud and 
abuse as well as CMSs oversight of the Part D program.  All of these 
reviews identified vulnerabilities in the efforts to combat Part D fraud 
and abuse.  For example, one OIG review found that a quarter of plan 
sponsors did not identify any incidents of potential fraud and abuse.  
Another OIG review found that CMS had not conducted any significant 
data analysis for fraud detection purposes and had relied largely on 
complaints to identify potential fraud and abuse.      
Our current review found that during their second year of operations, 
MEDICs identified most incidents of potential fraud and abuse through 
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E X E C U T I V E   S U M M A R Y  
external sources, such as complaints, rather than proactive methods.  In 
addition, various problems have hindered MEDICs ability to identify 
and investigate potential fraud and abuse incidents.  Also, CMS did not 
give MEDICs approval to conduct compliance plan audits in FY 2008.  
CMSs strategy was intended to combat fraud and abuse, partially 
through data analysis.  However, MEDICs reported that barriers 
hindered their ability to consistently conduct comprehensive data 
analysis to detect and prevent potential fraud and abuse.   
Therefore, we recommend that CMS:  
Ensure MEDICs have access to accurate and comprehensive data to 
assist them in identifying and investigating potential fraud and 
abuse and conducting proactive data analysis. 
Authorize MEDICs to directly obtain information that they need to 
identify and investigate potential fraud and abuse from entities, 
such as pharmacies, pharmacy benefit managers, and physicians.  
We recognize that implementing this recommendation may require 
statutory or regulatory change.   
Require plan sponsors to report all potential fraud and abuse 
incidents that are referred to law enforcement agencies to MEDICs 
as well.  If plan sponsors refer potential fraud and abuse to law 
enforcement agencies, they should also share this information with 
MEDICs to help MEDICs identify fraud and abuse trends and target 
problem providers.   
Ensure MEDICs have approval to conduct compliance plan audits 
that they are responsible for under their task orders and Statement 
of Work.  While MEDICs did not have CMSs approval to conduct 
compliance plan audits in FY 2008, they did receive approval to conduct 
10 of these audits in early FY 2009.  CMS should make approval of 
additional compliance plan audits a priority in the future. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with three of our four recommendations.  CMS stated 
that it is committed to ensuring that its contractors have access to the 
information they need to identify, prevent, and fight Part D fraud.   
CMS concurred with our first recommendation regarding MEDICs 
access to data; however, it did not provide a timeframe for 
implementation.  CMS did not indicate whether it concurred with our 
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E X E C U T I V E   S U M M A R Y  
second recommendation.  Instead, CMS stated that it recognizes the 
value of the recommendation but that its statutory authority to collect 
information directly from downstream entities is limited.  We 
acknowledge in our recommendation that statutory or regulatory 
change may be needed and we encourage CMS to seek these changes.  
CMS concurred with our third recommendation; however, CMS stated 
that it currently does not have the regulatory basis to require that plan 
sponsors report these incidents.  We disagree and believe current 
regulations give CMS the ability to require that MEDICs be provided 
with such reports.  CMS concurred with our fourth recommendation; 
however, it did not provide details on the number of compliance plan 
audits it would conduct.  
We ask that CMS, in its final management decision, more clearly 
indicate whether it concurs with our second recommendation and what 
steps, if any, it will take to implement both our second and third 
recommendations.  In addition, we ask that CMS provide more detail 
regarding its implementation of our first and fourth recommendations.     
 
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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 
MEDICs identified 4,194 incidents of potential fraud and abuse      
and investigated 1,320 incidents; most incidents were identified 
through external sources rather than proactive methods. . . . . . . . 8 
Problems with accessing and using data hindered MEDICs ability       
to identify and investigate potential fraud and abuse incidents .. 11 
MEDICs lack of authority to directly obtain information from 
pharmacies, pharmacy benefit managers, and physicians hindered   
their ability to investigate potential fraud and abuse incidents .. 13 
MEDICs may not have been aware of some potential fraud              
and abuse incidents because plan sponsors are not required to      
refer them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
CMS did not give MEDICs approval to conduct audits of plan 
sponsors compliance plans in FY 2008 . . . . . . . . . . . . . . . . . . . . . 15 
 
 
R E C O MMEN D A T ION S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 
  Agency Comments and Office of Inspector General Response . . . 17 
 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
A:  Top Five Types of Potential Fraud and Abuse Investigated              
and Referred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
 
  B:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 
 
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23   
  
   
 I N T R O D U C T I O N  
OBJECTIVE 
(1) To determine the extent to which Medicare Drug Integrity 
Contractors (MEDIC) identified and investigated potential Part D fraud 
and abuse incidents and whether these incidents were identified 
through external sources or proactive methods.  
(2) To describe any issues or barriers MEDICs encountered in 
identifying or investigating potential fraud and abuse incidents.   
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 established Medicare Part D to provide prescription drug 
benefits under the Medicare program beginning January 1, 2006.1  As of 
February 2009, 27 million beneficiaries were enrolled in Part D plans.2    
Total expenditures for Part D benefits were $49.5 billion in 2007.3  
Medicare Drug Integrity Contractors 
Prior to implementing the Part D benefit, CMS developed a strategy to 
help combat Part D fraud and abuse.  One of the key aspects of this 
strategy was MEDICs use of innovative techniques for data analysis.  
Beginning in fiscal year (FY) 2007, CMS awarded contracts to three 
regional MEDICs to address potential fraud and abuse related to the 
Part D benefit.4   
MEDICs received $11.6 million in FY 2008 to carry out their contracted 
responsibilities.  The three regional MEDICs and their contract 
payments for FY 2008 were:  
  MEDIC WestScience Applications International Corporation, 
$4.1 million;   
 
