Department of Health
and Human Services
Office of Inspector General
Semiannual Report
April 1, 2000 - September 30, 2000
June Gibbs Brown
Inspector General Step One
Call your health care provider for an explanation 
of unusual or questionable Medicare charges. 
Most are honest and want to prevent fraud.
Step Two
If you still have questions, call your Medicare 
insurance company.
Step Three
If you continue to have questions, call the 
Medicare Fraud Hotline at:
 1-800-HHS-TIPS
 (1-800-447-8477) A MESSAGE FROM THE SECRETARY
As this Administration concludes its second and final term, we can look back with pride at
our achievements over the past several years in improving service to the American people in
the areas covered by the programs administered by the agencies of the Department of Health
and Human Services (HHS). With the vital leadership role played by the Office of Inspector
General (OIG), we made great strides in protecting the financial integrity and enhancing the
quality of programs and services we provide to the public.
When this Administration took office in 1993, it set a policy of zero tolerance for health care
fraud and abuse, and made the Departments efforts in this area a top priority. From the
outset we focused unprecedented attention on the fight against fraud, abuse and waste in the
Medicare and Medicaid programs. This intensified crack down, spearheaded by the OIG and
coordinated with other Federal agencies, State and local officials, health care professions
and consumers themselves, has produced record accomplishments.
As documented in the following pages, impressive results have been achieved in the number
of civil settlements, criminal convictions and exclusions of unsuitable health care providers
from doing business with the Federal and State health care programs. This aggressive
enforcement  combined  with  the  implementation  of  policy  and  procedural  changes
recommended by OIG, has generated billions of dollars of savings that have contributed to
the greatly improved solvency of the Medicare Trust Fund. Medicare is now projected to be
solvent to 2025, a full 26 years more than when this Administration took office.
In addition to the critical contributions OIG has made in the health care area, it also can take
credit for several other significant accomplishments. Among them were the several reviews
and investigations completed during this reporting period in the area of safeguards for
human subjects in clinical trials. The results of this work prompted the Department to take
action to better protect the welfare of participants in human subject research.
In the area of child support enforcement, the OIG is collaborating with HHS Office of Child
Support Enforcement (OCSE) in "Project Save Our Children" (PSOC), the Administrations
criminal child support enforcement initiative which is showing great success. The PSOC is
aimed at chronic delinquent parents who owe large sums of child support and combines the
efforts of OIG and OCSE, along with the Department of Justice, State child support agencies
and local law enforcement organizations. Introduced in late 1998 as a three-State pilot
program based in Columbus, Ohio, PSOC  now boasts five multiagency, multijurisdictional
regional task forces covering 17 States and the District of Columbia. As a result of the work
of the task forces, 84 Federal and 264 State arrests have been executed, and restitution
totaling about $11.3 million has been ordered. The OIGs accomplishments and history of facilitating savings to the Federal Government
underscore its record as a solid investment. I extend my gratitude to the Inspector General
and her staff for their efforts on behalf of the Department and the American taxpayer.
Donna E. Shalala COST SAVINGS
FY 1996  2000
Dollars in Billions
$18
$16 $15.620
$1.232
$0.142
$14
$12.586 $0.408
$12 $11.628 $0.516 $0.251
$0.147
$10
$8 $7.552 14.246
$1.249
$6 $0.125 10.965 11.927
$4.697 $0.237
$4 $0.275
6.178
4.185
$2
$0
1996 1997 1998 1999 2000
Funds Not Expended as a Result of  Disallowances from Investigative
Audits, Investigations, Inspections Questioned Costs Receivables
EXCLUSIONS
FY 1996  2000
4,000
3350
3,500
3021 2976
3,000 2719
2,500
2,000
1408
1,500
1,000
500
0
1996 1997 1998 1999 2000
CRIMINAL PROSECUTIONS
FY 1996  2000
500
414
401
400
300 261
215
200
151
100
0
1996 1997 1998 1999 2000
1) 1,442 cumulative criminal prosecutions for FY 1996-2000.
2) 3,609 cumulative civil prosecutions for FY 1996-2000. FOREWORD
This semiannual report highlights the activities and accomplishments of the Department of
Health and Human Services (HHS) Office of Inspector General (OIG) for the 6-month
period ending September 30, 2000.  An overview of the most significant issues discussed in
the report is provided in the Highlights section.
During this period we marked the midpoint of the 7-year Health Care Fraud and Abuse
Control  Program  created  by  the  Health  Insurance  Portability  and  Accountability  Act
(HIPAA) of 1996.  In recognition of that milestone, I want to devote this space to a brief
review of noteworthy achievements attained under HIPAA.
First, the significance of this landmark legislation to the OIG mission cannot be overstated.
It brought much needed and powerful new criminal and civil enforcement tools, and for the
first time provided predictable funding with which to combat waste, fraud and abuse in the
Federal health care programs.  With these increased resources and authorities, and with the
support of the Congress and the Administration and the full cooperation of our various
Federal, State and local partners, we are making remarkable progress in our campaign to
protect the financial integrity of the Departments health care and other programs.
As  reflected  in  the  statistics  on  the  facing  page,  our  combined  efforts  have  produced
dramatic results.  In the 4 fiscal years under HIPAA (FY 1997 through FY 2000), we have
reported overall savings of more than $47.3  billion.  This is comprised of $665 million in
audit disallowances, $43.3 billion in savings from implemented legislative or regulatory
recommendations and actions to put funds to better use, and $3.4 billion in investigative
receivables.  Medicare and Medicaid account for more than 98 percent of the total savings,
with the balance attributable to various other HHS programs.  In FY 2000 alone, Medicare
and Medicaid accounted for more than $15.42 billion of the record $15.62 billion in overall
savings.  
In  addition  to  our  monetary  successes,  we  have  registered  significant  enforcement
achievements over the past 4 fiscal years, including the exclusion of more than 12,066
abusive or fraudulent individuals and entities from doing business with Medicare, Medicaid,
and other Federal and State health care programs.  At the same time, we successfully
pursued with the Department of Justice 1,291 criminal prosecutions and 3,080 civil actions
against  individuals  or  entities  engaged  in  fraudulent  conduct  against  departmental
programs.    As  provided  for  in  HIPAA,  most  of  the  money recovered  in  the  form  of
judgments, settlements and administrative impositions from these cases has been or will be
returned  to the Medicare Trust Fund.  While impossible to quantify precisely, the Medicare program is benefitting enormously
from the "sentinel" effect of this intensified crack down.  Both the Congressional Budget
Office and the Medicare Trustees stated that OIGs expanded enforcement and compliance
activities contributed to the following salutary developments:
(cid:127) The rate of growth in Medicare spending fell by 0.7 percent in 1999 for the first decline
in the rate of spending in the programs history.  A year earlier, in FY 1998, the rate of
spending slowed to 1.5 percent, which at the time, was the smallest increase in the
history of the program and the first time that Medicare spending grew more slowly than
the Federal budget as a whole.  Preliminary Treasury figures indicate a rise of only 1.5
percent in spending for FY 2000.
(cid:127) Medicare fee-for-service improper payments declined 42 percent, from $23.2 billion, or
14 percent in FY 1996, to $13.5 billion, or 7.97 percent, in FY 1999, for an annual
improvement of $10 billion.  This represents a cut in Medicare costs without a single
beneficiary  being  denied  a  needed  service  or  a  health  care  provider  being  denied
legitimate compensation.
(cid:127) The Medicare  hospital case-mix index declined for the third successive year in FY 2000
after having declined in FY 1998 for the first time in the history of the  program.   The
case-mix directly influences the length of stay and the intensity, cost and scope of
services that a hospital or other health program provides.
(cid:127) As a result of these and other beneficial occurrences, the Medicare Trustees extended the
solvency of the Medicare Trust Fund by 26 years to 2025.
While enforcement is essential to our anti-fraud and abuse campaign, so is prevention.  In
keeping with the provisions and spirit of HIPAA, we are engaged in numerous efforts
designed  to  promote  the  health  care  industrys  understanding  of  and  compliance  with
Medicare rules.  This includes issuing voluntary compliance program guidance by specific
industry; publishing special fraud alerts and advisory bulletins; issuing advisory opinions to
industry on proposed business practices; maintaining a program for the self-reporting of
health  care  program  violations;  and  undertaking  beneficiary  outreach  and  education
initiatives. 
Since the implementation of HIPAA, we have published 9 voluntary compliance guidance
documents, promulgated 44 advisory opinions, issued 3 special fraud alerts and 3 special
advisory bulletins, and received 100 self-reports of wrongdoing.  As part of our public
outreach  initiative,  an  expanded  toll-free  hotline  made  possible  by  HIPAA  funding  is
maintained  for  the  purpose  of  receiving  reports  from  beneficiaries  and  providers  of
suspected fraud.  During FY 2000, the hotline received 526,780 calls, bringing to more than
1.5 million the number of calls processed since it began providing enhanced nationwide service in 1997.  Complaints to the hotline have led to recoveries in excess of $38 million
for departmental programs.
As these accomplishments attest, HIPAA has contributed immeasurably to our mission of
preventing and detecting fraud, waste and abuse and promoting economy, efficiency and
effectiveness in agency programs and operations.  With the cooperation of our partners and
the ongoing support of the Administration and the Congress, we are committed to continue
the collaborative efforts forged under HIPAA to promote the integrity of Federal health care
programs and safeguard the interests of the American taxpayers.
June Gibbs Brown
Inspector General HIGHLIGHTS
INTRODUCTION
This section highlights the most noteworthy recent accomplishments of the Department of
Health and Human Services (HHS) Office of Inspector General (OIG). 
STATISTICAL ACCOMPLISHMENTS
For Fiscal Year (FY) 2000, OIG reported savings of $15.620 billion, comprised of $14.426
billion in implemented recommendations and other actions to put funds to better use, $142
million in audit disallowances and $1.232 billion in investigative receivables. (See Appendix
A and the sections entitled "Resolving Office of Inspector General Recommendations, A.
Questioned  Costs"  and  "Investigative  Prosecutions  and  Receivables"  in  the  General
Oversight chapter for details.)
In addition, for the fiscal year, OIG reported 3,350 exclusions of individuals and entities for
fraud  or  abuse  of  the  Federal  health  care  programs  and/or  their  beneficiaries,  414
convictions of individuals or entities that engaged in crimes against departmental programs,
and 357 civil actions. (See sections entitled "Fraud and Abuse Administrative Sanctions" in
the Health Care Financing Administration [HCFA] chapter and "Investigative Prosecutions
and Receivables" in the General Oversight chapter.)
Included  below are examples  of some  of OIGs  most notable accomplishments for the
6-month period ending September 30, 2000.
SIGNIFICANT INVESTIGATIVE RESULTS
Following are some of the major settlements that were finalized during this reporting period.
Dialysis Services Company
An international provider of dialysis services based in Sweden, and two of its Florida
subsidiaries, agreed to pay the Government more than $53 million to settle health care fraud
charges. The Swedish company allegedly submitted false claims through its subsidiaries to
Medicare, Medicaid and TRICARE for end stage renal disease (ESRD) laboratory services.
The  $53  million  settlement  figure  is  divided  between  two  settlement  agreements.  The
dialysis services company also entered into a 5-year corporate integrity agreement with OIG,
governing any and all ESRD labs the company owns or operates. (See page 20) 
Operator of Hospitals 
One of the largest operators of hospitals in rural areas and small cities agreed to pay the
Government $31.8 million and entered into a corporate integrity agreement for allegedly
submitting false claims to Medicare, Medicaid and TRICARE. The nationwide settlement
i resolves allegations that 36 of the companys hospitals engaged in a chain wide upcoding
program,  designed  by  company  officials  in  Tennessee  to  increase  reimbursement  by
insurers. Under this program, the hospital chain billed for more expensive services than the
hospitals  provided  by  assigning  inappropriate  diagnostic  codes  to  hospital  inpatient
discharges. (See page 11)
Medicare Managed Care Company
In the  first False  Claims  Act  settlement  involving  billing misconduct  in  the  Medicare
managed care program, a Medicare managed care company agreed to pay the Government
$14.5 million for allegedly providing false enrollment/payment data to Medicare. An OIG
audit determined that the company inaccurately classified patients eligible only for Medicare
coverage, as eligible for both Medicare and Medicaid. This improper classification led the
company to receive higher reimbursement fees from the Government than appropriate. As
part of the settlement agreement, the company also entered into a 5-year corporate integrity
agreement. (See page 21)  
MENTAL HEALTH SERVICES
Medicare pays for a variety of psychiatric services, ranging from inpatient hospital care to
nonintensive outpatient services for those beneficiaries whose conditions do not require
comprehensive, frequent care. Under the partial hospitalization program (PHP), authorized
by the Omnibus Budget Reconciliation Act of 1990, Medicare also pays for intensive
outpatient  psychiatric  services  for  acutely  ill  individuals  who  would  otherwise  require
hospitalization.  These  PHP  services  can  be  provided  by  either  hospital  outpatient
departments or community mental health centers. In this reporting period, OIG assessed
HCFAs oversight of psychiatric hospitals and the propriety of provider claims for outpatient
services.
Quality of Psychiatric Hospitals
Focusing on the role of contracted surveyors in quality reviews of free-standing psychiatric
hospitals,  OIG  identified  such  deficiencies  as  an  inadequate  level  of  review,  little
accountability for surveyor performance, and a lack of coordination among surveyors and
other external reviewers. The OIG recommended that HCFA deploy its contracted surveyors
more strategically, take better advantage of their expertise, hold them more fully accountable
for their performance, and determine an appropriate minimum cycle for their survey. The
OIG further recommended that HCFA consider applying special Medicare conditions of
participation to psychiatric hospitals and to psychiatric units of acute care hospitals. In
response, HCFA noted its continuing work with the Joint Commission on Accreditation of
Healthcare Organizations to improve hospital oversight. (See page 2) 
Payments to Acute Care Hospitals
In a review of statistically selected partial hospitalization program and other outpatient
psychiatric claims submitted by acute care hospitals in the 10 States with the highest charges
for outpatient psychiatric services, OIG estimated that Medicare paid $224 million for
unsupported or unallowable services in CY 1997. These services were not documented in
accordance with Medicare requirements, not reasonable and necessary, and/or rendered by
ii unlicensed  personnel.  The  OIG  recommended  that  HCFA  consider  implementing  a
first-claim medical review of a random sample of new outpatient psychiatric claims, further
emphasize  claim documentation, and  require Medicare fiscal  intermediaries to  increase
postpayment reviews of claims and to initiate recovery of overpayments. (See page 3) 
Reviews at three individual hospitals found similar unallowable charges. Based on statistical
samples, OIG estimated that outpatient psychiatric claims submitted over a 1-year period
were overstated by about $1.1 million for two hospitals and by over $750,000 for the third.
In all  cases, OIG  referred the review results to the fiscal intermediary for appropriate
financial  adjustments.  The  OIG  also  recommended  that  the  hospitals  strengthen  their
procedures  to  ensure  that  charges  for  outpatient  psychiatric  services  are  covered  and
properly documented. (See pages 3 and 4)
Payments to Community Mental Health Centers
The OIG reviewed PHP services at two community mental health centers and identified
significant Medicare payments for unallowable or questionable services. At one center, 100
percent  of  the  services  in  the  sampled  claims  did  not  meet  Medicare  reimbursement
requirements, resulting in estimated improper payments of more than $4.4 million for one
fiscal year. The OIGs review of the other center estimated that $1.1 million in outpatient
psychiatric  service  charges  during  the  year  were  not  reasonable  and  necessary  or  not
appropriate for the patients conditions. In both reviews, OIG recommended, in addition to
financial adjustments, that the community mental health centers ensure that future services
submitted for Medicare reimbursement are covered and properly documented. (See page 4)
ACCESS TO CARE
Skilled Nursing Facilities
On September 5, 2000 the OIG testified before the Senate Special Committee on Aging in
order to discuss the variety of causes of recent nursing home bankruptcies with particular
attention to the possible role of the Balanced Budget Act (BBA) in precipitating them, and
what affect the bankruptcies have had on access to nursing home care by beneficiaries. The
OIG  testimony  focused  on  recent  work,  requested  by  the  Health  Care  Financing
Administration, concerning access to care in nursing facilities since implementation of the
BBA.
An OIG evaluation  found that 80 percent of discharge planners can place all of their
Medicare patients in SNFs. Another 15 percent estimate that they can place all but 1 to 10
percent of their patients. The remaining 4 percent say they cannot place over 10 percent.
Over half state that some of their patients experience delays before being placed. Despite
this,  the  average  length  of  stay  in  hospitals  before  discharge  to  a  nursing  home  has
decreased. Multiple factors affect the placement process, including patients with particular
medial conditions or service needs. Discharge planners also mention the decision making
process by patients and their family members as a source of delays.
iii Interagency Initiative
The OIG has participated in an interagency initiative to improve the Governments efforts to
enforce laws governing quality of care and fraud in the provision of nursing home services.
A major feature of this initiative has been a series of training conferences for Federal, State,
and local Government officials whose duties encompass enforcement of nursing home laws.
(See page 31)
Home Health Care 
Three OIG reports examined access and adequacy of home health care. OIG found that 88
percent of discharge planners can place all of their patients; 8 percent can place all but 1 to
10 percent. Four percent say they cannot place more than 10 percent of their patients who
need home care. Seventy-eight percent reported that they rarely or never experience delays
in placing patients. Although most discharge planners did not attribute any access problems
to the interim payment system, many indicate they have noticed changes in the placement
process. Another study showed that readmission of home health patients to hospitals and use
of hospital emergency rooms have decreased since the new payment method went into
effect. Finally, an inspection of survey and certification deficiencies found that they have
increased by 26 percent, but there is no single explanation for the growth between the first 6
months of 1997 and 1999. Reasons that may account for this increase may include changes
in the survey schedule, increased Federal involvement, lower quality of care, and the interim
payment system. 
CHILD SUPPORT ENFORCEMENT
In addition to its audit and inspection work in the area of child support enforcement, OIG
has made the detection and prosecution of absent parents who fail to pay court-ordered child
support a priority. The OIG has worked with the Office of Child Support Enforcement
(OCSE) and other Federal, State and local partners to develop programmatic and operational
procedures to expedite the collection of child support and to bring to justice those who
willfully disregard their obligations. The OIG has opened 1,161 investigations of child
support  cases  nationwide  since  1995,  which  have  resulted  in  304  convictions  and
court-ordered restitution and settlements of over $18.5 million.
Investigative Task Forces
In 1998, OIG and OCSE initiated "Project Save Our Children," (PSOC), a criminal child
support initiative made up of multiagency, multijurisdictional investigative task forces. The
task forces bring together enforcement units from different States within the following
geographical regions: the Midwest, Mid-Atlantic, Southwest, Northeast and West Coast. The
task forces are designed to identify, investigate and prosecute criminal nonsupport cases
both on the Federal and State levels through the coordination of law enforcement, criminal
justice and child support office resources; their goal is to create streamlined systems of
referral, investigation and prosecution that will bring to justice the most egregious offenders.
(See page 65)
iv Child Support Enforcement Evaluation Reports
The OIG continued to produce reports from an extensive series of evaluations on the broad
issue of child support enforcement. Two reports examined the implementation of mandated
child support enforcement State disbursement units and how States could improve their
implementation efforts. Another eight reports examined the issues of paternity establishment
and client cooperation with child support enforcement agencies. Two additional reports
looked at ways that State child support enforcement agencies can improve the ability of
low-income non-custodial parents to meet their obligations.
RETROACTIVE EMERGENCY ASSISTANCE CLAIMS
The Emergency Assistance (EA) program, eliminated by the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 and replaced by the Temporary Assistance for
Needy Families program, provided temporary financial assistance and social services to
needy  families  in  emergency  situations.  As  part  of  an  ongoing  nationwide  review  of
retroactive EA claims, OIG issued several reports in the current reporting period.
The OIG found that the States reviewed had not complied with eligibility requirements for
Federal  financial  participation  in  the  EA  program.  Multimillion  dollar  overpayments
resulted. For instance, Pennsylvania was reimbursed $129.1 million for unallowable or
ineligible claims: $77.6 million submitted on behalf of children in Philadelphia County and
$51.5 million claimed for children in juvenile detention facilities throughout the State. The
OIG also estimated that ineligible Federal payments to Illinois totaled $13.9 million, and to
Nebraska, almost $3 million. In all of these cases, OIG recommended that the States refund
the overpayments to the Federal Government. In addition, as a result of OIGs review, New
Jersey voluntarily withdrew its $2.6 million Federal claim and returned the $2 million it had
received from the Government. (See page 70)
CIGAR LABELING
At the urging of the Federal Trade Commission and the Surgeon General, the nations
leading cigar makers agreed, on Monday, June 26, to put health labels on future packages of
cigars. This action was supported by the OIGs inspection report, "Youth Use of Cigars",
which was finalized in February 1999. The reports, which were requested by the CDC,
showed a sharp increase of cigar smoking by young people and a lack of Federal regulation
and oversight. 
OIG WORK IN PERFORMANCE MEASUREMENT
In order to identify work done in the area of performance measurement, OIG has labeled
some items throughout this report as performance measures with the symbol            .
Performance measures are used to evaluate the achievement of a program goal, such as the
efficiency of an immunization program which is measured by the number of inoculations
provided per dollar of cost. In OIGs opinion, the audits, inspections and investigations
identified  with  the  performance  measure  symbol  offer  management  information  about
whether  some  aspect  or  all  of the programs  or  activities reviewed are achieving their
v missions and goals. These proposals are provided to management for their consideration as
they develop their performance measures. (See Appendix F)
INTERNET ADDRESS
This semiannual report and other OIG materials may be accessed on the Internet at the
following address: http://www.hhs.gov/oig.
vi Table of Contents
Chapter I  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1
External Quality Review of Psychiatric Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Outpatient Psychiatric Services at Acute Care Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . .3
A. Ten-State Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
B. Texas Hospital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
C. New York Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
D. Connecticut Hospital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Partial Hospitalization Program Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
A. Colorado Community Mental Health Center . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
B. Michigan Community Mental Health Center . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Outpatient Rehabilitation Facilities: Six-State Review . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Restraint and Seclusion: State Policies for Psychiatric Hospitals   . . . . . . . . . . . . . . . . . .6
Hospital Closure: 1998  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
HCFA Management of Provider-Based Reimbursement to Hospitals  . . . . . . . . . . . . . . .7
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
A. Physicians at Teaching Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
B. Diagnosis Related Group 3-Day Window Project  . . . . . . . . . . . . . . . . . . . . . . . .9
C. Hospital Outpatient Laboratory Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
D. PPS Patient Transfer Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
E. Pneumonia Upcoding Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Other Hospital Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Industry Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Fraud and Abuse Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
A. Program Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
B. Civil Penalties for Patient Dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
C. Civil Penalties for False Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
D. Compliance Activities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Provider Self-Disclosure Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Medicare Payments to OIG Excluded Physicians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
External Quality Review of Dialysis Facilities   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Payments to Managed Care Organizations for Beneficiaries on Dialysis . . . . . . . . . . . .26
Medicare Conditions of Participation for Organ Donation: An Early
Assessment of the New Donation Rules   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Nursing Home Vaccination: Reaching Healthy People 2010 Goals   . . . . . . . . . . . . . . .27
Medicare Beneficiary Access to Skilled Nursing Facilities: 2000  . . . . . . . . . . . . . . . . .28
Effect of Financial Screening and Distinct Part Rules on Access to
Nursing Facilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Fraud Involving Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Consolidated Billing Under the Prospective Payment System for
Skilled Nursing Facilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Nursing Home Quality of Care Conferences  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Medicare Beneficiary Access to Home Health Agencies: 2000  . . . . . . . . . . . . . . . . . . .31
Adequacy of Home Health Services: Hospital Re-Admissions and
Emergency Room Visits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Medicare Home Health Agency Survey and Certification Deficiencies . . . . . . . . . . . . .32
Home Health Agency Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Unidentified Primary Health Insurance: Medicare Secondary Payer
Auxiliary File  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Employer Compliance with Medicare Secondary Payer Data Match
Requirements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Medicare Payments for Services after Date of Death . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Contractor Costs for Year 2000 Remediation of Medicare Computer
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Medicare Contractor Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Contractors Pension Segmentation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
A. New York Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
B. Missouri Contractor  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Investment Income Earned on Medicare Funds by Risk-Based Managed
Care Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Expanded Coverage of Outpatient Diabetes Self-Management Training
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Part B Services Billed by California Developmental Centers and State
Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Chiropractic Care: Comparison of Medicare Managed Care and
Fee-for-Service Plans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Reimbursements to Hospital Outpatient Laboratories for Additional
Hematology Indices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Duplicate Payments for Medical Equipment and Supplies . . . . . . . . . . . . . . . . . . . . . . .39
Medicare Payments for Orthotics  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Medicare Losses Resulting from Early Payments for Durable Medical
Equipment, Prosthetics, Orthotics and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Blood Glucose Test Strips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
A. Inappropriate Medicare Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
B. Marketing to Medicare Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .41
Medicare Drug Reimbursement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
A. Medicare Reimbursement of Albuterol  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
B. Medicare Reimbursement of End Stage Renal Disease Drugs . . . . . . . . . . . . . .44
Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Medicaid Program Safeguards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Federal and State Partnership: Joint Audits of Medicaid  . . . . . . . . . . . . . . . . . . . . . . . .46
A. Ohio  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
B. Montana  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .49
Protecting Human Research Subjects   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
A. Status of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
B. Recruiting Human Subjects  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
C. Food and Drug Administrations Oversight of Clinical Investigators  . . . . . . . .51
Food and Drug Administration Oversight of State Food Firm
Inspections  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Maternal and Child Health Training Grants: LEND Program  . . . . . . . . . . . . . . . . . . . .53
Health Professions Student Loans Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .54
Mashantucket Pequot Tribal Nations Use of Federal Discount Drug
Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Indian Health Service Funds for the Cherokee Nation . . . . . . . . . . . . . . . . . . . . . . . . . .56
Indian Health Service Equal Employment Opportunity Complaints
Process: A Management Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
National Institutes of Health National Research Service Awards . . . . . . . . . . . . . . . . . .57
Misuse of Grant Funds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Financial Capability of Potential Grantees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Superfund Financial Activities at the National Institute of
Environmental Health Sciences  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Fiscal Year 1999 Financial Statement Audits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
A. Centers for Disease Control and Prevention and 
Agency for Toxic Substances and Disease Registry . . . . . . . . . . . . . . . . . . . . .59
B. Food and Drug Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 C. Health Resources and Services Administration  . . . . . . . . . . . . . . . . . . . . . . . . .59
D. National Institutes of Health  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
E. Substance Abuse and Mental Health Services Administration . . . . . . . . . . . . . .60
Federal Occupational Health Billing Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Chapter III  ADMINISTRATION FOR CHILDREN 
AND FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .61
Paternity Establishment   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
A. Administrative and Judicial Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
B. Voluntary Paternity Acknowledgments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Establishment of Child Support Orders for Low-Income 
Noncustodial Parents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Client Cooperation with Child Support Enforcement   . . . . . . . . . . . . . . . . . . . . . . . . . .63
Medical Insurance for DependentsReceiving Child Support  . . . . . . . . . . . . . . . . . . . . .64
Workplace Violence: Public Assistance and Child Support Offices . . . . . . . . . . . . . . . .64
Child Support Enforcement: Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Child Support Enforcement State Disbursement 
Units: State Implementation Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Child Support Enforcement State Disbursement Units: Sharing the
Experiences of Six States  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Child Support Operations: Tennessee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
State Oversight of Residential Facilities for Children . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Emergency Assistance Program Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
A. Pennsylvania  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
B. Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
C. Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
D. New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Retroactive Foster Care Claim: Mississippi  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Head Start Grantee: Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Safeguarding Persons with Disabilities: District of Columbia  . . . . . . . . . . . . . . . . . . . .72
Grantee Costs Claimed  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Fiscal Year 1999 Financial Statement Audit of the Administration for
Children and Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Chapter IV  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Program Support Centers Personnel Service: Customer Service
Evaluation   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Results Act Review Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Reviews of Departmental Service Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
A. Center for Information Technology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
B. Central Personnel and Payroll System, Human Resources Services  . . . . . . . . .78
C. Division of Financial Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
D. Division of Payment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Accounting for FY 1999 Drug Control Funds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
A. Office of Inspector Generals Proactive Role . . . . . . . . . . . . . . . . . . . . . . . . . . .79
B. Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .81
A. Questioned Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
B. Funds Put to Better Use  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .83
A. Review Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
B. Regulatory Development Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
C. Congressional Testimony and Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Pension Fund Settlement: California  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84 Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Program Fraud Civil Remedies Act  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
APPENDIX A - Savings Achieved through Policy and Procedural 
Changes Resulting from Office of Inspector General
Audits, Investigations and Inspections
April 2000 through September 2000 . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - Unimplemented Office of Inspector General 
Recommendations to 
Put Funds to Better Use  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
APPENDIX C - Unimplemented Office of Inspector General 
Program and Management 
Improvement Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the
Inspector General Act of 1978, as Amended . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
APPENDIX G - Status of Public Proposals for New and Modified Safe
 Harbors to the Anti-Kickback Statute Pursuant to 
Section 205 of the Health Insurance Portability and 
Accountability Act of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 Health Care 
Financing 
Administration Chapter I
HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General
Activities
The Health Care Financing Administration (HCFA) is responsible for administering the
Medicare and Medicaid programs. Medicare Part A provides hospital and other institutional
insurance for persons age 65 or older and for certain disabled persons, and is financed by the
Federal Hospital Insurance Trust Fund. Medicare Part B (Supplementary Medical Insurance)
is an optional program which covers most of the costs of medically necessary physician and
other services, and is financed by participants and general revenues.
The Medicaid program provides grants to States for medical care for certain low-income
people.  Eligibility  for  Medicaid  is,  in  general,  based  on  a  persons  eligibility  for
Supplemental Security Income or the former Aid to Families with Dependent Children
program. State expenditures for medical assistance are matched by the Federal Government
using a formula that measures per capita income in each State relative to the national
average. The State Childrens Health Insurance Program (SCHIP), created under the new
title XXI of the Social Security Act, will expand health coverage to uninsured children
whose families earn too much for Medicaid but too little to afford private coverage. The
SCHIP program is a partnership between the Federal and State governments in which States
may choose to expand their Medicaid programs, design new child health insurance programs
or create a combination of both.
The Office of Inspector General (OIG) has devoted significant resources to investigating and
monitoring the Medicare and Medicaid programs. These activities have often led to criminal,
civil and/or administrative actions against perpetrators of fraud and abuse. They also have
helped ensure the cost-effective delivery of health care, improved the quality of health care
and reduced the potential for fraud, waste and abuse.
Over the years, OIG findings and recommendations have contributed to many significant
reforms in the Medicare program. Such reforms include implementation of the prospective
payment system (PPS) for inpatient hospital services and a fee schedule for physician
services; regional consolidation of claims processing for durable medical equipment (DME);
establishment of fraud units at Medicare contractors; prohibition on Medicare payment for
physician self-referrals; and new payment methodologies for graduate medical education.
1 The OIGs documentation of excessive payments led to recent statutory changes in the way
and/or the amount Medicare reimburses rural health clinics, skilled nursing facilities, home
health  agencies  (HHAs),  hospices,  ambulance  services,  oxygen  suppliers,  clinical
laboratories, suppliers of certain Medicare-covered drugs and biologicals, teaching hospitals
for indirect medical education costs and the States for Medicaid disproportionate share
payments. To ensure quality of patient care, OIG has assessed clinical and physiological
laboratories; evaluated the medical necessity of medical equipment and of services provided
by HHAs; analyzed various State licensure and discipline issues; reviewed several aspects of
medical necessity and quality of care under PPS, including the risk of early discharge; and
evaluated the care rendered by itinerant surgeons and the treatment provided by physicians
performing in-office surgery.
The OIG also audits HCFAs financial statements, which account for more than 83 percent
of Department of Health and Human Services (HHS) outlays. In addition to issuing an
opinion on the statements, OIG has assessed compliance with Medicare laws and regulations
and the adequacy of internal controls.
External Quality Review of Psychiatric Hospitals 
In addition to the minimum health and safety requirements that must be met for participation
in the Medicare program, free-standing psychiatric hospitals are subject to two special
conditions involving record-keeping and staffing. The HCFAs contracted surveyors, mostly
psychiatrists and psychiatric nurses, conduct reviews that cover these special conditions.
In a follow-up to its recent series of reports on the external review of hospital quality, OIG
focused on the oversight of free-standing psychiatric hospitals and, in particular, the role of
the contracted surveyors. Despite its finding  that  the  current review  system has some
features that serve to protect patients, OIG identified some major deficiencies, including an
inadequate level of review, a lack of coordination among the contracted surveyors and other
external reviewers, and little accountability for surveyor performance.
The OIG recommended that HCFA deploy its contracted surveyors more strategically and
take better advantage of their expertise; hold the surveyors more fully accountable for their
performance; determine an appropriate minimum cycle for their survey; negotiate with the
Joint Commission on Accreditation of Healthcare Organizations (JCAHO) to achieve both a
more patient-centered approach and a more rigorous assessment of discharge planning; and
consider applying special Medicare conditions of participation both to psychiatric hospitals
and to psychiatric units of acute care hospitals. The HCFA concurred with all of OIGs
proposals  and  noted  its  ongoing  work  with  JCAHO  to  improve  hospital  oversight.
(OEI-01-99-00160)
2 Outpatient Psychiatric Services at Acute Care Hospitals
Medicare reimburses acute care hospitals for the reasonable costs associated with providing
outpatient psychiatric services. The OIG conducted a 10-State review and 3 hospital-specific
audits of outpatient psychiatric services.
A. Ten-State Review
For its review, OIG selected claims from acute care hospitals in the 10 States with the
highest charges for outpatient psychiatric services: California, Connecticut, Florida, Illinois,
Louisiana, Massachusetts, Michigan, New York, Pennsylvania and Texas. In reviewing 200
claims from the 10 States for Calendar Year (CY) 1997 totaling $168,857, OIG concluded
that $94,716 of the charges did not meet Medicare criteria for reimbursement; they were not
documented  in  accordance  with  Medicare  requirements,  not  reasonable  and  necessary,
and/or rendered by unlicensed personnel.
Based  on  its  statistical  sample,  OIG  estimated  that  for  CY  1997,  acute  care hospitals
submitted claims to Medicare totaling more than $224 million (approximately 59 percent of
the amount claimed) for unallowable or unsupported psychiatric services in the 10 States.
The OIG recommended that HCFA consider implementing a first-claim medical review of a
random sample of new outpatient psychiatric claims; require Medicare fiscal intermediaries
(FIs) to increase postpayment review of outpatient psychiatric service claims; require FIs to
initiate  recovery  of  payments  for  claims  found  in  error;  and  further  emphasize  its
documentation  requirements  for  all  types  of  outpatient  psychiatric  services  through
seminars,  education  sessions  and  newsletters.  The  HCFA  did  not  concur  with  the
recommendation for first-claim review but concurred with OIGs other recommendations.
(CIN: A-01-99-00507)
B. Texas Hospital
Based  on  a  statistical  sample,  OIG  estimated  that  almost  $1.1  million  in  outpatient
psychiatric services claimed by a hospital in Texas for the fiscal year ended June 30, 1998
did not meet Medicare reimbursement requirements. These charges were for services that
were  not  reasonable  and  necessary  or  were  provided  to  ineligible  beneficiaries.  An
additional  $200,000  in occupational therapy  charges were estimated to be  unallowable
because they related to the questioned psychiatric services. The OIG also determined that
$45,000 of the $1.4 million in outpatient psychiatric costs claimed on the hospitals FY 1998
Medicare cost report was for unallowable patient transportation costs. In addition, OIG
could  not  determine  the  reasonableness  of  $818,400  in  costs  because  supporting
documentation was not available.
The results of this review are being provided to the FI for appropriate financial adjustment.
The OIG recommended that the hospital strengthen its procedures to ensure that charges for
outpatient psychiatric services are covered and documented in accordance with Medicare
3 requirements.  In  addition,  OIG  recommended  that  the  hospital  establish  an  effective
procedure for excluding costs related to noncovered services from its cost reports. The
hospital disagreed with most of OIGs findings. (CIN: A-06-99-00014)
C. New York Hospital
At a hospital in New York, OIG estimated, based on a statistical sample, that billings to
Medicare for outpatient psychiatric services were overstated by more than $1.1 million in
CY 1997. These claims did not meet Medicare reimbursement criteria because they lacked
sufficient patient treatment plans or sufficient medical record documentation and/or were not
reasonable and necessary. Also, of the approximately $295,000 that OIG reviewed on the
hospitals cost report, $46,000 was for unallowable meal and transportation costs.
