The Department of Health and Human Services

And

The Department of Justice

Health Care Fraud and Abuse Control Program

Annual Report For FY 2005

AUGUST 2006  TABLE OF CONTENTS

Page 
Executive Summary  1 
Introduction  2 
Monetary Results  4 
Program Accomplishments  6 
Department of Health and Human Services 
Office of Inspector General  19 
Centers for Medicare and Medicaid Services  25 
Office of the General Counsel  27 
Administration on Aging  29
Office of the National Coordinator 
     for Health Information Technology                                              30 
Health Resources and Services Administration                                 30
Department of Justice 
United States Attorneys  32 
Civil Division  33 
Criminal Division  35 
Civil Rights Division                                                                          37 
Appendix: Federal Bureau of Investigation - Mandatory Funding  39 
Glossary of Terms  41 
GENERAL NOTE

All years are fiscal years unless

otherwise noted in the text.
 EXECUTIVE SUMMARY

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national 
Health Care Fraud and Abuse Control Program (HCFAC or the Program), under the joint 
direction of the Attorney General and the Secretary of the Department of Health and Human 
Services (HHS)1, acting through the Departments Inspector General (HHS/OIG), designed to 
coordinate federal, state and local law enforcement activities with respect to health care fraud 
and abuse.  In its ninth year of operation, the Programs continued success again confirms the 
soundness of a collaborative approach to identify and prosecute the most egregious instances of 
health care fraud, to prevent future fraud or abuse, and to protect program beneficiaries. 
Monetary Results 
During FY 2005, the Federal Government won or negotiated approximately $1.47 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Fund received transfers of nearly $1.55 billion 
during this period as a result of these efforts, as well as those of preceding years, in addition to 
$63.64 million in federal Medicaid money similarly transferred to the Centers for Medicare and 
Medicaid Services (CMS) as a result of these efforts.  The HCFAC account has returned over 
$8.85 billion to the Medicare Trust Fund since the inception of the program in 1997. 
Enforcement Actions 
In FY 2005, U.S. Attorneys' Offices opened 935 new criminal health care fraud investigations 
involving 1,597 potential defendants.  Federal prosecutors had 1,689 health care fraud criminal 
investigations pending, involving 2,670 potential defendants, and filed criminal charges in 382 
cases involving 652 defendants. A total of 523 defendants were convicted for health care 
fraud-related crimes during the year.  Also in FY 2005, the Department of Justice (DOJ) opened 
778 new civil health care fraud investigations, and had 1,334 civil health care fraud 
investigations pending at the end of the fiscal year.  DOJ filed complaints or intervened in 266 
civil health care cases in FY 2005. 
1Hereafter, referred to as the Secretary. 
1  INTRODUCTION

ANNUAL REPORT OF 

THE ATTORNEY GENERAL AND THE SECRETARY

DETAILING EXPENDITURES AND REVENUES

UNDER THE HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM

FOR FISCAL YEAR 2005

As Required by 

Section 1817(k)(5) of the Social Security Act

STATUTORY BACKGROUND

The Social Security Act Section 1128C(a), as established by the Health Insurance Portability and 
Accountability Act of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud 
and Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, 
including both public and private health plans. 
The Act requires that an amount equaling recoveries from health care investigations -- including 
criminal fines, forfeitures, civil settlements and judgments, and administrative penalties, but 
excluding restitution, compensation to the victim agency, and relators shares -- be deposited in 
the Medicare Trust Fund.2 All funds deposited in the Trust Fund as a result of the Act are 
available for the operations of the Trust Fund. 
The Act appropriates monies from the Medicare Trust Fund to an expenditure account, called the 
Health Care Fraud and Abuse Control Account (the Account), in amounts that the Secretary and 
Attorney General jointly certify as necessary to finance anti-fraud activities.  The maximum 
amounts available for certification are specified in the Act.  Certain of these sums are to be used 
only for activities of the HHS/OIG, with respect to Medicare and Medicaid programs.  In FY 
2005, the Secretary and the Attorney General certified $240.558 million for appropriation to the 
Account. A detailed breakdown of the allocation of these funds is set forth later in this report. 
These resources generally supplement the direct appropriations of HHS and DOJ that are 
devoted to health care fraud enforcement.  These funds provide approximately 80% of HHS/OIG 
funding.  (Separately, the Federal Bureau of Investigation (FBI) received $114 million from 
HIPAA which is discussed in the Appendix.). 
2Also known as the Hospital Insurance (HI) Trust Fund.  All further references to the 
Medicare Trust Fund refer to the HI Trust Fund. 
2  Under the joint direction of the Attorney General and the Secretary, the Programs goals are: 
(1)	 to coordinate federal, state and local law enforcement efforts relating to health care fraud 
and abuse with respect to health plans; 
(2)	 to conduct investigations, audits, inspections, and evaluations relating to the delivery of 
and payment for health care in the United States; 
(3)	 to facilitate enforcement of all applicable remedies for such fraud; 
(4)	 to provide guidance to the health care industry regarding fraudulent practices; and 
(5)	 to establish a national data bank to receive and report final adverse actions against health 
care providers, and suppliers. 
The Act requires the Attorney General and the Secretary to submit a joint annual report to the 
Congress which identifies both: 
(1)	 the amounts appropriated to the Trust Fund for the previous fiscal year under various 
categories and the source of such amounts; and 
(2)	 the amounts appropriated from the Trust Fund for such year for use by the Attorney 
General and the Secretary and the justification for the expenditure of such amounts. 
This annual report fulfills the above statutory requirements.  
3
 MONETARY RESULTS

As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited 
and appropriated to the Medicare Trust Fund, and the source of such deposits. In FY 2005, 
$1.71 billion was deposited with the Department of the Treasury and the Centers for Medicare 
and Medicaid Services (CMS), transferred to other federal agencies administering health care 
programs, or paid to private persons during the fiscal year.  The following chart provides a 
breakdown of the transfers/deposits: 
Total Transfers/Deposits by Recipient FY 2005 
Department of the Treasury 
  HIPAA Deposits to the Medicare Trust Fund
 Gifts and Bequests $30,863 
            Amount Equal to Criminal Fines $347,896,377 
            Civil Monetary Penalties $13,134,764 
 Asset Forfeiture * $0 
            Penalties and Multiple Damages  $350,763,305 
Subtotal  $711,825,310 
Centers for Medicare and Medicaid Services
 OIG Audit Disallowances - Recovered $423,334,724 
  Restitution/Compensatory Damages  $413,398,752 
Subtotal  $836,733,476 
Grand Total  $1,548,558,785 
Restitution/Compensatory Damages to Federal Agencies 
HHS/OIG Cost of Audits, Investigations and Compliance           
Monitoring  $9,432,501 
Office of Personnel Management  $4,002,889 
TRICARE  $3,350,711 
Administration for Children and Families  $2,583,033 
National Institutes of Health  $1,671,755 
Department of Labor  $1,274,523 
Other Agencies  $1,313,912 
Subtotal  $23,629,324 
Relators Payments**  $136,756,946
       TOTAL ***  $1,708,945,056 
*This includes only forfeitures under 18 U.S.C.  1347, a Federal health care fraud offense that became effective on 
August 21, 1996.  Not included are forfeitures obtained in numerous health care fraud cases prosecuted under 
Federal mail and wire fraud and other offenses. 
**These are funds awarded to private persons who file suits on behalf of the Federal Government under the qui tam 
provisions of the False Claims Act, 31 U.S.C.  3730(b). 
***Funds are also collected on behalf of state Medicaid programs and private insurance companies; these funds are 
not represented here. 
4  The above transfers include certain collections, or amounts equal to certain collections, required 
by HIPAA to be deposited directly into the Medicare Trust Fund. These amounts include: 
(1)	 Gifts and bequests made unconditionally to the Trust Fund, for the benefit of the Account 
or any activity financed through the Account; 
(2)	 Criminal fines recovered in cases involving a Federal health care offense, including 
collections under section 24 (a) of Title 18, United States Code (relating to health care 
fraud); 
(3)	 Civil monetary penalties in cases involving a Federal health care offense; 
(4)	 Amounts resulting from the forfeiture of property by reason of a Federal health care 
offense, including collections under section 982(a)(6) of Title 18, United States Code; 
and 
(5)	 Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the 
general fund of the Treasury obtained under sections 3729 through 3733 of Title 31, 
United States Code (known as the False Claims Act, or FCA), in cases involving claims 
related to the provision of health care items and services (other than funds awarded to a 
relator, for restitution or otherwise authorized by law). 
5
 PROGRAM ACCOMPLISHMENTS