1 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003,           
P.L. No. 108-173, Social Security Act,  1860D-1(a)(2), 42 U.S.C.  1395w-101(a)(2). 
2 Centers for Medicare & Medicaid Services (CMS), Monthly Contract Summary 
Report, February 2009.  Available online at  
http://www.cms.hhs.gov/MCRAdvPartDEnrolData/MCESR/list.asp#TopOfPage.  Accessed 
on February 27, 2009. 
3 The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary 
Medical Insurance Trust Funds, 2008 Annual Report, March 2008, page 111.  Available 
online at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2008.pdf.  Accessed on 
April 22, 2008. 
4 In FY 2006, MEDIC Southeast was awarded a national contract to monitor fraud and 
abuse related to Part D enrollment and eligibility issues.  In FY 2007, MEDIC Southeast 
became a regional MEDIC. 
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I N T R O D U C T I O N  
 
  MEDIC NorthSafeGuard Services, $3.8 million; and  
 
  MEDIC SoutheastHealth Integrity, $3.7 million. 
 
As of September 2008, MEDIC Wests jurisdiction covered 21 States and 
9.6 million beneficiaries,5 MEDIC North covered 27 States and  
11.7 million beneficiaries, and MEDIC Southeast covered 8 States and      
5.9 million beneficiaries.  MEDIC Wests contract was not renewed 
when it ended in September 2008.  CMS transitioned the responsibility 
for the States and beneficiaries in MEDIC Wests jurisdiction to the two 
remaining MEDICs during October and November 2008. 
MEDICs responsibilities are detailed in the MEDIC Statement of 
Work and individual task orders issued to each MEDIC. 6  According to 
the Statement of Work, MEDICs responsibilities include, but are not 
limited to: 
  identifying potential Part D fraud and abuse through external 
sources and proactive methods;     
  fulfilling requests for information from law enforcement agencies;   
  investigating potential Part D fraud and abuse;    
  referring cases and making immediate advisements regarding 
potential Part D fraud or abuse to the Department of Health and 
Human Services Office of Inspector General (OIG);    
  recommending appropriate administrative actions to CMS;   
  identifying program vulnerabilities; and   
  auditing the fraud, waste, and abuse programs that are part of plan 
sponsors compliance plans.   
Individual task orders include these responsibilities as part of the 
activities each MEDIC is required to perform.   
Types of Fraud and Abuse 
According to the Statement of Work, fraud is the intentional deception 
or misrepresentation that an individual makes, knowing it to be false, 
that could result in some unauthorized benefit to himself/herself or 
 
5 MEDIC jurisdictions include all 50 States, U.S. territories, and the District of Columbia 
(hereinafter referred to as States).   
6 CMS, MEDIC Statement of Work,  3.2 and 6.1.2, Rev. 2, September 28, 2007. 
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 I N T R O D U C T I O N  
some other person.7  Types of Part D fraud include, but are not limited 
to, billing for drugs or services not provided, altering prescriptions to 
obtain a higher payment amount, using another persons Medicare card 
to obtain prescriptions, and billing for brand-name drugs when generics 
are dispensed.  Abuse involves behavior that an individual should have 
known to be false that could result in some unauthorized benefit.  
Examples of abuse include billing Medicare for services that are not 
covered or coding services incorrectly. 
Fraud and Abuse Identification 
MEDICs are required to identify potential fraud and abuse through 
both external sources and proactive methods. 
External sources and proactive methods.  Complaints are a primary 
external source of fraud leads.  Fraud complaints may come directly to 
the MEDICs through the MEDICs toll-free number, mail, and fax.  
MEDICs may receive complaints from Medicare beneficiaries, relatives, 
or other Medicare contractors.  In addition, MEDICs may receive leads 
about potential fraud and abuse from other external sources, such as 
law enforcement agencies, Part D plan sponsors, or CMS. 
Proactive techniques for identifying fraud can include analyzing claims 
data, conducting Internet searches to identify leads, and analyzing 
complaint data for trends.  According to the Statement of Work, the 
MEDICs ability to use innovative analytical methodologies is critical to 
the success of a benefit integrity program.8  In addition, since the 
beginning of the Part D program, CMS has issued press releases 
emphasizing the importance of using new and innovative data analysis 
techniques to combat Part D fraud and abuse.9  Proactive data analysis 
can enable MEDICs to identify indicators of potential fraud, such as 
duplicate billing or billing for drugs without an associated doctor visit.   
Data sources.  To identify potential fraud and abuse occurring in the 
Part D program, MEDICs are required to access and analyze different 
 
7 Ibid.,  2.1. 
8 Ibid.,  6.2. 
9 CMS, The New Medicare Prescription Drug Program:  Attacking Fraud and Abuse, 
October 7, 2005.  Available online at  
http://www.cms.hhs.gov/apps/media/press/factsheet.asp?Counter=1693.  Accessed on   
March 18, 2009; CMS, Medicare Finds Billions in Savings to Taxpayers, October 11, 2006.  
Available online at http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=2030.  
Accessed on March 31, 2009. 
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kinds of data.10  Specifically, MEDICs must access Part D prescription 
drug event (PDE) data.  When beneficiaries fill prescriptions covered 
under Part D, their prescription drug plans must submit electronic 
summary records called PDE records to CMS.  The PDE records contain 
Part D prescription drug cost and payment data.  The PDE data are 
stored in a CMS database called the Integrated Data Repository.  
MEDICs are able to access this database using SAS programming 
software or through a software application called Cognos.     
Medicare Part B claims are another important source of data for 
analysis.  Part B claims include claims for physician services that 
provide information on a beneficiarys doctor visit and a beneficiarys 
diagnosis.  This information can be used to determine whether a 
prescription has a corresponding office visit and whether a drug was 
prescribed appropriately.   
According to the Statement of Work, MEDICs will have access to 
Medicare Part B, Part D, and other data, such as Medicaid and 
Medicare Part A, through an integrated system.11  However, the full 
transition to this system is not expected to be complete until 2011.  
Until then, MEDICs must access data through individual systems.  
Fraud and Abuse Investigation and Referral 
MEDICs are required to investigate potential fraud and abuse and, 
when appropriate, refer potential fraud and abuse cases to OIG.12  
Cases referred to OIG may be accepted for investigation, returned to the 
MEDIC for further development, declined and referred to another law 
enforcement agency for investigation, or declined and referred back to 
the MEDIC for possible CMS administrative action.   
Investigations.  MEDICs are required to conduct investigations when 
they receive allegations of fraud from external sources or proactively 
identify potentially fraudulent situations.  An investigation is the 
analysis performed to determine the facts and the magnitude of 
potential fraud.  An investigation may include a review of a sample of 
PDE claims, beneficiary interviews, or a review of original 
prescriptions.  MEDICs are required to consult with OIG to 
determine whether or not the investigation should be further developed 
for possible case referral to OIG.    
 