The  OIG  is  providing  the  results  of  this  review  to  the  FI  for  appropriate  financial
adjustment. The OIG also recommended that the hospital strengthen its procedures to ensure
that charges for outpatient psychiatric services are reasonable and necessary and are properly
documented.  It was further recommended that the hospital report costs not covered by
Medicare as nonreimbursable on its cost reports. Hospital officials agreed with some of the
findings. (CIN: A-02-99-01016)
D. Connecticut Hospital
In a review of outpatient psychiatric services rendered in the fiscal year ended September
30, 1997 at one Connecticut hospital, OIG estimated, based on a statistical sample, that over
$750,000  of  the  almost  $1.3  million  of  submitted  charges  did  not  meet  Medicare
reimbursement criteria. These included charges for psychiatric services not certified by a
physician in accordance with Medicare requirements, not properly supported by medical
records or not covered under Medicare. Further, OIG identified an additional $126,480 in
costs which were ineligible for Medicare reimbursement claimed by the hospital in its FY
1997  cost  report  for  outpatient  psychiatric  services,  including  costs  for  patient
transportation, patient meals and unallowable advertising.
The OIG recommended that the hospital strengthen its procedures to ensure that charges for
psychiatric services are covered and properly documented and establish nonreimbursable
cost centers or otherwise exclude costs related to noncovered services from its Medicare cost
reports.  The  results  of  OIGs  review  are  being  provided  to  the  FI  for  appropriate
adjustments. The hospital disputed portions of OIGs findings. (CIN: A-01-99-00518)
Partial Hospitalization Program Services
Partial hospitalization program (PHP) services are intended to provide acutely mentally ill
individuals with intensive outpatient psychiatric services to prevent hospitalization. Earlier
OIG audits had identified sizable Medicare payments for unallowable or highly questionable
services at community mental health centers.
4 A. Colorado Community Mental Health Center
In this review of PHP services at a Colorado community mental health center for the fiscal
year ended June 30, 1996, OIG determined that 100 percent of the services included in the
sampled claims should not have been paid by Medicare, resulting in estimated improper
payments of more than $4.4 million. The OIG recommended that the center ensure that any
future services submitted to Medicare for reimbursement are covered and documented in
accordance with Medicare requirements. The OIG provided the results of its review to the FI
for appropriate financial adjustments and requested that the FI review PHP services provided
by the center for other cost report periods. (CIN: A-07-98-01263)
B. Michigan Community Mental Health Center
Based on a statistical sample of PHP services at a Michigan community mental health
center, OIG estimated that $1.1 million in CY 1997 charges were not reasonable and
necessary  or  not  appropriate  for  the  patients conditions. In addition, over $71,400 in
outpatient psychiatric service costs claimed by the center in its FY 1997 Medicare cost
report were not allowable. The OIG recommended, in addition to financial adjustments, that
the center ensure that any future charges submitted to Medicare for reimbursement are
covered and documented in accordance with Medicare requirements and exclude costs not
covered by Medicare from its cost reports. The center generally did not concur with OIGs
findings. (CIN: A-05-00-00004)
Outpatient Rehabilitation Facilities: Six-State Review
In this audit, OIG reviewed outpatient physical therapy, occupational therapy and speech
pathology  services  to  determine  if  they  were  provided  and  billed  in  accordance  with
Medicare requirements.  Over  the past  several  years, Medicare payments  for outpatient
rehabilitation facility (ORF) services have increased substantially, as illustrated on the next
page.
5 Calendar Year
The OIG reviewed Medicare payments to ORFs for the fiscal year ended June 30, 1998 in
six States which accounted for about 50 percent of total ORF payments nationwide during
CY 1997. Based on a statistical sample, OIG estimated that Medicare paid $173 million for
unallowable  or  highly  questionable  ORF  services.  These  payments  were  made  to
beneficiaries who exhibited no functional impairment, evidenced no active participation
with  the  therapist,  and/or  had  no  expectation  for  significant  improvement  within  a
reasonable and predictable length of time.
The  OIG  recommended  that  HCFA  consider  implementing  a  review  process  for  new
providers to include an evaluation of whether the services provided to beneficiaries meet
Medicare  requirements,  consider  a  periodic  recertification  requirement  for  ORFs,  and
instruct FIs to recover the identified overpayments and review other claims by the ORFs for
the sampled beneficiaries and recover additional overpayments. Further, OIG proposed that
HCFA require FIs to provide in-house educational services to new providers, conduct a
prepayment medical review of claims submitted by new providers, and intensify medical
review of claims submitted by ORFs. The HCFA concurred with OIGs recommendations.
(CIN: A-04-99-01193) 
Restraint and Seclusion: State Policies for Psychiatric Hospitals 
At the same time OIG was conducting its field work for this study, HCFA established tough
new requirements for psychiatric hospitals to protect residents from inappropriate use of
restraints and seclusions. This report, then, provides a baseline for future measurement of
hospitals compliance with the new rules. In addition, it identifies the areas which will
require the greatest attention to ensure compliance with them. At the time of the OIG study,
6 many  State  policies  already  met  some  of  HCFAs  new  Patients  Rights  Condition  of
Participation standards, but not all. State policies for private psychiatric hospitals more
frequently fell short of the new standards. (OEI-04-99-00150)
Hospital Closure: 1998
The closure of hospitals generates public and congressional concern. The OIG has issued 11
annual reports on hospital closures in the U.S. for 1987 through 1997. The 1998 report
continues OIGs analysis of the extent and effects of hospital closures. Forty-three hospitals
closed in 1998 -- 0.9 percent of all hospitals. Five more hospitals closed in 1998 than closed
in 1997; however, the additional closings were offset by the opening or reopening of 14
hospitals in 1998, 11 more than in 1997. Most of the hospitals that closed were small and
had low occupancy rates. The average daily patient load in the year prior to closure was 14
in rural hospitals and 42 in urban hospitals. Although residents of a few communities had to
travel greater distances for hospital care, most had emergency and inpatient medical care
available within 10 miles of a closed hospital. After closure, 47 percent of the hospitals were
being used for other health-related services -- such as 24-hour urgent care clinics and
long-term care facilities. (OEI-04-99-00330)
HCFA Management of Provider-Based Reimbursement to
Hospitals
Hospitals often purchase entities such as physician practices and nursing facilities. Under
Medicare, when such hospitals account for those entities as "provider-based," it increases
costs for Medicare and its beneficiaries with no commensurate benefits and hospitals can
shift overhead costs to their off-site entities and receive higher Medicare reimbursement.
The provider-based determination process provides little or no assurance that only qualified
hospital owned entities are approved. The HCFA regional offices do not consistently follow
established processes for reviewing and approving hospitals for provider-based status. Data
systems are inadequate for determining which hospitals apply for the status, the disposition
of such applications, and which hospitals bill for reimbursement for provider-based entities.
Finally, hospitals often bill for reimbursement under the cost advantageous provider-based
rules without HCFA approval or knowledge. The OIG made several recommendations to
address these problems, including elimination of provider-based status as an accounting
option for all types of hospital owned entities. (OEI-04-97-00090)
Major Hospital Initiatives
The OIG has launched five national projects involving civil actions at hospitals that were
falsely billing the Medicare program. Three of the five grew from OIG hospital audits that
identified irregularities in Medicare billing practices.
7 A. Physicians at Teaching Hospitals
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules
governing reimbursement to physicians at teaching hospitals (also known as the PATH
initiative). The specific objectives of the PATH audit initiative are to verify compliance with
the Medicare rules governing payment for physician services provided by residents and
teaching physicians, and to ensure that all claims for physician services accurately reflect the
level of service provided to the patient.
Medicare, under Part A of the program, pays the costs of training residents through the
graduate medical education (GME) program. Medicare also pays an additional amount in
recognition of the additional costs associated with training residents (also known as indirect
medical education or IME). These payments can total over $100,000 per resident per year.
Medicare paid approximately $8 billion to teaching hospitals in 1998 for the cost of training
residents. The Medicare payments described above include payments to teaching physicians
for their role in supervising residents.
The fundamental tenet of the PATH initiative is that in order to receive a separate payment
from Medicare Part B for a service rendered to a patient, the teaching physician must have
personally provided that service or have been present when the resident furnished the care.
Physicians claiming reimbursement for services performed by the resident alone are making
a duplicate claim -- one that has already been paid for under Part A through the GME and
IME payments.
The PATH audits also include a review of Part B claims information and medical records to
determine if the teaching physician claimed the appropriate reimbursement for the level of
service provided. The Medicare billing systems vulnerability to upcoding is a longstanding
concern at OIG. The PATH reviews are designed to detect patterns or practices of upcoding,
resulting in unwarranted losses to the Medicare Trust Fund.
In sum, the PATH initiative has been undertaken as a result of OIGs extensive audit and
investigative work in this area. To date, seven institutions have entered into settlements with
the Federal Government to resolve potential False Claims Act liability related to improper
claims for Part B physician services submitted in the teaching setting. These settlements
have  resulted  in  the  Governments  recovery  of  over  $76  million.  As  a  condition  of
settlement,  most  of  these  institutions  have  also  implemented  compliance  programs  to
prevent and detect future improper claims. Reviews completed at four other institutions
disclosed  no  major  problems  with either billings in  the  teaching  setting  or upcoding,
demonstrating that providers can and do bill the Medicare program correctly, and reviews at
two institutions resulted in administrative overpayment settlements with the carriers.
8 Separately, six investigations not part of the PATH initiative, but which included billings for
teaching physicians, concluded in False Claims Act settlements totaling over $38.5 million.
In all of these cases, the providers also entered into corporate integrity agreements with OIG.
To determine whether, and to what extent, problems similar to those noted above were
present at other teaching institutions throughout the country, the PATH project was expanded
into a national initiative, but limited to those institutions that received clear guidance before
December 30, 1992 from the Medicare Part B carriers communicating the applicable HCFA
reimbursement standards. As an alternative to OIG auditors conducting the audits, these
providers  are  given  the  opportunity  to  conduct  self-audits  by  contracting  with  an
independent third party for a review of their Medicare billing practices, with Government
oversight, and to report the audit results to OIG.
B. Diagnosis Related Group 3-Day Window Project
In 1995, OIG and the Department of Justice (DOJ) launched a national project to recover
overpayments made to hospitals as a result of claims submitted for nonphysician outpatient
services that were already included in the hospitals inpatient payment under the PPS.
Hospitals that submit claims for the outpatient service in addition to the inpatient admission
are, in effect, double billing for the outpatient service. In addition, the project seeks to
recover for those services rendered to beneficiaries during the inpatient admission that
should be included in the diagnosis-related group (DRG), but are separately charged. A
prevalent pattern of abuse was identified through repeated OIG audits of hospital claims for
inpatient services under PPS. Prior to the inception of this project, OIG had issued four
reports to HCFA identifying approximately $115.1 million in Medicare overpayments to
hospitals caused by these improper billings.
This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for
outpatient services. The project is primarily coordinated by the U.S. Attorneys Office for
the Middle District of Pennsylvania. As of the end of the reporting period, settlements had
been executed with 2,799 hospitals and over $73 million had been recovered.
One of the most important aspects of this project is the stipulation in each settlement
agreement that each hospital will assure compliance with proper billing for inpatient and
outpatient services. Such compliance measures are designed to prevent and detect erroneous
billing. It is hoped that the deterrent effect of possible civil actions, along with promised
compliance, will remove this source of improper claims.
C. Hospital Outpatient Laboratory Project
The OIG, DOJ and multiple States joined forces to target false or fraudulent Medicare and
Medicaid claims in hospital outpatient laboratories. Based on the results of a project begun
in Ohio by OIG, DOJ, the State of Ohio and the Medicare FI, United States Attorneys
9 Offices in other States began their own investigations as part of an expanded effort. This
project involved the recovery of multiple damages, when appropriate, for improper and
excessive claims submitted for hematology and automated blood chemistry tests by hospital
outpatient laboratories. These abuses stem from the improper unbundling and double billing
of laboratory tests, and, in certain cases, the billing for certain tests that are not medically
necessary. The investigations have also shown numerous instances of billing for hematology
complete blood count (CBC) additional indices that were not ordered by physicians and
were not medically necessary.
Clinical laboratory services were particularly vulnerable to these abuses because of the
multiple number of tests ordered at one time and the capability of automated equipment to
run numerous tests from one sample of blood at a low cost. Under Medicare guidelines, the
hospitals were required to bill certain groupings of blood chemistry tests using a bundled
code. The  Medicare payment for blood chemistry panels is significantly less than the
payments for each test billed separately.
The OIG and DOJ, and in some districts, authorities from other Federal programs such as
TRICARE (the health care benefits program for current and former military employees) and
Federal Employees Health Benefits Program (FEHBP), worked together on the national
project to provide targeting data to the United States Attorneys offices interested in pursuing
this recovery initiative in their districts. The OIG also collaborated with DOJ to produce a
model settlement agreement that includes compliance measures, which was disseminated to
all participating districts throughout the United States.
Thus far, 257 hospitals have entered settlements in the Hospital Outpatient Laboratory
Project, with settlements totaling more than $59.4 million. More hospitals are expected to
settle in the near future.
D. PPS Patient Transfer Project
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for
patient transfers between two PPS hospitals. Under Medicare reimbursement rules, the
hospital transferring a patient is to receive a per diem payment based on the length of stay
and the DRG for the case, but no more than the full DRG payment amount, and the hospital
receiving the transferred patient is to be paid a diagnosis-related payment based on the DRG
for the case.
Since 1986, however, OIG has found that many transferring hospitals inappropriately claim
full diagnosis-related payment rather than the per diem payment. The HCFA has already
acted on OIGs first report, which identified $227 million in recoveries and savings. The
OIGs second report, issued in November 1996, and a more recent computer analysis of
claims disclosed additional overpayments of approximately $202 million. Currently, OIG is
working with U.S. Attorneys offices nationwide, along with HCFA, on this continuing
10 problem. The HCFA is preparing a program memorandum to address the collection of
overpayments. To date, OIG has settled PPS cases with three hospitals, totaling over $2.2
million.
E. Pneumonia Upcoding Project
Medicare inpatient hospital stays are reimbursed based on the DRG that is assigned to the
patients stay. The determination of the appropriate DRG for a particular case depends upon
the hospitals assignment of diagnosis code(s) and procedure codes from the International
th
Classification of Diseases, 9  Revision, Clinical Modification (ICD-9-CM) to the inpatient
stay. Most pneumonia cases are grouped into one of four DRGs, one of which results in
significantly higher payment to the hospital than do the others. Most pneumonia cases are
grouped  into  the  lower-paying  DRGs.  The OIG has  found that a small percentage  of
hospitals across the country have assigned a disproportionate number of pneumonia cases
diagnosis codes that result in a discharge being assigned the higher paying DRG. Review of
the  medical  records  has  demonstrated  that  most  of  the  cases  assigned  these  specific
diagnosis codes at these hospitals should have been assigned a diagnosis code that would
result in assignment of a lower-paying DRG.
The OIG is currently investigating the coding for pneumonia at over 100 hospitals. To date,
22 hospitals have settled their liability for such coding by paying over $23.6 million and
agreeing to corporate integrity requirements.
Other Hospital Investigations
The following cases are significant examples of other hospital-related cases resolved during
this period which were not part of the special projects described above:
(cid:127) As the result of an OIG investigation and audit, one of the largest operators
of hospitals in rural areas and small cities agreed to pay the Government
$31.8 million for allegedly submitting false claims to Medicare, Medicaid
and TRICARE. The nationwide settlement resolved allegations of upcoding
diagnostic  codes  for  inpatient  hospital  discharges  through  which  the
company received increased reimbursement amounts at 36 of its hospitals.
The OIG investigation revealed that the company initiated an aggressive
coding procedure referred to as the optimization program. The program
encouraged the chains hospitals to meet very high, and often unrealistic,
coding volume goals, which led to excessive rates of reimbursement by
Medicare, Medicaid and TRICARE. The investigation further determined
that the inappropriate coding occurred based on improper guidance and
instruction  provided  by  officials  from  the  companys  headquarters  in
Tennessee.  As  part  of  the  settlement,  the  company  also  entered  into  a
corporate integrity agreement with OIG.
11 (cid:127) The Government entered into a settlement agreement with a California
county,  the  county  health  care  agency  and  the  county  medical  center
(collectively,  the  "County").  Based  on  a  qui  tam  complaint  filed,  the
Government  alleged  that  the  county  medical  center  did  not  have  the
required medical treatment plans to support Medicare claims the center
submitted for mental health outpatient clinic services. The Countys own
review showed the medical center did not have these plans in place from
1991 through 1998. Under the terms of the agreement, the County will pay
the Government $15.3 million. As part of the settlement agreement, the
County entered into a 5-year corporate integrity agreement designed to
ensure future compliance by the medical center.
(cid:127) A Pennsylvania health system agreed to pay the Government $12 million to
resolve  its  successor  liability  under  the False Claims  Act  for improper
partial hospitalization program (PHP) billing practices by the hospital it
acquired.  Initiated  through  a  qui  tam  suit,  this  settlement  resolves
allegations of billing misconduct that occurred between 1993 and 1997. The
allegations include billing for patients who were so impaired they were
unable  to  benefit  from  PHP  services;  billing  for  services  of  a  purely
recreational, non-therapeutic nature; billing for more time than was actually
provided; and billing for improperly supervised services. In addition to
paying $12 million, the health system also agreed to extend the scope of its
preexisting 3-year corporate integrity agreement for pneumonia upcoding
violations to encompass  PHP  services as  well.  The health system  also
ceased operating the previous hospitals PHP programs which formed the
basis for the case. 
(cid:127) An academic medical center that employs physician faculty to supervise
medical residents and interns agreed to pay to the United States $1.5 million
to resolve its civil liability. The claims alleged that the physicians failed to
appropriately document their presence during the provision of professional
services  by  residents.  The  entity  also  submitted  claims  for  physician
services when physicians were not present. In addition, the entity submitted
claims for upcoded services. As part of the settlement agreement, the entity
entered into a 5-year corporate integrity agreement. 
(cid:127) A New York hospital agreed to pay the Government $623,420 to resolve its
civil liability for submitting improper Medicare claims. Between 1989 and
1995, the hospital billed Medicare Part B for certain ancillary pharmacy
supplies which were not covered under the Part B ancillary benefit; the Part
B pharmacy ancillary benefit is limited to a few particular drugs.  
12 (cid:127) A  New  Jersey  hospital  agreed  to  pay  the  Government  $449,607  for
allegedly submitting improper claims to Medicare during the period from
1992 through 1998. The hospital wrongfully submitted claims for inpatient
hospital stays for Medicare beneficiaries who actually received outpatient
services. As a result, the hospital received higher reimbursement for the
inpatient claims than it would have received had the claims been billed
properly. As part of the settlement, the hospital also agreed to adhere to a
3-year integrity program to ensure compliance with the requirements of the
Medicare program. 
Industry Guidance
The OIG has continued to issue advisory opinions, special fraud alerts, special advisory
bulletins and other guidance as part of its ongoing effort to promote the highest level of
ethical and lawful conduct by the health care industry. For the period from April 1, 2000
through September 30, 2000, OIG accepted 66 advisory opinion requests and issued 5
advisory opinions. In accordance with the Health Insurance Portability and Accountability
Act  of  1996  (HIPAA),  OIG  has  enlisted  the  help  of  the  provider  and  beneficiary
communities to prevent impropriety by soliciting proposals (via Federal Register notice) for
modifying existing safe harbors to the anti-kickback statute. The OIG received 17 timely
filed responses to the December 10, 1999 notice. (See Appendix G) 
Criminal Fraud
One of the most common types of fraud perpetrated against Medicare, Medicaid and other
Federal health care programs involves the filing of false claims or statements. Such false
claims may be pursued civilly under the False Claims Act (see, for example, the hospital
initiatives  described  in  pages  7-11).  In  appropriate  cases,  false  claims  may  also  be
prosecuted criminally as Federal offenses such as mail fraud, wire fraud, false statements
and various health care fraud offenses. Following are descriptions of criminal prosecutions
which resulted from the investigation of both false claims-related offenses and other health
care-related offenses during this period:
(cid:127) A New York ophthalmologist was sentenced to 4 years in custody, 3 years
supervised release and a $75,000 fine for conspiring to submit false claims
to Medicare. In accordance with his plea agreement, the ophthalmologist
also  previously  repaid  the  Government  $8.55  million,  representing  the
second largest single provider recovery in the United States and the largest
in the Eastern District of New York. He was also permanently excluded
from participating in the Medicare program. Investigation by OIG into the
ophthalmologists activities revealed that he performed cataract surgeries on
patients  who  did  not  have  cataracts  and  performed  glaucoma  laser
procedures on patients who did not have glaucoma. He also billed for other
13 ophthalmological procedures that were either not performed or were not
medically necessary. As a result of the investigation, the New York State
Office of  Professional Medical Conduct revoked his license to practice
medicine.
(cid:127) In Oregon, a father and son were sentenced for intentional misapplication of
money and funds of health care benefit programs. The father was sentenced
to 3 months in a community corrections center, 3 years supervised release
and payment of $309,288 in restitution. His son was sentenced to 12 months
and  1  day  imprisonment,  3  years  supervised  release  and  payment  of
$309,288  in  restitution.  The  father  and  son  were  owner  and  president,
respectively,  of  a  billing  service  company.  Over  a  3-year  period,  they
diverted  funds  from  client  insurance  reimbursement  checks,  including
Medicare checks, to their own business accounts. The son, who ran the
company for most of the period in question, was primarily responsible for
the diversion. Most of the money was repaid to clients before the business
closed in January 1999. The two concealed their activities from clients by
not including the amounts of diverted funds on the monthly statements
mailed to clients.
(cid:127) A woman was sentenced to 41 months imprisonment, payment of $473,390
in restitution and 2 years probation for conspiracy, money laundering and
mail fraud. The woman worked in the Medicare fraud section of a former
Medicare carrier in California. After leaving the carrier, she began working
for a billing company. She used the billing company to submit false claims
electronically to another Medicare carrier. A friend still working in the
Medicare fraud section where the woman previously worked assisted her in
the billing scheme. The woman submitted the false claims, and along with
her  friend at the  former carrier and  her  relatives,  cashed the Medicare
payment checks. The womans friend, along with two other co-conspirators
involved in the scheme, have already been sentenced. To evade prosecution,
the woman fled to Australia in 1994, where she lived until extradited back
to the United States in December 1999.
(cid:127) A New York physician was sentenced to payment of $39,560 in restitution,
$50,100 in fines and 3 years supervised probation for mail fraud. According
to the terms of his probation, the physician cannot engage in, or associate in
any way with, the practice of medicine for a period of three years. The
physician submitted false claims to Medicare for services not rendered and
double billed workers compensation and private insurance companies for
the same services rendered to the same patients. Previously, he entered into
a civil settlement in which he agreed to pay $700,000 and to be excluded for
14 a period of 5 years. The physician also resigned from employment at a local
hospital.
(cid:127) A  physicians  medical  billing  clerk  was  sentenced  to  5  months
imprisonment and 2 years probation for submitting false claims to a private
health insurance company in Pennsylvania. The billing clerk previously pled
guilty to health care fraud. In addition to her prison sentence, the judge
ordered her to pay $88,922 in restitution to the private insurer.
(cid:127) A woman was sentenced to 5 months imprisonment and 2 years supervised
release  for  conspiracy,  wire  fraud  and  impersonation  of  a  Federal
Government employee. She is one of three individuals involved in a scheme
to provide fraudulent services to HHAs. The other two individuals are the
owner of a HHA which lost its license and a CPA whose license was
suspended. These two individuals offered to provide consulting services to
HHAs in Oklahoma. Their services were to include falsified HHA cost
reports as well as an assurance that their consulting firm could stop any
audits  or  investigations.  They  provided  one  HHA  that  entered  into  an
agreement with them with a list of deficiencies they could fix. When the
HHA disagreed that the deficiencies existed and decided against further
dealings with the two, they threatened the HHA by stating they would
inform HCFA, the FBI and OIG of the deficiencies. Portraying herself as a
HCFA employee, the woman who was sentenced informed the HHA that it
would  face  a  HCFA  audit  if  it  did  not  contract  with  the  other  two
individuals, both of whom have been convicted and sentenced as well. 
Kickbacks
Many businesses engage in referrals to meet the needs of customers or clients for expertise,
services or items which are not part of their own regular operations or products. The medical
profession relies heavily upon referrals because of the myriad specialties and technologies
associated with health care. If referrals of Medicare or Medicaid patients are made in
exchange for anything of value, however, both the giver and receiver may violate the
Medicare and Medicaid anti-kickback statute.
Among  its  provisions,  the  anti-kickback  statute  penalizes  anyone  who  knowingly  and
willfully solicits, receives, offers or pays remuneration in cash or in kind to induce or in
return for:
(cid:127) referring an individual to a person or entity for the furnishing, or arranging
for the furnishing, of any item or service payable under the Medicare or
Medicaid programs; or
15 (cid:127) purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the
purchasing, leasing or ordering of any good, facility, service or item payable
under the Medicare or Medicaid programs.
Violators are subject to criminal penalties and to exclusion from participation in Federal
health care programs. They may also be subject to civil monetary penalties (CMPs). The
following cases are examples of the sentences for this crime: 
(cid:127) A Florida woman was sentenced to 3 years probation and restitution of $400
for violating the Medicare anti-kickback statute. The woman owned and
operated a company in south Florida which referred Medicare beneficiaries
to several psychiatric hospitals in central Florida, as well as other States.
The woman received illegal remunerations in exchange for these referrals.
She was the fifteenth individual to be sentenced in an investigation targeting
a combination of inpatient psychiatric hospitals, illegal kickback activities
and patient brokering schemes. The investigation focused on the intricate
relationship among hospital associates who pay kickbacks in return for
patient referrals to hospitals; patient brokers who profit from the trade in
patient  referrals;  and  patient  referral  sources  who  accept  money  from
hospitals or patient brokers in exchange for referrals.
(cid:127) A Georgia podiatrist was sentenced to 2 years probation and payment of
$16,200 in restitution for violating the anti-kickback statute. The podiatrist
illegally received kickbacks from a DME company owner in return for the
referral of patients requiring lymphedema pumps. 
(cid:127) An  employee  of  a  New  York  diagnostic  laboratory  was  sentenced  in
Connecticut to 3 years probation and a $4,000 fine for conspiracy to violate
the anti-kickback statute and tax evasion. The man paid kickbacks to a
clinic manager in Connecticut in return for laboratory testing referrals. In
January 1998, the man waived indictment and pled guilty to conspiracy and
tax evasion for his role in the scheme.
(cid:127) A woman was sentenced in New York for engaging in illegal kickback
activity. Her sentence included 3 years probation and a $3,000 fine. The sole
proprietor of a radiology facility, the woman paid a physician kickbacks in
exchange for the referral of patients in need of ultrasound testing.
(cid:127) A woman was sentenced to 1 year probation and $2,050 in fines for her role
in accepting kickbacks as a middle person on behalf of a rheumatologist
with a medical practice in New Jersey. The woman received money from a
DME  supplier  for  facilitating  a  kickback  arrangement  with  the
16 rheumatologist. Her sentencing concludes a case involving several doctors
and podiatrists who participated in a kickback conspiracy among health care
providers in New York and New Jersey.
(cid:127) An Ohio osteopath was sentenced to 3 months in a halfway house, 2 years
probation and a  $5,000 fine for filing falsified Medicare and Medicaid
claims. The indictment charged the osteopath with accepting kickbacks
from a home health care company. 
Fraud and Abuse Sanctions
During this reporting period, OIG imposed 2,231 administrative sanctions, in the form of
program exclusions or civil actions, on individuals and entities for engaging in fraud or
abuse or other activities deemed to be a risk to Federal health care programs and/or their
beneficiaries.
A. Program Exclusions
Title XI of the Social Security Act provides for a number of bases for excluding individuals
and  entities  from  participation  in  Medicare,  Medicaid  and  other  Federal  health  care
programs. Exclusion is mandatory for those convicted of program-related crimes, crimes
related to patient abuse or neglect, felony convictions for defrauding other health care
programs, and felony convictions for the illegal manufacture or distribution of controlled
substances. Exclusion is discretionary for those who have lost a license to practice or the
right  to  participate  in  a  State  health  care  program  for  reasons  related  to  professional
performance, professional competence or financial integrity, or provided substandard or
unnecessary  services.  Exclusions  may  also  be  imposed  on  those  convicted  of  private
insurance fraud, or obstruction of an investigation, and on individuals who have failed to
repay health education assistance loans (HEALs). (See page 56 for further information on
exclusions for HEAL defaults.)
During this reporting period, OIG imposed exclusions on 2,072 individuals and entities. The
following are examples of some of the exclusions that were imposed:
(cid:127) A registered nurse, who permanently lost his Florida nursing license, was
indefinitely excluded from Medicare, Medicaid and all Federal health care
programs. The subject had repeatedly engaged in sexual misconduct with
male children between the ages of 12 and 14 at their private residences, and
had also fondled hospitalized male children while they slept. Currently, he is
serving 15 years in prison.
(cid:127) In Georgia, a pharmacist was excluded for 20 years based on his conviction
for distribution of controlled substances and his previous 10-year exclusion
17 from Medicare and Medicaid participation, which was instituted after an
earlier Medicaid fraud conviction. His second conviction was the result of a
scheme  in  which  he  distributed  detectable  amounts  of  several  narcotic
controlled substances outside the scope of professional practice and without
a legitimate medical purpose. The court ordered that the pharmacist be
incarcerated for 60 months and pay more than $55,000 in restitution, the
balance owed on court-ordered restitution from his first conviction.
(cid:127) A mother and daughter were each excluded for 5 years because they are the
owners of a Kentucky DME company which was recently excluded from
program participation. The company pled to one count of making false
statements or representations regarding the purchase of respiratory supplies
that  were  used  to  provide  respiratory  therapy  services  to  Medicaid
recipients.
(cid:127) A physician was indefinitely excluded after he surrendered his license to
practice medicine in New York. The State licensing board charged him with
gross  negligence,  verbal  and/or  physical  abuse,  moral  unfitness  and
practicing while impaired. The physician had demonstrated unprofessional
conduct  when  he  carved  his  initials  into  a  patients  abdomen  while
performing a caesarian section and when he inappropriately tried to remove
respiratory equipment from an infant in the neonatal intensive care unit.
During this second incident, a nurse had to physically restrain the physician.
(cid:127) A  nurses  aide  was  excluded  for  15  years  from  program  participation
because a Texas court convicted him of arson causing bodily injury. The
aide set fire to a residents room at the health care center where the aide
worked. He is now serving 7 years in prison.
(cid:127) In California, a psychiatrist, convicted of crimes related to patient abuse,
was excluded for 15 years. He entered into a sexual relationship with a
patient and supplied him with legal and illegal drugs. The psychiatrist also
rented an apartment for the patient and provided the drugs there. During a
sexual encounter, the doctor assaulted the patient with a hand axe and a
hunting knife at least 10 times. The doctor was convicted of assault with a
deadly weapon and sentenced to 5 years in prison.
(cid:127) A Michigan osteopath was excluded for 15 years due to his conviction for
involuntary manslaughter. The physician injected herbal tea into a cancer
patient resulting in irreversible lung damage and death. In addition, the
physicians license was revoked.
18 B. Civil Penalties for Patient Dumping
Section  1867  of  the  Social  Security  Act  (42  U.S.C.  1395dd)  provides  that  when  an
individual presents to the emergency room for examination or treatment, a hospital which
has a Medicare provider agreement is required to provide an appropriate medical screening
examination to determine whether that individual has an emergency medical condition. If an
individual has such a condition, the hospital must provide, within the capabilities of the staff
and facilities available at the hospital, treatment to stabilize the condition, unless a physician
certifies that the individual should be transferred because the benefits of medical treatment
elsewhere outweigh the risks associated with  transfer, or if the  patient requests to be
transferred after being advised of the inherent risks. If a transfer is ordered, the transferring
hospital must arrange for a safe transfer, which includes providing stabilizing treatment to
minimize the risks of transfer, making sure the receiving hospital has agreed to accept the
transfer and effecting the transfer through qualified personnel and transportation equipment.
A  hospital  is  prohibited  from  delaying  provision  of  examination  or  treatment  for  an
emergency  medical  condition  to  inquire  about  an  individuals  method  of  payment  or
insurance status. Further, a participating hospital with specialized capabilities or facilities
may not refuse to accept an appropriate transfer of an individual who needs those services if
the hospital has the capacity to treat the individual.
The OIG is authorized to impose civil monetary penalties (CMP) of up to $25,000 against
small hospitals (less than 100 beds) and up to $50,000 against larger hospitals (100 beds or
more) for each instance where the hospital negligently violated any of the section 1867
requirements. In addition, OIG may impose a CMP of up to $50,000 against a participating
physician, including an on-call physician, for each negligent violation of any of the section
1867 requirements.
Between April 1, 2000 and September 30, 2000, OIG collected $535,750 in settlement
amounts from 24 hospitals and physicians. The following is a sampling of the alleged
violations involved in the FY 2000 Patient Anti-Dumping Statute settlements from this
reporting period.
(cid:127) A Georgia emergency physician agreed to pay $22,500 for an allegation that
he failed to provide an appropriate medical screening examination and
treatment for a woman who came to the emergency room with an ectopic
pregnancy.
(cid:127) A hospital in California settled for $70,000 allegations that it failed to
provide appropriate medical screening examinations to seven individuals.
Five of these individuals were 1-year old or younger and one of the babies
was admitted for treatment at another hospital. In one instance, treatment
ceased because the patients HMO denied prior authorization for payment of
19 services provided at that hospital. In five other instances, financial inquiries
were completed, but no appropriate medical screening was done.
(cid:127) An Oklahoma hospital settled for $18,250 an allegation that it refused to
accept the appropriate transfer of a patient who had been critically injured in
an  automobile  accident  and  required  emergency  vascular  surgery.  The
transferring hospital did not have the specialized capabilities or facilities
that  were  required  to  treat  the  life-threatening  injury  to  the  patients
abdominal aorta. After numerous calls to hospital emergency rooms and
physicians,  the  patient  was  eventually  transferred  to  a  hospital  where
surgery was performed in an unsuccessful attempt to save his life.
(cid:127) A small Illinois hospital agreed to pay $60,000 to resolve allegations that it
failed to provide appropriate medical screenings to three individuals who
presented for treatment at the emergency room. This settlement resolved
two separate investigations for alleged patient dumping.
(cid:127) A California hospital paid $61,000 to settle allegations that it failed to
provide appropriate medical screening examinations to six patients. Five of
these  patients  presented  with  significant  medical  issues  which  needed
prompt  attention,  according  to  the  California  peer  review  organization.
Instead, the patients were required to wait significant periods of time (up to
4 hours) and ultimately left the hospital without being screened or treated.
The sixth case involved a sick child who was not medically evaluated
because  his  insurance  plan  denied  payment  authorization.  Instead,  his
mother was directed to take him to another hospital.
C. Civil Penalties for False Claims
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and
assessments against health care providers and others who submit false or improper claims to
Medicare and other Federal health care programs. The OIG also assists DOJ in bringing (and
settling) cases against wrongdoers under the False Claims Act. Many providers elect to settle
their cases prior to litigation. As part of resolving these cases, OIG frequently imposes
corporate integrity agreements on entities as a condition for being allowed to remain a
provider in the Medicare program. The integrity programs established by these agreements
are designed to prevent a recurrence of the fraudulent activities that gave rise to the case at
issue. The Government, with the assistance of OIG, recouped more than $228 million
through both CMP and False Claims Act civil settlements related to the Medicare and
Medicaid programs during this reporting period. Some examples of these cases include:
(cid:127) A  dialysis  services  company  based  in  Sweden,  and  two  of  its  Florida
subsidiaries, agreed to pay the Government more than $53 million to settle
20 allegations of submitting false claims to Medicare, Medicaid and TRICARE
for end stage renal disease (ESRD) laboratory services. The companys
laboratories allegedly billed Medicare for medically unnecessary lab tests;
double billed for lab tests included in ESRD composite rate payments; and
violated the 50-50 rule, which prohibits billing for lab test panels of which
50 percent or more is already reimbursed through the composite rate. The
$53  million  settlement  figure  represents  the  total  of  two  settlement
agreements reached with the Government. The first, involving the company
and one if its Florida subsidiaries, resolves allegations of improper billing
by the subsidiarys laboratory and calls for payment of $40 million. The
second, involving the company and its other Florida subsidiary, resolves
allegations of improper billing by the other subsidiarys laboratory and calls
for  payment  of  more  than  $13.1  million.  As  part  of  the  settlement
agreement, the company entered into a 5-year comprehensive corporate
integrity agreement targeting ESRD lab billing risk areas and covering any
and all ESRD labs owned or operated by the company.