EXPENDITURES 
In the ninth year of operation, the Secretary and the Attorney General certified $240.558 million 
as necessary for the Program.  The following chart gives the allocation by recipient: 
FY 2005 ALLOCATION OF HCFAC APPROPRIATION 
(Dollars in thousands) 
Organization  Allocation 
Department of Health and Human Services
 Office of Inspector General3 $160,000 
 Office of the General Counsel 4,778 
   Administration on Aging 3,128 
 Centers for Medicare and Medicaid Services 22,297 
   Health Resources and Services Administration  450 
Office of the National Coordinator for Health 
Information Technology (ONC)  490 
Subtotal  $191,143 
Department of Justice
 United States Attorneys $30,400 
 Civil Division 14,459 
    Criminal Division 1,580 
 Civil Rights Division  1,976 
    Nursing Home Initiative  1,000 
Subtotal  $49,415 
Total  $240,558 
3In addition, HHS/OIG obligated $1.71 million in funds received as "reimbursement for 
the costs of conducting investigations and audits and for monitoring compliance plans" as 
authorized by section 1128C(b) of the Social Security Act, 42 U.S.C.  1320a-7c(b). 
6  ACCOMPLISHMENTS 
Overall Recoveries 
During this fiscal year, the Federal Government won or negotiated approximately $1.47 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Fund received transfers of nearly $1.55 billion 
during this period as a result of these efforts, as well as those of preceding years, in addition to 
$63.64 million in federal Medicaid money similarly transferred to CMS as a result of these 
efforts. Note that some of the judgments, settlements, and administrative actions that occurred in 
FY 2005 will result in transfers in future years, just as some of the transfers in FY 2005 are 
attributable to actions from prior years.  
In addition to these enforcement actions, numerous audits, evaluations and other coordinated 
efforts yielded recoveries of overpaid funds, and prompted changes in Federal health care 
programs that reduce vulnerability to fraud.  In FY 2005 HHS collected more than $423 million 
in HHS/OIG recommended recoveries. 
Program Accomplishments 
Working together, HHS/OIG, DOJ and their law enforcement partners have brought to successful 
conclusion the investigation and prosecution of numerous health care fraud schemes.  During FY 
2005, the many significant HCFAC Program accomplishments included the following: 
Pharmaceutical Fraud 
'	 GlaxoSmithKline paid the United States $140 million to settle allegations of fraudulent 
drug pricing and marketing that resulted in the submission of inflated claims to Medicare, 
Medicaid, and other federally funded health care programs.  The United States alleged that 
GlaxoSmithKline, one of the worlds largest pharmaceutical manufacturers, reported 
inflated prices for the drugs, Zofran and Kytril, knowing that those prices would be used 
by federal programs to set reimbursement rates.  GlaxoSmithKline used the artificial 
spread between the reported, inflated prices and its customers significantly lower actual 
cost to purchase the drugs as a marketing tool.  Zofran and Kytril are anti-emetic drugs 
used primarily to reduce the negative side effects of radiation and other cancer treatments. 
The settlement was the result of a qui tam suit filed by Ven-A-Care of Florida Keys, Inc., 
a small home-infusion company, and its principals.  In addition to the $140 million federal 
share of the recovery, GlaxoSmithKline paid $10 million to reimburse state Medicaid 
funds. 
'	 AdvancePCS, in the pharmacy benefit management business, paid the United States 
$138.5 million to resolve allegations that AdvancePCS exacted kickbacks, disguised as 
administrative fees and sales and service agreements, from drug manufacturers in 
7
 exchange for marketing their drugs to providers reimbursed by federally insured health 
programs; accepted kickbacks in the form of cash payments and rebates from drug 
manufacturers in exchange for marketing their drugs to providers reimbursed by federally 
insured health programs; and paid kickbacks to providers reimbursed by federally insured 
health programs to ensure that AdvancePCS was selected or retained as the pharmacy 
benefit manager for the health plans. 
Pharmaceutical Distribution Fraud 
'	 A pharmacist and former principal owner and president of King Drugs, Inc. in Kentucky 
pleaded guilty to illegally selling prescription drug samples to the public through King 
Drugs pharmacies after repackaging the samples.  The pharmacist obtained the samples by 
taking them from various doctors and purchasing the samples from others and then led the 
public to believe that the drugs were properly obtained and dispensed as required by law. 
In resolving both criminal and civil actions with the United States, the defendant paid 
(jointly with the company) more than $10.5 million to the government, relinquished his 
pharmacy license, agreed to permanent exclusion from all federal health benefit programs, 
and will serve a sentence involving home confinement and 48 months of probation.  
'	 An individual based in Las Vegas, Nevada who sold prescription drugs and controlled 
substances over the internet was convicted by a jury of 17 felony counts and sentenced to 
120 months in prison.  The defendant shipped the drugs to his customers in the United 
States through a German business he owned called CFF Pharma Consult.  One of the 
drugs the defendant sold online was Flunitrazepam, commonly known as Rohypnol, or the 
date rape drug. The drugs the defendant sold were shipped from Germany to the United 
States through the use of forged and fraudulent documents designed to deceive employees 
of the United States Customs Service and the Food and Drug Administration (FDA).  In 
addition to the ten-year prison sentence, the court ordered forfeiture of the defendants 
home valued at $285,000 because it was used to facilitate the drug offenses.  A co-
defendant also pleaded guilty to conspiracy to defraud and was sentenced to 37 months in 
prison. 
'	 Convictions resulted for nine individuals in the Miami, Florida area who engaged in a 
multi-million dollar Medicare fraud scheme regarding local medical clinics that were 
fraudulently billing for expensive medications used to treat conditions common among 
persons with Human Immunodeficiency Virus (HIV) and persons undergoing cancer 
treatment.  Several doctors and their co-conspirators used the Bolanos Institute and 
Lefebvre Institute to fraudulently bill Medicare for intravenous infusion treatments 
involving medications, Neupogen and Procrit, that were either not provided to patients or 
were not medically necessary.  The doctors falsified patient medical diagnoses and 
documentation in order to help conceal the fact that the patients were not receiving the 
Neupogen and Procrit treatments that were billed to Medicare. 
8
 '	 An owner of numerous internet pharmacy websites was sentenced in the Eastern District 
of Virginia to 33 months in prison for illegally distributing controlled substance weight 
loss drugs and other prescription drugs over the internet to consumers.  The court ordered 
forfeiture of approximately $6 million worth of vehicles, homes, jewelry, bank accounts, 
and other property that the government had seized, and also entered a $16 million order of 
forfeiture.  Two of the defendants companies, Chhabra Group, LLC, and VKC 
Consulting, LLC, were also convicted of conspiracy to commit money laundering.  Eleven 
individuals, including five physicians and two pharmacists, pleaded guilty or have been 
found guilty in this scheme. 
'	 A California man was sentenced to serve 51 months in prison and to forfeit cash proceeds 
for operating one of the largest internet pharmacy schemes ever prosecuted.  Customers 
visiting his on-line pharmacy filled out a questionnaire and paid a $35 fee for a 
physicians consultation, after which the ostensible physician would issue a prescription 
and the customer would receive the pharmaceuticals.  In fact, there was no physician 
associated with the internet pharmacy at all.  Not only were drugs dispensed without any 
physicians review, but drugs labeled as the generic forms of Viagra, Cialis, Levitra, 
Propecia, Celebrex and others were actually counterfeit drugs illegally imported into the 
United States without FDAs quality controls and public health safeguards. The 
individual pled guilty to conspiring to sell counterfeit drugs, mail fraud, and illegal 
importation or smuggling of drugs into the United States. 
'	 As reported in the HCFAC Report for FY 2004, after a jury trial, a Texas pharmacist was 
convicted for his role in distributing hydrocodone and other controlled substances via his 
web-based pharmacy.  The pharmacist has been sentenced to 20 years in prison. 
Customers had only to complete a short on-line questionnaire to receive the controlled 
substances. The pharmacist and his co-conspirators found doctors, paid per prescription, 
who were willing to sign thousands of prescriptions without ever seeing the patients.  The 
scheme netted over $8 million in sales.  This marked the first time that the kingpin statute 
was used to prosecute an internet pharmacy. 
Hospital Fraud 
'	 HealthSouth Corporation paid the United States $327 million to settle allegations of fraud 
against Medicare and other federally insured health care programs.  The United States 
alleged that HealthSouth, the nations largest provider of rehabilitative medicine services, 
engaged in three major schemes to defraud the government.  The first, comprising $170 
million of the settlement amount, resolved HealthSouths alleged false claims for 
outpatient physical therapy services that were not properly supported by certified plans of 
care, administered by licensed physical therapists, or for one-on-one therapy as 
represented. Another $65 million resolved claims that HealthSouth engaged in accounting 
fraud which resulted in overbilling Medicare on hospital cost reports and home office cost 
9
 statements.  The remaining $92 million resolved allegations of billing Medicare for a 
range of unallowable costs, such as lavish entertainment and travel expenses incurred for 
HealthSouths annual administrators meeting at Disney World and other claims. 
Government-initiated claims accounted for $251 million of the settlement amount, with 
the remaining $76 million attributable to four qui tam law suits.  HealthSouth also entered 
into a corporate integrity agreement (CIA) with the HHS/OIG to prevent future 
misconduct. 
'	 Cleveland Clinic Florida Hospital paid $2.75 million to the United States to resolve 
allegations that the hospital billed Medicare for observation services for patients at the 
Florida hospital that did not qualify for reimbursement under the Medicare program.  The 
settlement agreement resolved allegations by the United States that from 1993 to 2001 the 
hospital failed to comply with Medicare coverage requirements, as prescribed and defined 
by CMS, regarding beneficiaries that have been placed in observation status in order to 
receive treatment or be monitored before making a decision concerning their next 
placement.  In particular, the settlement agreement resolved allegations that Cleveland 
Clinic frequently billed Medicare for extra observation charges during normal recovery 
periods following minor surgery or emergency room visits.  Under Medicare rules, the 
cost for monitoring a patients status is, in most cases, built into the cost of the whole 
procedure. To claim an additional observation charge, the hospital must meet specific 
criteria, such as unexpected complications. 
'	 The Eisenhower Medical Center in Rancho Mirage, California paid the United States $8 
million to settle allegations that it fraudulently overbilled federal health insurance 
programs.  The settlement resolves allegations made against Eisenhower in a qui tam 
lawsuit filed by a former employee.  The lawsuit alleged that Healthcare Financial 
Advisors helped its hospital clients seek reimbursement for unallowable costs and 
specifically alleged that it helped clients prepare two cost reports  an inflated one 
submitted to Medicare  and a second one designed for internal use only that accurately 
reflected the amount of reimbursement the hospital should have received. 
Dialysis Fraud 
'	 Gambro Healthcare paid the United States $310 million to resolve allegations concerning 
the submission of false claims to Medicare and Medicaid in connection with dialysis 
services. The allegations against Gambro included:  providing home dialysis patients with 
equipment and supplies through a sham durable medical equipment (DME) company to 
increase Medicare reimbursement; billing for phantom supplies; billing for ancillary 
medications and services that were not medically necessary  a requirement for Medicare 
reimbursement; and paying kickbacks to physicians for referring patients to Gambro 
clinics in violation of the Medicare Anti-Kickback Statute. 
10
 Gambro also paid $15 million to resolve state Medicaid liabilities.  In addition, Gambro 
Supply Corporation, the sham DME company and a wholly-owned subsidiary of Gambro 
Healthcare, paid a $25 million criminal fine and agreed to permanent exclusion from the 
Medicare program. 
'	 The Hospital of St. Raphael in Connecticut entered into a civil settlement agreement and 
agreed to pay the United States $632,000 to resolve allegations that it improperly charged 
Medicare for treatment for kidney dialysis patients.  Dialysis patients need surgically 
created fistula or grafts for vascular access during dialysis treatment.  The fistula/grafts 
often become dysfunctional and need to be repaired or replaced.  These procedures are 