10 CMS, MEDIC Statement of Work,  6.2, Rev. 2, September 28, 2007. 
11 Ibid.,  6.2. 
12 Ibid.,  6.1.2,  6.5.1. 
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If an investigation does not result in a case referral or the case is not 
accepted by OIG, the MEDICs may refer the incident to CMS for 
administrative action.  Administrative actions can include recovery of 
overpayments, suspension of payments, or imposition of civil monetary 
penalties.  In addition, investigations involving insurance sales agents 
may result in referrals to State insurance commissioners who are 
responsible for licensing these agents.   
Case referrals and immediate advisements.  MEDIC investigations result 
in case referrals when the MEDIC has documented allegations that a 
provider, beneficiary, pharmacy, pharmacy benefit manager, or Part D 
plan has:  (1) engaged in a pattern of improper prescription writing or 
billing, (2) submitted improper claims with actual knowledge of their 
falsity, or (3) submitted improper claims with reckless disregard or 
deliberate ignorance of their truth or falsity.13 
Certain allegations are referred directly to OIG without a MEDIC 
investigation.  These are called immediate advisements and include 
complaints by current or former employees of a suspected provider,  
Part D plan sponsor, or subcontractor; or involve entities that are the 
subject of ongoing OIG fraud investigations. 
Medicare Drug Integrity Contractor Reporting Requirements 
According to the Statement of Work, MEDICs are required to submit 
certain reports to CMS.  One of these is a monthly referral log.  MEDICs 
report their new case referrals and immediate advisements sent to OIG 
in this log as well as update the status of their previous referrals.  The 
referral log also contains referrals MEDICs sent to State insurance 
commissioners.   
In addition, MEDICs must submit quarterly reports to CMS on 
vulnerabilities identified within the Part D program during the previous 
quarter and possible ways to address them. 
Previous Office of Inspector General Work 
OIG has issued several reports regarding oversight of the Part D 
program.  In October 2007, OIG issued a report that examined CMSs 
early implementation of safeguards against Part D fraud and abuse.14  
The report found that some safeguards were in place but that others, 
 
13 Ibid.,  6.5. 
14 OIG, CMSs Implementation of Safeguards During Fiscal Year 2006 To Prevent and 
Detect Fraud and Abuse in Medicare Prescription Drug Plans, OEI-06-06-00280,      
October 2007. 
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such as data analysis to detect and prevent fraud and abuse, had not yet 
begun.  The report also found that CMS relied largely on complaints to 
identify fraud and abuse and had not begun financial or compliance 
audits.     
An October 2008 OIG report examined the extent to which Medicare 
Part D plan sponsors identified and took steps to address potential 
fraud and abuse in the first 6 months of 2007.15  The report found that 
over a quarter of plan sponsors did not identify any incidents of fraud 
and abuse.  The report also found that a few plan sponsors identified 
most incidents of potential fraud and abuse.  Even those sponsors that 
identified potential fraud and abuse incidents did not always conduct 
inquiries or take corrective actions.  Just two plan sponsors made        
89 percent of all referrals of incidents to MEDICs.   
Two OIG reports focused on plan sponsors compliance plans.  The first 
report, issued in December 2006, examined plan sponsors compliance 
plans at the start of the Part D program.16  The report found that few 
sponsors plans met all of CMSs requirements or addressed all of the 
recommendations for the prevention, detection, and correction of fraud, 
waste, and abuse.  The second report, issued in October 2008, examined 
CMSs oversight of plan sponsors compliance plans.17  OIG found that 
CMS conducted limited followup on the deficiencies that OIG had 
identified in its 2006 report, such as plan sponsors lack of documented 
procedures for internal monitoring and auditing.  CMS also did not 
conduct the routine compliance plan audits it originally had planned.   
METHODOLOGY 
Data Collection and Analysis 
We collected data from each of the three MEDICs regarding FY 2008, 
the regional MEDICs second year of operations. 18  We asked MEDICs 
 