(cid:127) As the result of an OIG audit, a publicly traded Medicare managed care
company (MCO) agreed to pay $14.5 million to settle allegations that the
company provided inaccurate enrollment data to Medicare. This is the first
False  Claims  Act  settlement  that  involved  billing  misconduct  in  the
Medicare managed care program. Specifically, the audit revealed that the
company received Medicare payments for Medicare beneficiaries who were
members of the companys plans and were incorrectly listed by the plans as
dually eligible for both Medicare and Medicaid. As part of the settlement,
the company has entered into a comprehensive 5-year corporate integrity
agreement.
(cid:127) A regional Medicare carrier agreed to pay the Government close to $9
million for allegedly submitting false final administrative cost reports for
fiscal years 1990 through 1997. The company improperly charged HCFA
for unallowable costs in connection with its Medicare carrier contract with
the  agency.  As  a  result,  the  company  received  overpayments  in
reimbursement  for  costs  incurred  in  operating  the  Medicare  program.
Initiated through a qui tam suit filed in Maryland, the OIG investigation and
audit  substantiated  several  allegations  against  the  company.  First,  the
company knowingly over-counted paper costs incurred in printing Medicare
checks and explanation of benefits forms. Second, the company charged
HCFA for unallowable overhead costs, including risk insurance costs not
incurred. Finally, the company knowingly failed to disclose these known
overcharges during an OIG audit. As part of the settlement, the company
entered into a comprehensive corporate integrity agreement with OIG. 
21 (cid:127) One of the largest providers of mental health and substance abuse services
in southern West Virginia agreed to pay $2.5 million to the United States.
An investigation and audit determined that the provider submitted false
claims  to  the  Federal  health  care  programs  (primarily  Medicaid),  and
committed  grant  fraud.  Specifically,  the  investigation  revealed  that  the
provider  submitted  claims  for  services  not  rendered  and  that  it  also
submitted duplicate claims for various mental health and substance abuse
services. Regarding the grant fraud allegations, the provider submitted false
grant applications by inflating its costs and underreporting its revenues. As
part of the settlement, the provider agreed to enter into a 5-year corporate
integrity agreement. 
(cid:127) A  medical  practice,  whose  principal  owner  and  shareholder  is  an
internationally  known  cardiologist,  agreed  to  pay  the  Government  $1.5
million to settle allegations of submitting false claims to Medicare. A qui
tam suit initiated this investigation into the billing practices of the medical
practice and the cardiologist. Based on a review by the carrier, a peer review
organization nurse and an independent expert cardiologist, the Government
found that between 1993 and 1998, the practice submitted, or caused to be
submitted, improper Medicare claims for services provided to patients by
the cardiologist. The claims contained numerous instances of upcoding for
evaluation and management services; of double billing for certain services;
and of billing medically unnecessary cardiology-related tests, procedures
and office visits. In addition, the medical practice also agreed to enter into a
6-year comprehensive corporate integrity agreement.
(cid:127) A Massachusetts  mental  health practice agreed  to pay the Government
$850,000 to  settle  allegations of improper billing  practices.  From 1995
through 1999, the mental health practice used medical codes that improperly
characterized  services  as  being  incident  to  services  provided  by  a
psychiatrist. The practice also used inappropriate medical codes in order to
receive a higher rate of reimbursement. Finally, the practice failed to use a
modifier to indicate that services were rendered by a social worker and
should, therefore, be paid at the rate appropriate for that type of provider. As
part of the settlement, the practice also entered into a corporate integrity
agreement with OIG. 
(cid:127) An operator of physician clinics in Virginia agreed to pay the Government
$344,764 to settle allegations of submitting false claims to Medicare. The
entity employed physicians, physicians assistants and nurse practitioners to
visit patients in various nursing homes. Through an internal audit, the clinic
operator  determined  that  the  services  of  the  nurse  practitioners  and
22 physicians  assistants  were  inappropriately  billed  under  a  physicians
provider number. This improper billing practice led the clinic operator to
receive higher reimbursement from Medicare than it should have. Moreover,
the conduct violated Medicares "incident to" billing rules requiring, in part,
the  direct  supervision  of  physicians  when  services  are  provided  by
nonphysician personnel. As part of the settlement agreement, the clinic
operator entered into a 5-year corporate integrity agreement with OIG.
(cid:127) A  nonprofit  entity  agreed  to  pay  the  Government  $296,000  to  resolve
allegations  of  submitting  false  cost  reports  in  certain  States.  Based  in
Nebraska, the nonprofit entity provides services to physically and mentally
handicapped Medicaid beneficiaries in 13 States. The nonprofit allegedly
submitted false cost reports by submitting health care charges related to a
self-insurance fund without appropriate actuarial support and by utilizing an
allocation  method  which  resulted  in  the  submission  of  excess  workers
compensation costs. The self-insurance charges caused Medicaid in three
States to pay the nonprofit prematurely for its self-insurance costs. By
receiving the money prematurely, the nonprofit earned money in interest to
which it was not entitled. As part of the settlement, the nonprofit also
entered into a 3-year corporate integrity agreement.
D. Compliance Activities
The existence of an "effective" compliance program can offer an organization certain credit
under the Federal Sentencing Guidelines. This and other benefits have served to encourage
the private sector to develop methods to prevent the submission of improper claims and
inappropriate conduct and to detect violations under the False Claims Act and the CMP law.
The OIG has already initiated significant outreach efforts with the private sector to discuss
these compliance endeavors.
The  OIG  continues  in  its  efforts  to  promote  voluntarily  developed  and  implemented
compliance programs by providing guidance for the various sectors of the health care
industry. To this end, OIG has developed and released compliance program guidance for
clinical laboratories, hospitals, HHAs, third-party billing companies, DME, prosthetics and
orthotics suppliers, hospices, Medicare+Choice organizations that offer coordinated care
plans, nursing homes, and individual and small group physician practices. The OIG is
currently working on guidance for ambulance service providers. With respect to guidance
and outreach to the physician community, OIG obtained significant input from physicians
regarding  its  compliance  program  guidance  for  individual  and  small  group  physician
practices. The physician guidance highlights the seven elements of effective compliance
programs set forth in the Federal Sentencing Guidelines. However, OIG adapted these seven
elements to reflect the staffing and financial constraints faced by many individual and small
group physician practices. The guidance contains four main risk areas: coding and billing;
23 reasonable and necessary services; documentation, including medical record documentation
and HCFA 1500 form; and kickbacks, inducements and self-referrals. The guidance is
intended  to  serve  as  a  useful  resource  for  physician  practices  and  includes  several
appendices providing additional information. These appendices contain additional risk areas
that  physician  practices  should  be  familiar  with;  summaries  and  examples  of  civil,
administrative and criminal statutes related to the Federal health care programs; carrier
contact information; and a listing of related Internet resources.
As noted in the Federal Sentencing Guidelines, the seven fundamental elements of an
effective compliance program are: implementing written policies, procedures and standards
of  conduct;  designating  a  compliance  officer  and  compliance  committee;  conducting
effective training and education; developing effective lines of communication; enforcing
standards through well-publicized disciplinary guidelines; conducting internal monitoring
and auditing; and responding promptly to detected offenses and developing corrective action
initiatives. 
Copies of OIGs compliance program guidances, as well as other materials developed by
OIG as part of its effort to identify and curb health care waste, fraud and abuse are available
on the Internet at http://www.hhs.gov/oig.
In addition to developing compliance program guidance, which promotes the voluntary
adoption  of  compliance  measures  by  private  industry,  OIG  monitors  compliance  and
integrity obligations imposed on health care providers as part of global settlements of OIG
investigations and audits. These compliance obligations are typically imposed through an
agreement commonly referred to as a corporate integrity agreement. Presently, OIG is
monitoring 470 Government-imposed corporate integrity agreements. These agreements
cover the range of providers from small physician offices to large hospitals and laboratory
corporations. The duration of most current corporate integrity agreements is 5 years and
these  agreements  require  the  provider  to  take  substantial  measures  to  ensure  that  the
organization is operating within HCFA rules and regulations and the parameters established
by the corporate integrity agreement. A material failure to adhere to the corporate integrity
agreement could result in financial penalties or exclusion of the provider.
To  assist  with  efforts  to  verify  compliance  with  the  terms  of  the  corporate  integrity
agreements, OIG staff conducts onsite visits to certain entities and providers subject to the
compliance obligations. The OIG has 18 site visits scheduled for FY 2000. These site visits
generally involve meeting with compliance staff and management, employee interviews, a
claims review and a detailed discussion of assertions made in annual reports submitted to
OIG  by  the  provider.  Site  visits  often  verify  compliance  with  the  corporate  integrity
obligations, but they have also uncovered and confirmed instances of noncompliance,
including improper claims reviews and the providers placement of prohibited costs related
to a false claims settlement agreement on provider cost reports. 
24 As one of its six task orders awarded to program safeguard contractors, in November 1999,
HCFA  contracted  with  TriCenturion,  LLC,  a  new  company  formed  by  three  current
Medicare contractors (Blue Cross Blue Shield of Florida, Blue Cross Blue Shield of South
Carolina and TrailBlazer Health Enterprises) to assist OIG in its monitoring of providers
subject to corporate  integrity agreements. In  the  next contract  year, TriCenturion  will
perform 26 onsite reviews of providers subject to corporate integrity agreements to assist
OIG to determine if the providers are meeting the obligations in the agreements. In addition,
TriCenturion will conduct claims reviews to determine whether the providers are complying
with applicable laws. The OIG staff will work closely with HCFA and TriCenturion on this
important  project.  This  effort  will  complement  the  site  visits  conducted  by  OIGs
compliance unit staff.
Provider Self-Disclosure Protocol
In keeping with the longstanding commitment to assist providers and suppliers in detecting
and preventing fraudulent and abusive practices, the OIG issued on October 21, 1998 a set
of comprehensive guidelines for voluntary, self-disclosures. These guidelines are known as
the Provider Self-Disclosure Protocol ("the Protocol") and can be found on the OIGs
Internet site (www.hhs.gov/oig) or as published in 63 Fed. Reg. 58,399 (Oct. 30, 1998).
Essentially, the Protocol guides providers and suppliers through the process of structuring a
disclosure  to  the  OIG  of  matters  uncovered  that  are  believed  to  constitute  potential
violations of Federal criminal, civil and/or administrative laws (as opposed to innocent
mistakes that may have resulted in overpayments). Pursuant to the Protocol, an appropriate
submission would include a thorough internal investigation as to the nature and cause of the
matters uncovered and a reliable assessment of their economic impact (i.e., an estimate of
the losses to the Federal health care programs).
Unlike prior voluntary disclosure procedures (e.g., Voluntary Disclosure Pilot Program),
there are no limitations as to the type of provider or supplier that can avail itself of the
Protocols guidance or with respect to geographical location. Nor is the fact that a provider
or supplier is under investigation by another Government agency an automatic bar to
submissions under the Protocol. OIG evaluates each submission to determine the appropriate
course of action. To date, OIG has received 100 submissions. They comprise a variety of
issues and types of providers throughout the Country.
Among the benefits experienced by disclosing providers is the allocation of investigative
resources that can contribute to an expedited inquiry and a prompt resolution of the matter.
Additionally, disclosing providers that demonstrate the effectiveness of their compliance
programs and that, as part of the resolution of the matter, agree to continue such compliance
activities, may avoid entering into a corporate integrity agreement with OIG.
25 Overall, the Protocol provides helpful guidance to providers and the community at large on
how  to  achieve  resolution  of  identified  misconduct  through  a  cooperative  and  open
relationship with the Government.
Medicare Payments to OIG Excluded Physicians
Few payments were made to excluded physicians in Medicare fee-for service. Twenty-one
excluded physicians received improper Medicare payments totaling $35,833 in 1997, mostly
as the result of Medicare carrier employee errors. Questionable claims were paid to another
12 physicians excluded that year. Although the system seems to work well, it is not perfect.
Medicare carriers need to ensure that staff responsible for processing exclusions receive this
information timely and take action on it. This study was unable to determine if excluded
health care providers other than fee-for-service physicians received improper payments.
Most  such  providers  do  not  have  UPIN  numbers,  or  are  in  a  managed  care  setting.
Identifying  excluded  individuals  in  these  professions  remains  a  cause  for  concern.
(OEI-07-98-00380)
External Quality Review of Dialysis Facilities 
The HCFA relies on two major entities to conduct eternal reviews of dialysis facilities: the
end stage renal disease (ESRD) networks established under the Social Security Act and the
State survey agencies. In a review of these mechanisms, OIG concluded that the system of
oversight has major shortcomings and that HCFA does little to hold the networks and the
State agencies accountable for their effectiveness.
The  OIG  recommended  that  HCFA  revise  Federal  regulations  to  serve  as  a  stronger
foundation for accountability; use performance data to both improve the overall quality of
care and ensure that minimum standards are met; integrate and enhance the complaint
systems of the networks and the States; and determine a minimum cycle for routine onsite
surveys. The HCFA concurred with OIGs recommendations. (OEI-01-99-00050)
In a companion report, OIG described two efforts, one initiated by the renal network
covering Indiana, Kentucky, Ohio and Illinois, and the other by the State of Texas, that were
particularly  instructive  as  to  how  facilities  can  be  held  more  fully  accountable.
(OEI-01-99-00051)
Payments to Managed Care Organizations for Beneficiaries on
Dialysis
In this review, OIG evaluated HCFAs actions to prevent erroneous classifications of the end
stage renal disease (ESRD) status of beneficiaries enrolled in risk-based managed care
organizations. Monthly payment rates for ESRD beneficiaries are approximately seven times
greater than the non-ESRD rate.
26 Based on a limited review of 76 beneficiaries classified as ESRD, OIG found that 14
beneficiaries  (or  18  percent)  had  been  misclassified  during  1997,  resulting  in  about
$112,500  in  gross  payment  errors.  Nine  of  these  beneficiaries  had  their  ESRD  status
terminated prematurely, resulting in underpayments of $57,500, while five beneficiaries
showed  no  sign  of  renal  failure,  resulting  in  overpayments  of  $55,000.  The  OIG
recommended  that  HCFA  make  procedural  and  systems  changes  to  prevent  further
misclassifications and instruct all ESRD centers to verify the status of beneficiaries and to
submit  census data on a timely basis.  The HCFA concurred with OIGs  findings and
recommendations. (CIN: A-14-98-00211)
Medicare Conditions of Participation for Organ 
Donation: An Early Assessment of the New 
Donation Rules 
This  inspection  provides  an  early  assessment  of  hospitals  and  organ  procurement
organizations responses to the Medicare hospital conditions of participation for Organ
Donation. Hospitals and organ procurement organizations (OPOs) have made progress in
implementing the rule, however hospitals and OPOs have not taken full advantage of the
rule. Despite projections of a 10 percent increase in organ donors in the rules first year, the
increase was less than 1 percent. In addition, HCFA lacks data to assess how well the rule is
working. This report recommended that HCFA revise the Medicare conditions for coverage
for OPOs to make them more accountable for implementing the donation rule, by requiring
OPOs  to  provide  hospital-specific  data  on  referrals  and  organ  recovery  and  to  make
hospital-specific data on donation publicly available. We recommended that the Health
Resources and Services Administration (HRSA) require that OPOs, as members of the
Organ Procurement and Transplantation Network, submit hospital-specific data on referrals
and on organ recovery. We also recommended that HRSA support demonstration projects on
training and using designated requesters, and develop a recognition award for hospitals that
show exemplary performance in donation. Both HCFA and HRSA responded positively to
our report and recommendations. (OEI-01-99-00020)
Nursing Home Vaccination: 
Reaching Healthy People 2010 Goals 
One objective of the Departments Healthy People 2010 public health goals is to increase
vaccination rates for influenza and pneumococcal disease in nursing homes to 90 percent.
Despite Medicare coverage of both vaccines, data suggest that nursing homes fall short of
this  mark:  A  1995  survey  by  the  Centers  for  Disease  Control  and  Prevention  (CDC)
indicated that only 61 percent of nursing home residents received an annual influenza
vaccination and only 22 percent had ever received the pneumococcal vaccine.
The HCFA and CDC have numerous efforts underway to encourage nursing homes to
vaccinate their residents. To accelerate fulfillment of this Healthy People 2010 goal, OIG
27 recommended options to strengthen the agencies responses. The OIG proposed that HCFA
consider requiring nursing homes to assess residents for vaccinations upon admission; add
vaccination to the Minimum Data Set (MDS) which nursing homes are required to collect
during in-depth, recurring evaluations of residents health status; increase use of the peer
review organizations, FIs and carriers to teach nursing homes about Medicare roster billing,
a  simplified  procedure  allowing  homes  to  submit  a  list  of  beneficiaries  who  receive
vaccines, rather than requiring individual bills. Also, HCFA and CDC could use the MDS to
identify and reach out to nursing homes with low vaccination rates through their network of
regional and field offices who are familiar with local nursing homes and the populations
they serve.
The HCFA concurred with OIGs recommendations and agreed to take actions in each of the
areas identified. (OEI-01-99-00010)
Medicare Beneficiary Access to Skilled Nursing Facilities: 2000
This inspection looks at Medicare beneficiary access to skilled nursing facilities under the
Medicare prospective payment system. It is based on a survey of 202 hospital discharge
planners and an analysis of Medicare claims data. The OIG found that almost all discharge
planners can place all of their Medicare beneficiaries in SNFs. Medicare data showing a rise
in the number of Medicare beds available support the response of discharge planners that
there are adequate skilled nursing home beds available. While some Medicare beneficiaries
do experience delays before they are placed in a SNF, Medicare data show a slight decrease
in hospital lengths of stay before discharge to a SNF. (OEI-02-00-00330)
Effect of Financial Screening and Distinct Part Rules on Access
to Nursing Facilities
In recent years, HCFA and the Office for Civil Rights have been alerted by nursing home
advocacy groups and beneficiaries that nursing homes may be using financial screening and
distinct part rules to limit access for Medicare and Medicaid applicants. Reportedly some
nursing facilities require applicants to submit information about their finances so they can
determine whether or not and for how long a person will be able to pay privately before they
become eligible for Medicaid. Distinct part rules allow facilities to define the extent of their
participation in the Medicaid or Medicare programs by certifying a specific number of their
beds for either or both of these programs.
An OIG review found that, overall, distinct part rules do not appear to limit access for
Medicaid or Medicare beneficiaries. Moreover, while financial screening may cause access
problems for some Medicaid beneficiaries, these problems do not appear to be widespread.
At the current time, any potential effects of distinct part rules and financial screening are
being tempered by a bed supply that generally exceeds demand and by State initiatives that
promote access.
28 The OIG suggested some options to the Department: take no present action but continue to
monitor access and changes in nursing home occupancy rates; strengthen oversight by
alerting survey  and  certification  and ombudsman staff to potential  abuses and alerting
consumers to common screening practices through public service announcements; issue new
regulations or seek legislation to eliminate Medicare distinct part and/or prohibit financial
screening; or study the effects on access of the practices adopted by 23 States to promote
access  to  nursing  facilities. The  HCFA  agreed with  the  recommendation to  strengthen
oversight and cited action underway. (OEI-02-99-00340)
Fraud Involving Nursing Homes
Nursing facilities and their residents have become common targets for fraudulent schemes
by which health care providers, medical professionals, nursing facility staff and others
associated with the operation of nursing homes, improperly bill Medicare and Medicaid.
Through  such  arrangements,  Federal  health  care  programs  are  billed  for  medically
unnecessary services and for services either not rendered, or not rendered as described.
Examples of cases involving nursing facilities and their residents are as follows:
(cid:127) Three Ohio residents, a Massachusetts corporation and a New Hampshire
corporation were sentenced in New Hampshire for conspiracy to defraud the
Medicare program. Their offenses stemmed from a health care fraud scheme
through  which  the  defendants  submitted  false  claims  to  Medicare. The
claims were submitted in order to obtain payment for more than 160,000
transtelephonic  electrocardiograph  tests  performed  on  more  than  6,000
beneficiaries residing in approximately 200 nursing homes in 12 States. One
individual  was  sentenced  to  46  months  imprisonment  and  3  years
supervised release; the second was sentenced to 72 months imprisonment
and 3 years supervised release. In addition, the two individuals and the two
corporations were ordered to be held jointly and severally responsible for
payment of $2.27 million in restitution. The third individual was sentenced
to 6 months imprisonment, 3 years supervised release, and payment of
$5,150 in fines.
(cid:127) In a civil self-disclosure case in Michigan, a rural nursing home reached a
settlement with the Government for alleged misconduct the nursing home
discovered during a routine self-audit. The nursing home agreed to pay the
Government  $891,000  to  resolve  its  civil  liability  for  two  improper
practices. First, the nursing home improperly waived certain copayment
amounts for nursing, clinical laboratory, occupational, physical therapy and
physician services rendered to Medicare beneficiaries. Second, the nursing
home obtained reimbursement for supplies to which it was not entitled.
Since the nursing home voluntarily disclosed this matter and voluntarily
29 began implementing a compliance program, the OIG agreed to reduce the
term of the corporate integrity agreement to 3 years.
(cid:127) In Missouri, the co-owner of two rehabilitative therapy companies was
sentenced to 12 months and 1 day incarceration, 3 years supervised release
and  payment  of  $619,980  in  restitution  for  mail  fraud.  He  and  the
companys  other  co-owner  provided  false  and  inflated  invoices  to  11
nursing homes which caused the homes to provide false cost reports to the
Medicare  intermediary.  The  two  individuals  then  improperly  received
reimbursement for physical and occupational therapy services not rendered.
During negotiations for a plea agreement, the other co-owner died of a heart
attack. A civil suit has been filed against his estate, and negotiations in that
suit continue.
(cid:127) Under the terms of a consent decree filed in Pennsylvania, two nursing
homes agreed to resolve their liability for providing poor quality services to
their Medicare and Medicaid patients. Owned by the same company, the
two  nursing  homes  allegedly  provided  such  inadequate  wound  care,
nutrition monitoring and medication services, that a resident died at each
facility. Among the terms agreed upon, the nursing homes must pay the
Government a total of $160,000 and must appoint and pay for a temporary
manager at each facility. In addition, the facilities must appoint and pay for
an outside monitor selected by the Government. Finally, the facilities must
implement specific best practice protocols to govern weight monitoring,
wound care and pain management for their residents.
(cid:127) An occupational therapist was sentenced for a false claims violation in
California. The therapist caused a nursing home to improperly bill Medicare
for  services  she  did  not  render.  She  was  sentenced  to  6  months  in  a
community corrections center, 3 years probation and payment of $29,495 in
restitution. 
Consolidated Billing Under the Prospective Payment System for
Skilled Nursing Facilities
Under consolidated billing, a skilled nursing facility (SNF) is reimbursed a prospective
payment for all covered services rendered to its residents in a stay under Medicare Part A;
outside providers and suppliers must bill the SNF for services rendered. In a review of a
sample of Medicare Part A SNF PPS claims for dates of service from October 1, 1998 to
April 30, 1999, OIG found that in over one-third of the claims, Medicare contractors had
made separate Part B payments to outside suppliers for services subject to consolidated
billing. As a result, Medicare paid twice for the same service.
30 The OIG concluded that improper payments to outside providers occurred because Medicare
edits had not been established to detect and prevent such claims and because some suppliers
may not have been fully aware of the consolidated billing provision. Concerned that these
preliminary findings could portend a nationwide problem with substantial impact, HCFA
indicated that it would prepare a fraud alert and a memorandum to advise contractors of the
issue and direct them to educate providers. Pending implementation of program edits, OIG
recommended that HCFA adopt interim remedies in addition to issuance of its fraud alert
and  memorandum  to  contractors;  these  included  working  with  OIG  on  a  computer
application to identify and recover overpayments and monitoring contractors recovery of
the  identified  overpayments.  The  HCFA  concurred  with  OIGs  findings.  (CIN:
A-01-99-00531)
Nursing Home Quality of Care Conferences
Over the past 6 months, the OIG has continued its active participation in an interagency
Government initiative to improve efforts to enforce the laws governing quality of care and
fraud in the provision of nursing home services. A major part of that initiative has been a
series of multi-day training conferences throughout the country for Federal, State and local
Government officials whose duties encompass enforcement of nursing home laws. The
conferences succeeded in bringing together a diverse group of people to enable them to
better coordinate their efforts to achieve their common goals. OIG staff helped DOJ in its
planning of the conferences. OIG staff led several of the training sessions, and OIG agents,
auditors, and attorneys participated in others.
Medicare Beneficiary Access to Home Health Agencies: 2000
This inspection describes the effects of the interim payment system (IPS) on access to home
health agencies for Medicare beneficiaries discharged from the hospital. The findings of this
follow-up study are consistent with those in OIGs 1999 study, "Medicare Beneficiary
Access to Home Health Agencies." Almost all Medicare beneficiaries can be placed with a
home health agency. In fact, 88 percent of discharge planners report that they place all
eligible Medicare patients in home health, while some patients experience delays. Most
discharge planners report that delays are not more common now than before IPS. The OIG
concluded that there appears to be no widespread problem with placing Medicare hospital
patients with home health agencies. (OEI-02-00-00320)
Adequacy of Home Health Services: Hospital Re-Admissions and
Emergency Room Visits 
In examining the issue of hospital re-admissions and emergency room visits for patients
discharged from the hospital to home health care, this OIG inspection did not find any
significant increases in re-admission or emergency room visit rates since the implementation
31 of the interim payment system. In fact, they decreased. This was true in general and also for
high volume diagnoses and diagnoses identified as at-risk. (OEI-02-99-00531)
Medicare Home Health Agency Survey and Certification
Deficiencies
Overall, home health agency survey and certification deficiencies  increased 26 percent
between the first 6 months of 1997 and 1999.  Reasons that may account for this increase
include changes in the survey schedule, increased Federal involvement, declining quality of
care, and the interim payment system. The OIG concluded that just as there is no single
cause for the increase in home health agency deficiencies, there is no single course of action
to  be  taken.  Instead,  a  combination  of  approaches  may  be  appropriate,  including
strengthened State survey protocols and continued close scrutiny of the care being provided.
The  upcoming  prospective  payment  system  will  also  address  this  problem.
(OEI-02-99-00532)
Home Health Agency Fraud
Home health agencies are one of the fastest growing segments of the health care industry
because they allow many patients to remain in their own homes at less expense than might
be incurred at a hospital or other institution. The OIG has become aware of a number of
fraudulent arrangements by which home health care providers, medical professionals and
others associated with the operation of HHAs, inappropriately bill Medicare and Medicaid.
The following cases represent some examples of improper activities related to the provision
of home health care services:  
(cid:127) In  Texas,  three  former  owners  of  a  provider  of  home  health  care  and
infusion therapy services agreed to collectively pay the Government $2.5
million  and  to  be  permanently  excluded  from  all  Federal  health  care
programs for their alleged misconduct against the Medicare program. This
settlement stemmed from an OIG audit of the provider, a subsidiary of a
large home health care company in Texas. The defendants were responsible
for a substantial portion of the alleged misconduct that led the company to
agree to pay the Government $10 million in 1999. Based upon the initial
audit  and  subsequent  investigation,  the  Government  alleged  that  the
subsidiarys  home  health  component  improperly  charged  Medicare  for
unallowable salaries and other unallowable items such as travel and legal
fees  not  related  to  patient  care.  The  second  part  of  the  case  involved
allegations of wrongdoing by the subsidiary when selling infusion therapy
drugs,  supplies,  equipment  and  nursing  services  to  SNFs,  which  then
provided infusion therapy to Medicare beneficiaries.
32 (cid:127) In Colorado, the owner of HHAs, a DME company and several related
entities,  along  with  one  of  her  HHAs,  agreed  to  pay  the  Government
$75,000. The settlement resolves allegations that the owner submitted false
claims  by  including  personal  expenses  on  her  HHA  cost  reports  to
Medicare. The owner also pled guilty to two separate indictments charging
mail fraud and bankruptcy fraud, respectively. She was sentenced to serve
concurrent terms of 6 months in a community corrections facility and 30
months probation. She was also ordered to pay total restitution of $37,505,
in addition to the civil settlement amount. The Government also received
$20,184 through the liquidation of assets of another of her companies that
went bankrupt. In addition, OIG excluded the owner and all her companies
permanently. 
(cid:127) A Florida HHA agreed to pay the Government $500,000 to settle allegations
that the company submitted false claims for medically unnecessary services
in 1993 and 1995. During that time, the HHA submitted false claims for
home health care for patients not in need of the services. In most cases, the
patients were not homebound or did not require any skilled nursing care.
(cid:127) A Colorado man was sentenced for his part in submitting false cost reports
to Medicare. Among the improper costs submitted were season tickets for
professional ice hockey and basketball games, a trip to Greece and wages
paid to his common law wife who never actually worked for his HHA. The
man was sentenced to 1 year in custody, comprised of 4 months in a
community corrections center and 8 months in home detention; 3 years
probation;  and  payment  of  $62,326  in  restitution.  He also  agreed to  a
15-year exclusion. His common-law wife must pay restitution of $4,324 and
serve 1 year probation. 
(cid:127) A HHA based in New Jersey agreed to pay the Government $325,000 to
settle  allegations  of  submitting  improper  Medicare  claims  for  services
provided by a branch office in Pennsylvania. The HHA improperly billed
Medicare for home health care for patients who were not homebound and
who were not in need of skilled nursing services.
Unidentified Primary Health Insurance: Medicare Secondary
Payer Auxiliary File
As a result of growing concern for rising Medicare program costs, a series of statutory
provisions were passed that established Medicare as the secondary payer to other private
health insurance in certain situations. The OIG determined that, overall, HCFAs Medicare
secondary payer (MSP) auxiliary file accurately documents primary insurance. Less than
one-half of one percent of beneficiaries with primary health insurance coverage in OIGs
33 sample for this inspection were not identified in the file. The OIG found only a few
instances  where  other  health  insurance  was  undetected,  with  losses  to  Medicare  of
approximately  $56  million  in  1997.  Also,  OIG  noted  that  the  Initial  Enrollment
Questionnaire, which is designed to capture primary coverage information at the point of
Medicare entitlement, does not always do so because a number of beneficiaries do not
respond.
The OIG recommended that HCFA emphasize to providers the requirement that they obtain
and report insurance coverage information at each beneficiary office visit. To increase the
response rate for the questionnaire, OIG proposed several options for HCFA to consider. The
HCFA generally concurred with OIGs recommendations. (OEI-07-98-00180)
Employer Compliance with Medicare 
Secondary Payer Data Match Requirements
Medicare is the secondary payer to certain employer group health plans. The objective of
this follow-up review was to determine if HCFA had established effective procedures to
ensure that employers respond to requests for information as part of the Medicare secondary
payer (MSP) data match.
The  OIG  determined  that  HCFA  had  obtained  group  health  plan  information  from
approximately 1.7 million employers, or about 87 percent of those contacted as part of the
data  matches  run  from  1991  through  1997.  The  information  obtained  resulted  in
approximately $2.5 billion in MSP savings. However, HCFA did not use all available
remedies to obtain such information from the 13 percent of employers that did not respond
to the legislatively mandated request for information. The OIG estimated that these missing
data led HCFA to pay out as much as $282 million in Medicare funds for which group health
insurance plans were liable. The OIG recommended, among other things, that HCFA assess
civil monetary penalties against employers that refuse to respond to requests for group
health plan information on Medicare beneficiaries. The HCFA concurred and agreed to take
corrective action. (CIN: A-02-98-01036)
Medicare Payments for Services after Date of Death
The OIG found that Medicare paid an estimated $20.6 million in 1997 for services that
started after a beneficiarys date of death. Medicare had not yet received beneficiary date of
death information at the time the claim was processed for $12.6 million of the services paid.
However, Medicare paid $8 million for services where the beneficiarys date of death was in
its system at the time the claim was processed and approved for payment; over half the $8
million was for DME claims.
The  HCFA  established  the  common  working  file  (CWF)  in  1991  to  improve  claims
processing in the Medicare program. Under the CWF system, FIs and carriers send claims
34 information to one of nine CWF host sites for approval. The CWF host sites review updated
beneficiary information from HCFAs enrollment data base on a daily basis.
The  OIG  recommended that HCFA require  contractors  to conduct annual  postpayment
reviews to identify and recover payments made for services after death; revise their CWF
system edit to ensure that DME payments are not made for deceased beneficiaries; and
periodically reconcile dates of death information between the enrollment data base and CWF
files. The HCFA concurred with OIGs recommendations. (OEI-03-99-00200)
Contractor Costs for Year 2000 Remediation of Medicare
Computer Systems
The  Medicare  contractors  operate  75  "mission-critical"  computer  systems  which  are
necessary  both  to  establish  the  Medicare  eligibility  of  beneficiaries  and  to  authorize
payments to fee-for-service providers and managed care plans. During FY 1998, HCFA
increased the budget allocation of the contractors by over $100 million for the Year 2000
(Y2K) remediation of their Medicare computer systems and related Y2K activities. To
monitor the budget process associated with this additional funding, HCFA implemented a
new structure for use by contractors in submitting their supplemental budget requests for
Y2K funding and reporting Y2K expenditures on their interim expenditure reports.
At  HCFAs  request,  OIG  conducted  a  series  of  audits  of  costs  reported  by  Medicare
contractors for Y2K remediation of their Medicare computer systems and related activities.
During this reporting period, OIG issued several reports on individual contractors, as well as
a summary report consolidating the results at 35 contractors. The OIG found that of the
approximately $78.3 million in Y2K expenditures reported by the contractors, $10 million
should be disallowed as Y2K costs, $5.4 million should be set aside for HCFA adjudication,
$4.6 million was improperly classified and $1.3 million was incurred but not reported. Some
of the Y2K costs recommended for disallowance may be otherwise allowable as Medicare
program costs.
Recommendations called for HCFA to require that contractors make appropriate financial
adjustments, accurately report Y2K expenditures by appropriate productivity investment
codes and report costs incurred for Y2K remediation that were not previously reported.
Contractor representatives, for the most part, agreed with the findings and recommendations.
(CIN: A-02-99-01014; CIN: A-02-99-01028; CIN: A-02-99-01033; CIN: A-03-99-00039;
CIN: A-04-99-02159; CIN: A-14-99-02400)
Medicare Contractor Administrative Costs
Under agreements with HCFA, an Illinois contractor reviews, audits and pays Medicare
Parts A and B claims. Based on an independent audit of this contractors administrative cost
reports for the period October 1, 1994 through September 30, 1998, OIG recommended
35 financial adjustments totaling $9.9 million: $3.5 million for Part A and $6.4 million for Part
B. The questioned items included $7.9 million that were part of an employee retention plan
previously rejected by HCFA as unreasonable and unnecessary.  The contractor disagreed
with some of the findings. (CIN: A-05-99-00070)
Contractors Pension Segmentation
Medicare pays a portion of the annual contributions made by contractors to their pension
plans. The HCFA incorporated pension segmentation requirements into Medicare contracts
beginning with FY 1988; contractual language specifies segmentation requirements and
provides for the separate identification of the pension assets for a Medicare segment.
A. New York Contractor
The OIG determined a New York contractors Medicare segment pension assets to be $38.6
million as of January 1, 1999, when segmentation requirements first became applicable to
the  contractor.  Further,  OIG  recommended  that  the  contractor  periodically  update  the
Medicare pension assets for contributions, income, benefit payments and expenses. The
contractor agreed with OIGs findings and recommendations. (CIN: A-07-98-02534)
B. Missouri Contractor
In this review, OIG found that a Missouri contractor had understated the Medicare segment
pension assets by over $259,000 as of January 1, 1998, and had not updated the assets
beyond that date. The OIG determined that the valuation of the Medicare segment pension
assets was about $6.2 million as of January 1, 1998, and recommended that the contractor
establish assets of that amount. Contractor officials concurred with OIGs findings and
recommendations. (CIN: A-07-99-02540)
Investment Income Earned on Medicare Funds by Risk-Based
Managed Care Organizations
In this review, OIG estimated the financial impact on the Medicare program of holding
risk-based managed care organizations (MCO) accountable for investment income earned on
Medicare funds. The HCFA pays an MCO a predetermined amount (based on 95 percent of
fee-for-service expenditures) for each Medicare enrollee by the first of every month. The
MCO may then, at its discretion, invest the Medicare funds in interest-bearing instruments
until the funds are needed for such purposes as paying health care providers or employees
for services furnished to Medicare enrollees. However, an MCO is under no obligation to
report, and is not held accountable to HCFA for any income generated by its investment of
Medicare funds. 