usually performed under local anesthesia in an outpatient setting.  If performed in an 
outpatient setting, Medicare pays the provider approximately $1,500.  However, if the 
patient is admitted to the hospital, even for one night, Medicare pays the provider 
approximately $13,000.  Allegedly, St. Raphael unnecessarily admitted Medicare 
beneficiaries to the hospital for the procedures in question and many of the beneficiaries 
could have been treated on an outpatient basis, at far less cost to the Medicare program. 
The United States also alleged that St. Raphael admitted patients for one night stays for 
these types of procedures far more often than other hospitals in Connecticut.  St. Raphael 
entered into a CIA with the HHS/OIG designed to ensure compliance with the 
requirements of the Medicare program. 
Fraud on Community Health Centers 
'	 After an eleven-day trial, a jury found five individuals and a company, Duncan Drugs, 
guilty of health care fraud involving the Community Mental Health Center of East Central 
Georgia (CMHC).  CMHC was a public agency that received millions of dollars in federal 
assistance annually. While a member of the Georgia House of Representatives, one of the 
defendants used his influence to insert a co-defendant as the business manager, and then 
executive director of CMHC. Through his placement as executive director, this individual 
fraudulently diverted more than $2 million of CMHCs funds and directed kickbacks of 
over $900,000 to the defendant in the Georgia House, which he used, in part, to fund a 
failed re-election campaign for the House and a failed mayoral campaign.  The former 
Georgia House member was sentenced to 120 months in prison and ordered to pay $1.46 
million in restitution and a forfeiture money judgment of $400,000.  The former executive 
director of CMHC was sentenced to 72 months in prison and ordered to pay $1.47 million 
in restitution. Other defendants in this scheme included a local pharmacist, a former 
professional baseball player, and the grandson of a former Georgia Speaker of the House; 
these defendants were ordered to serve 52 months, 37 months, and 33 months in prison, 
respectively, with full restitution ordered to the federal government.   
11
 '	 The former director of Kickapoo Community Health Services in Eagle Pass, Texas was 
sentenced to 15 years imprisonment and ordered to pay over $100,000 in restitution. 
Kickapoo Community Health Services was established by the Kickapoo Traditional Tribe 
of Texas and is federally funded by the United States Indian Health Service. A jury found 
the defendant guilty of one count of theft from a health care benefit program and two 
counts of money laundering for stealing funds that were to be used to pay healthcare 
providers for medical treatment and medications for Kickapoo tribal members.  
Medicaid Fraud 
'	 A district court in Indiana sentenced a dentist to 57 months imprisonment for a Medicaid 
fraud scheme relating to the provision of dental services for juveniles from the defendants 
mobile office.  The defendant induced the parents or guardians of Medicaid-eligible 
patients to bring the children to him by offering, for example, gift cards or free compact 
disk players.  The defendant would then submit claims to the Indiana Medicaid program 
for treatments that were not provided or were not medically necessary.  In this manner, the 
defendant fraudulently obtained in excess of $2.4 million in Medicaid funds.  Two 
corporations also pleaded guilty and were each sentenced to three years probation. The 
defendants were ordered to pay over $2.4 million in restitution and in excess of $70,000 to 
the Indiana Attorney Generals Office for the costs of investigation incurred by the states 
Medicaid Fraud Control Unit. 
'	 A former Florida Medicaid employee filed a qui tam suit against the University of Miami 
alleging that it double-billed and overcharged Medicaid through several of its outpatient 
clinics. The employee contended that both the University and its outpatient clinics billed 
Florida Medicaid under their respective provider numbers for the same covered services 
provided to the same beneficiaries on the same date.  The United States and the State of 
Florida also alleged that the University submitted claims for a facility fee in connection 
with primary care services provided to Medicaid recipients in circumstances where the 
University knew that these fees were not a covered item under the provisions of the 
Florida Medicaid program.  The United States and Florida settled this matter with the 
University for almost $3.9 million. 
'	 A licensed pharmacist who was also president and owner of Pierce Pharmaceuticals, Inc. 
was sentenced to 33 months imprisonment and ordered to pay over $2 million in 
restitution to the North Carolina Medicaid program.  Pierce Pharmaceuticals provided 
prescription drugs to patients who were residents in long term care facilities in North 
Carolina.  The defendant had his company submit claims for payment to the Medicaid 
program for refilling prescriptions that, in fact, had not been refilled, delivered, or even 
requested by the various long term care facilities with which it had contracts.  As a result, 
the Medicaid program paid over 39,000 false claims to Pierce Pharmaceuticals.  
12
 Chiropractic Fraud 
'	 The owners and operators of twelve chiropractic/medical clinics in Ohio pleaded guilty to 
conspiring to commit health care fraud by billing Medicare and private health care benefit 
programs $4.8 million for noncovered chiropractic services for which they were ultimately 
paid $1.7 million.  The defendants owned a chain of chiropractic clinics and converted 
them to joint chiropractic and medical clinics so they could use medical doctor billing 
numbers to avoid limitations on chiropractic care and bill for noncovered services.  The 
company, MedBack, fraudulently billed for all chiropractic services using Current 
Procedural Terminology (CPT) codes for physical therapy or for office visits to the 
medical doctor.  When the insurance plans correctly denied payment for noncovered 
chiropractic services, the owners sent appeal letters falsely stating that a medical doctor 
had performed all services and that the MedBack clinics did not provide chiropractic 
services.  The defendants agreed to pay $1.7 million in restitution and be excluded from 
federal health care benefit programs for fifteen years.  
Podiatry Fraud 
'	 A podiatrist in Ohio was sentenced to 135 months in prison and ordered to pay restitution 
of over $1.7 million, as well as forfeit three Ohio properties following his second 
conviction on health care fraud charges.  Previously, in 1998, the defendant pleaded guilty 
to upcoding claims submitted to Medicare for nursing home podiatry services.  He was 
ordered not to bill Medicare for eight years, and, as a term of his supervised release, to tell 
his Probation Officer if he became involved, directly or indirectly, in any entity that billed 
Medicare. The State of Ohio also permanently revoked his license to practice podiatric 
medicine.  Even as he was pleading guilty in 1998, however, the defendant was already 
scheming to keep control of his practice and its Medicare revenues.  The defendant made 
it appear that he sold his practice to another podiatrist and pretended to transfer financial 
control of the practice to another individual, all while continuing to control and expand the 
practice, and using its Medicare revenues to pay his own expenses.  On a loan application 
for a home paid for with Medicare funds, the defendant listed his own assets but listed the 
other individual as the borrower and used that persons credit history to obtain the loan. 
In addition to health care fraud and conspiracy to commit health care fraud, the defendant 
was convicted of mail fraud, false statements, and bank fraud.    
Ambulance Services Fraud 
'	 Adventist Health System Sunbelt Healthcare Corporation, and a management company 
that administered ambulance operations at three hospitals affiliated with the company 
agreed to pay the government $20.3 million to settle allegations that they billed Medicare 
for ambulance transports that were not medically necessary.  To support these claims, the 
management company and the hospitals allegedly created false physician certifications 
regarding the medical necessity of ambulance trips.  
13
 Kickbacks 
'	 PharMerica, Inc., and PharMerica Drug Systems, Inc., entered a settlement agreement 
with the HHS/OIG to resolve allegations that the companies paid unlawful kickbacks in 
connection with a purchase of a small Virginia pharmacy.  In what was the largest 
settlement of a civil monetary penalties (CMP) kickback case to date, PharMerica agreed 
to pay more than $5.9 million to the government.  A leading supplier of pharmacy services 
to long term care institutions, PharMerica allegedly overpaid for the pharmacy in return 
for a commitment from the seller  who also owned 17 nursing homes -- to refer its 
Medicare and Medicaid pharmacy business to PharMerica for the following seven years. 
The HHS/OIG alleged that PharMericas acquisition amounted to the unlawful purchase 
of referrals of federal health care program business from the nursing facility chain. 
PharMerica also entered into a five-year CIA with the HHS/OIG. 
False Claims by a Research University 
'	 The University of Alabama at Birmingham and two related entities will pay the United 
States $3.39 million to settle allegations that they violated the False Claims Act (FCA) 
with respect to claims submitted in connection with the schools health science research 
activities. The settlement resolves allegations that, in completing applications for federal 
health science research grants, the school overstated the percentage of work effort that the 
researchers were able to devote to the grant.  It was also alleged that the university, and 
the entity through which its medical school faculty provide clinical services, unlawfully 
billed Medicare for clinical research trials that were also billed to the sponsor of research 
grants. 
Fraudulent Health Insurance Provider 
'	 A San Francisco executive was sentenced to 41 months in prison and ordered to pay $1.3 
million in restitution for operating a fraudulent health insurance scheme that defrauded 
thousands of people across the United States.  The victims purchased health insurance 
plans from the company, only to discover after illnesses or accidents that their health 
insurance was essentially worthless. According to the charges, the phony health insurance 
company collected over $2.8 million in premiums but deposited only a small fraction of 
those funds into trust accounts. Instead, the defendant spent much of the money on his 
personal expenses, paying salaries to members of his family, leasing expensive cars, 
buying football tickets, and paying commissions to so-called promoters who helped 
market the fraudulent plan. 
14
 Durable Medical Equipment Fraud 
'  Polymedica Corporation and its subsidiaries Liberty Medical Supply, Inc., and Liberty 
Home Pharmacy Corporation agreed to pay the United States $35 million to resolve 
allegations that they submitted improper claims to Medicare for various diabetic and 
nebulizer products. Claims were allegedly submitted without required doctors order or 
prescription, and the companies failed to obtain and maintain documentation verifying the 
necessity of the level of treatment rendered.  The companies also allegedly billed 
Medicare without written authority from a patient to do so.  Under the terms of this 
settlement, Polymedica Corporation and/or its subsidiaries also agreed to comply with a 
CIA negotiated by the HHS/OIG. 
'  The owner of a California medical supply company pled guilty to health care fraud for 
billing Medicare for power wheelchairs, hospital beds and other equipment that was never 
prescribed by a physician, and never received by the beneficiaries. The individual was 
charged with having defrauded Medicare of some $2.4 million over five years.  As part of 
the plea agreement, the owner agreed to forfeit his home, vehicles and bank accounts to 
pay restitution to the government. 
'  The owner of a medical equipment company in Oklahoma was sentenced to serve 5 
months in prison and to pay more than $340,000 in restitution after pleading guilty to 
health care fraud. She admitted to forging doctors names on phony certificates of 
medical necessity.  She furnished patients with scooters valued at $1,500, but billed the 
Medicaid program for electronic wheelchairs at $5,000. 
'  Apria Healthcare Group Inc., the nations largest supplier of DME, paid the United States 
$17.6 million to settle two civil FCA cases filed against Apria by former employees.  The 
settlements resolved allegations that between mid-1995 through 1998, Apria submitted 
false documents certifying medical necessity; failed to obtain written prescriptions from 
physicians prior to delivery of equipment when required to do so; failed to notify patients 
of their option to purchase DME; and misrepresented the date or place equipment was 
delivered to patients. 
Obstruction of a Federal Audit 
'	 Charges of unlawful kickbacks against OPI Properties, Inc., a subsidiary of the Swiss 
Novartis Corporation were resolved with OPI pleading guilty to nine felony counts of 
attempting to obstruct a federal audit.  OPI was ordered to pay $4.5 million to the 
government and was permanently excluded from Medicare and Medicaid.  Under a 
separate civil agreement, Novartis Nutrition Company, also a subsidiary of the Swiss 
company, agreed to pay over $44 million to the United States.  