15 OIG, Medicare Drug Plan Sponsors Identification of Potential Fraud and Abuse, 
OEI-03-07-00380, October 2008. 
16 OIG, Prescription Drug Plan Sponsors Compliance Plans, OEI-03-06-00100, 
December 2006.  
17 OIG, Oversight of Prescription Drug Plan Sponsors Compliance Plans,                 
OEI-03-08-00230, October 2008.  
18 In September 2008, MEDIC Wests contract with CMS was not renewed.  CMS 
transitioned the responsibility for the States in MEDIC Wests region to the remaining two 
MEDICs during October and November 2008.  We completed collecting data from MEDIC 
West before this transition was finalized. 
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for the number of incidents of fraud and abuse identified, investigations 
conducted, cases referred and immediate advisements made to OIG, 
referrals to State insurance commissioners, and administrative actions 
referred to CMS.19  We also requested that MEDICs identify the 
external sources and proactive methods they used to identify potential 
fraud and abuse.  In addition, we asked MEDICs to identify the types of 
potential fraud and abuse investigated and referred as cases or 
immediate advisements to OIG.  We asked MEDICs to describe any 
issues or barriers they encountered in identifying or addressing 
potential fraud and abuse incidents.  We reviewed this information to 
determine the extent to which MEDICs both identified potential fraud 
and abuse incidents and took action regarding such incidents. 
From CMS, we obtained reports submitted by each of the MEDICs for 
FY 2008, including vulnerability reports and logs of case referrals, 
immediate advisements, and State insurance commissioner referrals.  
We reviewed this information to determine whether it corresponded 
with the information provided by the MEDICs as part of our data 
request.  We also reviewed the vulnerability reports to determine 
whether the MEDICs identified any limitations in addressing            
Part D fraud and abuse. 
After we reviewed the data from the MEDICs and the reports from 
CMS, we conducted onsite visits to each MEDIC to clarify and gain a 
better understanding of the information we received.  We asked 
MEDICs for further information on their processes for identifying and 
addressing incidents of potential fraud and abuse.  We also asked 
MEDICs to elaborate on any issues or barriers to identifying or 
addressing the potential fraud and abuse incidents described in their 
response to our data request.  We compared this information with the 
vulnerability reports provided by CMS to identify any additional 
information on limitations in addressing Part D fraud and abuse.   
Data collection was conducted between September 30 and         
December 18, 2008.   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections approved by the Council of the Inspectors General on 
Integrity and Efficiency. 
 
19 We included follow-up education as an administrative action. 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  7   
  
   
 F I N D I N G S  
 
MEDICs identified 4,194 incidents of      MEDICs identified 4,194 incidents of 
potential fraud and abuse and investigated   potential fraud and abuse in FY 2008.  
This represents 15 incidents of 
1,320 incidents; most incidents were   
potential fraud and abuse for every 
identified through external sources rather than 
100,000 beneficiaries enrolled in   
proactive methods   
Part D plans.  Since the beginning of 
the Part D program, CMS has issued press releases emphasizing the 
importance of using new and innovative data analysis techniques to 
combat Part D fraud and abuse.  However, in FY 2008, MEDICs 
identified most incidents of potential fraud and abuse through external 
sources rather than proactive methods. 
Identification of potential fraud and abuse incidents.  Eighty-seven percent 
(3,641) of the potential fraud and abuse incidents MEDICs identified in 
FY 2008 were identified through external sources.  Complaints were the 
primary external source of potential fraud and abuse incidents MEDICs 
identified.  Examples of other types of external sources included leads 
from plan sponsors, law enforcement, and CMS.    
MEDICs reported that they identified the remaining 13 percent (553) of 
potential fraud and abuse incidents through proactive methods.  Of the             
553 potential fraud and abuse incidents identified through proactive 
methods, MEDICs identified 93 percent through data analysis.    
Examples of proactive analysis that MEDICs conducted included 
identifying high prescribers of certain drugs and identifying pharmacies 
with the highest Part D payments for prescription drugs.  Other types of 
proactive methods included conducting Internet searches and reviewing 
media articles to identify leads.   
MEDICs addressed incidents of potential fraud and abuse by conducting 
investigations, sending immediate advisements and case referrals to 
OIG, making referrals to State insurance commissioners, and making 
referrals to CMS for administrative action.   
Table 1 shows the number and percentage of incidents identified and 
actions taken by the MEDICs and indicates whether the incidents 
involved were identified through external sources or proactive methods.   
   
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  8   
  
   
F I N D I N G S  
Table 1.  Number and Percentage of Externally and Proactively Identified Incidents and Actions Taken 
by MEDICs  in FY 2008  
Incidents  External  Proactive 
Identified and  Total 
Actions Taken   Number  Percentage  Number  Percentage 
Incidents 
3,641  87%  553  13%  4,194 
Identified 
Incidents 
1,270  96%  50  4%  1,320 
Investigated1 
Cases Referred 
52  80%  13  20%  65 
to OIG1 
Immediate 
Advisements to  33  97%  1  3%  34 
OIG 
Referrals to 
State Insurance     257 
Commissioners2 
Referrals to 
CMS for 
39  100%  0  0%  39 
Administrative 
Action 
Source:  OIG analysis of MEDICs responses to data request.   
1 Investigations and case referrals to OIG may have involved incidents identified prior to our FY 2008 timeframe.   
2 We did not ask MEDICs to indicate whether incidents referred to State insurance commissioners were identified through external 
sources or proactive methods. 
 
Investigations.  MEDICs conducted a total of 1,320 investigations of 
incidents of potential fraud and abuse in FY 2008.  This represents               
five MEDIC investigations for every 100,000 Part D beneficiaries.  The 
top three types of potential fraud and abuse investigated by MEDICs 
were marketing schemes (40 percent), drug diversion by beneficiaries          
(21 percent), and inappropriate prescribing (17 percent).  Other types 
included theft of beneficiary identity or money and inappropriate 
billing.  Ninety-six percent (1,270) of MEDICs investigations involved 
incidents of potential fraud and abuse identified through external 
sources.  Four percent (50) of investigations were based on incidents 
identified proactively.    
Case referrals and immediate advisements.  MEDICs referred 65 cases of 
potential fraud and abuse to OIG in FY 2008.  This represents one case 
referral for every 500,000 beneficiaries enrolled in Part D plans.   
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  9   
  