Based on an analysis of financial management information, OIG reported that risk-based
MCOs may have earned annual investment income in excess of $100 million on Medicare
funds. Under the Medicare fee-for-service system and many other Federal programs, such
36 income is usually limited due to financing arrangements, is required to be returned to the
Federal Government, or is used to benefit the program and its beneficiaries. The OIG
believes that such should be the case with risk-based MCOs. 
The OIG therefore recommended that HCFA pursue legislation to either (1) adjust the timing
of Medicares payments to MCOs to maximize the Health Insurance Trust Funds earnings
while minimizing MCOs opportunities to earn investment income on Medicare funds or (2)
adjust the MCO payment rates to recognize the impact of investment income on the total
funding available to MCOs for servicing their Medicare enrollees. The HCFA agreed that its
policies should hold risk-based MCOs accountable for interest income and that such income
should be used to benefit Medicare enrollees. However, agency officials noted that they do
not intend to pursue legislative changes at this time. (CIN: A-02-98-01005)
Expanded Coverage of Outpatient Diabetes Self-Management
Training Services
The Balanced Budget Act of 1997 expanded Medicare coverage for outpatient diabetes
self-management training (DSMT) services furnished by non-hospital-based programs and
required that the payment amounts for DSMT services be established after consultation with
appropriate organizations.
In a review of HCFAs proposed individual and group session payment rates, OIG concluded
that they are both inflated. Based on its analysis, OIG found that Medicare could make
improper payments totaling $50 million for the period FYs 2000 through 2003 due to simple
calculation errors. Because Medicare deductibles and copayments would also apply for these
services, improper Medicare beneficiary copayments could total $12.5 million for the same
4-year period. In addition, OIG determined that HCFAs group session payment rate was
substantially higher than that being charged in the marketplace. The OIG believes that the
payment rates will continue to be excessive if HCFA uses them as the planned baseline when
incorporating DSMT services into the Medicare physician fee schedule.
The OIG recommended that HCFA further review the rates contained in the proposed rule.
At a minimum, the rates should be adjusted downward to correct the calculation errors noted
in this review. The OIG plans to expand its work in this area into a national study of the
training services being rendered. (CIN: A-14-99-00207) 
Part B Services Billed by California Developmental Centers and
State Hospitals
The OIG audited Medicare Part B payments for services at 11 State facilities from January
1, 1993 through June 30, 1997 to determine if the approximately $19 million in payments
were appropriate. Of the 100 randomly chosen services reviewed, 73 were overpaid: 43 had
no documentary evidence that the physicians had examined the patients, 14 had been
37 upcoded,  6  contained  no  documentation  that  any  services  had  been  rendered,  6  were
mutually exclusive of other services already paid, and 4 were not covered by Medicare.
Based on its statistical sample, OIG estimated the overpayments to be in excess of $13
million.
The OIG recommended that the carrier, with HCFAs guidance, develop a monitoring plan to
ensure the the States future claims are brought into compliance with Medicare rules. The
matter has been referred to DOJ. The State did not agree with OIGs findings. (CIN:
A-09-98-00072)
Chiropractic Care: Comparison of Medicare Managed Care and
Fee-for-Service Plans
Following an OIG report on the policies and practices for providing chiropractic services to
Medicare beneficiaries in seven managed care organizations, HCFA requested that OIG
conduct a national analysis of chiropractic utilization in managed care versus fee-for-service
plans. Comparing data from 1996 through 1998, OIG found that chiropractic utilization in
managed care plans was lower than in fee-for-service plans. Utilization was greater in
managed care risk plans when direct access was allowed than when primary care physician
referral  was  required,  but  it  was  still  lower  than  in  fee-for-service  plans.  In  1998,
chiropractors performed over 91 percent of the chiropractic treatments in managed care risk
plans and over 99 percent of the treatments under the fee-for-service program. The OIG also
found that managed care risk plans did not use copayments to limit beneficiary access to
chiropractic services. The HCFA concurred with OIGs findings. (OEI-04-97-00495)
Reimbursements to Hospital Outpatient Laboratories for
Additional Hematology Indices
In a prior audit of hospital outpatient laboratory services, OIG found inappropriate Medicare
payments  for  additional  hematology  indices  that  were  separately  billed  along  with
hematology profiles. The HCFA agreed that these indices were not valid for reimbursement
and removed the related procedure codes from the Medicare fee schedules effective January
1999. However, OIGs follow-up report noted that while the number of reimbursed indices
had declined, payments remained significant from the time of the previous review to the date
that the codes were eliminated from the fee schedules. Based on a random sample of claims,
OIG estimated that Medicares FIs overpaid providers by about $14 million during this
period.
The OIG recommended that HCFA direct the FIs to recover the overpayments. The HCFA
concurred and indicated that it will ensure that the intermediaries begin appropriate recovery
efforts. (CIN: A-01-99-00521)
38 Duplicate Payments for Medical Equipment and Supplies
The OIG found that HCFAs payment process for equipment and supplies continues to be
vulnerable to duplicate billing. Intermediaries do not know what supplies they are paying for
because the coding system allows providers to submit claims for a wide variety of supplies
using nondescriptive codes. In addition, only about 3 percent of home health providers are
subjected to complete audits that would potentially reconcile supply claims. Moreover, CWF
edits do not check for duplication of payments on most equipment and supplies. The OIG
identified over $530,000 in 1997 in such duplicate payments.
While  the  vulnerabilities  involving  supplies  may  be  eliminated  following  the  planned
implementation of the home health prospective payment system, those involving equipment
will continue unless further steps are taken. The OIG recommended that HCFA examine its
payment, coding and editing practices to enable carriers and home health intermediaries to
avoid  duplicate  payments  and  offered  some  specific  suggestions  to  that  end.
(OEI-04-97-00460)
Medicare Payments for Orthotics
In this follow-up to a 1997 report on Medicare orthotics, OIG found that inappropriate
Medicare reimbursement for orthotics continues at significant levels. Based on a random
sample of 500 Medicare beneficiaries who had one or more orthotic claims in 1998, OIG
determined that 30 percent had one or more miscoded orthotic devices, as illustrated below.
39 The miscoded orthotics used by these beneficiaries represent over $33 million in excessive
Medicare payments when projected to the total Medicare population. This conservative
estimate  presumes  that  all  beneficiaries  for  whom  information  was  inadequate  had
appropriately coded orthotics. The OIG also found that qualifications of orthotic suppliers
varied,  with  noncertified  suppliers  in  the  sample  most  likely  to  provide  inappropriate
devices.
The OIG presented options for HCFA s consideration as the basis for action to improve
Medicare  billing  for  orthotic  devices.  Further,  OIG  recommended  that  HCFA  require
standards for suppliers of custom molded and custom fabricated orthotic devices to ensure
that suppliers of these devices have the requisite skills and that the devices they supply are
appropriate.  (OEI-02-99-00120)
In a companion report, OIG reviewed policies and procedures at the four DME regional
carriers (RCs) and obtained carrier perspectives. The OIG found that carriers still lacked
policies for some groups of orthotics that represent a significant portion of all orthotic codes.
All  the  carriers  suggested  strengthening  the  orthotics  billing  process  with  better
documentation  and  improved  coding,  and  all  recommended  developing  standards  for
orthotic suppliers. The OIG suggested ways in which HCFA could work with the DMERCs
to improve the billing process for orthotics and reiterated its call for supplier standards. The
HCFA  generally  concurred  with  OIGs  recommendations  in  both  reports.
(OEI-02-99-00121)
Medicare Losses Resulting from Early Payments for Durable
Medical Equipment, Prosthetics, Orthotics and Supplies
Medicare allowed approximately $6.1 billion for DME, prosthetics, orthotics and supplies
(DMEPOS) in 1998. For DMEPOS claims, expenses are incurred on the date the item is
delivered to the beneficiarys home. This date is also known as the "date of service" and is
the earliest date that a provider can submit a claim. For rental items, the day of delivery is
the initial date of service for the monthly rental period, and subsequent rental periods start
on that same day of the month.
The OIG determined that Medicare could have earned an additional $7.2 million in interest
on 1998 payments for DMEPOS claims that were billed before the end of the service period.
A survey of seven other insurers disclosed that four of them do not pay for services before
the service period is completed. To avoid losses to the Medicare trust fund in the form of
unearned interest, OIG recommended that HCFA require providers to submit claims at the
end of the service period, with accurate start and end dates of services, and require a
common working file and/or contractor system edit to reject claims submitted prior to the
end  of  the  service  period.  The  HCFA  did  not  concur  with  the  recommendations.
(OEI-03-99-00620)
40 Blood Glucose Test Strips
Medicare covers home blood glucose monitors and test strips for beneficiaries who must
periodically test their blood sugar levels as part of their diabetes management, regardless of
insulin usage. Medicare allowances for test strips more than doubled between 1994 and
1997, increasing from about $102 million to $220 million, and allowances exceeded $314
million in 1998. The OIG examined both the propriety of Medicare payments and marketing
practices involving these products.
A. Inappropriate Medicare Payments 
The OIG concluded that, in 1997, Medicare allowed $79 million for blood glucose test strip
claims with missing or flawed documentation. Orders for 25 percent of the sampled claims
failed to establish beneficiaries eligibility for the supplies. These claims represented $33
million in allowances. An additional $46 million of the $79 million in test strip claims had
incomplete  orders  or  no  supplier  delivery  records.  Further,  OIG  found  that  suppliers
submitted claims for test strips at irregular intervals; this can make it difficult to identify
overlapping  claims,  claims  without  correct  supporting  documentation  and  claims  for
excessive numbers of test strips.
The OIG recommended several steps that could be taken to promote compliance with
Medicare  guidelines  for  blood  glucose  test  strips.  The  HCFA  concurred  with  OIGs
recommendations. (OEI-03-98-00230)
B. Marketing to Medicare Beneficiaries
The  OIG  determined  that  some  diabetic  supply  advertisements  offer  inducements  to
beneficiaries, some of which may be in violation of the anti-kickback statute. Also, the
advertisements can be misleading, particularly with regard to deductibles and beneficiary
coinsurance. The OIG also found that some suppliers did not always collect coinsurance
from beneficiaries. In addition, many beneficiaries received test strips automatically in the
mail, even after guidelines were issued prohibiting automatic shipping.
The OIG recommended that HCFA take several steps to increase supplier and beneficiary
awareness of fraudulent and abusive practices relating to blood glucose test strips. The
HCFA concurred with OIGs recommendations. (OEI-03-98-00231)
Fraud Involving Durable Medical Equipment Suppliers
The DME industry has consistently suffered from waves of fraudulent schemes in which
Federal  health  care  programs  are  billed  for  equipment  never  delivered,  higher-cost
equipment  than  that  actually  delivered,  totally  unnecessary  equipment  or  supplies,  or
equipment  delivered  in  a  different  State  from  that  billed  in  order  to  obtain  higher
reimbursement. During this reporting period, OIG obtained settlements and convictions of
41 unscrupulous DME suppliers for a variety of schemes as demonstrated by the following
examples:
(cid:127) In Texas, a corporation agreed to pay the Government $10 million and
entered into a comprehensive corporate integrity agreement to resolve its
civil and administrative liabilities for misconduct on the part of two of its
Florida subsidiaries.  The corporate subsidiaries are mail-order pharmacies
providing  respiratory  medications  and  diabetic  supplies  to  Medicare
beneficiaries nationwide. The agreement settles allegations that the parent
corporation,  through  these  subsidiaries,  made,  or  caused  to  be  made,
improper  payments  to  DME  companies  for  the  referral  of  Medicare
beneficiaries  and  routinely  waived  coinsurance  charges.  An  OIG
investigation and audit showed that from 1990 to 1997, the subsidiaries
made payments to numerous DME companies and individuals to induce the
companies  to  refer  patients  to  them  for  the  purchase  of supplies. The
patients  typically  referred  were  patients  whom  the  DME  companies
previously provided medical equipment and oxygen. During this same time
period,  both  defendant  corporations  also  routinely  waived  certain
coinsurance amounts in connection with their sale of respiratory medication.
(cid:127) Two men were sentenced in Texas for conspiracy to commit mail fraud and
money laundering. The men formed a DME company that billed Medicare
for orthotic body jackets not provided. The actual product provided was a
vinyl-covered cushion manufactured in an automobile upholstery shop at a
cost of $45. One man, a real estate developer and the cofounder of an
advertising agency, was placed on 5 years probation, fined $20,050 and
ordered to pay restitution toward the approximately $1.4 million owed as a
result of the scheme. The second man, an attorney, was placed on 5 years
probation and ordered to pay the remainder of the restitution. The men were
recruited  to  set  up  the  DME  company  by  a  Texas  dentist  previously
sentenced and ordered to pay restitution for his role in the DME fraud
scheme.
(cid:127) In Iowa, a former DME company owner was sentenced to 4 months in a
halfway  house  and  2  years  probation  for  making  false,  fictitious  or
fraudulent claims. He was also ordered to pay $13,685 in restitution and a
fine of $20,100. The former DME company owner engaged in two schemes
to defraud Medicaid. In one scheme, he submitted claims to, and received
payment  from,  Medicaid  after  receiving  full  payment  for  the  same
equipment from a private insurer. In the second scheme, he solicited funds
from charitable organizations after receiving full payment from Medicaid.
In  those  instances,  the  man  deceived  the  charitable  organizations  by
42 claiming services would not be rendered unless the charitable funds were
provided. In many cases, the services had already been provided prior to
deceiving the charities. In addition to the criminal case, a civil false claims
proceeding is to follow.
(cid:127) The sole owner of a DME company in Illinois was sentenced to 1 year
incarceration, 2 years probation and a $25,000 fine for mail fraud and filing
false  claims.  The  man  was  a  respiratory  therapist  who  worked  at  two
different hospitals between 1994 and 1998. During that time, he contacted
discharged  patients  and  offered  to  supply  them  with  home  oxygen
equipment from his company. While working at these hospitals, he also bid
on equipment using bogus names of other companies to secure the lowest
bid.  Once  he  secured  the  bid,  he  sometimes  supplied  used  equipment
although he promised new. The hospitals at which the man worked were
unaware of his DME company.
(cid:127) A doctor from Puerto Rico was sentenced in Pennsylvania to 18 months
incarceration, 2 years supervised probation and a $5,000 fine for obstruction
of justice (witness tampering). The doctors conviction stemmed from an
investigation  into  a  DME  fraud  scheme  involving  sales  representatives
working  in  Puerto  Rico  for  a  Pennsylvania  DME  company.  The  sales
representatives were convicted of mail fraud for changing orders for wound
care surgical dressings which were then billed to Medicare. One of the sales
representatives admitted to paying the doctor kickbacks for referring wound
care patients for the companys surgical supplies. After denying to Federal
agents that he received kickbacks for patient referrals, the doctor willfully
attempted to coerce a witness to lie about paying him kickbacks. 
Medicare Drug Reimbursement
Medicare does not pay for most over-the-counter or prescription drugs. However, Medicare
Part B does cover certain drugs, including those necessary for the effective use of DME and
some  that  are  furnished  by  independent  dialysis  facilities.  In  earlier  reports,  OIG
recommended that HCFA reexamine its Medicare drug reimbursement methodologies with
the goal of reducing payments as appropriate.
A. Medicare Reimbursement of Albuterol
The OIG found that Medicare and its beneficiaries would save $120 million yearly if
albuterol were reimbursed at the rate available to Medicaid, or $209 million yearly at the
rate available to the Department of Veterans Affairs (VA). Even if Medicare reimbursement
were set at the rates available at chain pharmacies or Internet pharmacies, Medicare and its
beneficiaries would realize sizable savings: $47 million or $115 million, respectively. 
43 Price differences and potential savings are illustrated below.
COMPARISON OF ALBUTEROL PRICES
Cost of Typical Monthly Potential Annual
Individual Beneficiary Medicare and
Price per Monthly Usage Copayment Based Beneficiary
Pricing Source Milligram (250 milligrams) on Source Price Savings
Medicare 
$0.47 $117.50 $23.50 N/A
Reimbursement Amount
Department of Veterans
$0.07 $17.50 $3.50 $209,478,193
Affairs Median Cost
Medicaid Upper 
$0.24 $60.00 $12.00 $120,449,961
Limit Amount
Chain Pharmacy 
$0.38 $95.00 $19.00 $47,132,593
Median Price
Internet Pharmacy 
$0.25 $62.50 $12.50 $115,213,006
Median Price
This report adds to the evidence showing that Medicare  pays too much for albuterol.
Recognizing that  HCFAs  ability to lower drug prices  through  the use  of  its inherent
reasonableness authority was recently limited by the Balanced Budget Refinement Act of
1999,  OIG  reiterated  a  number  of  other  options  for  lowering  unreasonable  albuterol
payments. The HCFA concurred with OIGs recommendations. (OEI-03-00-00311)
B. Medicare Reimbursement of End Stage Renal Disease Drugs
The OIG determined that Medicare allowed amounts would be nearly halved for five ESRD
drugs if amounts were based on VA acquisition costs. Further, OIG found that Medicare
would save between 5 and 38 percent for five ESRD drugs if its allowed amounts were
equal to Medicaid reimbursement rates including rebates.
If the percentage savings calculated for each drug were applied to the amount billed for the
drugs,  OIG  estimated  Medicare  could  have  saved  up  to  $42  million  in  1998  if
reimbursement had been set at Medicaid amounts and up to $162 million if reimbursement
had been set at VA acquisition costs.  Again, OIG offered options for HCFAs use in
lowering current Medicare reimbursement rates for these ESRD drugs. The HCFA concurred
with OIGs recommendations. (OEI-03-00-00020)
Transportation Fraud
Common  Medicare  and  Medicaid  fraud  schemes  associated  with  transportation  and
ambulance  companies  involve  the  submission  of  claims  for  transporting  patients  to  a
hospital  when  the  patients  are  really  taken  to  other  facilities  for  which  claims  are
nonreimbursable. Other schemes include billing singly for patients who were transported as
44 a  group  and  falsely  claiming  reimbursement  for  ambulatory  patients.  The  following
examples of cases involving transportation fraud were resolved during this reporting period:
(cid:127) An ambulance company agreed to pay the Government $5.4 million to
resolve various False Claims Act violations alleged in a qui tam suit filed in
Missouri. The ambulance company is a nonprofit entity owned by two
hospital systems also named in the suit. Of the improper practices alleged in
the  suit,  the  investigation  corroborated  the  relators  allegation  that  the
company and its president engaged in a ticket managing scheme to ensure
Medicare coverage. Through this scheme, the company billed for medically
unnecessary ambulance trips and for noncovered ambulance trips to doctors
offices by altering or forging ambulance trip tickets. The company had its
ambulance technicians or its billing personnel falsify, alter or forge Missouri
Ambulance Reporting Forms to indicate that the trips were to hospitals and
that  the  patients  were  not  ambulatory.  As  part  of  the  settlement,  the
company  also  agreed  to  a  5-year  comprehensive  corporate  integrity
agreement.
(cid:127) An Arizona ambulance company agreed to pay the Government $1.1 million
to resolve allegations that the company provided medically unnecessary
ambulance trips. The company obtained a county contract in which it agreed
to provide stretcher van services for free; but when the county called the
company for a stretcher van, the company would instead send an ambulance
and bill Medicare for the service. As part of the settlement, the company
agreed  to  withdraw  over  1,200  claims  on  appeal,  to  drop  all  pending
administrative proceedings and to enter into a 5-year corporate integrity
agreement with OIG. The owners and operators of the ambulance company
also resolved criminal charges related to this case.
(cid:127) A Medicaid recipient was sentenced for his role in defrauding the Maine
Medicaid program and the Social Security Administration. The man was
sentenced  to  5  years  probation,  payment  of  $44,276  in  restitution  and
ordered to receive mental health treatment. He submitted false claims to
Medicaid for transportation reimbursement; a review of the transportation
claims submitted revealed numerous instances where he falsely claimed to
have  seen  a  medical  provider  and  submitted  a  claim  for  mileage
reimbursement.
(cid:127) An Illinois medical transportation company and its sole owner agreed to
repay the Medicaid program $35,000 and to be permanently excluded from
Federal health care programs for allegedly submitting false claims to the
Illinois Medicaid program. An OIG investigation and an audit by the Illinois
45 Department of Public Aid (IDPA) revealed that the transportation company
was not keeping the transportation and medical records required to support
its requests for reimbursement. In addition, the IDPA discovered that the
company was claiming mileage in excess of the distances patients were
actually transported.
Medicaid Program Safeguards 
In these three related inspection reports, OIG catalogued Medicaid program safeguards and
identified opportunities for improvement of Medicaid safeguard measures. One report dealt
with State proactive safeguards that anticipate problems and attempt to thwart, or ward off,
wrongdoers before a patient receives services and before a claim for services is generated for
payment. Another catalogued claims processing safeguards that help ensure that claims
submitted for payment are properly adjudicated. The final report discussed postpayment
safeguards that help ensure that paid claims have been properly processed and adjudicated.
The OIGs intention in issuing these reports was that States use this information to evaluate
their Medicaid safeguards and, where appropriate, strengthen them using techniques tried by
other States. The HCFA plans to share these reports with the State Medicaid programs.
(OEI-05-99-00070; OEI- 05-99-00071; OEI-05-99-00072)
Federal and State Partnership: Joint Audits of Medicaid
One of  OIGs major  initiatives has been  to  work  more  closely  with  State  auditors in
reviewing the Medicaid program; the Partnership Plan was developed to foster these joint
review efforts and provide broader coverage of the Medicaid program. The partnership
approach has been an overwhelming success in ensuring more effective use of scarce audit
resources by both the Federal and the State audit sectors. To date, partnerships have been
developed in 23 States. Extensive sharing of audit ideas, approaches and objectives has
taken  place  between  Federal  and  State  auditors.  Completed  reports  have  resulted  in
identifying potential program savings of $187.7 million, of which over $39 million in
Federal and State overpayments has been recovered. During this reporting period, the
following joint audits were completed:
A. Ohio
Ohio State auditors determined that from January 1, 1994 through September 30, 1999, the
State paid $82 million for services to Medicaid recipients after the recipients dates of death.
This consisted of 114,780 payments to 4,113 different providers for services rendered to
26,822 deceased recipients. Although the State was recovering payments for these services,
$14 million ($8.5 million Federal share) remained outstanding as of September 30, 1999.
The State auditors recommended that the State ensure that county Departments of Human
Services comply with procedures to accurately enter death notices into the computerized
recipient master file within 10 days of the information being reported by nursing homes and
46 other reliable sources; recover outstanding overpayments, where feasible and cost effective;
establish a computer link with the States vital statistics file to periodically update the
Medicaid recipient master file; and propose legislation giving the State authority to develop
and apply sanctions against providers that do not report a recipients death in a timely
manner or that bill for or retain unearned reimbursements, including reimbursements for
services  after  a  recipients  date  of  death.  The  State  generally  agreed  with  the
recommendations. (CIN: A-05-00-00045)
B. Montana
A partnership report was issued on Montanas third party liability program. The State
auditors found that the Montana Medicaid management information system properly denied
payment for medical services that were the responsibility of a third party and appropriately
denied  duplicate  claims that were submitted for  the  same services, thus  ensuring  that
Medicaid was the payer of last resort. However, the auditors also found that the State had
not  established  policies  to  ensure  compliance  with  State  law  requiring  recording  and
collection of third party "pay and chase" receivables (established when Medicaid payments
are authorized even though reimbursement from a third party is likely).
The State auditors recommended that the State establish policies to ensure compliance with
statute  requiring the recording of receivables and disposition of uncollectible revenue,
require the States contractor to develop formal procedures to ensure that second bills to
third parties are sent in a timely manner, and complete an analysis of the recovery of
Medicaid  dollars  to  determine  if  the  process  maximizes  collection  efforts.  The  State
concurred with the recommendations. (CIN: A-07-00-01302)
Medicaid Fraud
At present, 47 States and the District of Columbia have established Medicaid fraud control
units (MFCUs). The MFCUs conduct investigations and prosecute providers charged with
defrauding the Medicaid program, or persons charged with patient abuse and neglect. As
required by the Omnibus Budget Reconciliation Act of 1993, three States -- Nebraska, North
Dakota and Idaho -- have sought and received waivers from the requirement that all States
operate MFCUs.
The Inspector General is delegated the authority to annually certify each MFCU as eligible
to receive Federal grant funds under the Medicaid fraud control program. The MFCUs
receive  90  percent  Federal  funding  for  the  first  3  years  of  operation  and  75  percent
thereafter. During FY 2000, OIG provided oversight and administered approximately $95.1
million in funds granted by HCFA to the MFCUs to facilitate their mission.
Since the inception of the Medicaid fraud control program, the MFCUs have successfully
convicted thousands of Medicaid providers and have recovered hundreds of millions of
47 program dollars. Although most Medicaid fraud cases are investigated by the MFCUs, OIG
works with the units and/or other law enforcement agencies on such cases as well. The
following instances of OIGs successful efforts in Medicaid fraud cases bear noting:
(cid:127) A publicly traded pharmacy benefit management (PBM) company agreed to
pay $2 million to the United States to settle allegations that it committed
fraud against the Medicaid program. This is the first False Claims Act
settlement that involved PBM misconduct in health care programs. In 1993,
the  State  of  Tennessee  obtained  a  waiver  to  pursue  its  own  Medicaid
program, which it named TennCare. It contracted with a dozen managed
care  organizations  (MCOs)  to  provide  health  care  to  all  TennCare
beneficiaries. A for-profit PBM contracted with a corporate predecessor to
provide PBM services to the TennCare MCOs. The corporate predecessor
paid kickbacks to officers of the for-profit PBM to secure the PBM contract.
In addition, the corporate predecessor diverted TennCare funds that were
intended to pay for pharmacy benefits and used those funds to personally
benefit its officers and as kickbacks to certain officers of the for-profit
organization. As part of the settlement agreement, the PBM agreed to enter
into a 5-year corporate integrity agreement.
(cid:127) In Illinois, a recently retired psychiatrist agreed to pay the Government
$194,766 to settle allegations of submitting improper claims to Medicaid.
The psychiatrist treated patients in area nursing homes. Between January
1993 and May 1998, he billed his services using a procedure code for a
50-minute visit when he actually spent an average of 2 to 3 minutes with
these patients.  
(cid:127) An Illinois man was sentenced to 6 months home confinement and 5 years
probation for mail fraud. In 1994, he was convicted of committing vendor
fraud against the Illinois Department of Public Aid (IDPA). As a result of
this conviction, OIG sanctioned him for a 5-year period from 1996 to 2001.
In order to continue submitting claims for payment to the IDPA during that
period,  the  man  executed  a  scheme  to  run  his  medical  transportation
business in the name of an unsanctioned individual. He gave the individual
10 percent of the profits as payment for using his name.
48 Public Health Service
Operating Divisions Chapter II
PUBLIC HEALTH SERVICE OPERATING
DIVISIONS
Overview of Program Area and Office of Inspector General
Activities
The  activities  conducted  and supported  by  the  Public  Health  Service  (PHS)  operating
divisions (OPDIVs) represent this countrys primary defense against acute and chronic
diseases and disabilities. These programs provide the foundation for the Nations efforts in
promoting  and  enhancing  the  continued  good  health  of  the  American  people.  These
independent OPDIVs within the Department include: National Institutes of Health (NIH), to
advance our knowledge through research; Food and Drug Administration (FDA), to assure
the safety and efficacy of marketed food, drugs, biological products and medical devices;
Centers for Disease Control and Prevention (CDC), to combat preventable diseases and
protect the public health; Health Resources and Services Administration (HRSA), to support
the development, distribution and management of health care personnel, and other health
resources and services; Indian Health Service (IHS), to improve the health status of Native
Americans; Agency for Toxic Substances and Disease Registry (ATSDR), to address issues
related to Superfund toxic waste sites; the Agency for Healthcare Research and Quality
(AHRQ), to enhance the quality and appropriateness of health care services and access to
services through scientific research and the promotion of improvements in clinical practice,
and in the organization, financing and delivery of services; and the Substance Abuse and
Mental  Health  Services  Administration  (SAMHSA),  to  assist  States  in  refining  and
expanding treatment and prevention services.
The Office of Inspector General (OIG) has concentrated on a variety of public health
programs and issues such as biomedical research funding, substance abuse, health services
to Indians, drug approval processes and community health center programs. The OIG has
looked  at  the  regulation  of  drugs,  foods  and  devices,  and  explored  the  potential  for
improving these activities through user fees. The OIG has conducted audits of colleges and
universities which annually receive substantial research funding from the Department, as
well as audits of the financial statements and operations of the PHS OPDIVs. The OIG
continues to examine policies and procedures throughout the agencies to determine whether
proper controls are in place to guard against fraud, waste and abuse. These activities include
preaward  and  recipient  capability  audits.  This  oversight  work  has  provided  valuable
49 recommendations to program managers for strengthening the integrity of agency policies
and procedures.
Protecting Human Research Subjects 
In June 1998, OIG released a series of reports on the Federal system for human subject
protections that center on institutional review boards (IRBs). At that time, OIG warned that
the effectiveness of IRBs was in jeopardy. The IRBs were overwhelmed by their workloads
and lacked the necessary resources to keep up. They were being pressured to do more in a
shorter time frame and with limited information on many trials. Of particular significance,
they conducted very little oversight of clinical trials once the trials began. Further, OIG
found that Federal oversight of protections was limited, leaving the Department with little
sense of how well IRBs were performing. These findings led OIG to present numerous
recommendations to NIH, its Office for Protection from Research Risks (OPRR) and FDA.
During this reporting period, OIG issued a number of reports involving this issue.
A. Status of Recommendations
The OIG conducted a follow-up study to determine how fully its earlier recommendations
had  been  implemented.  While  the  Department  has  taken  several  promising  steps  to
strengthen  subject  protections,  OIG  determined  that,  overall,  few  of  its  recommended
reforms have been enacted. There has been minimal progress in granting IRBs greater
flexibility and holding them more accountable, or in strengthening continuing protections
for human subjects participating in research. No educational requirements have been enacted
for investigators or IRB members, and there has been no movement towards insulating IRBs
from conflicts that can compromise their mission. Little has been done to moderate IRBs
workload pressures or to reengineer the Federal oversight process.
Many of OIGs recommendations call for changes in the Common Rule, a policy on human
subject protections adhered to by HHS and 16 other agencies; any changes to the Rule call
for the concurrence of all 17 agencies. The OIG acknowledges that this requirement inhibits
a prompt and effective Department response, and recognizes that legislative change may be
necessary to achieve a timely implementation of many of its recommendations.
The problems identified by OIGs work in this area call for action on a broad front,
involving not only IRBs, but also other parties in the clinical research process, including
sponsors and investigators. The Department has a significant new opportunity to exert
Federal leadership in protecting human subjects with the move of OPRR to the Office of the
Secretary and the establishment of a new advisory committee on subject protection issues.
The  OIG  urges  that  the  new  office,  the  Office  of  Human  Research  Protections,  give
significant attention to OIGs earlier recommendations and those that are forthcoming from
the National Bioethics Advisory Commission. Both NIH and FDA have established a series
of on-going outreach and educational initiatives and programs. (OEI-01-97-00197)
50 On June 5, 2000, the NIH announced a major initiative requiring investigators involved in
human subject research to be educated in the protection of human subjects. Investigators
must comply prior to funding. On the same day, the NIH announced that investigators
submitting an application to the NIH for support of phase I or II clinical trials must provide a
monitoring plan for these trials. The plans are subject to the approval of the NIH component
providing  the  funding.  Aditionally,  the  NIH  has  conducted  10  site  visits  of  grantee
organizations  to  assess  their  understanding  and  compliance with  various  NIH  policies,
including data and safety monitoring, and conflict-of-interest strictures.
B. Recruiting Human Subjects
Recent changes in the research environment are causing sponsors of clinical research to vie
more aggressively to be the first to bring their products to market, and are causing sites and
investigators  to  compete  more  intensely  for  research  contracts.  For  this  review,  OIG
reviewed industry-sponsored clinical trials. The OIG found that there is significant pressure
for research investigators to recruit subjects quickly, and that some of the methods used by
sponsors and investigators raise concerns about informed consent, patient confidentiality and
eligibility for enrollment that are troubling to IRBs and others involved in clinical research.
Further, OIG determined that oversight of the recruitment of human subjects is minimal and
largely unresponsive to emerging concerns.
The OIG recommended that FDA, NIH and OPRR provide IRBs with direction regarding
oversight of recruitment practices; facilitate the development of guidelines for all parties on
appropriate recruiting practices; ensure that IRBs and investigators are adequately educated
about human subject protections; and strengthen Federal oversight of IRBs. The Department
has made a commitment to establish education requirements and to work with outside
parties in developing consensus about appropriate recruitment practices. (OEI-01-97-00195)
In a related report, OIG presented other sources of guidance for IRBs and investigators. The
report  focused  on  guidance  provided  by  IRBs,  medical  associations  and  by  Canadas
research  community  on  recruitment  practices  not  covered  in  HHS  guidelines.
(OEI-01-97-00196)
C. Food and Drug Administrations Oversight of Clinical Investigators
Companies develop new drugs, biologics and medical devices with the assistance of clinical
investigators. Sponsors, IRBs and FDA all oversee clinical investigators research. Reviews
by FDA have identified serious problems with sponsors monitoring of clinical investigators
and OIG studies have found problems with IRB oversight. In this review, OIG examined
FDAs selection of clinical investigators for review and FDAs discipline of those clinical
investigators found in violation of FDA regulations.
51 The  FDAs  bioresearch  monitoring  program  inspects  clinical  investigators  involved  in
clinical research to ensure the quality and integrity of data submitted to the agency and to
protect the rights and welfare of human subjects; in most cases, these inspections occur after
clinical work is completed. In FY 1999, FDA inspected only 468 clinical investigators out of
nearly  14,000  clinical  investigators  potentially  involved  in  clinical  trails.  Although
respondents indicated that program goals are ensuring data integrity and protecting human
subjects, OIG found that FDAs monitoring of clinical investigators is more directly focused
on verifying data, thus limiting overall oversight.
In addition, OIG concluded that the bioresearch monitoring program lacks clear and specific
guidelines.  While  regulations  state  that  a  clinical  investigator may  be  disqualified  for
repeatedly or deliberately failing to comply with regulations, at the time of this inspection
there was no required review of complaints or clinical investigator inspection histories as
part of the clinical investigator selection process. There is little staff training on how to
select clinical investigators or how to assess what action to take when violations are found.
Moreover,  there  are  no  agencywide  program  measures  for  the  bioresearch  monitoring
program. The OIG recommended that FDA define cross-center goals for the bioresearch
monitoring program and develop criteria to determine whether the program is achieving
those goals. Further, FDA should develop internal guidance on the thresholds that violations
must meet to justify disqualifying a clinical investigator from receiving investigational
products. (OEI-05-99-00350)
Food and Drug Administration Oversight of 
State Food Firm Inspections 
One of FDAs primary roles in food safety is to inspect the conditions under which food is
manufactured, processed, packed and stored. Over the past 25 years, FDA has extended its
inspection coverage by utilizing the resources and expertise in the States to fulfill its
responsibility. For many years, FDA relied on contract arrangements, through which it paid
the States to conduct inspections in accordance with Federal regulations. More recently,
FDA has initiated partnership agreements with a number of States, under which the States
agree to conduct inspections under their own authorities, without Federal funding, and to
share the results with FDA.
The OIG found that FDA relies heavily on State food firm inspections. As illustrated on the
next page, States inspect a greater number of food firms than FDA.
52 The OIG concluded that FDAs current oversight of both the contracts and partnership
agreements is insufficient to assure the quality of State inspections carried out on its behalf.