15
 Both actions arose from an undercover operation in which various manufacturers and 
distributers of enteral nutrition products offered kickbacks to federal agents operating a 
storefront distributor of medical supplies.  OPI provided free equipment to the phony 
distributor in exchange for a long-term contract involving services to Medicare patients, 
then created false invoices for the free items, instructing the undercover agents to produce 
the dummied invoices in the event of a Medicare audit.  The civil settlement resolved 
allegations that OPI and Novartis Nutrition caused false claims to Medicare in connection 
with arrangements that violated the Medicare Anti-Kickback Statute.  Novartis Nutrition 
entered a five year CIA with HHS/OIG. 
Physician Fraud 
'	 A Virginia physician specializing in pain management was sentenced to 25 years 
imprisonment and ordered to pay a $1 million fine for his conviction on drug distribution 
charges and drug trafficking that resulted in one death and serious injuries to others. 
During the six-week trial, the Government demonstrated that he performed perfunctory 
exams on patients, and then facilitated the patients demand for excessive amounts of 
controlled substances, including OxyContin. Evidence showed that the physician knew 
that patients were abusing the controlled substances, or selling them to others. 
Medicare Contractor Fraud 
'	 United Healthcare Insurance Company agreed to pay the United States $3.5 million to 
settle allegations that the company defrauded the Medicare program.  As a former DME 
Regional Carrier, United Healthcare contracted with CMS to process Medicare claims for 
DME submitted by providers, suppliers and Medicare beneficiaries in the Northeastern 
United States. The government alleged that United Healthcares telephone response unit 
knowingly mishandled phone inquiries received from Medicare beneficiaries and 
providers and then falsely reported its performance information to CMS concerning the 
companys handling of those calls. 
Teaching Hospital Physicians Fraud 
'	 The University of Medicine and Dentistry of New Jersey agreed to pay the federal 
government $1.4 million to resolve allegations that the medical schools falsely represented 
that services billed to Medicare were personally provided by teaching faculty, when there 
was insufficient documentation that those physicians were personally and identifiably 
involved in the care. This marks the last of the governments several cases brought as 
part of an initiative to review rules governing Medicare payments to physicians at 
teaching hospitals. 
16
 Quality of Care Issues 
Another area in which collaboration among the federal authorities responsible for health oversight 
has proved most effective has been in enforcement and oversight of issues relating to quality of 
care, as demonstrated by the following: 
'	 A joint federal-state investigation of a nursing home owned by Hillcrest Healthcare, Inc., 
disclosed egregious quality of care problems at the Connecticut facility.  One resident had 
died of septic infection allegedly caused by improperly treated bedsores; others suffered 
from severe pressure sores and pressure ulcers, dehydration, and weight loss.  The 
government also alleged that the home failed to employ adequate staffing, and failed to 
follow plans of care.  By consent order, the home surrendered its license and paid the state 
$200,000.  The company pled nolo contendere in state court to charges of Manslaughter in 
the Second Degree arising out of the death of the resident.  The company entered a civil 
settlement with the federal government to resolve allegations of submitting false claims to 
Medicare and Medicaid.  Hillcrest agreed to pay a total amount of $750,000.  In addition, 
Hillcrest agreed to be permanently excluded from the Medicare and Medicaid programs. 
Hillcrest sold the facility to new owners in December 2004. 
'	 The United States entered a civil settlement agreement with Central Montgomery Medical 
Center over the Pennsylvania hospitals alleged quality of care deficiencies.  The 
agreement marked the first settlement for failure of care based upon alleged violations of 
regulatory requirements relating to use of physical and chemical restraints.  The 
government alleged that the hospital knowingly billed for numerous patients who were 
improperly physically and/or chemically restrained in violation of federal law, in one case 
ending in the death of a restrained elderly patient. The hospital agreed to pay the 
government $200,000 and to hire a consultant to review restraint usage at the facility.  
'	 After a five week trial, a jury found a now-defunct suburban Pittsburgh nursing home and 
its former administrator guilty of heath care fraud and numerous false statements relating 
to health care matters.  The evidence presented at trial established that the nursing home 
administrator and Atrium I Nursing and Rehabilitation Center engaged in a scheme to 
defraud Medicare and Medicaid of more than $7 million from 1999 through August 2003. 
The scheme involved a failure to provide required care for Atrium residents, most of 
whom were diagnosed with Alzheimers disease.  The defendants falsely represented they 
were providing appropriate care, and concealed deficiencies from regulatory agencies by 
the extensive falsification of records.  
'	 Boston Scientific Corporation of Massachusetts paid $74 million to address thecompanys 
illegal distribution of the Nir ON Ranger with Sox premounted coronary stent delivery 
system.  Boston Scientific recalled the device from the market less than two months after 
commercial launch because of a manufacturing defect that affected its safety and 
effectiveness.  The settlement ended an investigation that was initiated in 1998 by DOJ. 
The United States alleged that Boston Scientific shipped more than 30,000 adulterated and 
misbranded devices to hospitals throughout the country.  The government accused Boston 
17
 Scientific of continuing to ship the devices for weeks after an internal investigation had 
determined that a substantial number of the devices were not functioning properly.  On 
October 5, 1998, Boston Scientific management notified the FDA that the company was 
immediately stopping shipments of the device and was pulling the product from the 
market.  Nevertheless, later that day, Boston Scientific shipped an additional 833 units to 
hospitals throughout the country.  According to the FDA, the defect was responsible for 
26 injuries, including several surgeries to remove a dislodged stent.  The settlement was 
paid as an equitable monetary penalty. 
18
 FUNDING FOR THE DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Office of Inspector General 
Certain of the funds appropriated under HIPAA are, by law, set aside for Medicare and Medicaid 
activities of HHS/OIG.  In FY 2005, The Secretary and the Attorney General jointly allotted $160 
million to the HHS/OIG which is the statutory maximum permitted under HIPAA.  This is equal 
to the amount allotted to the HHS/OIG in 2003 and 2004.  This represents approximately 80 
percent of the HHS/OIGs overall funding. 
The HHS/OIG participated in investigations or other inquiries that resulted in 799 prosecutions or 
settlements in FY 2005, of which 633 or 79% percent were health care cases.  A number of these 
are highlighted in the Accomplishments section.  During FY 2005, the HHS/OIG also excluded a 
total of 3,804 individuals and entities, barring them from participating in Medicare, Medicaid, and 
other federal and state health care programs.  In addition, the Department of Health and Human 
Services collected more than $423 million in disallowances of improperly paid health care funds, 
based on HHS/OIG recommendations. 
Program Savings 
Frequently, investigations, audits and evaluations reveal vulnerabilities or incentives for 
questionable or fraudulent financial practices in agency programs or administrative processes.  As 
required by the Inspector General Act, the HHS/OIG makes recommendations to agency managers 
to address these vulnerabilities.  In turn, agency managers recommend legislative proposals or 
other corrective actions that, when enacted or implemented, close loopholes and reduce improper 
payments or conduct.  The net savings from these joint efforts toward program improvements can 
be substantial.  During FY 2005, HHS/OIG estimates that such corrective actions resulted in 
health care savings (i.e., funds put to better use as a result of implemented legislative or other 
program initiatives) of approximately $30 billion -- nearly $22.9 billion in Medicare savings, and 
more than $7.5 billion in savings to the Medicaid program.  Additional information about savings 
achieved through such policy and procedural changes may be found in Appendix A to the 
HHS/OIG Semiannual Report, on-line at http://oig.hhs.gov/reading/semiannual.html 
Exclusions 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in patient abuse or neglect or fraud. 
During FY 2005, the HHS/OIG excluded a total of 3,804 individuals and entities. Among these 
were exclusions based on criminal convictions for crimes related to Medicare or Medicaid (770), 
or to other health care programs (264); for patient abuse or neglect (325); or as a result of 
licensure revocations (2,012).  Among those excluded by the HHS/OIG were the following: 
19
 <	 A certified nurse aide (CNA) in Colorado was excluded for 25 years as a result of being 
convicted for sexual assault against an elderly nursing home patient who suffered from 
Alzheimers.  The aide was sentenced to serve 15 years-to-life in prison. 
<	 An Oklahoma pediatrician was excluded for 50 years based on his conviction for abuse of 
minor patients.  The physician confessed to abusing 18 children, all under the age of 16, 
over a period that spanned 20 years. 
<	 A DME sales representative in Florida was excluded for 28 years after his conviction for 
participating in a scheme to bill Medicare for millions of dollars in medically unnecessary 
DME items. 
<	 A South Carolina physician was excluded for 26 years after his conviction for his part in a 
scheme to sell prescriptions for controlled substances such as OxyContin and Percocet. 
Other Administrative Enforcement Actions  Civil Monetary Penalties 
The Office of Inspector General has authority to impose civil monetary penalties (CMPs) against 
providers and suppliers who knowingly submit false claims to the government, who participate in 
unlawful patient referral or kickback schemes, who fail to appropriately treat or refer patients who 
present at hospital emergency rooms, or who engage in other activities prescribed in statute.  The 
HHS/OIG has stepped up its affirmative enforcement actions under these authorities.  The 
PharMerica case discussed previously is one example. Others are:  
<  The Visiting Nurse Association of Washington, D.C. (now MedStar Health Visiting Nurse 
Association) and its home office, Visiting Nurse Association, Inc., agreed to pay more 
than $1.3 million to resolve its liability for allegedly filing Medicare cost reports 
containing services that were not provided as claimed.  The inquiry involved alleged 
transactions with related third parties that were not disclosed or documented.  The 
company also entered a five-year CIA. 
<  A former hospital Chief Executive Officer (CEO) in Nebraska entered an agreement with 
the HHS/OIG to resolve his potential liability for allegedly paying kickbacks to a 
physician in the form of loan guarantees, consultant fees and discounts in exchange for 
referral of Medicare business. The CEO, too, received annual bonuses that allegedly were 
based on the referrals.  The hospital previously entered a settlement agreement with the 
United States to resolve potential liability under the FCA for the same alleged conduct. 
<  St. Joseph Mercy-Oakland Hospital in Michigan agreed to pay $4 million for allegedly 
violating the anti-kickback statute and Stark law in connection with financial 
arrangements between the hospital and more than a dozen physician groups.  The hospital 
voluntarily disclosed the potential violations under the HHS/OIGs Provider Self-
Disclosure Protocol. 
20
 Studies, Audits, and Evaluations 
The HHS/OIG conducts numerous audits and evaluations that disclose improprieties in Medicare 
and Medicaid, and recommends corrective actions that, when implemented, correct program 
vulnerabilities and save program funds.  Among these were: 
Medicaid. The HHS/OIG has continued its stepped-up oversight of a number of state 
questionable practices and financing schemes designed to maximize federal payments under 
Medicaid. 
<	 School-Based Health Services. Medicaid covers certain school-based health services for 
children with disabilities or special needs.  Audits disclosed that some states had 
insufficient controls to ensure that school health services claims were legitimate.  As an 
example, an audit of New Yorks program identified almost $436 million in improper 
federal payments for school-based speech services, and more than $96 million for 
transportation services. Eighty-six of 100 sampled claims for speech services in New 
York City did not comply with federal and state requirements for documenting services, 
referrals from appropriate medical professionals, and provider qualifications.  As for 
transportation, HHS/OIG concluded that none of the 120 claims sampled complied with 
applicable requirements.  Deficiencies included lack of documentation, failure to render 
other Medicaid-covered services on the day transportation services were billed, and failure 