   
F I N D I N G S  
Eighty percent of cases (52) referred to OIG involved incidents of 
potential fraud and abuse identified through external sources.  Twenty 
percent (13) of case referrals involved incidents of potential fraud and 
abuse identified through proactive methods.  One MEDIC was 
responsible for two-thirds of the referrals identified through proactive 
methods.   
Case referrals involved different types of potential fraud and abuse.  
The three types referred most often were drug diversion by beneficiaries 
(29 percent), inappropriate prescribing (26 percent), and inappropriate 
billing (20 percent).  Other types included theft of beneficiary identity or 
money and marketing schemes.  Appendix A provides examples of the 
top five types of potential fraud and abuse investigated by MEDICs and 
referred to OIG in FY 2008. 
Of the 65 cases referred to OIG, 63 percent (41) of cases were accepted.    
Another 28 percent (18) of referrals were declined by OIG but referred 
to another law enforcement agency.  The remaining 9 percent (6) of 
referrals were either declined and referred back to the MEDIC for 
possible CMS administrative action, were returned to the MEDIC for 
further development, or were pending an OIG determination. 
MEDICS made 34 immediate advisements to OIG in FY 2008.        
Sixty-two percent of these involved marketing schemes and another    
15 percent involved inappropriate billing.  Ninety-seven percent (33) of 
immediate advisements made to OIG involved potential fraud and 
abuse incidents identified through external sources.  One immediate 
advisement involved a potential fraud and abuse incident identified 
through proactive methods. 
State insurance commissioner referrals.  MEDICs made a total of          
257 referrals to State insurance commissioners in FY 2008.  These 
referrals involved issues with insurance sales agents or brokers, such as 
deceptive marketing.  We did not ask MEDICs to break out whether 
State insurance commissioner referrals involved incidents identified 
through external sources or proactive methods.  However, MEDICs 
indicated that these referrals were based on incidents identified through 
beneficiary complaints, an external source. 
Administrative actions.  MEDICs made 39 referrals to CMS for 
administrative action in FY 2008.  Eighty-five percent of these referrals 
involved education, such as education of plan sponsors, as the type of 
administrative action.  MEDICs make referrals to CMS when a referral 
to law enforcement is not warranted.  For example, a MEDIC received 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  10   
  
   
FF II NN DD II NN GG SS   
numerous complaints about deceptive marketing practices by agents of 
a plan.  In this instance, the MEDIC sent a referral to CMS to educate 
the plan sponsor on its responsibility for overseeing agents marketing 
activities.  All 39 referrals (100 percent) made to CMS for 
administrative action were based on incidents of potential fraud and 
abuse identified through external sources.   
 
Problems with accessing and using data  MEDICs reported that they 
hindered MEDICs ability to identify and  need both PDE data and data 
regarding Medicare Part B 
investigate potential fraud and abuse incidents  
services to effectively identify 
and investigate instances of potential Part D fraud and abuse.  
However, all MEDICs reported problems with accessing and learning 
how to use PDE data and accessing Part B data. 
Access to PDE data.  The PDE data include information that identifies 
the beneficiary, pharmacy, prescriber, drug, and drug cost.  MEDICs 
use PDE data to conduct proactive analysis to identify potential fraud 
and abuse, to investigate potential fraud and abuse incidents, and to 
fulfill requests for information from law enforcement agencies 
investigating cases.  Issues with PDE data affected MEDICs ability to 
identify and investigate incidents of potential fraud and abuse.  
MEDICs did not receive access to PDE data until August 2007, nearly a 
year after their contracts began.  MEDICs did have access to PDE data 
in FY 2008; however, all three reported that there were problems with 
accessing and learning how to use these data.  The time spent learning 
how to access and use PDE data delayed MEDICs ability to fully use the 
data for analysis.   
Access to important variables.  MEDICs also reported that either PDE 
data do not include, or they cannot efficiently access, certain 
information that is vital to identifying and investigating potential fraud 
and abuse and building case referrals.  For example, the MEDICs 
reported that PDE data do not include beneficiary demographic 
information, such as name and address.  Law enforcement agencies also 
often ask for beneficiary information when they request information 
from the MEDICs.  One MEDIC stated that not having this information 
available directly in the PDE makes fulfilling requests from law 
enforcement challenging.  In addition, one MEDIC also noted that the 
beneficiary ZIP Code could not be accessed through the interface it uses 
to mine PDE information.  This MEDIC explained that when using PDE 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  11   
  
   
FF II NN DD II NN GG SS   
data in a mainframe environment, it could not access the beneficiary 
ZIP Code.  The beneficiary ZIP Code could be accessed when using PDE 
data through the desktop application MEDICs use called Cognos.  
However, the MEDIC indicated that Cognos does not support complex 
data mining.  Two MEDICs reported developing methods to circumvent 
barriers to accessing beneficiary address and ZIP Code information.  
However, MEDICs reported that not having this information readily 
available in the PDE data made conducting proactive data analysis to 
identify or investigate potential fraud and abuse incidents difficult.   
Problems with prescriber identifiers in PDE data.  MEDICs reported 
problems with using the PDE fields containing prescriber identifiers 
when accessing records through Cognos.  MEDICs indicated that when 
they accessed PDE data using Cognos, different types of prescriber 
numbers were not stored in the correct fields, which affected the results 
of their data analysis.  For example, one MEDIC reported that when 
using Cognos to query PDE data for records with a providers National 
Provider Identifier (NPI) number, it found that NPI numbers were 
being stored in the field for Drug Enforcement Agency (DEA) numbers.  
As a result, no PDE records were identified when queries were run 
through Cognos using a prescribers NPI number.  The MEDIC 
addressed this issue by running queries with prescribers NPIs against 
the DEA field.  However, by the time this issue was identified, a number 
of case referrals had been sent to OIG and requests for information from 
law enforcement agencies had been completed.  Therefore, the original 
information sent may not have included all of the records for a 
particular prescriber or his/her ranking among other prescribers may 
have been inaccurate.    
Issues with tracking changes to PDE data.  Two MEDICs also pointed out 
that PDE records may change over time and MEDICs cannot see the 
various iterations of a PDE record when they access PDE data.  For 
example, if a plan sponsor identifies a pharmacy overpayment, it may 
correct the improper payment and adjust the PDE record.  Once the 
adjustment is made, there is no record of the original payment amount 
in the PDE data that MEDICs access.  This means that PDE data 
accessed at two different times may appear very different and there is 
no way to track the changes back to the original data without going to 
the plan sponsor for the claim.  According to one MEDICs vulnerability 
report, this missing information is vital to determining trends across 
multiple plans and to quantifying the amount of potential fraud for a 
particular pharmacy.     
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  12   
  