Based on a template of effective oversight, OIG offered numerous recommendations which
apply to both the contracts and the partnership agreements.  The OIG emphasized the need
for FDA to strengthen its system of onsite audits and to develop meaningful channels to
provide States with useful feedback on their performance. The OIG also proposed that FDA
enhance its own internal capacities to conduct effective oversight, such as by training FDA
investigators  in  both  inspector  and  audit  functions.  As  a  longer  term  objective,  OIG
proposed  that  FDA  work  with  the  States  to  achieve  basic  equivalency  in  food  safety
standards and laws, and in inspection programs and practices. In general, FDA agreed with
OIGs recommendations. (OEI-01-98-00400)
Maternal and Child Health Training Grants: 
LEND Program
The  Interdisciplinary  Leadership  Education  Excellence  in  Caring  for  Children  with
Neurodevelopmental and Related Disabilities (LEND) is a training grant program which
seeks to achieve its mission through funding of graduate level, interdisciplinary training
designed to produce professionals to work with special needs children.
The OIG found that the LEND program does produce leaders in interdisciplinary treatment
of children with developmental disabilities and plays an important role in helping to support
university clinics serving special needs children. However, grantees have mixed success in
tracking the programs graduates and in demonstrating that these graduates have assumed
leadership roles. Further, oversight of the grantees by HRSAs Maternal and Child Health
Bureau (MCHB) is minimal.
53 The OIG recommended that MCHB develop outcome measures for determining the success
of the LEND program; work with its grantees to develop more effective tracking of LEND
graduates; use onsite visits to aid in program oversight and in making funding decisions; and
clearly  distinguish  between  categories  of  funding.  The  HRSA  concurred  with  OIGs
recommendations. (OEI-04-98-00090)
Health Professions Student Loans Program
Under  HRSAs  Health  Professions  Student  Loans  Program,  participating  schools  are
required to assess the collectibility of any loan that is more than 3 years past due. If a school
determines that a loan is uncollectible or if the 10-year repayment period has expired, the
school should either request HRSAs permission to write off the loan within 30 days or
reimburse HRSA for the full amount of the uncollectible loan balance, plus interest and
penalty charges.
Of the 10 schools OIG audited, 8 were carrying uncollectible loans totaling over $565,000 in
their accounting records. These schools did not assess the collectibility of their loans on a
regular basis, and 5 of them did not have a mechanism to identify loans that were about to
exceed the 10-year repayment period. The OIG recommended that HRSA reemphasize
program requirements to participating schools. The HRSA concurred and stated that it would
take action to implement the recommendations. (CIN: A-05-99-00017).
Exclusions for Health Education Assistance Loan Defaults
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees
commercial loans to students seeking an education in a health-related field of study. The
students are allowed to defer repayment of these loans until after they have graduated and
begun to earn an income. Although the Departments Program Support Center (PSC) takes
all steps that it can to ensure repayment, some loan recipients ignore their indebtedness.
After PSC has exhausted all efforts to secure repayment of these debts, it declares the
individual in default. Once the individual has been declared in default, the Social Security
Act permits, and in some instances mandates, exclusion from Medicare, Medicaid and all
Federal health care programs for nonpayment of these loans. During this 6-month period,
303 individuals were excluded as a result of PSC referral of their cases to OIG.
Individuals who have been excluded as a result of their default may enter into settlement
agreements whereby the exclusion is stayed while they pay specified amounts each month to
satisfy their debt. If they default on these settlement agreements, they can then be excluded
until their entire debt is repaid, and they cannot appeal these exclusions. Some health
professionals, upon being notified of their exclusion, immediately repay their HEAL debt.
54 After being excluded for nonpayment of their HEAL debts, a total of 1,328 individuals have
taken advantage of the opportunity to enter into settlement agreements or completely repay
their debt. This figure includes the 117 individuals who have entered into such a settlement
agreement or completely repaid their debt during this reporting period. The amount of
money being repaid through settlement agreements or through complete repayment totals
over $89.5 million. Of that amount, $7.6 million is attributable to this reporting period. The
following are examples of some of these settlements:
(cid:127) After being notified that he was excluded from participation in Medicare,
Medicaid and all Federal health care programs because he failed to repay his
HEAL debt, a New York dentist entered into a settlement agreement to
repay more than $303,000 in student loans.
(cid:127) In order to repay his HEAL debt, a Florida osteopathic physician entered
into a settlement and agreed to pay $186,000. 
(cid:127) In New Jersey, a settlement agreement was signed by a podiatrist to repay
her $158,000 HEAL debt.
(cid:127) A  Virginia  podiatrist  entered  into  a  settlement  agreement  to  repay  her
$123,000 HEAL debt.
(cid:127) Also in Virginia, a dentist agreed to repay her HEAL debt of more than
$120,000.
Mashantucket Pequot Tribal Nations Use of Federal Discount
Drug Programs
The Mashantucket Pequot Tribal Nation is a federally recognized tribe that operates various
commercial enterprises, including a casino and the Pequot Pharmaceutical Network. In
1996, the nation contracted with the Secretary of HHS to manage the health care programs,
previously administered by IHS, that benefit its members and other eligible recipients. The
OIG initiated this review to determine whether the nation followed Federal requirements for
using the Public Health Service (PHS) 340B discount drug program administered by HRSA
and  the  Federal  Supply  Schedule  (FSS)  discount  drug  program  administed  by  the
Department of Veterans Affairs (VA). 
The OIG found that in FYs 1998 and 1999, the nation dispensed to its ineligible non-Indian
employees $5.8 million worth of drugs that were acquired through the two Federal discount
drug programs.  The OIG also found that the nation did not follow guidelines that require
entities  to  identify  their  340B  drug  purchases  and  noted  that  the  unauthorized  use  of
discount drug programs by the nation and other tribes could result in their having to
55 reimburse manufacturers for the differences in cost. The OIG recommended that IHS and
HRSA  instruct  the  nation  to  determine  the  extent  that  drugs  dispensed  to  ineligible
employees in FYs 1998 and 1999 were acquired through the PHS 340B program, maintain
records of the drugs purchased through this program in the future, and follow HRSA
guidelines  that  apply  to  contract  pharmacies.  Both  IHS  and  HRSA  agreed  with  the
recommendations. (CIN: A-01-99-01502)
Indian Health Service Funds for the Cherokee Nation
In response to congressional concerns about possible improper transfers of IHS funds, OIG
reviewed those funds made available to the Cherokee Nation in FY 1997 through a compact.
The OIGs audit revealed that compact fund receipts and expenditures were accurately
reported in the Cherokee Nations FY 1997 Comprehensive Annual Financial Report, which
contained financial statements prepared in conformance with generally accepted accounting
principles. During the year, however, the nation made 25 improper transfers of compact
funds totaling more than $21 million to cover deficits in its operating fund. The nation
returned all of these IHS funds by the end of FY 1998.
As a result of OIGs review, the Cherokee Nation issued a policy statement establishing
procedures to preclude transfers of compact funds to the general operating fund. To ensure
that future expenditures charged or allocated to the compact meet applicable Federal laws
and guidelines,  OIG made  several recommendations to the nation  on  ways to  further
improve  its  control  procedures.  For  the  most  part,  the  nation  disagreed  with  the
recommendations. (CIN: A-06-99-00011)
Indian Health Service Equal Employment Opportunity
Complaints Process: A Management Review
At  the  request  of  the  director  of  the  Indian  Health  Service  (IHS),  OIG  conducted  a
management review of the IHS Equal Employment Opportunity (EEO) complaint process.
The OIG found that the IHS faces unique conditions that affect its EEO program. Health
care professionals and support staff from native populations, Commissioned Corps officers
and others work together to serve Indian health care needs. The OIG determined that laws
governing the rights of tribes and Indians sometimes create misconceptions regarding the
rights and responsibilities among these groups. Also, OIG found that IHS is inconsistent in
handling its EEO processes. The IHS EEO program lacks direction, potentially weakening
its effectiveness, and IHS employees distrust the process.
The OIG recommended that IHS undertake a series of steps to address these problems. Also,
OIG proposed that the Assistant Secretary for Management and Budget (ASMB) follow up
on  IHS  progress  and  review  this  program  periodically.  The  ASMB  agreed  to  do  so.
(OEI-05-99-00290)
56 National Institutes of Health National 
Research Service Awards
By legislation, certain National Research Service Award (NRSA) recipients are required to
pay back the Federal Government by engaging in health-related biomedical or behavioral
research, teaching, or a combination of these activities. If such a recipient fails to perform
the service, the Government is entitled to recover financial debts. However, OIGs review
revealed that NIH had not maintained a complete and accurate database to adequately
monitor the current payback status of over 4,100 NRSA recipients. Problems occurred
because NIH components did not always follow established policies and procedures for
maintaining the database and because NIHs automated system did not always perform the
functions needed to update the database when new information was entered.
The OIG offered several corrective actions, including a recommendation that NIH consider
centralizing the responsibility for maintaining the database and ultimately ensuring that
NRSA recipients fulfill their payback requirements. Concurring with all recommendations,
NIH indicated that it had taken steps to establish procedures on maintaining and processing
recipient records. Additionally, NIH is planning to centralize, under a single unit, the
responsibility for ensuring that NRSA recipients fulfill their payback requirements. (CIN:
A-15-99-80002)
Misuse of Grant Funds
Resolution of charges of misusing Department of Health and Human Services grant funds
occurred in the following cases:
(cid:127) A  Pennsylvania  university  entered  into  a  global  settlement  with  the
Government, agreeing to pay $2.6 million to resolve allegations raised in
two separate investigations. The university allegedly made false statements
and submitted false claims to the NIH in order to obtain Federal funds
related to AIDS and cancer research. In the first investigation, the university
agreed to pay $450,000 to settle allegations of using false and/or fabricated
research data to apply for funding for gene therapy research to combat HIV.
In the second investigation, the university agreed to pay $2.15 million to
settle allegations of submitting false statements and false claims related to
cancer  research.  The  second  investigation  substantiated  two  major
allegations:  one,  the  individual  reported  to  NIH  as  the  cancer  studys
principal  investigator,  actually  spent  the  majority  of  the  grant  period
overseas working for another university; and two, the university improperly
charged  salaries  for  post  doctorate  fellows  not  involved  in  the  grant
research, to the grants. As part of the settlement, the university must also do
the following: enter into a 3-year institutional integrity agreement to ensure
compliance with all Federal laws and regulations pertaining to Federal grant
57 funds; request that various scientific journals publish further corrections to
previous scientific papers reporting gene therapy research findings; and
work closely with NIH representatives to develop and implement corrective
actions to improve the universitys administrative and grants management
systems and practices.
(cid:127) The OIG audited an NIH grantees cash withdrawals from the Departments
Payment Management System to assess the validity of allegations of misuse
of Federal funds made to the U.S. Attorneys Office. The OIG found that,
contrary  to  HHS  guidance  provided  to  grant  recipients,  the  grantee
withdrew from the Payment Management System about $4.2 million more
than needed and carried forward cost overruns from one grant period to
another on seven of its grant awards. The Payment Management System and
NIH could not detect these actions because the grantee submitted false
reports and statements to the Federal Government.
As a result of these improper practices, the grantee agreed to pay the Federal
Government $4 million to settle its civil liability. As part of the settlement,
the grantee signed an integrity agreement with OIG stating that it would
establish a compliance program, retain an independent auditor to perform
comprehensive annual audits, and provide specific types of training and
education to its employees. Further, NIH has designated the grantee as a
high-risk organization requiring closer monitoring to ensure compliance
with Federal funding requirements. 
Financial Capability of Potential Grantees
At CDCs request, OIG performed financial capability audits of 17 potential grantees, most
of whom had little or no experience managing Federal funds. Pursuant to its HIV prevention
efforts, CDC funds community-based organizations to develop, implement, and evaluate
state-of-the-art  model  HIV  prevention  programs  for  at-risk  racial  and  ethnic  minority
populations. The organizations reviewed by OIG applied for annual grant awards of up to
$225,000 each. Total funding for the 17 organizations over the 4-year project period could
total over $15 million.
The OIGs audits assessed the adequacy of the organizations accounting and administrative
systems and their financial capabilities to satisfactorily manage and account for Federal
funds. The results provided CDC management with the information needed to strengthen
oversight of new grantees.
58 Superfund Financial Activities at the National Institute of
Environmental Health Sciences
The National Institute of Environmental Health Sciences (NIEHS) receives funds through an
interagency agreement with the Environmental Protection Agency to carry out health-related
and other functions mandated by the Superfund legislation. As required by statute, OIG
audited  Superfund  financial  activities  at  NIEHS.  During  FY  1998,  its  obligations  of
Superfund resources totaled about $61.2 million, and disbursements totaled about $55.8
million of the funds obligated during and prior to the same fiscal year. The OIG concluded
that  NIEHS  administered  the  fund  according  to  the  Superfund  legislation.  (CIN:
A-04-99-04227)
Fiscal Year 1999 Financial Statement Audits
In support of its audit of the consolidated HHS-wide financial statements for FY 1999, OIG
audited,  through  contracts  with  independent  public  accounting  firms,  the  financial
statements of the major PHS operating divisions. Improvements were noted at many of the
OPDIVs since the previous year. Officials are taking corrective action on most of the
recommendations.
A. Centers for Disease Control and Prevention and Agency for Toxic Substances and
Disease Registry
The accounting firm issued an unqualified opinion on the CDC and ATSDR FY 1999
financial statements and noted no material weaknesses in the system of internal controls.
(CIN: A-17-99-00013)
B. Food and Drug Administration
The FDA received an unqualified opinion on the FY 1999 financial statements, with no
material weaknesses noted in the system of internal controls. (CIN: A-17-99-00011)
C. Health Resources and Services Administration
The HRSA received an unqualified opinion on the FY 1999 financial statements, with one
material  weakness  noted  for  lacking  an  integrated  financial  reporting  system.  (CIN:
A-17-99-00005)
D. National Institutes of Health
The  accounting  firm  issued  an  unqualified  opinion  on  the  NIH  FY  1999  financial
statements, with one material weakness noted for lacking an integrated financial system.
(CIN: A-17-99-00012)
59 E. Substance Abuse and Mental Health Services Administration
The SAMHSA received an unqualified opinion on the FY 1999 financial statements, with
one material weakness noted for lacking an integrated financial reporting system. (CIN:
A-17-99-00004)
Federal Occupational Health Billing Operations
The  HRSAs  Federal  Occupational  Health  (FOH)  office  provides  occupational  health
services to approximately 160 Federal agencies through interagency agreements. The OIG
contracted with an independent public accounting firm to perform agreed-upon procedures
to assist FOH in evaluating the billing operations in place during FY 1999. The firm noted
minor exceptions in billing operations and made recommendations for improvements. (CIN:
A-17-99-00020)
60 Administration 
for Children
and Families,
and Administration 
on Aging Chapter III
ADMINISTRATION FOR CHILDREN AND
FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General
Activities
The Administration for Children and Families (ACF) provides direction and funding for
programs designed to promote stability, economic security, responsibility and self-support
for the Nations families. Some of the major programs include: Temporary Assistance for
Needy  Families  (TANF),  Child  Support  Enforcement  (CSE),  Foster  Care,  Family
Preservation and Support, Head Start, and the Child Care and Development Block Grant
program. 
With respect to TANF, OIG will continue to ensure program integrity, identify opportunities
for  program  improvement,  and  provide  Federal  and  State  management  with  useful
information regarding the goal of moving individuals and families from welfare dependency
to self-sufficiency.
In addition, OIG reviews the Departments programs that serve children, and has issued a
number of reports in this area. The OIG reports have focused on ways to increase the
efficient use of the program dollar, more effective program implementation, and how to
better coordinate programs among the Federal, State and local governments. 
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants
to  States  for establishment of  comprehensive  community-based  systems  that  assist the
elderly in maintaining their independence and in remaining in their homes as long as
possible. Socially and economically disadvantaged elderly and low-income minority elderly
are targeted for assistance, including supportive services, nutrition services, education and
training, low-cost transportation and health promotion. The OIG has reported opportunities
for program improvements to target the neediest for services; expand available financial
resources; upgrade data collection and reporting; and enhance program oversight.
Paternity Establishment 
Federal  regulation  requires  States  to  design  administrative  processes  for  paternity
establishment in an effort to remove the disposition of many paternity actions from the
61 traditional court-based adjudication approach. The Office of Child Support Enforcement
(OCSE) has provided both guidance and funding specifically related to expediting paternity
establishment procedures, and States have worked to streamline their court processes and to
make available fully administrative methods of establishing paternity.
A. Administrative and Judicial Methods
The  OIG  found  that,  despite  Federal encouragement  and inherent  advantages to using
administrative methods, many States still had a fairly significant court involvement in their
paternity establishment practices. Although all States utilized elements of both approaches,
they  were  evenly  divided  between  those  using  primarily  administrative  and  primarily
judicial methods. Child support staff perceived advantages and disadvantages in the two
methods and identified several specific problem areas.
The OIG recommended that OCSE assist States in sharing effective practices for notifying
putative  fathers;  encourage  States  to  strengthen  child  support  agency  authority  and
capability, enabling them to establish paternity without the courts when practical; provide
technical  assistance  to  States  aimed  at  streamlining  and  rationalizing  their  paternity
establishment methods, administrative or judicial; and encourage States to further explore
the  usefulness  of  combining  separate  child  support  functions,  including  paternity
establishment,  into  a  single  process.  The  ACF  generally  agreed  with  OIGs
recommendations. (OEI-06-98-00050)
B. Voluntary Paternity Acknowledgments
Voluntary paternity acknowledgments potentially reduce staff time and effort needed to
establish paternity and may also result in an increased number of paternities established. In
reviewing State use of this process, OIG found that all States had created acknowledgment
forms that were largely uncomplicated and easy to read, and all conducted some form of
outreach to increase parent awareness and understanding. However, only 18 States had
implemented all the primary Federal provisions regarding acknowledgment, including use of
voluntary  acknowledgment  as binding paternity  establishment,  a  60-day  administrative
recission period and creation of a statewide database of acknowledgments. Most States had
recission procedures, but some rescissions may have been occurring informally, and use of
both  administrative  and  judicial  recission  methods  appeared  erratic. Despite  the many
advantages of voluntary acknowledgment, some child support staff reported favoring other
administrative and judicial methods which they perceived as less likely to be overturned.
The OIG recommended that OCSE encourage State child support agencies to clarify for the
courts the legal standing of acknowledgments as conclusive findings of paternity; assist
States in training local child support staff in the use of acknowledgments; provide guidelines
for States regarding circumstances which may constitute fraud, duress or material mistake of
fact, to reduce the number of acknowledgments overturned; and encourage child support and
vital records agencies to develop uniform statewide recission procedures, including methods
62 for  notifying  all  interested  parties.  The  ACF  agreed  with  OIGs  recommendations.
(OEI-06-98-00053)
Establishment of Child Support Orders for Low-Income
Noncustodial Parents
In two related inspection reports, OIG examined the establishment of child support orders
for low-income noncustodial parents. The OIG found that the methods used to determine
financial  obligations  for  low-income  obligors  often  yielded  poor  payment  compliance
results.  The  OIG  suggested  that  OCSE  work  with  the  States  to  emphasize  parental
responsibility and improve the ability of low-income noncustodial parents to meet their
obligations. This would require a dual approach of setting realistic support obligations and
providing employment support with work requirements. Specifically, OIG recommended
that OCSE facilitate and support State experiments in the use of retroactive charges and debt
negotiation,  and  encourage  States  to  decrease  income  imputation  and  strengthen  job
programs. The ACF and the Assistant Secretary for Planning and Evaluation concurred with
OIGs findings and suggested approaches. (OEI-05-99-00390; OEI-05-99-00391)
Client Cooperation with Child Support 
Enforcement 
Federal law requires TANF clients to cooperate with State child support enforcement by
providing  information  about  noncustodial  parents  and  appearing  for  appointments  as
needed. State child support agencies are required to determine if clients are cooperating in
good faith and notify the public assistance agency of each clients cooperation status. If the
child support agency determines that a client has not cooperated, the public assistance
agency  must  reduce  the  familys  cash  assistance  by  at  least  25  percent  and,  at  State
discretion, may deny the family all cash assistance. The OIG issued a series of reports on
how States gain TANF client cooperation.
In a review in six States, OIG determined that all had implemented client cooperation
policies in keeping with the Federal mandates. Staff in both the public assistance and child
support agencies appeared to value client cooperation, and attempted to implement State
policy in flexible and client-focused ways. Although most TANF clients were found to
cooperate readily, some proved difficult; in response, staff typically provided multiple
opportunities  for  clients  to  give  information  and  to  make  appointment  deadlines,  and
appeared concerned about legitimate barriers to cooperation. (OEI-06-98-00040)
Three companion reports were also issued. In one, OIG examined why some clients did not
cooperate and how States attempted to gain their cooperation. Another report discussed the
responsibilities of public assistance agencies and collaboration between agencies. A fourth
report described how clients may be exempted from cooperation requirements under certain
63 circumstances,  especially  when  enforcement  might  put  the  child  at  risk  of  violence.
(OEI-06-98-00041; OEI-06-98-00042; OEI-06-98-00043)
Related to these studies, OIG issued a separate report on cooperation from custodial parents
who receive Medicaid coverage only. The OIG found that the proportion of Medicaid-only
clients in the workload of child support and public assistance offices is increasing and that
many workers and clients do not understand that Medicaid clients are obligated to cooperate
with child support enforcement efforts. In addition, OIG found that sanctions often are not
applied when Medicaid-only clients fail to cooperate. The OIG submitted its findings to
ACF for consideration along with the findings and recommendations of the Secretarys
Medical  Child  Support  Working  Group.  While  OIG  concluded  that  further  study  is
necessary before developing specific corrective action, it did suggest that encouraging
Medicaid-only client cooperation appears to depend primarily on ensuring staff and client
understanding and promoting use of appropriate sanctions. (OEI-06-98-00045)
Medical Insurance for Dependents 
Receiving Child Support 
The OIG found that considerable progress has been made by child support agencies in the
identification  and  enforcement  of  medical  support  as  compared  to  outcomes  from  its
previous work in  this area.  Ninety-three  percent  of  the child support orders  reviewed
included a provision requiring medical coverage for the dependent children compared to 24
percent in OIGs previous study. Undetected available medical insurance dropped from $32
million to $5.2 million.
However, OIG determined that weaknesses still exist in the detection of health insurance
availability and enrollment of the dependents. Also, managed care premiums present a new
challenge  in  the  enforcement  of  medical  support  for  child  support  children.  The  OIG
recommended  that  ACF  ensure  that  State  child  support  agencies  comply  with  current
regulations requiring them to fully enforce medical support, and that it collaborate with the
Health  Care  Financing  Administration  to  examine  alternatives  to  recover  the  costs  of
managed care premiums from noncustodial parents. (OEI-07-97-00500)
Workplace Violence: Public Assistance and Child Support Offices
This report summarizes information gathered by OIG in a survey of local public assistance
and child support enforcement offices about workplace violence. Seventy-eight percent of
local  child  support  enforcement  and  61  percent  of  local  public  assistance  managers
contacted expressed fear for the safety of their staff, although actual reported violence was
rare. Staff reported that the nature of their work often contributed to the stress levels of the
individuals they serve, potentially leading to the threat of violence or actual violence. A
variety of security measures have been installed in some offices to reduce or prevent
workplace violence.
64 The OIG observed that local safety is primarily the responsibility of States, but suggested
that ACF might wish to discuss the extent and severity of workplace violence with its State
partners with a view to promoting the development and sharing of strategies that effectively
address this issue. (OEI-06-98-00044)
Child Support Enforcement: Investigations
The United States Attorney General has made enforcement of the Child Support Recovery
Act  of  1992  a  top  Department  of  Justice  (DOJ)  priority.  The  Act  made  it  a  Federal
misdemeanor crime for a parent in one State to refuse to pay past due support for a child in
another State, when the support has been owed for more than 1 year or exceeds $5,000. Any
subsequent offense is a felony violation. A 1998 amendment to this Act created two other
felony provisions for the most egregious first time violations.
The OIG has also made the investigation of these matters a high priority. The OIG and
OCSE are the sponsors of Project Save Our Children: five multiagency, multijurisdictional
investigative task forces whose missions are to identify, investigate and prosecute the most
egregious violators of the Federal and State child support laws in the regions covered by the
task  forces.  The  task  forces  are  comprised  of  personnel  from  the  OIG  Office  of
Investigations, U.S. Marshals Service, U.S. Attorneys Offices, DOJ, State and local child
support offices, State and local law enforcement, State and local prosecutors, representatives
from the judiciary (both State and Federal), and representatives from the corrections and
probation offices at both the Federal and State levels.
The task forces are structured to identify, investigate and prosecute criminal nonsupport
cases both on the Federal and State levels through the coordination of law enforcement,
criminal justice and child support office resources. There are investigative units in each of
the States which conduct the actual investigations. The units work with the State child
support offices to identify the cases that the States then refer to the task force. The units also
work with prosecutors at State and Federal levels to ensure that the cases worked are those
that will be prosecuted in a volume consistent with the resources of those offices.
Central to the task forces are the screening units located in each task force region and staffed
by analysts and auditors from both OIG and OCSE. The units receive child support cases
from  the  States,  conduct  preinvestigative  analyses  of  these  cases  through  the  use  of
information databases and then forward the cases to the investigative task force units where
they are assigned and investigated. This streamlines the process by which the cases best
suited for criminal prosecution are identified, investigated and brought to fruition. As the
task forces bring in more law enforcement partners on the State level, the number of cases
adjudicated will rise dramatically. At this point, the task force units have received over 2,650
cases from the States. As a result of the work of the task forces, 84 Federal arrests have been
executed  and  55  individuals  sentenced.  The  total  recovered  amount  related  to  Federal
65 investigations is $2.7 million. There have been 264 arrests on the State level and 220
convictions or civil adjudications to date, resulting in $8.6 million in restitution.
The task forces cover the Midwest, Mid-Atlantic, Northeast, Southwest and West Coast
regions. The Midwest task force is headquartered in Columbus, Ohio and includes the States
of  Illinois,  Michigan,  Ohio  and  Indiana.  Headquartered  in  Baltimore,  Maryland,  the
Mid-Atlantic task force area places special emphasis on the States of Maryland, Virginia,
Pennsylvania, Delaware, West Virginia, and the District of Columbia. In the Northeastern
task force area, investigative efforts are headquartered in New York City, with special
emphasis  on  the  States  of  New  York  and  New  Jersey.  For  the  Southwestern  area,
headquartered in Dallas, Texas, efforts focus especially on the States of Texas, Louisiana and
Oklahoma. Efforts of the West Coast task force area are directed at the States of California,
Oregon, Washington and Arizona, with headquarters located in Sacramento, California.
Examples  of  the  Federal  arrests,  convictions  and  sentences  resulting  from  OIGs
enforcement work, both inside and outside the task force areas, during this reporting period
include the following:
(cid:127) In New York, a man was sentenced to 3 years probation and restitution of
$242,092 for failing to pay child support for his three children who reside in
New Jersey. Since his arrest in August 1999, a percentage of his wages has
been garnished and forwarded to his former spouse. A construction worker
earning between $12 and $28 per hour, the man must also forfeit 10 percent
of his gross income until restitution is paid. In addition, he must forward
any inheritance received as a result of pending litigation to the local OCSE.
(cid:127) Also in New York, a man was sentenced for failure to pay child support to a
$5,000 fine. A multi-millionaire, the man previously produced financial
affidavits attesting to having assets in excess of $5 million during family
court hearings. His family owns large amounts of valuable real estate in
California; and the man lived off the income from the real estate holdings
and did not work during most of his marriage and thereafter. Shortly after
his arrest in California, the man promptly paid his child support arrearage of
over $160,000. 
(cid:127) A man was sentenced to 14 months imprisonment, 1 year probation and
payment of $120,000 in restitution for failing to pay child support for his
two minor children who reside in New York. At the time of his arrest, the
man  resided  in  Florida.  A  key  piece  of  evidence  obtained  during  the
investigation showed that he owned an import/export business which was
not in his name. He will serve the remainder of his prison sentence in New
York.
66 (cid:127) A man was sentenced for failing to pay child support for his two daughters
who reside with their mother in New York. His sentence included payment
of $110,240 in restitution and 20 months incarceration, to run consecutively
with a 77-month prison sentence he received in Ohio on unrelated charges.
The man is still legally married to the custodial parent. He is also a career
criminal whose record reflects violations in several States and includes
various narcotics violations, robbery, assault, use of a handgun in a felony,
resisting  arrest,  passing  false  documents,  criminal  mischief  and  other
crimes. 
(cid:127) In California, a man was sentenced to 5 years probation and was ordered to
pay his remaining arrearage of $27,547 for failure to pay child support.  As
part of an arranged plea agreement, he also provided the court with a
$20,000 cashiers check to avoid being indicted on a felony count. After the
child  support  order  was  issued  in  1985,  the  man  moved  to  Nevada.
Asserting  that  his  own  business  faced  financial  trouble,  he  made  only
sporadic child support payments when compelled by State court action. The
investigation showed that the man actually held preferred customer status at
several  prestigious  casinos  which  he  and  his  wife  frequented  daily.  In
addition to spending large sums of money to place bets, the couple enjoyed
complimentary hotel suites and meals.
(cid:127) In Virginia, a man was sentenced to 2 years incarceration and payment of
$35,824  in  restitution  for  failure  to  pay  child  support.  When  initially
charged with a misdemeanor for his failure to pay in 1998, the man agreed
to plead guilty to the charge in Texas. He failed to appear for his scheduled
plea, and a bench warrant was issued for his arrest. As a result of his failure
to appear, the misdemeanor charge was dismissed, and a grand jury in
Virginia indicted him on the felony charge to which he pled guilty.
(cid:127) A man was sentenced in Illinois after pleading guilty to failure to pay child
support. He was sentenced to 5 years probation, payment of $30,000 in
restitution to the custodial parent and compliance with a special condition
that he remain current in his child support payments. He was also ordered to
pay $3,091 in restitution to the Illinois Department of Public Aid for monies
paid out for his childs care.
(cid:127) In Ohio, a man was sentenced to 5 years probation and payment of $28,336
in restitution for failure to pay child support. In the past, he made only
sporadic child support payments and recently failed to make any payments
for over a year. At one time, the man was a licensed stockbroker involved in
a stock partnership with his father that earned approximately $800,000 a
67 year. After the partnership ended, he moved to California where he played
golf and worked at various jobs in the golf industry earning about $6 an
hour. When he became aware of OIGs CSE investigation, the man moved
back to Ohio where he began making his monthly payments. 
(cid:127) In Arizona, a woman was sentenced for failure to pay child support to 5
years probation and was ordered to pay $300 a month toward her arrearage
of $11,451 and to pay her current obligation of $799 a month. An engineer
with her Masters degree in business administration, the woman decided to
quit gainful employment related to her field of study and to move home
with her mother and attend school part time.
During this period, OIG investigations of child support cases nationwide resulted in 85
convictions and court-ordered restitution of over $4.6 million. Prosecutions in this area are
unique in that sentences ordered by a judge take into account the need for the defendant to
continue to be able to pay. Therefore, alternative sentencing options -- such as work release,
home detention and probation where nonpayment is a violation -- are often ordered.
Child Support Enforcement State Disbursement 
Units: State Implementation Progress
Thirty-eight States report they have fully implemented legislatively mandated centralized
State units intended to expedite the receipt of child support payments from the employers of
absent parents and the disbursement of these payments to custodial parents. Three States
received  Federal  waivers  to  the  requirement,  and  12  States  have  yet  to  complete  the
implementation. Thirty-two States chose to centralize the payment processing for all child
support cases, rather than only those required by Federal law. This approach is noteworthy
in that it facilitates relationships with employers. While almost half of State child support
agencies directly operate their centralized disbursement units, many contract with private
companies and clerks of court to perform some or all of these new functions. This report and
its companion are intended to be shared among all States in order to promote a better
understanding of potentially promising implementation approaches. (OEI-06-00-00040)
Child Support Enforcement State Disbursement Units: Sharing
the Experiences of Six States
Following an often problematic implementation period for newly required centralized State
disbursement units, six States which we reviewed in our study report that they disburse
payments faster and provide better customer service than when payments were processed
locally.  These  States  have  surmounted  the  most  significant  early  challenges  which
sometimes resulted in payment delays, but they continue to deal with problem payments and
cases. These difficulties are often caused by poor labeling and misdirection of payments.
This report recommended that all States centralize pre-1994 income withholding cases and
68 consider centralizing all cases, not just those required by law. We also recommended that
States promote the use of electronic payment methods. In addition, we pointed out the
potential advantage of States exploiting information available from the new disbursement
system to enhance other aspects of child support enforcement. We recommended that the
Office of Child Support Enforcement provide technical assistance on interstate payment
processing  and  encourage  improved  performance  by  Federal  Government  payers.
(OEI-06-00-00041)
Child Support Operations: Tennessee 
In this congressionally requested review, OIG determined whether Tennessee (1) properly
processed child support payments and provided adequate customer service in 16 cases
referred by the Congressman and (2) properly handled interest earned on child support
payments. The OIG found that the State properly handled interest earned on undisbursed
child support payments. However, in the 16 specific cases, problems were noted in customer
service operations, the child support enforcement system, and the child support payment
process. Custodial and noncustodial parents had difficulty reaching or obtaining assistance
through customer service phone lines, and child support payments were received either late
or not at all. 
The  OIG  recommended  improvements  to  the  States  customer  service  and
payment-processing operations. In response to the draft report, State officials agreed with
the recommendations and outlined corrective actions either underway or planned. (CIN:
A-04-00-00136)
State Oversight of Residential Facilities for Children
To be eligible to receive Federal reimbursement for foster care, a State must place a child in
a facility that is licensed or approved by the State in which it is situated. States are also
required  to  establish  and  maintain  standards  for  federally  funded  residential  facilities,
covering admissions policies, safety, sanitation and protection of civil rights.
In a study undertaken at ACFs request, OIG found that the nine sample States had licensing
standards and that they focused on ensuring a safe environment. The initial licensing process
generally consisted of a review of written policies followed by an onsite inspection of the
facility, and almost all sample States reported onsite monitoring of all facilities annually.
States rarely revoked licenses or denied a renewal, but used other techniques to deal with
facility weaknesses. In addition, facilities were commonly monitored by multiple agencies
that included local fire and health departments and the contracting placement agency.
While OIG found that most States addressed most standards, it noted some differences in
standards and licensing procedures. Given this variability, OIG encouraged ACF to take a
leadership role in strengthening State licensing by working with States and others to provide
69 training and technical assistance where needed and serving as a focal point for information
sharing. The ACF concurred with OIGs recommendation. (OEI-02-98-00570)
Emergency Assistance Program Costs
The Emergency Assistance (EA) program provided temporary financial assistance and social
services to needy families in emergency situations. The program was eliminated by the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 and replaced with
the Temporary Assistance for Needy Families program. The following reports were issued as
part of OIGs nationwide review of retroactive EA claims.
A. Pennsylvania
Over  a  2-year  period,  Pennsylvania  experienced  tremendous  growth  in  Federal
reimbursement of EA claims, from $2.9 million in FY 1994 to $250.3 million in FY 1996.
The States reclassification of juvenile detention services as EA-eligible costs contributed to
this growth.
In reviewing $60.5 million in claims submitted on behalf of children in juvenile detention
facilities in FYs 1995 and 1996, OIG found numerous, multiple violations of Federal
eligibility criteria. Claims totaling an estimated $51.5 million, or about 85 percent of the
amount reviewed, were unallowable. The OIG recommended that the State refund this
amount to the Federal Government. The State generally did not agree with OIGs findings
and recommendation. (CIN: A-03-99-00594)
Another review focused on $99.6 million claimed by Pennsylvania for EA services provided
to children in Philadelphia County in FYs 1995 and 1996. Again, widespread violations of
Federal eligibility criteria were found, resulting in unallowable costs of $77.6 million. The
OIG  recommended  that  the  State  refund  this  amount  to  the  Federal  Government  and
determine whether the same conditions existed in other counties and in Philadelphia County
for the period following the audit until program termination. The ACF concurred with OIGs
position. However, the State generally disagreed with the findings and recommendations.