to document the need for transportation services. 
HHS/OIG also reviewed three other states school-based health programs to determine 
whether claims for school-based services were eligible for federal reimbursement.  In 
audits of the Maine, Massachusetts, and Vermont health programs, HHS/OIG identified 
over $15.5 million in overpayments.  HHS/OIG has recommended that CMS recover the 
federal payments made for services in all of these states, and, as appropriate, take steps to 
make certain state controls are sufficient to prevent impropriety in the future.   
<	 Intergovernmental Transfers. States sometimes make payments to public providers, and 
then require the providers to return a large portion of those payments, yet still collect the 
federal share of these illusory payments.  The HHS/OIG reviewed public nursing homes in 
New York, Tennessee, and Washington to determine whether Medicaid payments to the 
nursing homes were adequate to cover their operating costs and whether there was a link 
between the quality of care provided to the facilities residents and the amount of 
Medicaid funding received. The HHS/OIG found that while initial Medicaid payments to 
the facilities were adequate to cover costs, the net Medicaid funding the facilities were 
allowed to retain did not meet their operating costs because the state and/or county 
required the facilities to return 90 to 96 percent of the upper payment limit payments they 
received. Over a 3-year period, the funding deficits were $25 million, $22.8 million, and 
$290,000 for the New York, Tennessee, and Washington facilities, respectively.  
21
 <	 Upper-Payment Limit Calculations. HHS/OIG audited four states upper payment limit 
(UPL) payments to determine whether states calculated the UPLs for hospitals and non-
state government facilities in accordance with federal requirements and approved state 
plans. As a result of the audits, the HHS/OIG recommended that the states  Kansas, 
Oregon, New Jersey, and North Carolina  refund a total of approximately $212 million in 
unallowable Medicaid payments. 
<	 Disproportionate Share Hospital (DSH) Payments. States are required to make DSH 
payments to compensate hospitals for the uncompensated costs of serving an inordinate 
number of low-income patients with special needs.  Audits in Illinois found that DSH 
payments to one hospital exceeded the hospital-specific limit imposed under the Social 
Security Act by $140.3 million, and overpayments to another hospital totaled $4.5 million. 
The HHS/OIG recommended that the state refund these overpayments. 
Medicare Group Purchasing Organizations 
<	 Group purchasing organizations (GPOs) leverage the purchasing power of their members 
(primarily hospitals and other health care providers) to secure discounts on medical 
supplies for those members.  Vendors also pay administrative fees to GPOs, in exchange 
for administrative services and for the opportunity to sell through a GPO to its members. 
The HHS/OIG reviewed three large GPOs that collectively received $1.8 billion in 
administrative fees during the audit period.  Of this amount, $1.3 billion was net revenue 
in excess of operating costs.  The GPOs distributed $898 million of this excess revenue to 
its members. 
Medicare rules generally require providers to offset purchase discounts, allowances, and 
refunds against expenses on their Medicare cost reports. The HHS/OIG reviewed 21 GPO 
members, and found that they did not fully account for net revenue distributions on their 
Medicare cost reports. There was considerable variation among the GPOs, with members 
of one GPO offsetting 92 percent of the distributions, members of another offsetting only 
54 percent. In total, 22 percent of net revenue distributions were not offset. The 
HHS/OIG recommended that CMS issue specific guidance regarding the treatment of 
GPO net revenue distributions on Medicare cost reports. Separately, the HHS/OIG 
determined that the 21 GPO members generally offset vendor rebates on their Medicare 
cost reports, as required. 
22
 Drug Pricing 
<	 Medicaid Federal Upper Limit (FUL) Drug List. Under Medicaid, CMS is required to 
establish federal maximum reimbursement levels for certain multiple source drugs.  CMS 
has set and published these FULs for over 400 drugs. However, a review found that CMS 
does not consistently add qualified drugs to the upper limit list in a timely manner.  Of the 
252 first-time generic drugs approved between January 2001 and December 2003, 109 met 
the criteria for inclusion on the FUL list, but only 25 were actually added to the list. 
For those drugs that were added, CMS took an average of 36 weeks to place the products 
on the FUL list. Had the drugs been added to the list in a timely manner, the HHS/OIG 
estimated that Medicaid would have saved $167 million. 
<	 HHS/OIG conducted a series of studies that continue to examine whether Medicaid is 
overpaying for prescription drugs.  Two companion studies examined the published prices 
states use to set Medicaid reimbursement rates and concluded that the Medicaid drug 
reimbursement rates are higher than statutorily-defined prices based on actual sales.  The 
HHS/OIG recommended that Medicaid base its reimbursement on pricing data that more 
closely reflect pharmacy acquisition costs.  The HHS/OIG also examined FUL rates 
established by CMS for certain generic drugs and found FUL to be, on average five times 
higher than average manufacturer prices for the same drugs in 2004.  If Medicaid based its 
upper limit rates on reported average manufacturer prices, the program could save 
hundreds of millions of dollars. 
Oversight of CMS Error Rate Testing 
<	 CMS operates two programs to develop a fee-for-service (FFS) Medicare error rate; the 
Hospital Payment Monitoring Project (HPMP) generates an error rate for inpatient acute 
care hospital claims, and the Comprehensive Error Rate Testing program (CERT) 
produces a rate for other provider claims.  Together, these produce an overall annual 
Medicare FFS paid claims error rate that is reported to the Congress. 
The HHS/OIG audited aspects of both of these programs.  For hospital services, the audit 
concluded that HPMP contractors generally followed appropriate criteria for determining 
medical necessity of claimed services, and for designating correct diagnosis-related 
groups (DRG). There were minor inaccuracies in calculations for claims for certain 
corrected-, DRGs, but the inaccuracies were not statistically significant. 
For other provider claims, HHS/OIG reviewed controls in place to ensure the integrity of 
the CERT contractors processes for reviewing 120,000 claims each year.  The CERT 
contractor requests and reviews medical records underlying these sampled claims.  If 
providers fail to produce the records, the contractor follows up with calls and letters. The 
contractor also selects certain claims for quality assurance reviews.  
23
 The HHS/OIG found that though the contractor had appropriate controls to assure the s 
oundness of medical reviews, the contractor had fallen behind in its quality assurance 
reviews.  CMS agreed to award a second CERT contract to reduce the workload, and 
allow the contractor to keep current on its required quality monitoring. 
<	 In a related study, HHS/OIG concluded that provider responsiveness to CMS contractor 
requests for medical records for use in determining the CERT error rate had improved. 
Provider non-responses did not have a statistically significant impact on the calculation of 
the overall error rate. 
Medicare Outlier Payments 
<	 Medicare pays additional payments, beyond DRG payments, to compensate hospitals for 
treating unusually costly patients.  To stem excessive growth in claims for these outlier 
payments, in 2003 CMS issued regulations revising rules for calculating such payments. 
The HHS/OIG examined outlier payments at more than 350 hospitals and determined that 
the regulations have reduced outlier payments by nearly 43 percent.  CMS estimated that 
the new outlier rules would save in excess of $9 billion over five years. 
Family Planning Service Costs 
<	 The federal government reimburses the costs of family planning services at an enhanced 
90-percent matching rate.  These services are intended to prevent or delay pregnancy or to 
otherwise control family size.  In several reviews, HHS/OIG found that states did not 
always comply with appropriate requirements, including the provisions of their respective 
state plans, for charging these costs to Medicaid.  One state retroactively claimed an 
increase of more than $11 million as the difference between regular federal matching rates 
and the enhanced 90-percent rate for prior family planning expenditures.  Of this amount, 
more than $6 million was determined to be unallowable.  In another state, claims for 
family planning service costs were overstated by $3.7 million ($1.4 million in federal 
reimbursement) because the state improperly claimed these costs at the enhanced family 
planning rate. 
Industry Outreach and Guidance 
<	 Advisory Opinions. Central to the HIPAA guidance initiatives is an advisory opinion 
process through which parties may obtain binding legal guidance as to whether their 
existing or proposed health care business transactions run afoul of the federal anti-
kickback statute, the CMP laws, or the exclusion provisions.  During FY 2005, the 
HHS/OIG, in consultation with DOJ, issued 18 advisory opinions. A total of 132 advisory 
opinions were issued during the first nine years of the HCFAC program. 
<	 Supplemental Compliance Guidance for Hospitals .  The HHS/OIG periodically works 
with specific industry sectors to develop guidance, tailored to that sector, on how to 
prevent the submission of false claims or other impropriety.  In FY 2005, HHS/OIG issued 
24
 supplemental guidance to hospitals, that builds on guidance issued seven years earlier. 
The Supplemental Compliance Guidance for Hospitals includes an expanded risk 
section that points out areas of significant risk for hospitals.  It also offers suggestions on 
how hospitals might identify potential problems, and how they might assess the 
effectiveness of their compliance programs.  The Guidance may be found at 
http://oig.hhs.gov under Fraud Prevention and Detection. 
<	 Corporate Integrity Agreements.  Many health care providers that enter agreements with 
the government to settle potential liabilities for violations of the FCA also agree to adhere 
to a separate CIA. Under these agreements, the provider commits to establishing a 
program or taking other specified steps to ensure its future compliance with Medicare and 
Medicaid rules. At the close of FY 2005, the HHS/OIG was monitoring more than 370 
CIAs. 
Centers for Medicare & Medicaid Services 
In FY 2005, the Centers for Medicare and Medicaid Services (CMS) was allocated $22.3 million 
to fund a variety of projects related to fraud, waste and abuse in the Medicare and Medicaid 
programs.  Of this amount, approximately $19 million was specifically dedicated to combat fraud 
in the State Childrens Health Insurance (SCHIP) and Medicaid programs. 
CMS has increased its efforts to use advanced technology to detect and prevent fraud and abuse 
and to ensure that CMS pays the right providers, the right amount, for the right service, on behalf 
of the right beneficiary.  Projects include: 
Payment Error Rate Measurement (PERM): 
PERM is the program that CMS uses to implement the Improper Payments Information Act of 
2002 that requires HHS to measure improper payments in Medicaid and the SCHIP.  During FY 
2005, CMS revised its approach to measure Medicaid and SCHIP improper payments using a 
national contracting strategy rather than requiring states to do the measurement.  CMS will 
initially develop a Medicaid FFS error rate in FY 2006.  CMS used FY 2005 HCFAC funds to 
begin funding contracts for statistical and documentation support needed to begin measuring the 
Medicaid FFS error rates in FY 2006. When the improper payments measurement is completed 
for FY 2006, CMS will report the error rates and will use the results to help states plan corrective 
actions to reduce the rate of improper payments in their programs.  
Medicaid/SCHIP Financial Management Project: 
During FY 2004, CMS hired and began training 100 accountants and financial analysts to 
improve the financial management and fiscal oversight of the Medicaid program.  Since then, 
staff have reviewed states operating plans prior to the beginning of the fiscal year so that 
problems or issues could be resolved before claims are submitted.  They performed in-depth 
reviews of funding sources such as donations, taxes, certified public expenditures, 
intergovernmental transfers, and state and local appropriations to verify that they are allowable 
non-Federal funding sources. 
25
 The CMS goal is to eliminate the current need to disallow Federal Medicaid funding after it has 
already been spent by states, and instead to identify any unallowable funding schemes or 
expenditures before they occur. 
Medicaid Audits 
In FY 2005, HCFAC funds were allocated to CMS to support a series of special Medicaid audits 
conducted by the HHS/OIG through an Interagency Agreement with CMS.  Approximately 20 
audits were undertaken in states and issue areas specified by CMS. The major targeted areas 
included: school based services, administrative costs, skilled professional medical personnel and 
provider overpayments. 
Medicare/Medicaid Data Match Expansion Project (Medi-Medi) 
In FY 2005, HCFAC funds were used by CMS to continue operations in nine Medi-Medi project 
states which included Texas, Illinois, North Carolina, Florida, New Jersey, Pennsylvania, Ohio, 