   
F I N D I N G S  
Access to Part B data.  MEDICs need Part B data to conduct proactive data 
analysis and investigate potential Part D fraud and abuse incidents.  For 
example, Part B data include diagnosis information, which may indicate 
whether a prescribed drug is appropriate.  However, two MEDICs were 
not given access to Part B data until the fall of 2008, 2 years after their 
contracts began.  The third MEDIC did not receive access to Part B data 
before its contract ended.  One MEDIC stated that PDE data allow it to 
see only what drug was dispensed at the pharmacy and how much was 
paid.  Having Part B data showing that the beneficiary had a 
corresponding doctors visit would help MEDICs determine whether a 
prescription was appropriate.   
 
The ability to access information, 
MEDICs lack of authority to directly obtain 
such as hard copies of 
information from pharmacies, pharmacy benefit 
prescriptions and medical records, 
managers, and physicians hindered their ability 
is important for conducting 
to investigate potential fraud and abuse 
investigations and developing 
incidents  
cases.  According to the MEDICs, 
in FY 2008 they did not have the authority to directly obtain 
prescriptions or medical records from pharmacies, pharmacy benefit 
managers, and physicians.  Federal regulations, effective in 2008, 
required plan sponsors and their related entities, contractors, and 
subcontractors to provide the Department of Health and Human 
Services and its designees with access to the books and records relating 
to the transactions under the plan sponsors Part D contracts with 
CMS.20  However, MEDICs reported that because CMS contracts with 
plan sponsors, MEDICs had the authority to request information only 
from the plan sponsors, not directly from first tier, downstream, and 
related entities, such as pharmacies and pharmacy benefit managers.21   
In addition, MEDICs indicated that they could not obtain medical 
records directly from physicians.  One of the MEDICs reported that 
ideally it would conduct an investigation by requesting medical records 
from the physician to compare the diagnosis with the beneficiarys 
medication.  The three MEDICs indicated that not being able to obtain 
 
20 42 CFR  423.505(i)(2)(i)(2008). 
21 First-tier, downstream, and related entities are generally entities that contract with 
plan sponsors.  These entities are further defined at 42 CFR  423.4.  These entities were 
referred to in previous regulations as related entities, contractors, and subcontractors. 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  13   
  
   
F I N D I N G S  
information directly from these entities was a barrier in investigating 
incidents of potential fraud and abuse.   
New Part D regulations that took effect January 1, 2009, require that 
plan sponsors specify in their contracts with first tier, downstream, and 
related entities whether CMS or its agents (i.e., the MEDICs) may 
obtain information directly from these entities or whether the plan 
sponsor will provide the information.22  However, if plan sponsors 
contracts specify that information will be provided by them and not 
these entities, this will not address the MEDICs problem with 
obtaining information directly.  Additionally, this provision does not 
address MEDICs authority to request medical records directly from 
physicians. 
 
MEDICs may not have been aware of some  MEDICs ability to identify 
potential fraud and abuse incidents because  potential fraud and abuse 
through external sources may 
plan sponsors are not required to refer them 
have been hindered by a lack 
of referral requirements for Part D sponsors.  Of the 3,641 incidents of 
potential fraud and abuse identified through external sources,              
15 percent were referred by plan sponsors.  However, MEDICs indicated 
that they may not have been aware of all incidents of potential fraud 
and abuse because plan sponsors are not required to refer such 
incidents to MEDICs, although they are encouraged to do so.23   
Previous OIG work in this area indicates that few plan sponsors 
referred incidents to MEDICs.24  One MEDIC stated it received 
relatively few referrals of potential fraud and abuse incidents compared 
to the number of plan sponsors in its jurisdiction.  The other two 
MEDICs indicated that while some plans referred incidents of potential 
fraud and abuse, other plans had never referred any such incidents.   
Plan sponsors may also report potential fraud or abuse to law 
enforcement agencies, such as OIG and the Department of Justice, 
without notifying the MEDICs.  Therefore, MEDICs would not have 
 
22 42 CFR  423.505(i)(3)(iv).   
23 CMS, Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9,  50.2.8.2;               
42 CFR  423.504(b)(4)(vi)(G)(3). 
24 OIG, Medicare Drug Plan Sponsors Identification of Fraud and Abuse,                 
OEI-03-07-00380, October 2008.   
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  14   
  
   
F I N D I N G S  
been aware of these incidents and, as a result, could have missed trends 
indicating problem providers or evidence of fraud schemes. 
 