(CIN: A-03-98-00592)
B. Illinois
In Illinois, OIG identified $27.8 million ($13.9 million Federal share) in improperly claimed
EA payments from October 1, 1993, through June 30, 1997. Contrary to Federal regulations,
costs were claimed on behalf of children who did not live with a specified relative within 6
months before assistance was requested. Instead, if a child in the family was determined to
be eligible for EA assistance, the State considered all members of the family to be eligible,
regardless of their living arrangements. The State agreed to cooperate with ACF in making
the $13.9 million adjustment recommended by OIG. (CIN: A-05-99-00063)
70 C. Nebraska
In this review of selected EA claims submitted by Nebraska in the 27-month period ended
December 31, 1996, OIG found that the State had claimed Federal reimbursement for
ineligible children and services. Based on a statistical sample of claims, OIG projected that
Nebraska  was  overpaid  about $6 million (almost $3  million  Federal share).  The  OIG
recommended that the State refund the overpayment to the Federal Government. In general,
the State did not concur with the findings and recommendations. (CIN: A-07-99-01041)
D. New Jersey
New Jersey retroactively claimed $5.2 million ($2.6 million Federal share) in juvenile
justice and youth incentive program costs to the EA program for the 9 months ended March
31, 1997. Based on a review of selected claims, OIG determined that none met Federal
reimbursement requirements. The State and its consultant had submitted claims for cases
that did not meet multiple eligibility criteria, and the State had not reviewed the consultants
work. As a result of OIGs review, the State withdrew the entire claim and returned the
Federal  share  of  funds  received  (almost  $2  million).  Consequently,  OIG  made  only
procedural recommendations to the State. (CIN: A-02-98-02005; CIN: A-02-99-02006)
Retroactive Foster Care Claim: Mississippi
In reviewing Mississippis retroactive claim for Title IV-E foster care costs, OIG determined
that  over  $15  million  of  the  claim  did  not  meet  the  criteria  for  Federal  financial
participation. Among the unallowable costs were over $9.4 million in administrative and
training costs, more than $3.3 million in maintenance costs, and over $2.5 million in
consultant fees. The OIG determined that the State did not have adequate administrative and
internal controls in place and did not adequately monitor its consultants to ensure that the
retroactive claim was prepared properly, that the costs claimed met ACF reimbursement
requirements,  and  that  the  consultants  contingency  fee  arrangement  met  Office  of
Management and Budget reimbursement requirements.
The  OIG  recommended  that  the  State  refund  nearly  $14.3  million  to  the  Federal
Government (after adjustments of $755,000 made by the State), monitor more closely the
work of its consultants, and verify that foster care facilities have cost allocation systems that
exclude unallowable cost items and compute foster care rates based on the proportion of
Title IV-E children to non-Title IV-E children. The State did not concur with all the findings
and recommendations. (CIN: A-04-98-00126)
Head Start Grantee: Washington
In reviewing a Head Start grantee in Washington, OIG found that the grantee did not (1)
have an acceptable cost allocation system to ensure that costs were allocated reasonably
among the various Federal and State programs; (2) maintain adequate financial and program
management  systems  to  meet  the  uniform  administrative  requirements  for  awards  to
71 nonprofit organizations; (3) comply with the nonfederal match requirements for the Migrant
Head Start program; or (4) adequately involve its board of directors in the management,
direction, and control of its business activities.
The OIG recommended that the grantee develop a cost allocation plan and designate a
specific management official with the overall responsibility for administering the plan. The
OIG also recommended that the grantee incorporate the provisions of the cost allocation
plan  into  its  official  written  policies  and  negotiate  with  ACF  to  resolve  the  issue  of
disproportionate charges between the Migrant Head Start program and the State-funded
Seasonal  Child  Care  program.  The  grantee  did  not  concur  with  all  findings  and
recommendations. (CIN: A-10-99-00050)
Safeguarding Persons with Disabilities: District of Columbia
This review, part of a nationwide review of States practices for safeguarding persons with
disabilities, focused on District of Columbia agencies that provide services to persons with
mental retardation or other developmental disabilities. The OIG found that District agencies
did not adequately track or, in many instances, promptly investigate reported allegations of
abuse or neglect and that existing policies and practices did not ensure that residential
facility operators or other service providers always reported such incidents. As a result, OIG
concluded that these District residents had not been adequately safeguarded and remain at
risk until needed safeguards are implemented. 
The OIG identified some 30 recommendations relating to needed safeguards, including
centralized reporting of allegations, screening of care workers, and investigation of reported
incidents. The District generally concurred with these recommendations and provided details
on actions taken or planned to implement them. (CIN: A-12-99-00008)
Grantee Costs Claimed
The OIG, in a joint audit with the Department of Education (DOE), reviewed the financial
management practices, fiscal records and expenditures of a grantee for the period October 1,
1992 through the cessation of its operations in the summer of 1995. This private, nonprofit
agency  was  designated  as  the  responsible  agency  to  provide  protection  and  advocacy
services  to  eligible  citizens  of  the  District  of  Columbia;  its  central  mission  was  the
protection of the legal, civil and human rights of all persons with developmental disabilities
and/or mental illness.
During the audit period, the grantee received almost $3.1 million, of which $1.8 million was
from three Federal funding sources: ACF, SAMHSA, and DOE. Of the total $3.1 million
claimed,  OIG  recommended  financial  adjustments  of  $725,000  from  the  District  of
Columbia, which had fiscal responsibility over this operation. The Federal share of the
recommended adjustment was about $395,000. The OIG proposed that the Departments
72 Assistant Secretary for Management and Budget (ASMB) coordinate actions to recover
$339,000 of the Departments Federal share of questioned costs and referred recovery of the
remaining $56,000 to DOE. The OIG also proposed that ASMB determine the Federal share
of almost $259,000 in questioned costs attributed to programs funded through the Districts
Department of Human Services, alert the ACF and SAMHSA onsite review teams to focus
on the internal control weaknesses identified in this report, and seek disbarment of the
grantees executive director from eligibility for Federal assistance. (CIN: A-03-00-00500)
Fiscal Year 1999 Financial Statement Audit 
of the Administration for Children and Families
In support of its audit of the consolidated Departmentwide financial statements for FY 1999,
OIG contracted with an independent accounting firm to audit ACFs financial statements.
The ACF received an unqualified opinion on its financial statements, with one material
weakness noted for lacking an integrated financial reporting system. The ACF officials
agreed with the findings and are taking corrective action on most of the recommendations.
(CIN: A-17-99-00003)
73 General Oversight Chapter IV
GENERAL OVERSIGHT
Introduction
This chapter addresses the Office of Inspector Generals (OIGs) departmental management
and Governmentwide oversight responsibilities.
The Program Support Center (PSC), a separate operating division (OPDIV) within the
Department  of  Health  and  Human  Services  (HHS),  provides  overall  direction  for
departmental administrative activities as well as common services such as human resources,
financial management, administrative operations and information technology. The Office of
the  Assistant  Secretary  for  Management  and  Budget  (ASMB)  is  responsible  for  the
development of the HHS budget and its execution, as well as the related activities of
establishing and monitoring departmental policy for debt collection, cash management, and
payment of HHS grants and contracts. The Department also has the responsibility, by virtue
of the magnitude of its funding, to negotiate the payment rates and methods that outside
entities, such as State and local governments, charge for administering HHS and other
Federal programs.
The OIG has oversight responsibility for these activities at the departmental level. A related
major responsibility flows from Office of Management and Budget (OMB) Circular A-133,
which designates HHS as the cognizant audit entity for most States and major research
organizations. The OIG oversees the work of nonfederal auditors of Federal money at some
6,700 entities, such as community health centers and Head Start grantees, as well as at State
and local governments, colleges and universities, and other nonprofit organizations. In
addition,  OIG  became  responsible  for  auditing  the  Departments  financial  statements
beginning with the FY 1996 statements.
The OIGs work in departmental administrative activities and Governmentwide oversight
focuses principally on financial statement audits, financial management and managers
accountability  for  resources  entrusted,  standards  of  conduct  and  ethics,  and
Governmentwide audit oversight, including recommending necessary revisions to OMB
guidance.
75 Program Support Centers Personnel Service: 
Customer Service Evaluation 
The PSC provides personnel services for the Administration on Aging, the Office of the
Secretary and the PSC itself in three broad business areas: human resources, financial
management and administrative operations.  
Based on interviews with a random sample of Department employees, OIG found that
personnel  transaction  error  rates  reported  by  PSC  were  significant but  not statistically
different from those of non-PSC customers. However, PSC customers were less satisfied
with their personnel service than non-PSC customers, and processing delays accounted for
most  of  their  dissatisfaction.  Since  that  time,  PSC  revised  its  personnel  staffing  and
organization to improve customer service, and OIG noted some improvement in customer
satisfaction. However, vulnerabilities persisted in some key processes.
The OIG recommended that PSC continue its efforts to improve customer service; establish
timeliness standards for personnel transaction processing; expand its "help desk" model of
customer assistance; date stamp and log employees requests; maintain accurate Official
Personnel Files; and continue its plans to replace the Improved Management of Personnel
Administration through Computer Technology system. The PSC reported that it continues to
implement service improvements. (OEI-09-98-00140)
Results Act Review Plan
The Government Performance and Results Act (GPRA) of 1993 mandates that Federal
agencies establish strategic planning and prepare annual performance plans, beginning with
a plan for FY 1999. The annual performance plans are to set out measurable goals that
define what will be accomplished during the year. The GPRA also requires that a program
performance report, comparing actual performance with performance goals established in
the annual performance plan, be submitted no later than March 31 of each year following the
submission of a plan. With the Act now in its second year of implementation, OIGs work
continues to focus on assessing data collection methods and controls over the HHS systems
that produce performance data. The OIGs review plan is directed toward those measures
related to mission-critical issues and areas at high risk of fraud, waste and abuse. 
For instance, OIGs continuing financial statement audit work at the Health Care Financing
Administration  (HCFA)  relates  directly  to  assessment  of  HCFA-generated  financial
performance data. The HCFA uses OIGs annual estimate of the Medicare fee-for-service
error rate as a basis for setting performance goals and for measuring performance. For FY
1999,  OIG  reported  an  estimated  7.97  percent  error  rate.  As  stated  in  its  FY  2000
performance plan, HCFAs goal is to reduce this rate to 7 percent by 2000, 6 percent by 2001
and 5 percent by 2002. The HCFA also hopes to develop a new methodology by 2000 to
76 project an error rate below the national level, such as by individual contractor or type of
benefit or provider.
At the Administration for Children and Families (ACF), OIG completed a review of the
Adoption and Foster Care Analysis and Reporting System (AFCARS) during the previous
semiannual reporting period. The ACF performance measures pertaining to children in foster
care and children adopted under the auspices of a State welfare agency are based on data
from this system. Since States collect and transmit case management information to ACF
through this system, OIG assessed the reliability of the AFCARS data submitted by two
States for the first half of FY 1999. While some errors were noted in the information from
both States, these errors did not affect the data used to develop ACFs performance measures
or were not pervasive enough to affect reported measures.
In addition, OIG is currently assessing the reliability of the data in the State Agency Child
Welfare Information System, which is being developed with the Departments financial
assistance (75 percent matching). The system is designed to allow child welfare workers
online  access  to  other  State  human  service  and  health  programs,  such  as  Temporary
Assistance for Needy Families, child support and Medicaid. And during FY 2001, OIG plans
to examine both ACFs and the Administration on Agings (AoA) use of State-supplied data
for  performance  measurement.  The  OIG  will  determine  whether  these  agencies  take
adequate steps to screen State data for reliability and whether selected States have adequate
controls in place to ensure that data are reliable and valid. Also, OIG plans to assess selected
Public  Health  Service  agencies  processes  for  implementing  GPRA  and  to  report  any
deficiencies  in  internal  controls  for  properly  recording,  processing,  and  summarizing
performance data.
The OIG also notes that an ongoing objective of its audits, inspections and investigations is
to identify performance results and offer recommended improvements. As in past years,
these reviews are identified throughout this semiannual report by the ruler symbol and are
listed in Appendix F.
Reviews of Departmental Service Organizations
In  support  of  its  HHS-wide  FY  1999  financial  statement  audit,  OIG  contracted  for
examinations  of  four  service  organizations  that  provide  common  administrative,  data
processing, and accounting services to individual operating divisions. In accordance with
Statement  on  Auditing  Standards  No.  70,  independent  accounting  firms  examined  the
organizations controls and tested their operating effectiveness.
A. Center for Information Technology
The accounting firm issued a clean opinion and noted no significant exceptions at the Center
for Information Technology. (CIN: A-17-99-00015)
77 B. Central Personnel and Payroll System, Human Resources Services
In FY 1999, the Human Resources Services office made tremendous progress over the
previous  year.  The  accounting  firm  issued  a  clean  opinion  and  noted  no  significant
exceptions. (CIN: A-17-99-00009)
C. Division of Financial Operations
The firm concluded that controls tested for the Division of Financial Operations (DFO) were
operating  effectively,  but  with  exceptions.  Problems  were  noted  with  access  controls,
software development and change controls, and segregation of duties. The DFO officials did
not agree with all aspects of the findings. (CIN: A-17-99-00008)
D. Division of Payment Management
At the Division of Payment Management, the accounting firm issued a clean opinion and
noted no significant exceptions. (CIN: A-17-99-00014)
Accounting for FY 1999 Drug Control Funds
Agencies that participate in the National Drug Control Program are required to annually
submit to the Office of National Drug Control Policy (ONDCP) a detailed accounting of all
funds expended on program activities during the previous year. The agencies respective
Inspectors  General  are  responsible  for  expressing  an opinion on  the  reliability  of the
assertions in the accounting reports.
The OIG reviewed the submissions of the eight HHS agencies required to submit detailed
accounting  reports  for  FY  1999:  ACF,  CDC,  FDA,  HCFA,  HRSA,  IHS,  NIH,  and
SAMHSA. Based on these reviews, OIG was able to determine that management assertions
were  reliably  presented  in  the  reports  submitted  by  ACF,  FDA,  and  HRSA.  (CIN:
A-15-00-80006; CIN: A-15-00-80007; CIN: A-15-00-80008; CIN: A-15-00-80009; CIN:
A-15-00-80010; CIN: A-15-00-80011; CIN: A-15-00-80012; CIN: A-15-00-80013).
Nonfederal Audits
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
awards. Under this circular, covered entities are required to have an annual organizationwide
audit which includes all Federal money they receive.
These annual audits are conducted by nonfederal auditors, such as public accounting firms
and State auditors. As cognizant auditor, OIG reviews the quality of these audits and
assesses the adequacy of the entitys management of Federal funds. In the second half of FY
2000, OIGs National External Audit Review Center (located in Kansas City) reviewed
78 about 1,320 reports that covered over $1.06 trillion in audited costs. Federal dollars covered
by these audits totaled $314 billion, about $149.3 billion of which was HHS money.
The OIGs oversight of the nonfederal audit activity not only provides Department managers
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any
significant areas of internal control weakness, noncompliance and questioned costs that
require formal resolution by Federal officials.
A. Office of Inspector Generals Proactive Role
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of
the Departments programs and provide for greater utilization of the data obtained: 
(cid:127) Through evaluation of reported data, OIG is able to provide basic audit
coverage and analyze reports to identify entities for high-risk monitoring
and  trends  that  could  indicate  problems  within  HHS  programs.  These
problems are brought to the attention of departmental management who can
take steps to improve program administration. In addition, OIG profiles
nonfederal audit findings of a particular program or activity over a period of
time to identify systemic problems.
(cid:127) To ensure audit quality, OIG maintains a quality control program (discussed
below) and has taken steps to ensure that adequate guidance is available to
the nonfederal auditor. The OIG actively assists the National Association of
State Auditors, Controllers and Treasurers in performing peer reviews of
State audit organizations.
(cid:127) As a further enhancement of audit quality, OIG provides technical assistance
to  grantees  and  the  auditing  profession  through  its  toll  free  number
(800-732-0679).  In  addition,  OIG  offers  various  training;  for  example,
formal training was provided to certified public accountant societies and
State auditor staffs on issues related to Circular A-133.
(cid:127) The OIG is also very much involved with OMB and the American Institute
of Certified Public Accountants in developing authoritative guidance for
nonfederal auditors.
(cid:127) The OIG chairs both a work group sponsored by OMB to revise the data
collection form for single audit reporting and a committee of the Presidents
Council on Integrity and Efficiency (PCIE) to revise the Orange Book,
which addresses audit cognizance assignments.
79 B. Quality Control
To rely on the work of nonfederal auditors, OIG maintains a quality control review process
which  assesses  the  quality  of  the  nonfederal  reports  received  and  the  audit work  that
supports selected reports. Uniform procedures are used to review nonfederal audit reports to
determine compliance with Federal audit requirements and Government auditing standards.
During this reporting period, OIG reviewed and issued 1,321 nonfederal audit reports. The
following table summarizes those results:
Reports issued without changes or with minor changes 1,286
Reports issued with major changes 15
Reports with significant inadequacies 20 
Total audit reports processed 1,321
The  1,321  audit  reports  discussed  above  included  recommendations  for  HHS program
officials  to  take  action  on  cost  recoveries  totaling  $9.8  million  as  well  as  4,147
recommendations for improving management operations. In addition, these audit reports
provided information for 59 special memoranda which identified concerns for increased
monitoring by departmental management.
80 Resolving Office of Inspector General Recommendations
The tables and schedules below summarize actions taken on OIG recommendations to
recover funds or to put them to better use.
A. Questioned Costs
The following chart summarizes the Departments responses to OIGs recommendations for
the recovery or redirection of questioned and unsupported costs. Questioned costs are those
costs which are challenged because of violation of law, regulation, grant conditions, etc.
Unsupported costs are those costs questioned because they are not supported by adequate
documentation.  This  information  is  provided  in  accordance  with  the  Supplemental
Appropriations and Rescissions Act of 1980 (Public Law 96-304) and section 5 of the
Inspector General Act. These costs are separate from the amount ordered or returned as a
result of OIG investigations (see page 85).
TABLE I
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS
Number  Dollar Value 
Questioned Unsupported
A.For which no management
decision had been made by
the commencement of the
reporting period1 496 $423,792,000 $64,928,000
B.Which were issued during
the reporting period 91 $236,715,000 $14,515,000
Subtotals (A + B) 587 $660,507,000 $79,443,000
Less:
C.For which a management
decision was made during 
the reporting period2,3: 172 $146,843,000 $4,018,000
(i) dollar value of
disallowed costs4 $142,337,000 $2,609,000
(ii)dollar value of
costs not disallowed $4,506,000 $1,409,000
D.For which no management 
decision had been made by the 
end of the reporting period 415 $513,664,000 $75,425,000
E. For which no
management decision was
made within 6 months
of issuance5 330 $286,015,000 $26,000,000
See Appendix D for footnotes.
81 B. Funds Put to Better Use
The following chart summarizes reports which include recommendations that funds be put
to better use through cost avoidances, budget savings, etc.
TABLE II
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT
TO BETTER USE
Number  Dollar Value 
A.For which no management
decision had been made by
the commencement of the
reporting period1 26 $535,036,000
B.Which were issued during
the reporting period 3 $143,788,000
Subtotals (A + B) 29 $678,824,000
Less:
C.For which a management
decision was made during 
the reporting period:
(i) dollar value of
recommendations that
were agreed to by
management
(a) based on proposed
    management action2 5 $307,879,000
(b) based on proposed
    legislative action
 Subtotals (a+b) 5 $307,879,000
  (ii)dollar value of
recommendations that
were not agreed to
by management  1 $7,838,000
Subtotals (i + ii) 6 $315,717,000
D.For which no management 
decision had been made by
the end of the reporting 
period3 23 $363,107,000
See Appendix D for footnotes.
82 Legislative and Regulatory Review and Regulatory Development
A. Review Functions
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review
existing and proposed legislation and regulations, and to make recommendations in the
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the
administration of the Departments programs and on the prevention of fraud and abuse. In
reviewing  regulations  and  legislative  proposals,  OIG  uses  as  the  primary  basis  for its
comments the audits, inspections, investigations and other activities highlighted in this and
previous semiannual reports. Recommendations made by OIG for legislative and regulatory
change can be found throughout this semiannual report. 
B. Regulatory Development Functions
The OIG is responsible for the development and promulgation of a variety of sanction
regulations  addressing  civil  money  penalty  (CMP)  and  program  exclusion  authorities
administered by the Inspector General, as well as safe harbor regulations related to the
anti-kickback statute. Among the regulatory initiatives promulgated during this reporting
period were: 
Final regulations, in conjunction with HCFA rulemaking addressing the prospective
payment system for hospital outpatient services, that authorize the OIG to impose a CMP
against any person who knowingly and willfully presents, or causes to be presented, a
bill or request for payment for items and services furnished under Medicare that is
inconsistent with the "unbundling" arrangements set forth in section 1866(a)(1)(H) of the
Social Security Act (65 FR 18434; April 7, 2000).
Final regulations that revise the OIGs CMP authorities, in conjunction with new and
revised provisions set forth in the Health Insurance Portability and Accountability Act of
1996 (65 FR 24400; April 26, 2000).
Proposed regulations setting forth a new CMP safe harbor for unlawful inducements to
beneficiaries to provide protection for independent dialysis facilities that pay premiums -
for Medicare Part B or Medigap - for financially needy Medicare beneficiaries with
end-stage renal disease (65 FR 25460; May 2, 2000).
Proposed regulations setting forth a new safe harbor to protect certain arrangements
involving  hospitals  that  replenish  drugs  and  medical  supplies  used  by  ambulance
providers when transporting emergency patients to the hospitals (65 FR 32060; May 22,
2000 ).
A final rule exempting the new system of records established under the Healthcare
Integrity and Protection Data Bank from certain provisions of the Privacy Act.  The
83 exemption specifically applies to investigative materials compiled for law enforcement
purposes (65 FR 34986; June 1, 2000).
In addition, during this period, the Inspector General signed and the Secretary approved
proposed regulations designed to address several revisions and technical corrections to parts
1001, 1003, 1005 and 1008 of the OIG regulations.  Through the ending of this reporting
period,  these  proposed  regulations  were  awaiting  final  clearance  by  the  Office  of
Management and Budget.
Also, during this period, OIG prepared and published a variety of Federal Register notices
that addressed the ongoing development of compliance program guidances and compliance
risk guidances.  These included the publication of:
Final OIG Compliance Program Guidance for Nursing Facilities (65 FR 14289; March
16, 2000).
Draft  Compliance  Program  Guidance  for  Individual  and  Small  Group  Physician
Practices (65 FR 36818; June 12, 2000), and final Compliance Program Guidance (65
FR 594434; October 5, 2000).
A solicitation notice for developing Compliance Risk Guidance for the Ambulance
Industry (65 FR 50204; August 17, 2000). 
C. Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process. For
example, OIG testified at six hearings during this 6-month period, principally on health care
fraud  and  abuse  issues.  On  several  occasions,  the  testimony  concerned  OIG
recommendations which, if implemented, could produce significant annual savings to the
Government. These recommendations are contained in the OIG Cost Saver Handbook, also
known as the Red Book. The hearing process offers OIG the opportunity to meet its
statutory  obligation of  keeping the Congress informed of its  work  with  regard to the
effective and efficient operation of Department programs. The OIG continues to track all
relevant congressional hearings and pending legislation relative to a wide range of issues.
Pension Fund Settlement: California
In July 2000, the Department announced that California had agreed to pay $240 million in
five  annual payments of $48 million each related to a disallowance of Federal funds
involving the State pension fund for public employees. In a prior audit, OIG found that the
State had used $816 million of excess pension funds to reduce State pension costs paid from
the general fund but did not credit a proportionate share of the reduction to the Federal
programs that had contributed to the pension fund. The audit report, issued in August 1994,
estimated that the Federal share of the $816 million was $111 million. Subsequent to the
84 report, OIG obtained additional information which resulted in increasing the recommended
repayment by the State to $122 million.
The HHS Division of Cost Allocation (DCA) upheld the audit findings and disallowed the
$122  million plus $19 million in interest earned on that amount. California appealed to the
HHS Departmental Appeals Board, which sustained DCAs decision. The State subsequently
appealed to the Federal courts, and in June 1999, the United States District Court for the
Eastern District of California affirmed the decision by the Departmental Appeals Board. At
that  time,  DCA  estimated  that  California  would  be  required  to  refund  to  the  Federal
Government $224 million, including debt collection interest that had accrued during the
appeals  process.  The  $240  million  agreement  was  reached  a  year  later.  (CIN:
A-09-92-00116)
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 209 successful
criminal actions. Also during this period, 550 cases were presented for criminal prosecution
to DOJ and, in some instances, to State and local prosecutors. Criminal charges were
brought by prosecutors against 262 individuals and entities.
In addition to terms of imprisonment and probation imposed in the judicial processes, over
$264  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this
semiannual period. Civil settlements from investigations resulting from audit findings are
included in this figure.
Program Fraud Civil Remedies Act
The Program Fraud Civil Remedies Act (PFCRA), 31 U.S.C. sections 3801-3812, authorizes
the imposition of civil money penalties (CMPs) and assessments against anyone who makes
a false, fictitious, or fraudulent claim or written statement to a Federal agency. It was
modeled after the CMP law (42 U.S.C. 1320a-7a) which is applicable to false or otherwise
improper claims presented to Medicare, Medicaid or other Federal health care programs.
Under PFCRA, a person who presents a false, fictitious or fraudulent claim to a Federal
agency may be subject to a CMP of up to $5,000 per claim or statement, as well as an
assessment of up to double the amount of each claim falsely made. The OIG is responsible
for investigating allegations of false claims and statements presented to the Department, and
for reporting at the end of each fiscal year the number of investigations completed and
matters referred for administrative action under PFCRA. 
During FY 2000, no matters were specifically referred for administrative action solely under
PFCRA. While all cases are routinely analyzed for potential action under PFCRA, at HHS
the availability of other criminal, civil and administrative remedies (particularly the CMPL)
often renders unnecessary the referral of cases for action solely under PFCRA. However,
85 OIG  does  assert  its  administrative  authority  under  PFCRA  as  one  basis  in  settlement
agreements, in which OIG is a party, that resolve cases arising under the False Claims Act
and other Federal statutes. In addition, as part of these settlements, the defendant is released
from liability under PFCRA.
86 Appendices APPENDIX A
Savings Achieved through Policy and Procedural Changes Resulting from
Office of Inspector General
Audits, Investigations and Inspections
April 2000 through September 2000
The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary
obligations for expenditures of agency funds or to improve agency systems and operations.  These achievements depend
greatly on the contributions of others, such as OIGs partners within the Department and elsewhere.  The amounts shown
represent funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or
by management in response to OIG audits, investigations and inspections, including:  actual reductions in unnecessary
budget outlays; deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or
operations; and reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or
insurance or bonds.
Legislative savings are annualized amounts based on Congressional Budget Office (CBO) estimates for a 5-year budget
cycle.  Consistent with OIG policy, savings from the Medicare provisions of the Balanced Budget Act (BBA) of 1997 were
adjusted downward to reflect CBO estimates for related provisions of the Balanced Budget Refinement Act (BBRA) of
1999.  Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the
change is effected or for multiple years, if applicable.  Total savings from these sources amount to $5.798 billion for this
period.
      OIG Recommendation Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Medicare Home Health Payments:
Restructure the payment system for home health Chapter I of Subtitle G of the BBA of 1997 $2,130
care to eliminate inappropriate incentives which (as amended by the Omnibus Consolidated
unnecessarily increase cost and utilization; and Emergency Supplemental
prevent unscrupulous providers from gaining Appropriations Act of 1998), which
entry into the program; and improve program pertains to home health benefits, addresses
controls, such as eligibility determinations and OIGs concerns regarding the need to
approval of plans of care and services. restructure and control the payment system
(OEI-04-93-00260; OEI-09-96-00110; CIN: for these services.  For example, it
A-04-96-02121) mandates that a prospective payment
system be developed and that the total
payments in fiscal year (FY) 2000 be equal
to the amount that would have been paid
under the prior system if cost limits were
reduced by 15 percent.  It also eliminates
periodic interim payments to home health
agencies.
A-1       OIG Recommendation Implementing Action Savings
in Millions 
Hospital Outpatient Policy:
Extend congressionally mandated reductions in Section 13521 of the Omnibus Budget $1,690
hospital costs.  Hospitals should limit outpatient Reconciliation Act (OBRA) of 1993
department (OPD) facility fees to the applicable mandated a reduction of 10 percent for
ambulatory surgical center (ASC) rate or reduce outpatient capital costs.  Sections
payments for OPD services to bring them in line 4521-4523 of the BBA of 1997 eliminated
with ASC payments. (CIN:  A-14-89-00221; formula-driven overpayments in FY 1998,
CIN: A-09-91-00070; OAI-85-09-0046; extended reductions in payments for costs
OEI-09-88-01003)   of hospital outpatient services, and
established a prospective payment system
(PPS) for hospital outpatient services for
FY 1999.
Medicare Indirect Medical Education:
The Health Care Financing Administration Section 4621 of the BBA (as amended by 940
(HCFA) should base the indirect medical the BBRA of 1999) reduced the indirect
education adjustment factor on the level teaching adjustment factor from 7.7 percent
supported by HCFAs empirical data.  (CIN: in FY 1997 to 7.0 percent in FY 1998; 6.5
A-07-88-00111) percent in FY 1999; 6.0 percent in FY
2000; 5.5 percent in FY 2001 and
thereafter. 
Medicare Secondary Payer - Initial
Enrollment Questionnaire:
The HCFA should take steps to collect primary Since 1995, all Medicare beneficiaries are 425
insurance information in a more timely and being asked to complete the Initial
accurate manner, requiring beneficiaries to Enrollment Questionnaire and list any other
disclose other health insurance information, and health insurance they have.  The HCFA has
should revise all Medicare claims forms to reported that two-thirds of all new
require spousal information before claims can beneficiaries are voluntarily completing the
be paid.  (CIN:  A-09-89-00100; questionnaire and this has helped HCFA
OEI-07-90-00760) document 110,000 cases each year in which
new beneficiaries have other coverage.
Graduate Medical Education Payments:
The HCFA should reevaluate Medicares policy Sections 4623 and 4626 of the BBA 180
of paying graduate medical education (GME) provided for limits in the number of
costs for all physician specialities and should residents and offered payments for
consider submitting legislation to reduce voluntary reductions in the number of
Medicares investment in GME to arrive at a residents to limit Medicares share of GME
more representative and accurate sharing of costs.
GME costs.  (CIN: A-06-92-00020)
Medicare Disproportionate Share:
The disproportionate share adjustment should Section 4403 of the BBA provided for 120
be reduced, if not eliminated, without reducing disproportionate share payments
redistribution of the funds to PPS hospitals. by 1 percent in FY 1998, 2 percent in FY
(CIN: A-04-87-01004) 1999, 3 percent in FY 2000, 4 percent in
FY 2001, 5 percent in FY 2002 and 0
percent thereafter.
A-2       OIG Recommendation Implementing Action Savings
in Millions 
Fraud and Abuse Provisions of the Balanced
Budget Act:
Require durable medical equipment (DME) Subtitle D of the BBA contained a number $50
suppliers and home health agencies (HHAs) to of provisions that corresponded to and were
provide Social Security numbers (SSNs) and supported by OIG work: for example, the
employer identification numbers BBA authorized the Secretary to collect
(OEI-04-96-00240; OEI-09-96-00110); refuse SSNs and employer identification numbers
to enter into a provider agreement with any from entities under Medicare, Medicaid and
HHA whose owners or principals have prior Title V; authorized the Secretary to refuse
criminal records or are the relatives of the to enter into contracts with physicians or
owner of a provider who had defrauded the suppliers that have been convicted of
Medicare program (OEI-09-96-00110); allow felonies; authorized the exclusion of
HCFA to apply "inherent reasonableness" entities owned or controlled by the family
provisions when assessing the appropriateness or household members of excluded
of Medicare payments (OEI-03-94-00392); individuals; authorized HCFA to make
authorize competitive bidding as a means of inherent reasonableness adjustments up to
providing Medicare services (OEI-03-94-00021; 15 percent to all Part B services except
OEI-06-92-00866; OEI-03-96-00230); and physician services; authorized up to 5
require DME suppliers and HHAs to post surety demonstration projects to be completed by
bonds as a condition of participation December 31, 2002 (one must be oxygen
(OEI-04-96-00240; OEI-09-96-00110).  Also, and oxygen equipment), which can have
clarify which general and administrative and multiple sites, to allow competitive
fringe benefit costs at hospitals and HHAs are bidding; and prohibited "reasonable cost"
related to patient care; specifically, distinguish payments for items such as entertainment,
between employee benefits and/or perquisites to gifts and donations, education expenses and
entertainment and patient care, and specify that personal use of automobiles.  The BBA also
cost of entertainment, goods or services for required DME suppliers, HHAs and others
personal use, alcohol, all fines and penalties and to post a surety bond of a minimum of
associated interest, dues, and membership costs $50,000.
associated with civic and community
organizations are unallowable.  (CIN:
A-03-92-00017; CIN:  A-04-93-02067)
Hospital Sales:
The HCFA should eliminate the requirement Section 4404 of the BBA eliminated the 50
that Medicare make adjustments for gains and requirement that Medicare make
losses when hospitals undergo changes of adjustments by setting the Medicare capital
ownership.  (OEI-03-96-00170)  asset sales price equal to the net book value.
Rural Health Clinics:
The oversight and functioning of the current Section 4205 of the BBA extended the 40
cost reimbursement system should be improved per-visit payment limits to provider-based
by implementing caps on provider-based rural clinics and stipulated that the shortage area
health clinics (RHCs) and allowing States to do requirements designation be reviewed
so, or finding other ways to make triennially.
reimbursement between provider-based and
independent RHCs more equitable.  In addition,
the certification process should be modified to
increase State involvement and ensure more
strategic placement of RHCs.  Recertification
should be required of RHCs within a specific
time limit (for example 5 years), applying new
criteria to document the need and impact on
access.  (OEI-05-94-00040)  
A-3       OIG Recommendation Implementing Action Savings
in Millions 
Hospice Certification:
The HCFA should restructure hospice benefit Sections 4441-4449 of the BBA of 1997 $40
policies to curb inappropriate growth in the contained provisions to control hospice
program, particularly with regard to the fourth payments and practices, such as replacing
benefit period.  (OEI-05-95-00250; CIN: the current unlimited fourth benefit period
A-05-96-00023) with an unlimited number of 60 day benefit
periods (each requiring recertification).
Payments for Ambulance Services:
The HCFA should seek legislative authority to Section 4531 of the BBA of 1997 made 10
develop a fee schedule for ambulance interim reductions in ambulance payments
transportation and examine the inherent by limiting the allowed rate of increase and
reasonableness of current allowable charges. mandated the establishment of a fee
(OEI-05-95-00300) schedule by January 1, 2000. Such fee
schedule is to be set so that aggregate
payments are reduced by 1 percent.
Medicare Payments for Home Blood
Glucose Monitors:
The HCFA should ensure that Medicare The HCFA issued final regulations on the 5
payments for monitors are net of any available fee schedule for home blood glucose
rebates.  (CIN:  A-09-92-00034) monitors.  These regulations refer to the
OIG report for support of fee schedule
changes.
A-4       Other Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Incontinence Supplies:
Information from OIG inspections indicated that The DMERCs issued single national $108
suppliers engaged in questionable marketing coverage guidelines in October 1995 and
practices and that beneficiaries were receiving educated providers about proper billing.
unnecessary or noncovered incontinence Since the initiative began in 1994,
supplies.  A joint OIG/HCFA effort to address Medicare payments dropped by $110
this problem resulted in the initiation of an OIG million a year, of which $104 million in
review of this area and a national investigation 1996 was directly attributable to the
examining potentially fraudulent practices by problems discussed in the OIG reports.
specific suppliers.  In addition to issuing
reports, OIG dramatized the problem in
speeches and congressional testimony.  The
OIG issued fraud alerts on this topic in
December 1994 and August 1995.  As a result of
OIG investigations, approximately $50.2
million was recovered through seizures and
restitutions from abusive providers, further
highlighting the intensity of the OIG/HCFA
initiative.  In these ways, OIG supported
ongoing activity in HCFA and the durable
medical equipment regional carriers (DMERCs)
to control Medicare outlays for these supplies
and equipment.  (OEI-03-94-00770;
OEI-03-94-00772; OEI-03-94-00773)
VARIOUS OPERATING DIVISIONS
Results of Investigations:
In addition to any restitution, fines, settlements The operating division takes action based 4.8
or judgments, or other monetary amounts on the results of the OIG investigation to
resulting from successful investigations, suspend or terminate payments to the
additional monetary losses are avoided through offending individual or entity.
timely communication of the investigative
results to the operating division.