Washington, and California.  These developed from the original matching project in California 
which started operations in February 2002. The Medi-Medi project examines the health care 
claims data from two programs that share many common beneficiaries and providers to look for 
billing patterns that may be indicative of potential fraud or abuse that may not be evident when 
provider billings from either program are viewed in isolation. 
Since inception, the Medi-Medi projects have yielded 335 investigations with an estimated $182 
million at risk.4 In addition, as a result of the Medi-Medi projects, 42 cases were referred to law 
enforcement, and over $4.7 million in overpayments were identified for recovery.  In FY 2005, 
CMS added a tenth Medi-Medi state, New York.  Finally, individual Medi-Medi projects 
continue to uncover a variety of health care fraud schemes. One of the most notable items 
uncovered at the end of FY 2005 came in the form of a vulnerability reported by the Pennsylvania 
Medi-Medi project.  The Program Safeguard Contractor, working in conjunction with the state, 
uncovered a weakness in the process for billing and processing pharmaceutical drug claims 
stemming from the Medicare program and the Medicaid program using different procedure 
coding systems.  As a result, $20 million in potential overpayments were identified for calendar 
year 2004 alone. Significantly, CMS has preliminary indications that this same vulnerability may 
exist across all of the Medi-Medi projects, and will further explore this vulnerability. 
4 Dollar amount at risk: The dollar amount paid to the provider for the potential 
fraudulent behavior under investigation for the time period for which fraud is suspected up to a 
maximum of three years. For example, these estimates may be dollars paid for a specific code or 
service under review, the dollars paid in duplicate in a double-billing scheme, or dollars paid for 
services beyond 16 hours in a day. In future reporting periods, this amount may change based on 
further investigation, medical review, or the calculation of an overpayment.  Experience has 
shown that the dollar amount at risk associated with a potential data-analysis lead will become 
more precise and reliable as the investigation matures. 
26  Office of the General Counsel 
The Office of the General Counsel (OGC) provides legal support consistent with the statutory 
authority of the HCFAC program.  OGC was allocated $4.778 million in HCFAC funding in FY 
2005 to support program integrity activities.  OGC reviews programs and activities of CMS in 
order to strengthen them against potential fraud, waste, and abuse, to prevent the wrongful 
disbursement of program funds in the first instance, consistent with the statutory goals of 
HCFAC.  OGC accomplishments in FY 2005 include the following: 
False Claims Act (FCA) and Qui Tam Actions 
<	 OGC provided litigation support and advice to the Commercial Litigation Branch of DOJ, 
and the United States Attorneys in actions relating to Medicare or Medicaid fraud under 
the FCA.  For example, OGC participated in the global settlement with HealthSouth, the 
nations largest provider of rehabilitation services. 
Criminal Prosecutions 
<	 During work on a CMP administrative case, OGC discovered and developed evidence in a 
case involving a former executive with Iowas largest nursing home chain.  OGC referred 
the matter to the USA, and the former executive was subsequently indicted for obstruction 
of a federal audit, conspiracy, and making false statements to federal officials.  Two 
nurses were also indicted in the same matter, and the corporate owner entered into a 
settlement paying $500,000 in penalties. 
Civil Monetary Penalties (CMPs) 
<	 OGC represented CMS in 900 plus new administrative matters in FY 2005, with nearly 
half of these being formal appeals before the Departmental Appeals Board.  CMP 
recoveries against nursing homes, due to favorable administrative decisions, negotiated 
settlements, and favorable court decisions totaled over $8.9 million. 
Suspensions 
<	 OGCs advice to CMS regarding two medical suppliers that submitted DME claims based 
on forged prescriptions influenced CMSs decision to suspend payment to the supplier 
who is now facing criminal charges of defrauding Medicare of $2.4 million. 
27
 <	 OGC worked on multiple cases centered around the suspension of a common billing 
company for DME suppliers in South Florida that resulted in improper Medicare 
payments of almost $100 million in a period of only three to four months. 
Enforcement of Medicare and Medicaid Participation Standards 
<	 OGC assisted in defending a nursing homes appeal to the Sixth Circuit Court of Appeals 
in which the final administrative decision included findings of substantial non-compliance 
at the immediate jeopardy level and the imposition of a CMP of $4,050 per day. 
Affirmative Overpayment Litigation 
<	 OGC assisted in collecting over $60 million in overpayments from Medshares, one of the 
nations largest home health care chains, and continues to represent Medicares interest in 
the bankruptcy of Intrepid USA, a nationwide home health company that assumed 
significant repayment obligations to CMS with the acquisition of the remaining assets of 
Medshares.  OGC obtained Intrepid's repayment in full of the Medshares-related 
obligations. 
Review of Regulations Implementing the Medicare Prescription Drug, Improvement and 
Modernization Act of 2003 (MMA) 
The goal of program integrity review  in which OGC reviews CMSs programs and activities in 
order to strengthen them against potential fraud, waste, and abuse  is to prevent the wrongful 
disbursement of program funds in the first instance.  During FY 2005, OGC reviewed several 
rules implementing various provisions of the MMA.  For example:    
OGC worked closely with CMS on the development of the final rule implementing the 
new Medicare Part D prescription drug benefit, scrutinizing the rule from a program 
integrity perspective to minimize opportunities for fraud, waste, and abuse in the new 
multi-billion dollar program.  OGC also helped CMS draft the compliance plan 
requirements for Part D sponsors and worked closely with law enforcement to coordinate 
how CMS rules and policies can assist in the investigation and prosecution of entities 
committing fraud and abuse. 
Policy Guidance, Education, and Coordination of Fraud and Abuse Control Activities 
CMS relies upon provider and beneficiary education programs to lower the number of erroneous 
Medicare claims.  OGC expanded its efforts, in conjunction with CMS and its state partners, to 
provide regular training sessions with surveyors from the state agencies under contract with CMS. 
28
  OGC attorneys throughout the country address bar associations and other private legal groups as 
part of the departments outreach efforts regarding the requirements of the Medicare Secondary 
Payer statute.  Such outreach events help to reduce Medicare expenditures and sensitize the legal 
community to recognizing that individuals must reimburse Medicare when the cost of treatment is 
paid by someone else.  Examples include a panel discussion of Medicare nursing home issues at 
the annual conference of the American Association of Public Welfare Attorneys; and a 
presentation to the Missouri Bar Association Committee on Elder Law regarding nursing home 
enforcement procedures and the new prescription drug program. 
Administration on Aging 
In FY 2005, the Administration on Aging (AoA) was allocated $3.128 million in HCFAC funds 
to develop and disseminate consumer education information to older Americans, with a particular 
focus on persons with low health literacy, individuals from culturally diverse backgrounds, 
persons living in rural areas, and other vulnerable populations.  AoA and its nationwide network 
of agencies supported community education activities designed to assist older Americans and 
their families to recognize and report potential errors or fraudulent situations in the Medicare and 
Medicaid programs. 
Senior Medicare Patrol (SMP) Projects recruit retired professionals to educate and assist 
Medicare beneficiaries to detect and report health care fraud, error, and abuse in Medicare and 
Medicaid programs.  According to the last performance information from the Assistant Inspector 
General for Evaluation and Inspections, over the 12-month period, ending June 30, 2005, the 57 
SMP projects trained over 6,400 new senior volunteers; these volunteers perform an essential 
function of this program in sharing the SMP message within the senior community.  
Outreach to senior consumers is a key element of the SMP program.  During FY 2005, projects 
conducted over 28,000 media events and held close to 7,300 community education events to 
increase beneficiary awareness about issues related to Medicare and Medicaid integrity.  As a 
result of these efforts, over 372,000 beneficiaries were educated, either in group or one-on-one 
sessions. 
As a result of educating beneficiaries, the projects received over 18,300 complaints.  While the 
SMP program staff were able to address the majority of these issues for beneficiaries, almost 
1,000 were referred to Medicare contractors or other responsible agencies for follow-up.  Almost 
700 of these complaints resulted in money recouped to the Medicare program or another action 
taken by the Medicare contractor or investigative agency.  In total, SMP projects documented 
over $110,000 recouped to the Medicare program during this period.  The projects also reported 
over $17,000 in savings to the Medicaid program, and savings of approximately $194,000 to 
beneficiaries. On July 1, 2005, one-year capacity-building grants were awarded to Guam and the 
U.S. Virgin Islands to extend program coverage to seniors not previously reached in these U.S. 
territories. 
29
 While it is not possible to directly track all of the cases reported and dollars recovered through 
SMP community education activities, or quantify the "sentinel effect" in fraud costs avoided due 
to increased consumer awareness, approximately $104.3 million has been reported as savings 
attributable to the program since its inception.  
Office of the National Coordinator for Health Information Technology 
In FY 2005, the Office of the National Coordinator for Health Information Technology (ONC) 
was allocated $490,000 to conduct a six-month project to determine how the use of health 
information technology can enhance and expand health care anti-fraud activities.  The project 
involved two main tasks: 1) a descriptive study of the issues and steps in the development and use 
of automated coding software that enhance healthcare anti-fraud activities; and 2) identifying best 
practices to enhance the capabilities of a nationwide interoperable health information technology 
infrastructure to assist in prevention, detection and prosecution in cases of healthcare fraud or 
improper claims and billing. 
A report for automated coding software identified the characteristics of automated coding 
software tools that have the potential to detect improper coding; prevent improper or potentially 
fraudulent coding practices.  The report also identified the characteristics that relate to the role of 
electronic health records; and, developed a set of recommendations for software developers and 
users of coding products to maximize anti-fraud practices and prevention measures. 
A second report identified best practices to enhance the capabilities of a nationwide interoperable 
health information technology infrastructure to assist in health care fraud prevention, detection 
and prosecution. The report described how potentially fraudulent activities can be prevented 
from occurring through the use of new technologies.  In addition, the report included an economic 
impact model to serve as a framework for tracking fraud and non-fraud related costs/benefits 
associated with developing and implementing a nationwide interoperable health information 
network with interoperable electronic health records. 
Health Resources and Services Administration 
In FY 2005, $450,320 in HCFAC funds were allocated to the Health Resources and Services 
Administration for supplemental funding of the Healthcare Integrity and Protection Data Bank 
(HIPDB) to supplement the overall operations and maintenance of the program.  The primary 
focus of the HIPDB is to prevent or reduce fraud and abuse in the medical system and to enhance 
quality health care by serving as a repository for collecting, maintaining, and reporting on final 
adverse actions taken against health care providers, suppliers and practitioners. 
30
 This information helps prevent practitioners, providers, and suppliers with problem backgrounds 
from moving from state to state unnoticed by licensing, government and health plan officials, thus 
improving health care quality.  It also assists law enforcement officials in their efforts against 
health care fraud and abuse. 
The HIPDB opened for reporting in 1999, and as of September 30, 2005, the HIPDB contained 
223,775 reports of health care related civil judgments, criminal convictions, injunctions, licensing 
and certification actions, exclusions from state and federal health care programs, and other 
adjudicated actions involving 129,526 individuals and 4,879 organizations. 
As of September 30, 2005, the HIPDB had responded to 5,291,625 queries from state and Federal 
agencies (including law enforcement) and health plans.  The HIPDB has processed over 6.5 
million queries since 2000 and maintains over 223,000 reports. 
31
 FUNDING FOR DEPARTMENT OF JUSTICE