Plan sponsors must have 
CMS did not give MEDICs approval to conduct 
compliance plans with measures 
audits of plan sponsors compliance     
to detect, correct, and prevent 
plans in FY 2008 
fraud, waste, and abuse.  These 
compliance plans must include certain elements, such as procedures for 
effective internal monitoring and auditing and procedures for ensuring 
prompt responses to detected offenses.   
As outlined in the Statement of Work and their individual task orders, 
MEDICs are responsible for conducting audits of plan sponsors 
compliance plans.  However, none of these audits were conducted in     
FY 2008.  All three MEDICs indicated that they were prepared to 
conduct compliance plan audits in FY 2008 but were not given approval 
by CMS to do so.  One MEDIC indicated that it had the funds to begin 
the compliance plan audits but that CMS had not given approval to 
start conducting them.    
Without compliance plan audits, there is no way to determine whether 
plan sponsors have these elements in place.  Between October and 
December 2008, 2 years after MEDICs regional contracts began, the 
two remaining MEDICs did receive approval from CMS to begin           
10 audits of plan sponsors compliance plans.  As of June 2009, six of 
these audits had been completed.  
 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  15   
  
   
 R E C O M M E N D A T I O N S  
In 2005, prior to the start of the Part D program, CMS outlined a 
strategy in which innovative data analysis, conducted primarily by 
MEDICs, was one of the keys to combating Part D fraud and abuse.  
The Part D program is now in its fourth year, and while CMS has 
reprioritized its oversight activities since 2005 because of budget 
shortfalls, proactive data analysis remains an important tool in its 
efforts to fight Part D fraud and abuse.   
Combating Part D fraud and abuse involves a number of key 
participants, including CMS, plan sponsors, and MEDICs.  Previous 
OIG reviews have focused on plan sponsors identification of fraud and 
abuse as well as CMSs oversight of the Part D program.  All of these 
reviews have identified vulnerabilities in the efforts to combat Part D 
fraud and abuse.  One study found that a few plan sponsors identified 
most of the potential fraud and abuse incidents and a quarter identified 
none.  Another study found that most plan sponsors compliance plans 
did not meet all requirements.  Two additional studies focused on CMSs 
oversight of the Part D program.  One of these studies found that CMS 
conducted limited followup on the deficiencies that OIG had identified 
regarding sponsors compliance plans.  The other study found CMS had 
not conducted any significant data analysis for fraud detection purposes 
and had relied largely on complaints to identify potential fraud and 
abuse. 
Our current review found that during their second year of operations, 
MEDICs identified most incidents of potential fraud and abuse through 
external sources, such as complaints, rather than proactive methods.  In 
addition, MEDICs ability to identify and investigate potential fraud 
and abuse incidents has been hindered by problems with accessing and 
using data, lack of authority to directly obtain information from certain 
entities, and limited referrals from plan sponsors.  Also, CMS did not 
give MEDICs approval to conduct compliance plan audits in FY 2008 to 
determine whether plan sponsors compliance plans included required 
measures to detect, correct, and prevent fraud, waste, and abuse.  
CMSs strategy was intended to combat fraud and abuse, partially 
through data analysis.  However, MEDICs reported that barriers 
hindered their ability to consistently conduct comprehensive data 
analysis to detect and prevent potential fraud and abuse.   
 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  16   
  
   
R E C O M M E N D A T I O N S  
Therefore we recommend that CMS:  
Ensure MEDICs have access to accurate and comprehensive data to assist 
them in identifying and investigating potential fraud and abuse and 
conducting proactive data analysis 
CMS should work with MEDICs to identify what specific changes to the 
content or structure of PDE, Part B, or other data are needed to allow 
MEDICs to more readily conduct proactive data analysis and respond to 
requests from law enforcement.   
Authorize MEDICs to directly obtain information that they need to identify 
and investigate potential fraud and abuse from entities, such as pharmacies, 
pharmacy benefit managers, and physicians   
While we recognize that implementing this recommendation may 
require statutory or regulatory change, allowing MEDICs direct access 
to these entities is vital to their ability to effectively identify and 
investigate potential fraud and abuse.   
Require plan sponsors to report all potential fraud and abuse incidents that 
are referred to law enforcement agencies to MEDICs as well   
If plan sponsors refer potential fraud and abuse to law enforcement 
agencies, they should also share this information with MEDICs to help 
MEDICs identify fraud and abuse trends and target problem providers.   
Ensure MEDICs have approval to conduct compliance plan audits that they 
are responsible for under their task orders and Statement of Work 
While MEDICs did not have CMSs approval to conduct compliance plan 
audits in FY 2008, they did receive approval to conduct 10 of these 
audits in early FY 2009.  CMS should make approval of additional 
compliance plan audits a priority in the future. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with three of our four recommendations.  CMS stated 
that it is committed to ensuring that its contractors have access to the 
information they need to identify, prevent, and fight Part D fraud. 
CMS concurred with our first recommendation and stated that it is 
building One PI, a system containing data on Part D, Part A, and Part B 
claims that MEDICs will have access to.  CMS is confident that One PI 
will address the data concerns outlined in this report and will also 
facilitate proactive fraud identification efforts.  However, CMS did not 
state when it expects MEDICs to have access to this system. 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  17   
  