ADMINISTRATION FOR CHILDREN AND FAMILIES
Availability of Health Insurance for Title
IV-D Children:
The OIG recommended that Connecticut either The BBA of 1997 established Title XXI of 5.7
(i) implement policies and procedures to require the Social Security Act, known as the State
noncustodial parents (NCPs) to pay all or part Childrens Health Insurance Program
of the Medicaid premiums for their dependent (SCHIP), to enhance Medicaid coverage
children or (ii) establish a statewide health provided to children and allow States to
insurance plan that provides reasonably priced create insurance options for families who
comprehensive coverage for children, with exceed Medicaid resource and income
premiums paid by NCPs. (CIN: A-01-97-02506) limits.  Connecticut received HCFA
approval in April 1998 to initiate a child
health program.  Under Connecticut law,
applicants include noncustodial parents
under court orders to provide health
insurance.
A-5 APPENDIX B
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory
action, or policy determinations by management.  (In many cases, these recommendations are beyond the direct authority of
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as
some of the proposals could have interactive effects if enacted together.
      OIG Recommendation Status  Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Modify Formula for Costs Charged to the
Medicaid Program:
The Health Care Financing Administration The HCFA did not agree with the $4,100
(HCFA) should consult with the Congress on recommendation.
modification of the Federal medical assistance
percentage formula used to determine the
Federal share of costs for the Medicaid and
other programs which would result in
distributions of Federal funds that more closely
reflect per capita income relationships.  (CIN:
A-06-89-00041)
Laboratory Roll-In:
Fees for laboratory services should be included The HCFA disagreed with the 2,040
in Medicare recognized charges for physician recommendation.  The OIG continues to
office visits.  (OEI-05-89-89150; believe that this approach has merit and
OEI-05-89-89151) could be pursued on an experimental basis
at this time. 
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital The HCFA agreed with the recommendation 1,559
insurance contributions for all State and local to mandate Medicare coverage for all State
employees, including those hired prior to April and local government employees but did
1, 1986.  If this proposal is not enacted, seek not agree with the recommendation to make
legislation making Medicare the secondary Medicare the secondary payer.
payer for retirees of exempt State and local
government agencies.  (CIN:  A-09-88-00072)
B-1       OIG Recommendation Status  Savings
in Millions
Clinical Laboratory Tests:
Develop a methodology and legislative proposal The HCFA agreed with the first $1,130*
to pay for tests ordered as custom panels at recommendation but not the second.  The
substantially less than the full price for BBA of 1997 reduces Medicare fee
individual tests, and study reinstating the schedule payments by lowering the cap to
beneficiary coinsurance and deductible 74 percent of the median for payment
provisions for laboratory services as a means of amounts beginning in 1998.  Also, there
controlling utilization.  (CIN:  A-09-89-00031; will be no inflation update between 1998
CIN:  A-09-93-00056) and 2002; the budget would increase
payments at consumer price index-urban
minus 1 percentage point for 2003 through
2005.  The FY 2001 budget includes a
proposal to restore 20 percent coinsurance
for clinical diagnostic laboratory tests.
Excessive Medicare Payments for
Prescription Drugs:
The HCFA should examine its Medicare drug The BBA of 1997 reduced Medicare 1,000
reimbursement methodologies. payments by limiting them to 95 percent of
(OEI-03-97-00290; OEI-03-97-00292; the average wholesale price (AWP).  The
OEI-03-97-00293; OEI-03-97-00390; OIG believes additional corrective action is
OEI-03-95-00420; OEI-03-94-00390) warranted.  The Presidents FY 2001 budget
proposes paying for Medicare-covered
drugs at 83 percent of the AWP.
Reduce Hospital Capital Costs:
Determine the extent that capital reductions are The HCFA did not agree with the 820
needed to fully account for hospitals excess recommendation.  Although the BBA of
bed capacity and report the percentage to the 1997 reduces capital payments, it does not
Congress.  (CIN:  A-09-91-00070; CIN: include the effect of excess bed capacity
A-14-93-00380) and other elements included in the base
year historical costs.
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined.
B-2       OIG Recommendation Status  Savings
in Millions
Medicaid Payments to Institutions for
Mentally Retarded:
The HCFA should take action to reduce The HCFA nonconcurred with OIGs $683
excessive spending of Medicaid funds for recommendation.  The HCFA believes
intermediate care facilities for the mentally Medicaid statutory provisions allow States
retarded (ICF/MRs) by one or more of the to establish their own payment systems.
following:  take administrative action to control This flexibility allows for the variations
ICF/MR reimbursement by encouraging States found among States in their payment rates
to adopt controls; seek legislation to control and the methods and standards used in
ICF/MR reimbursement, such as mandatory cost determining these rates.  The HCFA and
controls, Federal per capita limits, flat per OIG negotiated an agreement for HCFA to
capita payment, case-mix reimbursement or send the report to all State Medicaid
national ceiling for ICF/MR reimbursements; directors.  This action has been taken.
and/or seek comprehensive legislation to However, pursuant to section 4711 of the
restructure Medicaid reimbursement for both BBA of 1997, the Secretary shall conduct a
ICF/MR and home and community-based study on the effect on access to, and the
waiver service for developmentally disabled quality of services provided to beneficiaries
people via global budgeting, block grants or of the rate-setting methods used by States.
financial incentive programs.
(OEI-04-91-01010)
Modify Payment Policy for Medicare Bad
Debts:
The OIG presented an analysis of four options The HCFA agreed with the recommendation 340
for HCFA to consider, including the elimination to include a bad debt factor in the DRG
of a separate payment for bad debts, the offset rates.  The BBA of 1997 provides for some
of Medicare bad debts against beneficiary reduction of bad debt payments to
Social Security payments, the limitation of bad providers.  The Presidents FY 2001 budget
debt payments to prospective payment system proposes to reduce the percentage (from 55
hospitals that are profitable, and the inclusion of percent to 45 percent) that Medicare pays
a bad debt factor in the diagnosis-related group for bad debts and to extend this policy to
(DRG) rates.  The HCFA should seek legislative providers beyond hospitals.  However,
authority to further modify bad debt policies. additional legislative changes are needed to
(CIN:  A-14-90-00339) implement the modifications that OIG
recommended.
Flexible Benefit Plans:
The value of flexible benefit plans should be The HCFA agreed with the recommendation 291
included in the definition of wages for the to subject flexible benefit plans to the
hospital insurance portion of the Federal hospital insurance tax.
Insurance Contributions Act.  (CIN:
A-05-93-00066)
Hospital Admissions:
Seek legislation to pay for covered services The HCFA proposed to implement OIGs 210
related to 1-day admissions without an recommendation through administrative
overnight stay as outpatient services.  (CIN: remedies that would designate whether
A-05-89-00055; CIN:  A-05-92-00006) specific services are to be covered and paid
for as inpatient or outpatient services.
B-3       OIG Recommendation Status  Savings
in Millions
Graduate Medical Education:
Revise the regulations to remove from a The HCFA did not concur with the $157.3
hospitals allowable graduate medical education recommendations.  Although the BBA of
(GME) base year costs any cost center with 1997 contains provisions to slow the
little or no Medicare utilization.  Submit a growth in Medicare spending on GME,
legislative proposal to compute Medicares OIG believes that its recommendations
percentage of participation under the former should be implemented and that further
more comprehensive system.  (CIN: savings can be achieved.
A-06-92-00020)
Chemistry Panel Tests:
The HCFA should update its guidelines by The HCFA agreed with 8 of the 10 tests 130
expanding the national list of chemistry panel recommended for addition to the list and
tests to include 10 tests identified by the OIG added 6 of these tests to its carrier manual.
audit.  (CIN:  A-01-93-00521) The HCFA will periodically review
applicable tests and related equipment.  The
Congress decided (through the BBA of
1997) to achieve savings through other
means, including freezing laboratory
payments through 2002 and reducing the
national payment cap to 74 percent of the
median of all fee schedules.  The
Presidents FY 2001 budget would reduce
payments for four high-volume laboratory
tests.
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations.  The Presidents FY
Medicare claim filing by physicians who submit 2001 budget proposes to allow an
claims on paper and who have a moderate to assessment of a $1 fee on claims not
high level of interest in making the switch. submitted electronically.
This effort should be coordinated with efforts to
promote further use of electronic data
interchange by providers under the
administrative simplification provisions of the
Health Insurance Portability and Accountability
Act of 1996.  The HCFA should also begin to
plan now for the policy changes that will be
necessary to achieve an almost completely
paperless environment for processing Medicare
claims.  These policy changes can include
targeting a date when all physicians will be
mandated to submit paperless claims, targeting
a date when paperless claims submission will
become a condition for Medicare participation,
or continuing to accept paper claims but
imposing a filing fee to cover the incremental
cost of doing so.  (CIN:  A-05-94-00039;
OEI-01-94-00230)
B-4       OIG Recommendation Status  Savings
in Millions
Medicaid Drug Rebate Program:
The best price calculation in the Medicaid drug The FY 2001 budget proposes applying the $123
rebate program should be indexed to the consumer price index-urban adjustment to
consumer price index-urban.  (CIN: generic as well as brand name drugs.  The
A-06-94-00039) OIG is continuing to monitor the Medicaid
drug rebate program.
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The HCFA should propose legislation to expand The HCFA agreed to recover the improper 83.5
the DRG payment window to at least 7 days Medicare billings and to refund the
immediately prior to the day of admission. beneficiaries coinsurance and deductible.
(CIN:  A-01-92-00521) Collection of the overpayment is being
handled by settlement agreements with the
hospitals through the Department of Justice
working with HCFA and OIG.  The HCFA
did not concur with the recommendation to
further expand the payment window.
Inpatient Psychiatric Care Limits:
Develop new limits to deal with the high cost The HCFA agreed with the recommendation 47.6 
and changing utilization patterns of inpatient that the Medicare 190-day lifetime limit for
psychiatric services.  Apply a 60-day annual and psychiatric admissions be extended to
a 190-day lifetime limit to all psychiatric care general hospitals.
regardless of the place of service.  (CIN:
A-06-86-62045)
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to The HCFA issued a final regulation which 47
allow payment for nonemergency advanced life addresses the coverage of ambulance
support ambulance service only when that level services and vehicle and staff requirements.
of service is medically necessary; instruct The Balanced Budget Act of 1997 required
carriers to institute controls to ensure that that HCFA link payments to services
payment is based on the medical need of the provided and that the definitions of basic
beneficiary; and closely monitor carrier life support and advanced life support
compliance.  (CIN:  A-01-91-00513; CIN: ambulance services be subject to negotiated
A-01-94-00528) rulemaking.  The Negotiated Rulemaking
Committee Statement on the Medicare
Ambulance Services Fee Schedule was
signed in February 2000.  The HCFA
published the proposed rule, which includes
revised physician certification
requirements, in the Federal Register in
September 2000.
Limit Reimbursement for Hospital Beds:
The HCFA should take immediate steps to The HCFA concurred with the 40
reduce Medicare payments for hospital beds recommendations and is considering
used in the home.  This should include the options to determine the best approach to
elimination of the higher reimbursement rate achieve a fair price for hospital beds.  The
currently paid during the first 3 months of agency has included hospital beds and
rental.  (CIN:  A-06-91-00080; supplies as part of its ongoing competitive
OEI-07-96-00221; OEI-07-96-00222) bidding demonstration project for durable
medical equipment.
B-5       OIG Recommendation Status  Savings
in Millions
Reduce End Stage Renal Disease Payment
Rates:
The HCFA should reduce the payment rates for The HCFA agreed that the composite $22*
outpatient dialysis treatments to reflect current payment rates should reflect the costs of
efficiencies and economies in the marketplace. outpatient dialysis treatment in efficiently
(CIN:  A-14-90-00215) operated facilities.  While the Omnibus
Budget Reconciliation Act of 1990
prohibited HCFA from changing these
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatment.  A
March 1996 study by ProPAC
recommended an increase to the current
rates, but HCFA did not believe an
across-the-board increase was warranted
and intended to monitor facilities costs and
other factors to determine if a rate increase
would be appropriate.  Toward this end, the
BBA of 1997 requires the Secretary to audit
the cost reports of each renal dialysis
provider at least once every 3 years.  The
HCFA began these audits in the fourth
quarter of FY 1999.
Preclude Improper Medicaid
Reimbursement for Clinical Laboratory
Services:
State agencies should install edits to detect and The HCFA wrote to all State Medicaid 17.8
prevent payments for clinical laboratory directors on January 15, 1997, alerting
services that exceed the Medicare limits and them to the OIG review, encouraging them
billings that contain duplicate tests, recover to use Medicares bundling policies and
overpayments and make adjustments for the urging them to install appropriate payment
Federal share of the amounts recovered.  (CIN: edits in their claim processing systems.
A-01-95-00005; CIN:  A-05-95-00035; CIN: Currently, OIG is conducting several
A-01-96-00001; CIN:  A-06-95-00078; CIN: follow-up reviews in this area.
A-06-95-00031; CIN:  A-04-95-01108; CIN:
A-04-95-01109; CIN:  A-07-95-01139; CIN:
A-07-95-01147; CIN:  A-04-95-01113; CIN:
A-07-95-01138; CIN:  A-09-95-00072; CIN:
A-05-96-00019; CIN:  A-10-95-00002; CIN:
A-01-95-00006; CIN:  A-02-95-01009; CIN:
A-03-96-00200; CIN:  A-03-96-00202; CIN:
A-03-96-00203; CIN:  A-05-95-00062; CIN:
A-06-96-00002; CIN:  A-06-95-00100; CIN:
A-04-98-01185)
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-6       OIG Recommendation Status  Savings
in Millions
Medicare Orthotics:
HCFA should take action to improve Medicare The HCFA generally concurred with the $33
billing for orthotic devices.  HCFA should also recommendations.  However, HCFA did not
require standards for suppliers of agree to set specific standards for suppliers
custom-molded and custom-fabricated orthotic of custom-molded and custom-fabricated
devices.  (OEI-02-99-00120) devices.
Medicare Claims for Railroad Retirement
Beneficiaries:
Discontinue use of a separate carrier to process The FY 2001 budget does not include this 9.1
Medicare claims for railroad retirement type of legislative proposal.
beneficiaries.  (CIN:  A-14-90-02528)
Indirect Medical Education:
Reduce the indirect medical education (IME) The HCFA agreed with the to be determined
adjustment factor to the level supported by recommendation, and the BBA of 1997, as
HCFAs empirical data.  Initiate further studies amended by the BBRA 1999, reduces the
to determine whether different adjustment IME adjustment to 5.5 percent in 2002 and
factors are warranted for different types of thereafter.  The OIG believes the factor
teaching hospitals.  (CIN:  A-07-88-00111) should be further reduced to eliminate any
overlap with the disproportionate share
adjustment.
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The HCFA was concerned that an indefinite to be determined
provisions to include end stage renal disease MSP provision might encourage insurers to
(ESRD) beneficiaries without a time limitation. drop uneconomical services, namely
(CIN:  A-10-86-62016) facility dialysis and transplantation.  The
HCFA favored indefinitely extending the
MSP provision for all other services.
Although the BBA of 1997 extends MSP
policies for individuals with ESRD to 30
months, OIG continues to advocate that
when Medicare eligibility is due solely to
ESRD, the group health plan should remain
primary until the beneficiary becomes
entitled to Medicare for old age or
disability.  At that point, Medicare would
become the primary payer.  
Home Health Agencies:
The HCFA should revise Medicare regulations Although the Congress and the to be determined
to require the physician to examine the patient Administration included provisions to
before ordering home health services.  (CIN: restructure home health benefits in the BBA
A-04-95-01103; CIN:  A-04-95-01104; of 1997, HCFA still needs to revise
OEI-04-93-00262; OEI-04-93-00260; Medicare regulations to require that
OEI-12-94-00180; OEI-02-94-00170; CIN: physicians examine Medicare patients
A-04-94-02087; CIN:  A-04-94-02078; CIN: before ordering home health services.
A-04-96-02121; CIN:  A-04-97-01169; CIN: While agreeing in principle, HCFA said it
A-04-97-01166; CIN:  A-04-97-01170; CIN: would continue to examine both coverage
A-04-99-01194) rules and conditions of participation to
develop the discipline necessary for
ensuring proper certification.  The OIG will
continue to do work in this area.
B-7       OIG Recommendation Status  Savings
in Millions
Establish Connection Between the
Calculation of Medicaid Drug Rebates and
Drug Reimbursement:
The HCFA should seek legislation that would The HCFA disagreed with the to be determined
require participating drug manufacturers to pay recommendation to seek a legislative
Medicaid drug rebates based on AWP or study change, believing that such legislation was
other viable alternatives to the current program not feasible at the time.  However, HCFA
of using average manufacturer price (AMP) to stated that changing AMP to AWP would
calculate the rebates.  This legislation would reduce the administrative burden involved
have resulted in about $1.15 billion in in the AMP calculations and planned a
additional rebates for 100 brand name drugs comprehensive study of AWP.
with the highest total Medicaid reimbursements
in Calendar Years 1994-96.  (CIN:
A-06-97-00052)
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Institute and Collect User Fees for Food and
Drug Administration Regulations:
Extend user fees to inspections of food In the absence of specific authorizing $75.9
processors and establishments. legislation, the Food and Drug
(OEI-05-90-01070) Administration (FDA) is precluded by
statute from imposing user fees to cover
additional functions.  The FY 2001
Presidents budget request for FDA
proposes that FDA be given new user fee
authority to perform premarket review of
direct food additives, food export
certificates, and medical device review of
510(k)s.
Medicare Rates for Indian Health Service
Contracted Health Services:
The Indian Health Service (IHS) should revise The IHS concurred with OIGs 8.2
its legislative proposal to incorporate OIGs recommendations and is continuing its
updated savings figures and should identify efforts to obtain discount rates throughout
elements to be included in the implementing its service area.  However, no legislative
regulations.  Also, IHS should continue to proposal is included in the FY 2001 budget.
pursue the most favorable rates at hospitals that
have previously offered less than Medicare rates
and should strategically identify and pursue
other opportunities where lower rates may be
negotiated.  (CIN:  A-15-97-50001)
B-8       OIG Recommendation Status  Savings
in Millions
Recharge Center Costs:
The Assistant Secretary for Management and The Deputy Assistant Secretary for Grants 1.9
Budget should propose changes to OMB and Acquisition Management concurred
Circular A-21 to improve guidance on the with the recommendations.  In addition, the
financial management of recharge centers.  The Council on Government Relations generally
revision should include criteria for establishing, agreed and stated that the proposed criteria
monitoring and adjusting billing rates to should be included in the Compliance
eliminate accumulated surpluses and deficits; Supplement to OMB Circular A-133, which
preventing the use of recharge funds for provides guidance to independent auditors
unrelated purposes and excluding unallowable in conducting compliance audits of
costs from the calculation of recharge rates; educational institutions.
ensuring that Federal projects are billed
equitably; and excluding recharge costs from
the recalculation of facilities and administrative
cost rates.  (CIN:  A-09-96-04003)
B-9 APPENDIX C
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency.  More detailed information may
be found in OIGs Program and Management Improvement Recommendations (the Orange Book).
OIG Recommendation Status
HEALTH CARE FINANCING ADMINISTRATION
Implement Proper Accountability over Billing
and Collection of Medicaid Drug Rebates:
The HCFA should ensure that States implement The HCFA concurred with the recommendation.  States
accounting and internal control systems in accordance will now be required to maintain detailed supporting
with applicable Federal regulations for the Medicaid drug records of all rebate amounts invoiced to drug companies
rebate program.  Such systems must provide for accurate, using a formal accounts receivable system.  The HCFA also
current and complete disclosure of drug rebate has a task force to help with rebate resolution.
transactions and provide HCFA with the financial
information it needs to effectively monitor and manage
the Medicaid drug rebate program.  (CIN:
A-06-92-00029)
Ensure that the Medicare Accounts Receivable
Balance Is Fairly Presented:
The HCFA should require contractors to implement or The HCFA hired consultants to assist in validating the FY
improve internal controls and systems to ensure that 1999 accounts receivable activity and balance, as well as
reported accounts receivable are valid and documented. the activity for the first 6 months of FY 2000.  The agency
(CIN:  A-17-95-00096; CIN:  A-17-97-00097; CIN: also provided training on accumulating and verifying
A-17-98-00098; CIN: A-17-00-00500) receivable balances.
Consider Recommended Safeguards over
Medicaid Managed Care Programs:
The HCFA should consider safeguards available to reduce The HCFA generally concurred with OIGs
the risk of insolvency and to ensure consistent and recommendations but felt that a broader analysis of
uniform State oversight.  (CIN:  A-03-93-00200) managed care plans was needed to support broad program
recommendations.  The OIG notes that the same concerns
raised in its report have been expressed by the Congress
and the General Accounting Office.  The OIG is continuing
reviews of Medicaid managed care plans.
Provide Additional Guidance to Drug
Manufacturers to Better Implement the
Medicaid Drug Rebate Program:
The HCFA should survey manufacturers to identify the The HCFA did not concur stating that the drug law and the
various calculation methods used to determine average rebate agreements already established a methodology for
manufacturer price (AMP).  The HCFA should also computing AMP.  The OIG disagreed because the rebate
develop a more specific policy for calculating AMP law and agreement defined AMP, but did not provide
which would protect the interests of the Government and specific written methodology for computing AMP.
which would be equitable to the manufacturers.  (CIN:
A-06-91-00092) 
Physician Office Surgery:
The peer review organizations (PROs) should extend their The HCFA has issued policy guidance and manual
review to surgery performed in physicians offices. instructions to explicitly state that PROs have the
(OEI-07-91-00680) responsibility to review all care in physician offices when a
beneficiary complains.
C-1       OIG Recommendation Status
Properly Account for Medicare Secondary
Payer Overpayments:
Although agreement was reached to relieve Blue Cross The HCFA is currently pursuing the recommended
and Blue Shield plans of past due Medicare secondary administrative action through improved information
payer (MSP) overpayments, HCFA should continue to systems to guard against making improper Medicare
implement financial management systems to ensure that payments to the Blue Cross and Blue Shield plans.
all overpayments (receivables) are accurately recorded.
(CIN:  A-09-89-00100)
Investigate Patient Dumping Complaints:
The HCFA should improve its processes for investigating The HCFA concurred with OIGs recommendations.
and resolving complaints involving potential violations of
the Examination and Treatment for Emergency Medical
Conditions and  Women in Labor Act, commonly referred
to as patient dumping.  (CIN:  A-06-93-00087)
Medicare Beneficiary Satisfaction with
Durable Medical Equipment Regional Carrier
Services:
The HCFA should evaluate ways to increase beneficiary The HCFA concurred.  The HCFA conducts annual
satisfaction with the one durable medical equipment evaluations to identify ways to improve performance.  The
regional carrier with a low rating, and review effective HCFA is also working to develop new outreach techniques
ways to educate beneficiaries on what constitutes fraud to increase beneficiaries knowledge on detecting fraud and
and abuse.  (OEI-02-96-00200) abuse.
Pressure Reducing Support Services:
The HCFA should establish the requirement for periodic The HCFA did not concur.
review and renewal of the medical necessity for
beneficiaries use of group 2 support surface equipment.
(OEI-02-95-00370)
GENERAL OVERSIGHT
Update Cost Principles for Federally
Sponsored Research Activities:
The Department should act to modernize and strengthen The Department is revising hospital cost principles to be
cost principles applicable to hospitals by either revising consistent with OMB circulars.
existing guidelines to conform with Office of
Management and Budget (OMB) Circular A-21 or
working with OMB to extend Circular A-21 coverage to
all hospitals.  (CIN:  A-01-92-01528)
C-2 APPENDIX D
Notes to Tables I and II
Table I
1 The opening balance was adjusted downward by $27.7 million.
2 During the period, revisions to previously reported management decisions included:
CIN: A-03-98-00590  PAEAP: The auditee provided  documentation to support $626,292 in expenditures.
CIN: A-10-96-43200  Bannock Tribes: Based on further review it was determined that $366,194 in
expenditures were allowable. 
Not detailed are revisions to previously disallowed management decisions totaling
$483,100.
3 Included are management decisions to disallow $526,902 in audits performed by the Defense Contract Audit Agency.
4 Included are management decisions to disallow $10.5 million that was identified in nonfederal audit reports.
5 Audits on which a management decision had not been made within 6 months of issuance of the report:
A. Due to administrative delays, many of which are beyond managements control, resolution of the following
audits was not completed within 6 months of issuance; however, based upon discussions with management,
resolution is expected before the end of the next semiannual reporting period:
CIN:: A-07-99-00980  Assist. Review of Medicare A/R HCFA RO KCMO, January 2000, $39,730,982
CIN: A-04-98-00122  Emergency Assistance Claims - NC HHS/Div. Mental Hlth., September 1999,
$25,993,849
CIN: A-05-94-00064  MI Blue Cross/Blue Shield, Audit of Admin. Costs, June 1996, $15,609,718
CIN: A-07-96-01176  Medicare Excess Pension Assets - BC Mich, November 1996, $11,904,263
CIN: A-03-97-00013  BCBSM FY 89-92 Incremental Claim, September 1998, $11,723,785
CIN: A-05-99-00070  Monitoring - Contract Audit of HCSC & Termination, March 2000, $9,921,720
CIN: A-09-97-44262  State of California, April 1997, $7,419,900
CIN: A-03-91-00552  Independent Living Program " National, March 1993, $6,529545
CIN: A-07-99-02537  Blue Cross & Blue Shield of Massachusetts, November 1999, $5,270,461
CIN: A-05-96-00058  Close - Out Audit of Medicare Contract -BCBS - MI, December 1997, $5,226,443
CIN: A-09-99-57988  State of Arizona, June 1999, $4,950,000
CIN: A-01-97-00516  Admin. Costs - Part A&B, Railroad Retire Board, June 1999, $4,939,184 
CIN: A-07-96-02001  Medicare Part B Admin. Costs at BC/BS Colorado, December 12, 1996, $4,483,104
CIN: A-05-94-00080  Associated Ins. Medicare Administrative Costs, July 1996, $3,954,632
D-1 CIN: A-02-98-02002  NYS-REV. of Retroactive State Foster Care Claims, February 2000, $3,636,657
CIN: A-05-93-00054  IL-Associated Insurance Group-Contract Audit, October 1993, $3,355,560
CIN: A-02-95-01019  Staff Builders Home Office Medicare Cost Rev. ORT, August 1998, $3,434,274
CIN: A-06-97-00029  Retention of Fees Child Placing Agencies, Louisiana, September 1998, $3.450.173
CIN: A-03-94-00029  Veritus Inc. - Admin. Cost, February 1998, $3,140,363
CIN: A-05-98-00042  Adminstar Ins. Co. Admin. Costs Audit, September 1999, $3,111,728
CIN: A-05-93-00013  MI-Blue Cross/Blue Shield - Contract Medicare Audit, April 1993, $3,010,916
CIN: A-09-98-50183  State of California, March 1998, $3,000,000
CIN: A-01-95-00504  Medicare Parts A&B Admin. Costs - AETNA, January 1996, $2,938,223
CIN: A-01-96-00508  Medicare Admin. Costs Parts A&B and RRB - Travelers, March 1996, $2,803,260
CIN: A-05-97-00005  Administrative Costs Claimed Under Medicare A&B, February 1998, $2,569,067
CIN: A-07-92-00579  BC/BS of Michigan Inc. -Unfunded Pension Costs, October 1992, $2,535,698
CIN: A-05-92-00026  Associated Insurance CO - Medicare Admin., August 1992, $2,530,409
CIN: A-07-98-02523  BC/California -FACP, April 1999, $2,408,019
CIN: A-02-91-01006  Blue Shield of Western NY Medicare ADM CTS Porter, September 1991,
$2,379,239
CIN: A-04-97-01166  Rev. Home Health Services By Staff Builders Home Health, April 1999, $2,300,000
CIN: A-04-97-01170  Review Home Health Services By Medicare Home Hlth. Srvcs., April 1999,
$2,200,000
CIN: A-01-99-00501  Psychiatric Outpatient Services At Waterbury Hosp., October 1999, $2,122,333
CIN: A-04-97-01169  Review Home Health Services By Staff Builders Home HLTH SRVCS., April
1999, $1,900,000 
CIN: A-06-96-00009  New Mexico BCBS Admin Cost - Contracted, November 1997, $1,879,366
CIN: A-01-98-02505  Rev. of Retro Adj. Filed By MA. UNDR I V-E F/C PRGM, February 2000,
$1,850,000
CIN: A-05-97-00014  Group Health Plan Inc. (HealthPartners) Inst. Benes., June 1998, $1,808,308
CIN: A-05-95-00059  Audit of Administrative Costs - BC/BS Michigan, January 1997, $1,787,345
CIN: A-04-97-02143  Review therapy Services in Life Care SNFs IN TN, December 1999, $1,638,025
CIN: A-02-97-01039  Medassist - ORT Orthotics Provider Target, November 1999, $1,616,222
CIN: A-06-99-00006  Contract Audit of BC/BS Administrative Costs , November 1999, $1,615,063
CIN: A-03-96-00012  BCBSM PT-B Non-Renewal Costs, August 1998, $1,557,459
CIN: A-06-96-00008  Arkansas BCBS Admin Cost - Contracted, September 1996, $1,442,193
CIN: A-02-96-42454  City of New York City HRA Agency for Child Develop, May 1996, $1,410,441
CIN: A-05-93-00057   MI-Blue Cross & Blue Shield of MI-Contract Audit, July 1993, $1,409,954
CIN: A-09-96-00064   ORT - Hospice - California, March 1997, $1,350,000
D-2 CIN: A-10-91-00011  WPS - Keystone Computer Acquisition, October 1992, $1,346,681 
CIN: A-05-95-00042  BCBSA Administrative Costs -Contracted Audit, December 1995, $1,333,598
CIN: A-02-98-52102  NA-Puerto Rico Family Dept. Of Children & Families, March 1998, $1,321,656
CIN: A-02-96-01016  Empire Admin. Costs Part B Gardiner, Kamya & Assoc., April 1997, $1,296,098
CIN: A-15-98-00038  Contract Closeout Audit For CTS, Inc., July 1999, $1,590,692
CIN: A-02-97-01026  EDDY VNA (#337152) HHA Eligibility Review, September 1999, $1,131,593
CIN: A-04-00-61448  State of Georgia, February 2000, $1,108,829
CIN: A-02-94-01029  Hospice Eligibility RVW IN PR - San German -ORT, June 1995, $1,070,814
CIN: A-05-98-00050  Follow-Up Medicaid Clinical Laboratories, July 1999, $1,097,036
CIN: A-09-98-00052  California Medical Review Inc. (CA. Pro), January 1999, $1,067,991
CIN: A-05-94-00047  Nationwide Ins., Medicare Part B Admin. Costs, Sept. 1995, $1,049,309
CIN: A-01-98-00500  Payment Edits For Psychiatric At MA Part B Carrier, September 1998, $1,000,000
CIN: A-06-95-00035  Fees Retained By Child Placing Agencies, February 1996, $988,680
CIN: A-09-94-01010  Closeout Audit--Cont No. N01-ES-75196 (STRATAGENE), March 1994, $983,208
CIN: A-04-97-02142  Rev. St. Jude Behav. Hlth. Ctrs Part. Hosp. Program., December 1999, $927,845
CIN: A-08-99-55285  South Dakota Urban Indian Health Inc., June 1999, $902,377
CIN: A-08-99-55284  South Dakota Urban Indian Health Inc., June 1999, $902,046
CIN: A-05-92-00060  Contractor Audit - BCBS - Admin., February 1993, $879,609
CIN: A-02-97-01034  Dr. Pila Foundation Home Care Program (Ponce), September 1999, $857,208
CIN: A-07-98-02533  Travelers FACP, December 1998, $854,214
CIN: A-06-99-00013  Medicare Part A Admin. NM Blue Cross Blue Shield, December 1999, $817,487
CIN: A-02-98-01040  Niagara City Dept. Of Health -#337001 -HHS Elig. Review, December 1999,
$807,679 
CIN: A-03-99-00008  Blue Cross Blue Shield of Delaware - Part a, January 2000, $798,939
CIN: A-07-99-00981  Assist. Review of Medicare A/R HCFA RO Denver, January 2000, $754,926
CIN: A-06-99-00001  Oklahoma Foster Care Program Maintenance Payments, March 1999, $737,239
CIN: A-05-91-00136  Community Mutual Ins. Co. Admin. Costs, August 1992, $720,668
CIN: A-09-97-00078  Physician Billings Dr. Spencer, January 1999, $683,264
CIN: A-04-99-54416  State of Florida, November 1998, $668,791
CIN: A-09-99-00083  Blue Shield Termination Costs, December 1999, $659,763
CIN: A-02-96-01015  Empire Admin. Cost Par A-Gardiner, Kamya & Assoc., April 1997, $652,492
CIN: A-01-98-00503  Psychiatric Outpt. Services At the Franklin Med Ctr, November 1998, $646,517
CIN: A-09-98-00095  Blue Shield of California, October 1999, $612,569 
D-3 CIN: A-04-94-01078  Monitoring Admin. Cost - Audit M Care P. B. BCBSSC, July 1994, $594,092
CIN: A-10-99-57240  State of Idaho, January 1999, $594,000
CIN: A-04-93-01069  Monitorg Admin Cost Audit MCARE Part A BCBSSC, July 1994, $590,844
CIN: A-05-99-04005  Cash Management Review - Univ. of Wisconsin, September 1999, $584,740
CIN: A-02-97-47130  Middlesex County Economic Opportunities, Corp., June 1997, $578,550
CIN: A-04-97-02141  Rev. St. Francis Behav. Hlth. Ctr. Part hosp. Prog., December 1999, $573,506
CIN: A-04-00-61620  State of North Carolina, March 2000, $528,952
CIN: A-04-00-60897  State of Florida, March 2000, $525,210
CIN: A-04-98-01191  Review World Gym Phy. Therapy Ctr. - Compre. Outpatient, January 2000,
$518,479
CIN: A-04-99-01200  OIG-HCFA Joint Review of GEM Physical Therapy Inc., Dec. 1999, $490,600
CIN: A-09-99-56858  Hawaii Dept. Of Human Services, February 1999, $502,000
CIN: A-03-92-16229  State of Pennsylvania, March 1992, $496,876
CIN: A-04-98-01192  Review Americas Behav. Hlth. Cares Part. Hospitalize, December 1999, $452,928
CIN: A-07-97-01235  DOSHI - Texas, June 1997, $424,255
CIN: A-06-99-56489  State of Louisiana, January 1999, $421,206
CIN: A-09-98-49239  NA-Hermandad Mexicana Nacional Legal Center Inc., November 1997, $419,364
CIN: A-05-97-00013  Pacificare of CA-HMMO Institutional Status Project, April 1998, $407,784
CIN: A-06-99-58928  Arkansas Office of Child Support Enforcement, April 1999, $367,273