United States Attorneys 
In FY 2005, the United States Attorneys Offices (USAOs) were allocated $30.4 million in 
HCFAC program funds to support civil and criminal health care fraud and abuse litigation as 
exemplified in the Program Accomplishment's section.  The USAOs dedicated substantial 
resources to combating health care fraud and abuse in FY 2005.  HCFAC allocations have 
supplemented those resources by providing dedicated positions for attorneys, paralegals, auditors 
and investigators, as well as funds for litigation of resource-intensive health care fraud cases. 
The 93 United States Attorneys and their assistants, or AUSAs, are the nations principal 
prosecutors of federal crimes, including crimes committed by health care providers.  Civil 
attorneys in the USAOs are responsible for bringing affirmative civil cases to recover funds that 
federal health care programs have paid as a result of fraud, waste, and abuse, with support in 
those cases designated by the Civil Division for joint handling.  USAOs also handle most criminal 
and civil appeals at the federal appellate level. 
In addition to the staff positions funded by HCFAC, the Executive Office for the United States 
Attorneys (EOUSA) Office of Legal Education (OLE) uses HCFAC funds to train AUSAs and 
other Department attorneys, as well as paralegals, investigators, and auditors in the investigation 
and prosecution of health care fraud.  In FY 2005, OLE conducted courses and presentations on 
health care fraud, including the Health Care Fraud Coordinators Conference for Civil and 
Criminal AUSAs and Health Care Fraud for new AUSAs. 
Criminal Prosecutions5 
In FY 2005, the USAOs received 935 new criminal matters involving 1,597 defendants, and had 
1,689 health care fraud criminal matters pending,6 involving 2,670 defendants. The USAOs filed 
criminal charges in 382 cases involving 652 defendants, and obtained 523 federal health care 
related convictions.  USAOs receive referrals of criminal health care fraud cases from a wide 
variety of sources, including the FBI, the HHS/OIG, state Medicaid Fraud Control Units, and 
other federal, state, and local law enforcement agencies. 
5FY 2005 criminal data does not include data for the month of September 2005 for the 
Eastern District of Louisiana due to Hurricane Katrina. 
6When a USAO accepts a criminal referral for consideration, the office opens it as a 
matter pending in the district.  A referral remains a matter until an indictment or information is 
filed or it is declined for prosecution. 
32  Civil Matters7 
The USAOs use affirmative civil enforcement litigation to recover monies wrongfully taken from 
the Medicare Trust Fund and other taxpayer-funded health care systems, and to ensure that the 
federal health care programs are fully compensated for the losses and damages resulting from 
such thefts.  The False Claims Act (FCA) is one of the most important tools the USAOs use for 
these purposes. The FCA subjects those who knowingly present false claims for payment to the 
government, including health care providers who submit claims to federal health care programs, 
to treble damages and civil penalties. 
USAOs receive civil health care fraud referrals from a variety of sources, including from the 
federal investigative agencies that refer criminal cases, and by means of qui tam complaints. 
Under the FCA, a qui tam plaintiff (known as a relator) must file his or her complaint under 
seal in a United States District Court, and serve a copy of the complaint upon the USAO for that 
judicial district, as well as the Attorney General.  USAOs routinely assign civil AUSAs to every 
qui tam case filed in their districts, as well as all matters referred by a law enforcement agency. 
In FY 2005, the USAOs opened 778 new civil health care fraud matters (including qui tam 
actions and matters referred by agencies) and had 1,334 civil health care fraud matters and cases 
pending. In order to maximize resources, Civil Division attorneys may become actively involved 
and participate with the USAOs in those qui tam cases that involve more than one district and 
potential recoveries substantially over one million dollars.  In addition to these joint cases, 
USAOs are responsible in all other qui tam cases for investigating the relators allegations and, 
where appropriate, litigating and/or settling the case.  In FY 2005, USAOs filed or intervened in 
266 civil health care fraud cases. 
Civil Division 
In FY 2005, the Civil Division was allotted $15.459 million in HCFAC funds to support civil 
health care fraud litigation (this amount includes $1 million allotted for the Nursing Home and 
Elder Justice Initiative). Civil Division attorneys pursue civil remedies in health care fraud 
matters, working closely with the USAOs, the FBI, the HHS/OIG and the Department of Defense, 
CMS, and other federal and state law enforcement agencies.  Cases involve providers of health 
care services, supplies and equipment, as well as carriers and fiscal intermediaries, that defraud 
Medicare, Medicaid, TRICARE, the Federal Employee Health Benefit Program (FEHBP), and 
other government health care programs. 
In FY 2005, the Division opened or filed a total of 306 health care fraud cases or matters.  In 
addition to these new efforts, the Civil Division pursued 642 existing cases or matters that 
remained open at the end of FY 2004.  Civil Division attorneys were actively involved in the 
recoveries described in the consolidated case recovery overview. 
7FY 2005 civil data does not include data for the month of September 2005 for the 
Eastern District of Louisiana due to Hurricane Katrina. 
33  In addition, the Civil Division provided in-depth, multi-day, training to AUSAs nationwide on the 
FCA, including issues relating to the investigation and litigation of qui tam cases, and continued 
to provide training to DOJ and HHS components on a regular basis. 
Civil Division attorneys litigate a wide range of health care fraud matters, including cases 
involving allegations of overcharging by hospitals, and other Medicare Part A institutional 
providers; similar claims against suppliers of DME and other supplies under Part B of Medicare; 
similar allegations involving state Medicaid programs; claims that doctors and others have been 
paid kickbacks or other remuneration to induce referrals of Medicare or Medicaid patients, in 
violation of the Anti-Kickback Act and Stark laws; claims of overpricing and illegal marketing of 
pharmaceuticals by drug companies and related entities; and allegations that nursing homes have 
failed to provide necessary care to elderly and vulnerable residents. Among these are multi-
district cases involving large health providers and suppliers that typically require coordination 
among affected federal agencies, USAOs, state Medicaid Fraud Control Units and other state 
agencies, and various investigative organizations. 
The Civil Division continues to staff and provide a critical coordination function in the FCA 
investigations alleging pharmaceutical pricing fraud against government health care programs. 
These matters involve hundreds of manufacturers and related entities, span multiple districts and 
present myriad legal and factual issues.  Civil Division attorneys have spearheaded substantial 
efforts to share information and evidence, as appropriate, with the USAOs and other components 
of DOJ, as well as HHS components, including the FDA.  In addition, close communication with 
state Medicaid Fraud Control Units and Attorneys General is ongoing to ensure that federal and 
state investigations and litigation are coordinated.  Since 1999, eighteen cases involving 
allegations of fraud by pharmaceutical manufacturers against federal health benefit programs in 
the pricing or marketing of drugs have been settled by the Department for total criminal and civil 
recoveries of $4.2 billion. 
Civil Division attorneys, working with attorneys in the Criminal Division and EOUSA, have 
played a critical role in coordinating and presenting the views of the Department of Justice to the 
Centers for Medicare and Medicaid Services as that agency drafts implementing regulations for 
the new Medicare prescription drug benefit passed as part of MMA.  Civil Division attorneys also 
played a critical role in coordinating and presenting DOJ's views to the HHS/OIG as it interpreted 
and applied the Anti-Kickback Statute and Stark laws (prohibiting physician self-referral). In 
addition, the Division worked with other components of DOJ to provide views on the Hospital 
Compliance Program Guide published by the HHS/OIG. 
In addition to these accomplishments, the Departments Nursing Home and Elder Justice 
Initiative, coordinated by the Civil Division, among other things, supports enhanced prosecution 
and coordination at federal, state and local levels to fight abuse, neglect, and financial 
exploitation of the nations elder and infirm population. 
34
 Through this Initiative, the Department also makes grants, in coordination with the Office of 
Justice Programs, to promote research, develop training curricula and materials, improve scarce 
forensic knowledge, and enhance prevention, detection, intervention, investigation, and 
prosecution of elder abuse. 
The Department additionally continues to pursue cases relating to providers egregious failures to 
provide required care, usually resulting in harm, suffering, and sometimes death of those for 
whom the care was intended. 
Civil Division attorneys continue to provide guidance and training to government attorneys in 
numerous subject matters, including to assure the Department's continued compliance with the 
Health and Human Services Standards for Privacy of Individually Identifiable Health 
Information, commonly known as the HIPAA privacy rule.  Also, the Civil Division continues to 
co-chair with the Criminal Division the National Level Health Care Fraud Working Group to 
coordinate the health care fraud enforcement activities of all concerned federal and state agencies. 
Criminal Division 
The Criminal Division was allocated $1.58 million in HCFAC funds to support criminal health 
care fraud litigation, prevention and interagency coordination in FY 2005.  The Fraud Section of 
the Criminal Division develops and implements white collar crime policy and provides support 
for the federal white collar enforcement community, which includes the Divisions health care 
fraud and abuse responsibilities.  Since the inception of the HCFAC program, a major focus of the 
Fraud Section has been to investigate and prosecute fraud in federal health care programs and the 
nations health care delivery system. The Fraud Section is responsible for handling and 
coordinating complex health care fraud litigation nationwide.  The Fraud Section also supports 
the USAOs with legal and investigative guidance and, in certain instances, provides trial attorneys 
to prosecute criminal fraud cases. 
In FY 2005, the Fraud Section provided guidance to FBI agents, AUSAs and Criminal Division 
attorneys on criminal, civil and administrative tools to combat health care fraud, and worked on 
an interagency level through: 
	 coordinating large scale multi-district health care fraud investigations; 
	 providing frequent advice and written materials on confidentiality and disclosure issues 
arising in the course of investigations and legal proceedings regarding medical records; 
including HIPAA medical privacy requirements, compliance with the Substance Abuse 
Patient Medical Records Privacy Act and regulations, and coordinating referrals from the 
Department of Health and Human Services Office of Civil Rights of possible criminal 
violations of the HIPAA privacy statute; 
35
 	 monitoring and coordinating Departmental responses to major regulatory initiatives, 
legislative proposals, and enforcement policy matters related to prevention, deterrence and 
punishment of health care fraud and abuse; 
	 reviewing and commenting on numerous requests for advisory opinions submitted by 
health care providers to the HHS/OIG, and consulting with the HHS/OIG on draft 
advisory opinions per the requirements of HIPAA; 
	 working with USAOs and CMS to improve Medicare contractors fraud detection and 
case development work; 
	 preparing and distributing to all USAOs and FBI field offices periodic updates on major 
issues, interagency initiatives, and significant activities of DOJs health care fraud 
component organizations as well as periodic summaries of recent cases; and 
	 organizing and overseeing, in conjunction with the Civil Division, the National Level 
Health Care Fraud Working Group to address fraud in health care and managed care, as 
well as other interagency working groups formed to address specific cases and initiatives. 
	 During FY 2005, Fraud Section staff, along with representatives from the Civil Division 
and the USAOs, participated extensively in final interagency planning and rule-making 
efforts necessitated by the revision or expansion of several key government health care 
programs, including planning for the roll-out of the Medicare Part D prescription drug 
benefit program.  The Fraud Section reviewed and commented on draft regulations for: 
the Medicare Part D program; the MMA-mandated revisions to the Medicare Advantage 
program; the new Retiree Drug Subsidy program; and a new electronic prescribing 
initiative and program (which included proposed  safe harbor provisions for electronic 
prescribing). 
The Fraud Section also collaborated with HHS/OIG and CMS officials to develop guidance, 
manuals, and procedures to prevent, detect, and report fraud and abuse in the Medicare 
prescription drug program; and to train prosecutors, investigative agents and support personnel on 
the provisions of the Medicare prescription drug program and on possible fraud schemes which 
might materialize once the program is operational. 
The Fraud Section, along with the EOUSA health care fraud coordinator, staffed an interagency 
project sponsored by the ONC whose final report specified guiding principles and 
recommendations for integrating anti-fraud and evidentiary control measures into emerging 
electronic health record and health information technology. 8 
8See ONC-sponsored report on anti-fraud activities and health information technology at: 
http://www.hhs.gov/healthit/hithca.html. 
36  In FY 2005, the Fraud Section handled or was involved in investigations of hospitals, vocational 
rehabilitation and healthcare management services, and other health care-related entities.  Along 
with the USAO for the Southern District of Mississippi, Fraud Section attorneys prosecuted 
fourteen individuals who participated in a scheme to create bogus prescription histories and file 
fraudulent claims against a $400 million settlement fund established by the manufacturer of the 
diet drugs Redux and Pondimin, commonly known as Fen-Phen, for medical injuries caused by 
the inappropriate prescription of these products. As of September 30, 2005, a total of 17 
defendants were convicted in this multi-year ongoing joint investigation. 
Civil Rights Division 
In FY 2005, the Civil Rights Division was allocated $1.98 million in HCFAC funds to support 
Civil Rights Division litigation activities related to health care fraud.  The Civil Rights Division 
pursues relief affecting public, residential health care facilities.  The Division has also established 
an initiative to carry out the Departments goals to eliminate abuse and grossly substandard care 
in Medicare and Medicaid funded nursing homes and other long-term care facilities. 
The Division plays a critical role in the HCFAC program.  The Special Litigation Section of the 
Civil Rights Division is the sole Department component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C.  1997 (CRIPA).  CRIPA authorizes investigation of 
conditions of confinement at state and local residential institutions (including facilities for 
persons with developmental disabilities or mental illness, and nursing homes) and initiation of 
civil action for injunctive relief to remedy a pattern or practice of violations of the Constitution or 
federal statutory rights.  The review of conditions in facilities for persons who have mental 
illness, facilities for persons with developmental disabilities, and nursing homes comprises a 
significant portion of the program.  The Special Litigation Section works collaboratively with the 
USAOs around the country and with HHS. 
Fiscal Year 2005 Accomplishments 
As part of the Departments Institutional Health Care Abuse and Neglect Initiative, and as an 
enhancement to the Departments ongoing CRIPA enforcement efforts, the Special Litigation 
Section staff reviewed conditions and services at 44 health care facilities in 22 states during the 
fiscal year. The task in preliminary inquiries is to determine whether there is sufficient 
information supporting allegations of unlawful conditions to warrant formal investigation under 
CRIPA.  The Section reviews information pertaining to areas such as abuse and neglect, medical 
and mental health care, use of restraints, fire and environmental safety, and placement in the most 
integrated setting appropriate to individual needs. 
The Section found that conditions and practices at two state-operated facilities for persons with 
mental illness and one state-operated facility for persons with developmental disabilities violate 
the residents' federal constitutional and statutory rights.  Those facilities are:  Napa State Hospital 
in Napa, California, the Vermont State Hospital in Waterbury, Vermont, and the Woodbridge 
Developmental Center in Woodbridge, New Jersey.  
37
 The Section entered settlement agreements to resolve its investigations of two publicly-operated 
nursing homes and two state-operated facilities for persons with developmental disabilities. 
Those facilities were: Nashville Metropolitan Bordeaux Hospital in Nashville, Tennessee, the 
Mercer County Geriatric Center in Trenton, New Jersey, the Glenwood Developmental Center in 
Glenwood, Iowa and the Woodward Developmental Center in Woodward, Iowa.  
The Section continued its investigations of the following residential facilities for persons with 
developmental disabilities:  Agnews, Sonoma, and Lanterman Developmental Centers in 
California; Holly Center in Maryland; Fort Wayne Developmental Center in Indiana; Rainier 
Residential Rehabilitation Center and Frances Haddon Morgan Centers in Washington; Conway 
Developmental Center in Arkansas; Lubbock State School in Texas; and Bellefontaine 
Developmental Center in Missouri.  
In addition, the Section continued its investigations of the following residential facilities for 
persons with mental illness:  Metropolitan State Hospital in California; Broughton, Cherry, 
Dorothea Dix, and John Umstead Hospitals in North Carolina; and St. Elisabeths Hospital in the 
District of Columbia.  
Finally, the Section continued its investigations of the following publicly-operated nursing 
homes:  A. Holly Patterson Nursing Home on Long Island, New York; the Charlotte Hall 
Veterans Home in Maryland; and the Laguna Honda Hospital and Rehabilitation Center in San 
Francisco, California.  In many of these investigations, negotiations toward settlement are 
continuing regarding the correction of the remaining deficient conditions.  In some of these 
matters, the Section is reviewing voluntary compliance to improve conditions. 
In addition to its law enforcement activities regarding health care fraud activities, the Special 
Litigation Section is responsible for representing the Department and the Civil Rights Division on 
an inter-agency committee on elder care issues.  The Section has also participated in public 
education and outreach by speaking and participating at conferences on quality of care in health 
care facilities. 
38
 APPENDIX