   
R E C O M M E N D A T I O N S  
CMS did not indicate whether it concurred with our second 
recommendation.  Instead, CMS stated that it recognizes the value of 
the recommendation but that its statutory authority to collect 
information directly from downstream entities is limited because of the 
structure of the Part D program.  CMS stated that it will continue to 
search for alternatives to enhance its efforts in this area.  We 
acknowledge in our recommendation that statutory or regulatory 
change may be needed and we encourage CMS to seek these changes. 
CMS concurred with our third recommendation; however, CMS stated 
that it currently does not have the regulatory basis to require that plan 
sponsors report these incidents.  We disagree and note that our 
recommendation does not require imposing mandatory self-reporting 
requirements on PDP sponsors; we only recommend that, to the extent 
such disclosures are made, CMS require them to also be reported  
to the MEDICs.  We believe current regulations at 42 CFR  
 423.504(b)(4)(vi)(G)(3), which provides that PDP sponsors should 
report fraud and abuse incidents to CMS or its designee, give CMS the 
ability to require that MEDICs be provided with such reports.   
CMS concurred with our fourth recommendation and acknowledged that 
there were delays in starting compliance plan audits.  CMS stated that 
it has recently conducted a compliance plan audit of its largest Medicare 
Advantage and Part D contractor and that compliance plan audits will 
continue during FY 2009.  However, CMS did not indicate how many 
compliance plan audits would be conducted in FY 2009 nor how many 
were planned for FY 2010. 
We ask that CMS, in its final management decision, more clearly 
indicate whether it concurs with our second recommendation and what 
steps, if any, it will take to implement both our second and third 
recommendations.  In addition, we ask that CMS provide more detail 
regarding its implementation of our first and fourth recommendations.  
The full text of CMSs comments is provided in Appendix B. 
 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  18   
  
   
 A P P E N D I X ~ A  
 
Table A-1:  Top Five Types of Potential Fraud and Abuse Investigated and Referred 
 
Top Five Types of Potential Fraud and Abuse Investigated by Medicare Drug Integrity Contractors and Referred to 
the Office of Inspector General in Fiscal Year 2008 
   
Type of Fraud   
 and Abuse  Examples 
  Consulting a number of doctors to obtain multiple prescriptions.  
Drug Diversion 
  Giving or selling prescribed medication to someone else. 
by 
  Reselling drugs on the black market. 
Beneficiaries   
  Forging or altering a prescription. 
 
  Billing for drugs not provided. 
  Billing for brand-name drugs when generics are dispensed. 
Inappropriate    Billing for noncovered drugs as covered. 
Billing    Billing multiple payers for the same prescription, except as required for coordination of 
benefit transactions. 
  Splitting prescriptions to receive additional fees. 
 
 
  Writing prescriptions for drugs that are not medically necessary. 
Inappropriate 
  Misrepresenting dates and descriptions of prescriptions provided or the identity of the 
Prescribing  
individual who provided the prescriptions. 
 
  Conducting unsolicited door-to-door marketing. 
Marketing    Enrolling a beneficiary without his/her permission.  
Schemes      Offering beneficiaries a cash payment to enroll in Part D. 
  Using unlicensed agents. 
  Asking a beneficiary for banking information over the telephone.  
Theft of 
  Individual or organization posing as a Medicare representative with intent to steal a 
Beneficiary 
beneficiary's identity or money.  
Identity/Money   
  Stealing beneficiary identification and using it to obtain drugs. 
Sources:  Office of Inspector General analysis of Medicare Drug Integrity Contractors (MEDIC) response to data request and 
review of MEDICs documentation; Centers for Medicare & Medicaid Services (CMS), MEDIC Statement of Work,  6.1.1,   
Rev. 2, September 28, 2007; and CMS, Prescription Drug Benefit Manual, Rev. 2, April 25, 2006, ch. 9,  70.  
 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  19  x 
A P  PEN  D  B
 
Agency Comments 
/.,aYlc~.4t, 
t#.~.. DEP~RTMENT
("   	  
OF HEALTH & HUMAN SERVICES  Center$ far Medicare & Medicaid Services 
'<S~
 
Admin/stra tor
Wasningtan, DC 20201 
DATE:	  ~AtJG J~ g 
TO:	  Daniel R. Levinson
 
Inspector General
 
FROM:	  ~arlerre Frizzera
 
Acting Administrator
 
SUBJECT:	  Officeoflnspector General (OIG) Draft: Report: "Medicare Drug 
Integrity Contractors' Identification olPotential Part D Fraud and Abuse" 
~OEI-03-08-00420) 
Thank yoU for the opportunity to comment on the above-referenced DIG draft report. 
The Centers forMedkare & Medicaid Services (CMS)appteciatesthe OIG's efforts in 
reviewing the Medicate Drugintegtiiy Contractors (MEDICs) identification offraud, 
waste, and abuse among Part D sponsors.CMS is concerned about the risks that 
potential fraud posestothe PartD Program,andwehave remedied someoftheMEDlCs 
data access issues. We are committed to ensuring that Our ContractOrS have acCess to the 
information they need to help us identify, prevent, and fight Part D fraUd. 
(jIG Recommendation 
Ensure MEDICs have access to accurate and comprehensive data to assist them in 
identifying and investigating potential fraud and abuse and conducting proactive data 
analysis. 
CMS Response 
The eMS concurs with this recommendation. CMS is currently building One PI,which 
is a datasystem that wiHgive the MEDICs access to detailed data on all Part D claims, as 
well as Parts A and B Claims. Weare confident that One PI will address the.data 
concerns outlined in this report as well as faciiitate proactive fraud identification efforts. 
OIG Recommendation 
Authorize MEDICs to directly obtain inforrrtationthat they need to Identify and 
investigate potential fraud and abuse fiomentities, such as phannacles, pharmacy benefit 
managers, and physicians. 
OEI030800420  MEDICs' 10ENTIFICATION OF POTENTIAL PART D FRAUO ANO ABUSE  20   
  
   
AA PP PP EE NN DD II XX    ~~    BB   
 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  21   
  
   
A P P E N D I X   ~   B  
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  22   
  
   
 A C K N O W L E D G M E N T S  
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Linda M. Ragone, Deputy Regional Inspector 
General.   
Tara J. Bernabe served as the team leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the 
Philadelphia regional office who contributed to the report include  
Nancy J. Molyneaux; central office staff who contributed include                 
Rita Wurm.  
 
  OEI-03-08-00420  MEDICS IDENTIFICATION OF POTENTIAL PART D FRAUD AND ABUSE  23