CIN: A-01-99-57863  State of Connecticut, May 1999, $361,315
CIN: A-04-96-01134  Partic. Part of HCFA Surv. Team - Colonnade MCAL-ORT, February 1997,
$358,338
CIN: A-04-96-01136  Partic. Part of HCFA Surv. Team - Survey Savanah-ORT, December 1996, $354,537
CIN: A-05-92-00126  Wisconsin Westcap Head Start ACF/RO Request, March 1993, $347,576
CIN: A-01-99-00502  Psychiatric Outpatient Services at Elliot Hospital, November 1999, $325,674
CIN: A-05-93-25697  West Central Wisconsin Community Action Agency Inc., August 1993, $324,759
CIN: A-09-00-62979  Hawaii Dept. Of The Attorney General, March 2000, $311,399
CIN: A-04-97-01175  Keystone Pro, June 1998, $310,787
CIN: A-08-99-59826  NA-Crow creek Sioux Tribe, July 1999, $291,718
CIN: A-04-96-01129  PARTI- Part HCFA Surv. Team - Ameri. Trans. Care (ORT), February 1997,
$284,378
CIN: A-05-96-00069  CPA audit of Hooper Holmes HHA G&A -OI Case Open, February 1998, $280,515
CIN: A-06-97-00015  New Mexico Pro Close Out Audit, September 1999, $268,844
CIN: A-09-94-30178   State of Arizona, June 1994, $267,021
D-4 CIN: A-03-98-00027  KHPW/Institutional Status/Medicare, November 1998, $263,573
CIN: A-04-99-54767  Anderson - Oconee Head Start Project Inc., October 1998, $254,673
CIN: A-04-97-01152  Close Out Audit - Michigan Pro, June 1997, $228,630
CIN: A-05-00-60454  St. Croix Chippewa of Wisconsin, December 1999, $224,452
CIN: A-04-96-01135  PARTIC Part of HCFA Surv. Wash. Manor Nursg - ORT, February 1997, $220,483
CIN: A-06-99-56489  State of Louisiana, January 1999, $213,709
CIN: A-09-96-00094  ORT-Monitor CPA Audit of Dynasty HA Cost Report, July 1997, $217,720
CIN: A-05-96-00052  ORT Assist. - Ancillary Costs -NW Com. Hosp., June 1997, $206,508
CIN: A-05-00-63219  Bayfield County Rural Health Center Inc., March 2000, $204,247 
CIN: A-03-98-00014  Connecticut Pro Inc./CCAS/HHS-100-95-0033, February 1998, $202,662
CIN: A-06-96-00064  ORT SNF Research at Methodist Hospital, January 1997, $200,000 
CIN: A-01-97-00531  Medicare Administrative Costs - MABCBS, June 1998, $198,950
CIN: A-05-97-00006  MI - Wayne State U / NIH Request / Romero Grant, June 1997, $195,809
CIN: A-09-99-57168  NA - Santa Ysabei Band of Mission Indians, September 1999, $194,843
CIN: A-06-00-57470  Jicarilla Apache Tribe, October 1999, $198,188
CIN: A-05-00-63513  BBF Family Services, March 2000, $183,711
CIN: A-04-99-57581  Harambee Child Development Council Inc., September 1999, $173,256
CIN: A-03-99-00007  Forest Ambulance Service - External, December 1998, $173,189
CIN: A-05-94-29229  West Central Wisconsin Community Action Agency Inc., March 1994, $167,977
CIN: A-05-96-00031  WIPRO/Equipment Depreciation, August 1996, $167,033
CIN: A-05-00-56834  NA-Springfield Urban League Inc., October 1999, $166,345
CIN: A-07-99-01287  Wellmark Admin Costs 98, November 1999, $160,626
CIN: A-03-97-00016  Quality Improvement Pro Inc/CCAS/Puerto Rico, February 1998, $158,925
CIN: A-03-98-00034  Freestate HP/Institutional Status/Medicare, March 1999, $156,987
CIN: A-09-00-62575  Hawwaii Dept. Of the Attorney General, March 2000, $155,339
CIN: A-08-99-60402  State of South Dakota, July 1999, $142,748
CIN: A-07-99-54163  Ponca Tribe of Nebraska, May 1999, $141,475
CIN: A-04-96-01147  ORT REV. Parker Jewish Geriatric CTR, New Hyde, NY, April 1997, $140,188
CIN: A-03-98-00025  Abingdon Ambulance Company - Abingdon, VA, January 1999, $139,325
CIN: A-06-99-58786  Arkansas Dept. Of Human Services, March 1999, $137,218
CIN: A-09-99-52846  Inter-Tribal Council of California Inc., February 1999, $136,360
CIN: A-04-00-61620  State of North Carolina, March 2000, $135,821
CIN: A-02-98-01002   IPRO Closeout Audit - CPA Contract Monitoring, December 1998, $135,492
D-5 CIN: A-02-99-59294  City of New York, August 1999, $134,835
CIN: A-05-97-00023  Kaiser Foundation - HMO Institutional Status Project, April 1998, $116,096
CIN: A-03-99-00003  Aetna - US Healthcare/ Institutional Status/Medicare, July 1999, $113,993
CIN: A-09-00-62110  Golden Valley Health Centers, January 2000, $113,192
CIN: A-03-95-03329  Henderson Associates/CACS/ASC/282-91-0012, March 1997, $111,289
CIN: A-02-96-01001  VNS of NY Home Care - ORT / HHA Target, September 1997, $110,841
CIN: A-02-96-02001  International Rescue Committee-Refugee Program, January 1998, $108,604
CIN: A-01-00-62266  State of Maine, March 2000, $106,500
CIN: A-06-99-56908  Pueblo of Acoma, July 1999, $104,186
CIN: A-09-00-58580  NA-Turtle Mountain Band of Chippewa Indians, November 1999, $104,590
CIN: A-09-99-59788  Palau Community Action Agency, June 1999, $102,653
CIN: A-10-00-61811  State of Washington, January 2000, $101,047
CIN: A-09-99-59834  Government of Guam, June 1999, $99,978
CIN-A-09-97-00066  Walter McDonald - Indirect Cost Rate Audit, March 1998, $95,733
CIN: A-03-98-00007  Delmarva Pro/CCAS/Maryland, DC/HHS -100-95-0029, December 1998, $95,709
CIN: A-09-98-00065  CSBG Disc. Grant -Latino Resource, January 1999, $95,102
CIN: A-01-99-00507  Nat.-Wide Ref. Opnt. Psych SVC at Acute Care Hospital, March 2000, $94,716
CIN: A-10-97-00003  ADM Costs Remote Network Activities FY 93 & 94, February 1998, $94,643
CIN: A-06-96-43195  Pueblo of ISLETA, June 1996, $92,969
CIN: A-07-95-01164  Medicare Admin Costs - General American, December 1995, $89,929 
CIN: A-01-99-57358  Organix Inc., February 1999, $89,395
CIN: A-09-00-63181  Delta Head Start Program, March 2000, $89,219
CIN: A-08-99-56914  Rural America Initiatives, July 1999, $87,468
CIN: A-02-95-34277  Puerto Rico Dept. Of Health, June 1995, $86,064
CIN: A-02-95-34279  Puerto Rico Dept. of Health, June 1995, $85,266
CIN: A-04-96-38655  State of North Carolina, April 1996, $83,237
CIN: A-09-99-56382  Metropolitan Area Advisory Committee, January 1999, $82,600
CIN: A-01-96-00505  CFO Auidt of HCFAs Financial Statements, July 1997, $80,236
CIN: A-03-98-00008  VA Health Quality Center Review ORG/PRO/CCAS/VA, December 1998, $78,207
CIN: A-04-96-01137  Partic. PART of HCFA Surv. Team - Daytona Nursg-ORT, December 1996, $76,130
CIN: A-09-00-60032  Lovelock Paiute Tribe, December 1999, $74,187
CIN: A-02-99-58263  Puerto Rico Office of The Governor Office of Child, July 1999, $73,819
CIN: A-09-99-56272   Rincon San Luiseno Band of Mission Indians, September 1999, $71,017
D-6 CIN: A-06-00-62331  City of Houston Texas, January 2000, $70,044
CIN: A-01-97-00520  CFO Audit of HCFAs Financial Statements, July 1998, $69,031
CIN: A-02-95-34275  Puerto Rico Dept. of Health, June 1995, $64,841
CIN: A-06-99-56886  NA-Cheyenne-Arapaho Tribes of Oklahoma, July 1999, $64,635
CIN: A-09-00-60444  Yomba Shoshone Tribe, December 1999, $64,030
CIN: A-04-00-60897  State of Florida, March 2000, $62,649
CIN: A-01-97-49174  MI Dept. Of Community Health/Medicaid Lab Services, August 1997, $59,956
CIN: A-06-00-62014  Alabama-Coushatta Tribe of Texas, March 2000, $59,874
CIN: A-03-99-00200  PSU-Geisinger / PHY Credit Balances / Medicaid, December 1999, $59,051
CIN: A-02-00-62534  City of New York, January 2000, $58,309
CIN: A-05-96-00051  ORT Assist-Ancillary Costs - St. Joseph, June 1997, $58,008
CIN: A-09-97-00059  Health Services Advisory Group, Inc., Pro-AZ, May 1997, $57,925
CIN: A-09-99-56270  NA-Rincon San Luiseno Band of Mission Indians, September 1999, $57,636
CIN: A-08-99-54138  Rosebud Sioux Tribe, November 1998, $56,223
CIN: A-04-96-01125  Partic. - Part of HCFA Survey Team - Rosemont - ORT., February 1997, $55,306
CIN: A-07-99-59813  State of IOWA, August 1999, $54,662
CIN: A-07-97-01206  Pension - Washington/Alaska - Unfunded, Mar. 1997, $54,000
CIN: A-10-00-62761  Burns Paiute Indian Tribe, February 2000, $53,516
CIN: A-07-98-50741  Citizen Housing Information Council Inc., March 1998, $52,758
CIN: A-08-00-60687  South Dakota Foundation for Medical Care, November 1999, $52,536
CIN: A-06-99-59854  State of Louisiana, August 1999, $51,788
CIN: A-09-95-00095  Health Services Advisory Group, Inc. (HSAG), December 1995, $49,585
CIN: A-03-93-03306  Survey Research Assoc. CACS NO1-ES-45067, December 1993, $48,779
CIN: A-02-95-34275  Puerto Rico Dept. Of Health, June 1995, $46,842
CIN: A-06-00-62531  NA-Five Sandoval Indian Pueblos Inc., February 2000, $46,772
CIN: A-08-00-57179  NA-Turtle Mountain Band of Chippewa Indians, November 1999, $45,422
CIN: A-06-00-62101  Vermilion Parish Police Jury, January 2000, $44,915
CIN: A-09-99-56858  Hawaii Dept. Of Human Services, February 1999, $44,144
CIN: A-04-99-60712  Coastal Community Action Inc., September 1999, $44,000
CIN: A-09-99-52845  Inter-Tribal Council of California Inc., February 1999, $43,315
CIN: A-09-99-57306  Picayune Rancheria of the Chukchansi Indian Tribe, September 1999, $43,159
CIN: A-03-99-00017  PSU-Hershey / PHY Credit Balances / Medicare, December 1999, $41,712
CIN: A-09-00-60443  Yomba Shoshone Tribe, January 2000, $41,373
D-7 CIN: A-09-99-59787  Palau Community Action Agency, June 1999, $40,212
CIN: A-04-00-63370  Chatham-Savannah Youth Futures Authority, March 2000, $37,463
CIN: A-03-97-44742  Association of Teachers of Preventive Medicine Inc., February 1998, $37,260
CIN: A-02-99-59166  Cypress Hills Child Care Corp., September 1999, $36,935
CIN: A-07-98-53295  Winnebago Tribe of Nebraska, September 1998, $36,808
CIN: A-10-00-63008  State of Idaho, March 2000, $36,800
CIN: A-03-99-57965  NA-District of Columbia Dept. Of Human Services, February 1999, $35,975
CIN: A-05-99-59494  Sheboygan Human Rights Association Inc., May 1999, $35,786
CIN: A-07-98-02030  DOSHI - CPA Report, November 1997, $35,703
CIN: A-06-00-62566  Five Sandoval Indian Pueblos Inc., February 2000, $34,300
CIN: A-07-97-01218  DOSHI - Utah/Nevada FMC, March 1997, $33,752
CIN: A-03-99-56842  National Association for Equal Opportunity In High, February 1999, $33,585
CIN: A-01-99-60258  State of Connecticut, July 1999, $33,377
CIN: A-05-00-62763  Upper Midwest American Indian Center, January 2000, $33,127
CIN: A-03-99-0004  PSU - Geisinger / Phy. Credit Balances / Medicare, December 1999, $32,165
CIN: A-04-00-60759  State of Mississippi, January 2000, $32,011
CIN: A-07-97-01199  BCBS New Mexico Unfunded Pension Cost, February 1997, $31,372
CIN: A-04-00-62871  Community Health of South Dade Inc., March 2000, $31,000
CIN: A-09-96-42547  Maricopa County Arizona, April 1996, $30,766
CIN: A-03-00-63919  Mingo County Economic Opportunity Commission Inc., March 2000, $30,453
CIN: A-09-98-49616  State of Arizona, November 1997, $29,746
CIN: A-05-97-48015  NA-Hoosier Valley Economic Opportunity Corp., May 1997, $29,004
CIN: A-04-00-61897  American Cancer Society Inc. National Home Office, January 2000, $28,654
CIN: A-03-98-03301  AAUAP Incurred Cost Review --HHS 105-95-7011, April 1998, $28,289
CIN: A-02-99-58263  Puerto Rico Office of the Governor Office of Child, July 1999, $27,980
CIN: A-10-96-41391  Klamath Family Head Start, April 1996, $26,530
CIN: A-04-00-62745  Pasco county District School Board, January 2000, $26,358
CIN: A-03-92-00033  Blue Cross of West Virginia Termination, November 1992, $25,200
CIN: A-08-00-59365  Three Affiliated Tribes, December 1999, $24,745
CIN: A-10-00-58628  Kuigpagmiut Inc., November 1999, $24,596
CIN: A-03-003-0004  Guthrie Clinic / Physician Credit Balances / Medicare, December 1999, $23,759
CIN: A-01-98-00531  Medicare CR bal Recoup ESRD FAC Florida Blue Cross, January 2000, $23,586
CIN: A-08-00-60654  Spirit Lake Tribe, January 2000, $22,031
D-8 CIN: A-07-99-01290  MOH Admin Cost, November 1999, $20,548
CIN: A-05-96-43041  NA - Hoosier Valley Economic Opportunity Corp., June 1996, $20,438
CIN: A-04-00-62452  Clarksville - Montgomery County Community Action A, January 2000, $19,114
CIN: A-01-99-59104  Planned Parenthood of Connecticut Inc., & Subsidiary, August 1999, $18,791
CIN: A-04-97-01163  VIMI MCare Pro Contract Audit, September 1997, $18,758
CIN: A-03-00-61948  Mingo County Economic Opportunity Commission Inc., January 2000, $18,703
CIN: A-03-00-00200  Guthrie Clinic / Physician Credit Balances / Medicaid, December 1999, $18,318
CIN: A -05-93-21928  Wright State Univ., July 1993, $18,308
CIN: A-01-00-61896  Jewish Family Service of Stamford Inc., December 1999, $18,027
CIN: A-03-99-00201  PSU-Hershey / PHY Credit Balances / Medicaid, December 1999, $17,584
CIN: A-03-97-00007  NE Health Care Quality Foundation/CCAS/N Hampshire, March 1997, $17,045
CIN: A-01-99-55594  State of Vermont, November 1998, $16,623
CIN: A-01-97-44143  Brandeis Univ., January 1997, $16,602
CIN: A-05-00-60814  Childrens Hospital of Michigan Inc., November 1999, $16,191 
CIN: A-10-00-62940  Lutheran Social Lutheran social Services of Washington & Idaho, February 2000,
$15,900
CIN: A-10-00-59080  Norton Sound Health Corp., December 1999, $15,000
CIN: A-03-97-00008  NE Health Care Quality Foundation/CCAS/Vermont, March 1997, $14,596
CIN: A-06-98-54189  City of Houston, Texas, July 1998, $14,146
CIN: A-07-99-60332  State of Nebraska, July 1999, $14,209
CIN: A-05-00-59830  Ho-Chunk Nation, February 2000, $14,029
CIN: A-09-96-00050  CFO - HCFA 1996, November 1997, $13,924
CIN: A-07-95-01175  Mutual of Omaha - Admin. Costs, August 1996, $13,564
CIN: A-07-99-57985  State of Kansas, February 1999, $13,550
CIN: A-05-00-61810  State of Indiana, March 2000, $13,392
CIN: A-05-95-36498  Hoosier Valley Economic Opportunity Corp., April 1995, $13,116 
CIN: A-03-98-50338  National Medical Association, February 1998, $12,968
CIN: A-09-00-61853  Fresno Indian Health Association Inc., March 2000, $11,963
CIN: A-10-00-61717  State of Oregon, September 2000, $11,625
CIN: A-04-99-59501  Chapel Hill - Carrboro City Board of Education, June 1999, $11,256
CIN: A-08-00-56759  South Dakota Urban Indian Health Inc., November 1999, $10,933
CIN: A-09-00-62572  NA-Fresno Indian Health Association Inc., February 2000, $10,720
CIN: A-10-99-59863  Coastal Community Action Program, September 1999, $10,187
D-9 CIN: A-04-0060661  NA-Montgomery Community Action Committee Inc., October 1999, $10,104
CIN: A-05-00-57466  Sault Ste. Marie Tribe of Chippewa Indians, October 1999, $10,000
CIN: A-10-97-00002  Group Health Institutionalized, November 1997, $9,769
CIN: A-04-97-01153  MS Found. - MCAL Care, MCare, MCare Pro Contract Audit, September 1997,
$9,070
CIN: A-10-00-63241  Lutheran Social Services of Washington & Idaho, February 2000, $9,053
CIN: A-08-99-56446  Sisseton-Wahpeton Sioux Tribe, May 1999, $9,000
CIN: A-02-95-34277  Puerto Rico Dept. Of Health, June 1995, $8,486
CIN: A-05-99-59468  Community Care in Union County Inc., July 1999, $8,464
CIN: A-07-97-01231  Prowest - DOSHI Washington, June 1997, $8,027
CIN: A-05-00-63666  Ho-Chunk Nation, February 2000, $7,851
CIN: A-01-99-57863  State of Connecticut, May 1999, $7,686
CIN: A-03-91-02004  W. VA B/C Admin Cost FY 85/90 and Term. Cost, November 1992, $7,556
CIN: A-10-00-61326  Maniilaq Manpower Inc., January 2000, $7,401
CIN: A-03-96-38803  Skyline Government Services Corp., November 1995, $7,285
CIN: A-03-98-00045  Temple Univ/Physician Credit Balances/Medicare, July 1999, $7,280
CIN: A-07-97-01227  MT-WY Foundation for Medical Care, June 1997, $7,168
CIN: A-03-99-58532  Advocates for Youth, May 1999, $7,138
CIN: A-01-97-49174  Brandeis Univ. August 1997, $7,068
CIN: A-01-00-61715  State of Vermont, October 1999, $6,766
CIN: A-09-00-60051  Navajo Nation, November 1999, $6,660
CIN: A-06-96-40858  CADDO Community Action Agency Inc., February 1996, $6,557
CIN: A-09-00-58580  Tohono O Odham Nation, November 1999, $6,456
CIN: A-04-99-56945  Quitman Count Development Organization Inc., March 1999, $6,142
CIN: A-07-95-01167  Pension Costs Claimed Nebraska BC/BS, January 1996, $6,075
CIN: A-02-96-02001  International Rescue Committee - Refugee Program, January 1998, $6,027
CIN: A-06-97-48062  SER-Jobs for Progress National Inc., May 1997, $5,924
CIN: A-05-00-58003  Community Unit School District No. 300, October 1999, $5,858
CIN: A-08-99-56446  Sisseton-Wahpeton Sioux Tribe, May 1999, $5,843
CIN: A-08-00-59899  South Dakota Urban Indian Health Inc., November 1999, $5,496
CIN: A-02-99-56463  Virgin Islands Advocacy Agency Inc., November 1998, $5,089
CIN: A-06-91-00034  Audit of Collection &Credit Activities at TDHS, January 1992, $5,081
CIN: A-10-00-61327  Maniilaq Manpower Inc., January 2000, $4,820
D-10 CIN: A-09-97-48829  Community Action Commission of Santa Barbara Cty., August 1997, $4,809
CIN: A-09-97-44435  Commonwealth of the Northern Mariana Islands, October 1996, $4,767
CIN: A-01-00-60299  Indian Township Tribal Government Passamaqouddy TR, January 2000, $4,597
CIN: A-07-95-01123  Review of CPA Adm. Cost - BCBS of Kansas City, May 1995, $4,045
CIN: A-04-97-01162  HMSA MCare Pro Contract Audit, September 1997, $3,871
CIN: A-01-98-00512  CFO of HCFAs FY 1997 Medicare Benefit Payments, June 1998, $3,264
CIN: A-04-99-59126  Sequatchie Valley Planning & Development Agency, September 1999, $3,360
CIN: A-07-00-62371  Omaha Tribe of Nebraska, March 2000, $3,005
CIN: A-03-95-03318  Trans-Management Systems 105-92-1527 (CCO), May 1996, $3,016
CIN: A-09-95-39056  Hawaii Dept. Of Health, September 1995, $3,601
CIN: A-07-98-02502  CT. BC/BS Pension Costs Claimed, March 1998, $2,725
CIN: A-03-98-51505  Allied Signal Technical Services Corp., April 1998, $2,722
CIN: A-03-95-34716  West Virginia Medical Institute Inc., March 1995, $2,688
CIN: A-02-97-49366  Seneca Nation of Indians, September 1997, $2,655
CIN: A-01-97-45487  ABT Associates Inc., January 1997, $2,596
CIN: A-08-00-61852  Native American Services Agency Inc., February 2000, $2,575
CIN: A-03-97-43996  Actuarial Research Corp., October 1996, $2,561
CIN: A-04-00-61462  Amputee Coalition of America, November 1999, $2,550
CIN: A-02-00-62577  Seneca Nation of Indians, January 2000, $2,545
CIN: A-06-00-58523  Osage Nation of Oklahoma, October 1999, $2,247
CIN: A-07-97-01221  Pro Closeout - Doshi CPA - Ark FDN for Med Care, March 1997, $2,096
CIN: A-05-98-53899  Stanford Univ., June 1998, $2,058
CIN: A-03-96-44076  St. Pauls College, August 1996, $2,029
CIN: A-10-96-38114  State of Washington, February 1996, $2,000
CIN: A-06-00-61714  State of Oklahoma, January 2000, $1,792
CIN: A-05-99-60620  Red Cliff Band of Lake Superior Chippewa Indians, July 1999, $1,459
CIN: A-07-97-01232  Prowest - DOSHI Alaska, June 1997, $1,473
CIN: A-03-93-20882   United States Pharmacopeil Convention Inc., October 1992, $989
D-11 Table II
1 The opening balance was adjusted downward by $1.1 million to reflect a revaluation.
2 Included in the total recommendations agreed to by management is $79,307 resulting from Defense Contact Audit Agency
recommendations.
3 Management decision has not been made within 6 months of issuance on 21 reports: 
A. Discussions with management are ongoing and it is expected that the following audits will be resolved by the
next semiannual reporting period:
CIN: A-01-99-00507   Nat-Wide REF Opnt. Psych SVC at Acute Care Hospital, March 2000,
$224,466,692
CIN: A-07-98-02534   Empire BC/BS Pension Plan Termination, March 2000, $38,626,351
CIN: A-04-97-00109   Emergency Assistance Claims - NC, July 1998, $13,000,000
CIN: A-03-91-00552   Independent Living Program--National, March 1993, $10,161,742
CIN: A-07-96-01177   Medicare Post Retirement Claim BC MICH, November 1996, $8,978,998
CIN; A-01-97-02506   Review of the Avail. of Medical Coverage/CSE Support, June 1998, $5,704,585
CIN: A-04-98-01188   Review Admin. Costs @ MCare Managed Risk Plan, August 1999, $2,559,357 
CIN: A-09-95-00095   Health Services Advisory Group, Inc. (HSAG), December 1995, $1,389,723
CIN: A-07-97-01230   OFMO - DOSHI Oklahoma, June 1997, $203,510
CIN: A-07-97-01231   Prowest -DOSHI Washington, June 1997, $163,552
CIN: A-02-96-02001   International Rescue Committee-Refugee Program, January 1998, $90,528
CIN: A-07-97-01235   DOSHI-Texas, June 1997, $51,334
CIN: A-07-97-01232   Prowest - DOSHI Alaska, June 1997, $21,218
CIN: A-09-00-60029   Cocopah Indian Tribe, December 1999, $20,830
CIN: A-05-96-00069   CPA Audit of Hooper Holmes HHA G&A - OI Case Open, February 1998, $17,555
CIN: A-07-95-01164   Medicare Admin. Costs - General American, December 1995, $16,632
CIN: A-06-00-61714   State of Oklahoma, January 2000, $15,827
CIN: A-07-97-01227   MT-WY Foundation for Medical Care, June 1997, $13,461
CIN: A-06-97-45023   CADDO Community Action Agency Inc., November 1996, $8,880
CIN: A-01-97-00526   Psychiatric Outpatient Services, March 1998, $7,245
CIN: A-09-94-01022   Intelligenetics #N01-GM-72110, October 1994, -$31,852
D-12 APPENDIX E
Reporting Requirements of the
Inspector General Act of 1978, as Amended
The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is
being furnished to the Congress under separate cover.  Copies are available upon request.
Section of the Act Requirement Page
Section 4(a)(2) Review of legislation and regulations 83
Section 5(a)(1) Significant problems, abuses and throughout
deficiencies
Section 5(a)(2) Recommendations with respect to throughout
significant problems, abuses and
deficiencies
Section 5(a)(3) Prior significant recommendations on appendices B and C
which corrective action has not been
completed
Section 5(a)(4) Matters referred to prosecutive authorities 85
Section 5(a)(5) Summary of instances where information none
was refused
Section 5(a)(6) List of audit reports under separate cover
Section 5(a)(7) Summary of significant reports throughout
Section 5(a)(8) Statistical table I - reports with questioned 81
costs
Section 5(a)(9) Statistical table II - reports with 82
recommendations that funds be put to
better use
Section 5(a)(10) Summary of previous audit reports appendix D
without management decisions
Section 5(a)(11) Description and explanation of revised appendix D
management decisions
Section 5(a)(12) Management decisions with which the none
Inspector General is in disagreement
E-1 APPENDIX F
Performance Measures
In order to identify work done in the area of performance measurement, the Office of Inspector General (OIG) has labeled some
items throughout the semiannual report as  performance measures with the symbol                  . Performance measures
are used to evaluate the achievement of a program goal, such as the efficiency of an immunization program which is measured by
the number of inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations
finalized during this semiannual period offer management information about whether some aspect or all of the programs or
activities reviewed are achieving their missions and goals.  
Page
External Quality Review of Psychiatric Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
External Quality Review of Dialysis Facilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Medicare Conditions of Participation for Organ Donation: An Early Assessment of the
New Donation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Nursing Home Vaccination: Reaching Healthy People 2010 Goals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Employer Compliance with Medicare Secondary Payer Data Match Requirements  . . . . . . . . . . . . . . . .34
Medicaid Program Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Protecting Human Research Subjects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Food and Drug Administration Oversight of State Food Firm Inspections . . . . . . . . . . . . . . . . . . . . . . . .52
Maternal and Child Health Training Grants: LEND Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Health Professions Student Loans Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
National Institutes of Health National Research Service Awards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Fiscal Year 1999 Financial Statement Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Federal Occupational Health Billing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Paternity Establishment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Client Cooperation with Child Support Enforcement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Medical Insurance for Dependents Receiving Child Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Child Support Enforcement State Disbursement Units: State Implementation Progress  . . . . . . . . . . . . .68
Child Support Operations: Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Fiscal year 1999 Financial Statement Audit of the Administration for Children and
Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Program Support Centers Personnel Service: Customer Service Evaluation  . . . . . . . . . . . . . . . . . . . . . .76
Results Act Review Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Reviews of Departmental Service Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
F-1 APPENDIX G
Status of Public Proposals for New and Modified Safe Harbors to the
Anti-Kickback Statute Pursuant to Section 205 of the Health Insurance
Portability and Accountability Act of 1996
Pursuant to section 205 of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191, the
Inspector General is required annually to solicit proposals (via Federal Register notice) for modifying existing safe harbors to the
anti-kickback statute and for developing new safe harbors and special fraud alerts.  In accordance with this requirement, on
December 10, 1999, the Office of Inspector General  published a notice in the Federal Register soliciting such proposals.  The
OIG received 17 timely-filed responses from a cross-section of organizations, associations, and other interested parties.   Some of
these respondents commented generally on areas of concern; others provided detailed proposals for new or modified safe harbor
regulations.
In crafting safe harbors for a criminal statute, it is incumbent upon OIG to engage in a complete and careful review of the range
of factual circumstances that may fall within the proposed safe harbor subject area, so as to uncover all potential opportunities for
fraud and abuse by unscrupulous providers.  Having done so, OIG must then determine, in consultation with the Department of
Justice, whether it can develop regulatory limitations and controls that will be effective in permitting beneficial or innocuous
arrangements within the subject area, while at the same time protecting the Federal health care programs and their beneficiaries
from abusive practices.
In response to the 1999 annual solicitation, OIG received the following suggestions for safe harbors:
(cid:127) "Gainsharing" arrangements between hospitals and physicians that provide quality assurances.  The OIG does not
anticipate  implementing  this  suggestion.    As  explained  in  the  OIG  Special  Advisory  Bulletin  on  Gainsharing
Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries (July 8,
1999), many "gainsharing" arrangements violate section 1128A(b)(1) & (2) of the Social Security Act and may implicate
the anti-kickback statute.  Because there are numerous permutations of "gainsharing" arrangements, such arrangements
require case-specific evaluation under the anti-kickback statute. 
(cid:127) De minimis gifts made to beneficiaries for recommending a new customer, and to providers and suppliers more generally,
along the lines of the proposed regulations under section 1877 of the Act (the physician self-referral law).  These
suggestions are under study.
(cid:127) Loans between parties who may be in a position to refer business if the loans are entered into on commercially reasonable
terms.  This suggestion is under consideration.
(cid:127) Investment interests in situations where the investors are potential recipients of referrals and the investment entity is the
potential source of referrals.  The suggested safe harbor would protect the investment itself, not the return on the
investment (as is the case with the existing investment safe harbors.  The OIG is  studying this suggestion.
(cid:127) Transactions protected under section 1877 of the Act.  The OIG will not adopt this suggestion. It believes Congress
intended section 1877 of the Act to establish a minimum threshold for acceptable financial relationships, and that
potentially abusive financial relationships that may be permitted under section 1877 of the Act could still be addressed
through other statutes that address health care fraud and abuse, including the anti-kickback statute.
(cid:127) A generic safe harbor setting forth criteria to be considered in determining whether a specific transaction affects the
Governments financial interests and patients care.  The OIG will not implement this suggestion, as it does not think it is
feasible to develop a set of generic criteria applicable to the wide range of health care arrangements in the marketplace.
In response to the 1999 annual solicitation, OIG received the following suggestions for modifying existing safe harbors:
(cid:127) Modifying the personal services and management contracts safe harbor and the rental safe harbors to eliminate the
requirement that the aggregate compensation over the term of the agreement be set in advance.  The OIG will not make
this modification to the safe harbor.  The requirement that aggregate compensation be set in advance over the term of the
G-1 agreement ensures that compensation is not adjusted to reward or induce referrals.  Compensation arrangements that are
not set in advance in the aggregate are not necessarily illegal and must be evaluated on a case-by-case basis for
compliance with the anti-kickback statute.
(cid:127) Expanding the safe harbor for physician investment in Medicare-certified ambulatory surgical centers (ASCs) to other
types of facilities, such as clinical laboratories, cardiac labs, and renal dialysis centers, or creating a new safe harbor for
such ventures.  The OIG is not prepared to expand the safe harbor or create a separate safe harbor at this time.
Investments by referring physicians or combinations of referring physicians and hospitals in non-ASC clinical joint
ventures  do  not  share  the  same  background  of  supportive  Federal  policy  and  are  not  subject  to  the  same
prospectively-fixed  reimbursement  structure  as  investments  by  physicians  in  ASCs.   The OIG  is  concerned  that
investments in ancillary services may create incentives for overuse and lead to increased Federal health care program
costs.
(cid:127) Modifying the employment safe harbor to conform it more closely to the employee exception in section 1877 of the Act
(the physician self-referral law) by adding fair market value and commercial reasonableness standards.  The OIG is
studying this suggestion.
(cid:127) Replacing safe harbor conditions that rely on Health Professional Shortage Area (HPSA) designations with alternate
measures of underserved areas.  The OIG is studying this suggestion.
(cid:127) Revisiting the existing safe harbor for group purchasing organizations in light of evolving fee arrangements in the
marketplace.  The OIG is studying this suggestion.
(cid:127) Modifying existing safe harbors to reflect the expansion of the anti-kickback statute to all Federal health care programs,
not just Medicare and Medicaid.  The OIG intends to adopt this suggestion in future rulemaking. 
(cid:127) Modifying the investment interests safe harbor to create a presumption that manufacturers are not "tainted" investors on
the grounds that they are rarely in a position to refer or influence patient referrals.  The OIG declines to adopt this
suggestion for a categorical presumption with respect to manufacturers.  Whether a particular party to a transaction is in a
position to make or influence referrals requires a case-by-case evaluation.  The OIG believes there are circumstances
where manufacturers may be in a position to make or influence referrals.
Finally, OIG is continuing to study safe harbor suggestions received in response to prior annual solicitations and reported in prior
semiannual reports.
G-2 ACRONYMS
AARP American Association of Retired Persons
ACF Administration for Children and Families
ACR adjusted community rate
ADR adverse drug reaction
AHRQ Agency for Healthcare Research and Quality
ALJ administrative law judge
AoA Administration on Aging
ASMB Assistant Secretary for Management and Budget
ATSDR Agency for Toxic Substances and Disease Registry
AWP average wholesale price
BBA Balanced Budget Act of 1997
CBO Congressional Budget Office
CDC Centers for Disease Control and Prevention
CIN common identification number
CMP civil monetary penalty
CSE child support enforcement
CY calendar year
DME durable medical equipment
DOJ Department of Justice
DRG diagnosis-related group
ESRD end stage renal disease
FDA Food and Drug Administration
FEHBP Federal Employees Health Benefits Program
FFP Federal financial participation
FI fiscal intermediary
FY fiscal year
GME graduate medical education
HCFA Health Care Financing Administration
HEAL health education assistance loan
HHA home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HIPDB Healthcare Integrity and Protection Data Bank
HMO health maintenance organization
HRSA Health Resources and Services Administration
IDPN intradialytic parenteral nutrition
IHS Indian Health Service
IME indirect medical education
MCO managed care organization
MFCU Medicaid fraud control unit
MSP Medicare secondary payer
NIH National Institutes of Health
OBRA Omnibus Budget Reconciliation Act
OCSE Office of Child Support Enforcement
OMB Office of Management and Budget
OPDIV operating division
PATH physicians at teaching hospitals
PHS Public Health Service
PIN provider identification number
PPS prospective payment system
PRO peer review organization
PSC Program Support Center
SAMHSA Substance Abuse and Mental Health Services Administration
SCHIP State Childrens Health Insurance Program
SNF skilled nursing facility
TANF Temporary Assistance for Needy Families
UPIN unique physician identification number
UPN universal product number STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual 
reports to be made to the Secretary for transmittal to the Congress. A selection of other statutory and administrative 
reporting and enforcement responsibilities and authorities are listed below:
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF MANAGEMENT 
AND BUDGET CIRCULARS
P.L. 96-304  Supplemental Appropriations and Rescissions Act of 1980
P.L. 96-510  Comprehensive Environmental Response, Compensation and Liability Act
P.L. 97-255  Federal Managers' Financial Integrity Act
P.L. 97-365  Debt Collection Act of 1982
P.L. 99-499 Superfund Amendments and Reauthorization Act of 1986
P.L. 101-576 Chief Financial Officers Act of 1990
P.L.  102-486  Energy Policy Act of 1992
P.L.  103-620  Government Performance and Results Act of 1993
P.L.  103-355 Federal Acquisition Streamlining Act of 1994
P.L.  103-356  Government Management Reform Act of 1994
P.L.  104-156 Single Audit Act Amendments of 1996
P.L.  104-191 Health Insurance Portability and Accountability Act of 1996
P.L.  104-193  Personal Responsibility and Work Opportunity Act of 1996
P.L.  104-208  Federal Financial Management Improvement Act of 1996
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25 User Charges
A-  50 Audit Follow-up  
A-  76 Performance of Commercial Activities
A-  87 Cost Principles for State, Local and Indian Tribal Governments
A-102 Grants and Cooperative Agreements with State and Local Governments
A-110 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
A-122 Cost Principles for Nonprofit Organizations
A-123 Management Accountability and Control
A-127 Financial Management Systems
A-129 Policies for Federal Credit Programs and Non-Tax Receivables
A-133 Audits of States, Local Governments and Non-Profit Organizations
A-134 Financial Accounting Principles and Standards
General Accounting Office Government Auditing Standards
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES
Criminal investigative authorities include:
Title   5, United States Code, section 552a(I)
Title 18, United States Code, sections on crime and criminal procedures as they pertain to OIG's oversight of 
departmental programs and employee misconduct
Title 42, United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 1320a-7b, the Social Security 
and Public Health Service Acts
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as 
those at:
Title 31, United States Code, section 3729-3733, (the False Claims Act) and 3801-3812 (the Program Fraud Civil 
Remedies Act)
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320b-10, 1320c-5, 1395l, 1395m, 1395u, 1395dd and 
1396b DEPARTMENT OF HEALTH
AND HUMAN SERVICES
Office of Inspector General
330 Independence Avenue, S.W.
Washington, D.C. 20201
 
Internet Address
http://www.hhs.gov/oig