Federal Bureau of Investigation

Mandatory Funding

There are hereby appropriated from the general fund of the United States Treasury and 
hereby appropriated to the Account for transfer to the Federal Bureau of Investigation to 
carry out the purpose described in subparagraph (C), to be available without further 
appropriation - (I) for fiscal year 2005, $114,000,000. 
In FY 2005, the FBI was allocated $114 million in HCFAC funds for health care fraud 
enforcement.  This yearly appropriation was used to support 806 positions (466 Agent, 340 
Support) in FY 2005, a decrease of 19 positions from the positions supported in FY 2004 (13 
Agent, 6 Support).  The FY 2005 funding did not allow for cost of living increases, necessitating 
reductions in funded staffing levels. The number of pending investigations has shown steady 
increase from 591 cases in 1992 to 2,547 cases through FY 2005.  FBI-led investigations resulted 
in 500 criminal health care fraud convictions and 589 indictments and informations being filed in 
state and federal courts in FY 2005. 
The FBI is the primary investigative agency involved in the fight against health care fraud 
that has jurisdiction over both the federal and private insurance programs.  With health care 
expenditures rising at three times the rate of inflation, it is especially important to coordinate all 
investigative efforts to combat fraud within the health care system.  More than $1 trillion is spent 
in the private sector on health care and its related services and the FBI's efforts are crucial to the 
overall success of the program.  The FBI leverages its resources in both the private and public 
arenas through investigative partnerships with agencies such as the HHS/OIG, the FDA, the Drug 
Enforcement Administration, the Defense Criminal Investigative Service, the Office of Personnel 
Management, the Internal Revenue Service and various state and local agencies.  On the private 
side, the FBI is actively involved with national groups, such as the National Health Care 
Anti-Fraud Association (NHCAA), the Blue Cross and Blue Shield Association and the Coalition 
Against Insurance Fraud, as well as many other professional and fundamental efforts to expose 
and investigate fraud within the system.  
Health care fraud investigations are considered a priority within the White Collar Crime 
Program Plan.  In addition to being a partner in the majority of investigations listed in the body of 
this report, the FBI  launched the "Outpatient Surgery Center Initiative" to combat the growing 
problem of fraudulent surgeries performed at certain outpatient surgery centers located in the 
Southern California area. This nationwide scheme has drawn participants from 48 of the 50 states 
who have traveled to California to have unnecessary surgery in exchange for a cash kickback or 
plastic surgery, and has resulted in billings to the insurance companies in excess of $750 million, 
as reported in the Annual Heath Care Fraud and Abuse Control Program Report for FY 2004. 
The FBI partnered with the NHCAA to collect intelligence on the problem, and launched a 
nationwide initiative.  To date, there are pending outpatient surgery center investigations in 
eleven field offices with more than 60 subjects identified. 
39
 The majority of funding received by the FBI is used to pay personnel costs associated with 
the 806 funded positions.  Funds not used directly for personnel matters are used to provide 
operational support for major health care fraud investigations and national investigations 
currently focusing on pharmaceutical fraud and outpatient surgery centers.  Further, the FBI 
continues to support individual investigative needs such as the purchase of specialized equipment 
and expert witness testimony on an as-needed basis. 
40
 Glossary Of Terms 
The Account - The Health Care Fraud and Abuse Control Account 
AoA - Department of Health and Human Services, Administration on Aging 
AUSA - Assistant United States Attorney 
CEO - Chief Executive Officer 
CERT - Comprehensive Error Rate Testing Program 
CIA - Corporate Integrity Agreement 
CMP - Civil Monetary Penalty 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid Services 
CMHC - Community Mental Health Center of East Central Georgia 
CNA - Certified Nurse Aide 
CPT - Current Procedural Terminology 
CRIPA - Civil Rights of Institutionalized Persons Act 
DME - Durable Medical Equipment 
DOJ - The Department of Justice 
DRG - Diagnosis Related Group 
DSH - Disproportionate Share Hospital 
EOUSA - Executive Office for the United States Attorneys 
FBI - Federal Bureau of Investigation 
FCA - False Claims Act 
FDA - Food and Drug Administration 
FEHBP - Federal Employees Health Benefits Program 
FFS - Fee -for -service 
FUL - Federal Upper Limt 
GPO - Group Purchasing Organization 
HCFAC - -Health Care Fraud and Abuse Control Program or the Program 
HHS - The Department of Health and Human Services 
HHS/OIG - The Department of Health and Human Services - Office of the Inspector General 
HI - Hospital Insurance Trust Fund 
HIPAA, or the Act - The Health Insurance Portability and Accountability Act of 1996, P.L. 104-191 
41
 HIV - Human Immunodeficiency Virus 
HPMP - Hospital Payment Monitoring Project 
Medi-Medi - Medicare/Medicaid Data Matching Program 
MMA - Medicare Prescription Drug, Improvement and Modernization Act of 2003 
NHCAA - National Health Care Anti-Fraud Association 
OGC - The Department of Health and Human Services, Office of the General Counsel 
OLE - Office of Legal Education, located within the Executive Office for the United States Attorneys 
ONC - Office of the National Coordinator for Health Information Technology 
PERM - Program Error Rate Measurement 
The Program - The Health Care Fraud and Abuse Control Program 
SCHIP - State Childrens Health Insurance Plan 
Secretary - The Secretary of the Department of Health and Human Services 
SMP - Senior Medicare Patrol 
UPL - Upper Payment Limit 
USAO - United States Attorneys Office 
42