Department of Health and Human Servces

OFFICE OF

GENERA

INSPECTOR 
USE OF MEDICARE OFFSET 
AGREEMENTS AND EXCLUSIONS FOR 
NATIONAL HEALTH SERVICE CORPS 
AND HEALTH EDUCATION ASSISTANCE 
LOAN DEFAULTERS

.. SERVICE
+t-" 
Richard P. Kusserow 
INSPECfOR GENERAL 
'0 
1t""dla  OEI-0-91-O550  , .

EXE  TIVE  SUMMAR 

PUROSE 
The purpse of this review is to examine the use of the Medicae 
offset agreements
and exclusions on debt collection activities of the 
National Heath Service Corps
scholarship, Physician Shortge Area scholarship and Heath Education Assistace 
Loan programs. 
BACKGROUN 
Medicare offset and exclusion procedures are not being employed against defaulters in 
the Deparment of Health and Human Services ' scholarship and loan programs for
students in the heath 
professions. To date, the Public Heath Service (PHS), which is
responsible for debt management activities , has not yet implemented the offset
procedure, and has initiated the exclusion option against only one National Heath 
Service Corps (NHSC) scholarship defaulter. 
The Medicare offset and exclusion provisions pertn to three PHS scholarship and
loan programs for students in the heath professions: the NHSC 
scholarship, the
Physician Shortge Area (PSA) scholarship, and the Heath Education Assistace 
Loan (HEAL) programs. While most borrowers or scholarship recipients repay their 
debt or service obligation, some do not. In 1987 Congress enacted two legislative
authorities (discussed below) authorizing Medicae 
offset agreements to recover 
some
of the financial loss and requiring exclusion from Medicae when defaulters refuse to 
enter into offset agreements or when they subsequently breach the offset agreements. 
In order to determine the effectiveness of these provisions we 
examined legislation
collected program data , obtaned Offce of Genera Counsel legal opinions 
, and held 
discussions with offcials in the PHS and the Heath Care Financing Administration
(HCFA). This information was 
collected in April 1991. 
FIINGS 
The PHS has not entered into any offset agreements with 
scholarship or loan defaulters. 
No further 
regulations are required in order to implement offset 
procedures. 
The PHS has failed to implement procedures to initiate exclusion. 
The PHS need not await a prior judgment 
against a defaulter in Federal 
court before excluding that defaulter from Medicare.  Preliminary data suggests a considerable number of NHSC and HEAL 
defaulters are Medicare providers. 
Moneys collected through Medicare offsets from NHSC and HEAL 
defaulters are not returned to the programs, but must be deposited into 
the general fund of the Treasury. 
RECOMMNDATIONS 
Authori  Retu  th Prm 
to  Recovered Mones to 
The PHS should seek legislative authority to enable the Secretary to return money 
recovered from NHSC and PSA scholarship defaulters to the program 
rather than to 
the general fund of the Treasury. Additionally, the PHS should seek legislative 
authority to enable the Secretary to return money recovered from HEAL defaulters 
through Medicare offsets to the SLIF fund rather than the general fund of the 
Treasury. This would provide continuing support for program goals and objectives. 
Medare Offet Ageeme 
The PHS should immediately offer offset agreements to loan and scholarship 
defaulters and refer successfully negotiated agreements to HCF A for implementation. 
The HCF A should take immediate action to implement offset procedures as 
authoried in Section 1892 of the Social Security Act. 
Exluns 
Mediare 
ala 
The PHS should refer to the  for exclusion those cases where an offset agree:ment 
cannot be negotiated within 90 days of the initial offer or is subsequently breached 
concurrently with referring the case to the Department of Justice for initiation of a 
collection action.

COMMNT 
The HCFA and ASPE concurred with our recommendations. PHS agreed in prindrl 
but believes that it does not need new legislation to return recovered funds to the: 
ala 
programs and prefers to delay referrals to  ct.s 
until the Department of Justice 
on them. We continue to believe that legislation is needed and that concurrent 
referrals should be made.  ............................. .................................... ............................................ ........................................ .............  ................. ................. ..................... ...
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. . ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  . . 
TABLE OF CONTENTS 
EXCU SUMY 
INODUCTON 
Backgound 
FIINGS 
RECOMMATIONS 
MPENIX A .  , "

INTRODUCTION

PUROSE 
The purpose of this review is to examine the use of the Medicare offset agreements
and exclusions on debt collection activities of the National Heath Service Corps
scholarship, Physician Shortge Area scholarship and Heath 
Education Assistace 
Loan programs. 
BACKGROUN 
ar 
Medicare offset and exclusion procedures  not being employed against defaulters in 
the Deparment of Heath and Human Services ' scholarship and loan programs for
students in the heath professions. The Public Heath Service (PHS), which is
responsible for debt management activities, has not yet implemented the offset 
procedure, and has initiated the exclusion option against only one National Heath 
Service Corps (NHSC) scholarship defaulter. 
The Medicare offset and exclusion provisions pertn to three PHS scholarship and
loan programs for students in the health professions: the NHSC 
scholarship, the
Physician Shortge Area (PSA) scholarship, and the Heath Education Assistace 
Loan (HEAL) programs. While most borrowers or scholarship recipients repay their 
debt or serVice obligation, some do not. In 1987 Congress enacted two legislative 
authorities (discussed below) authorizing Medicare offset 
agreements to recover some 
of the financial loss and requiring exclusion from Medicare when defaulters refuse to 
enter into offset agreements or when they subsequently breach the offset agreements. 
The Offce of Inspector General (OIG) 
released a report in 1985 entitled  Medicare 
or Medicaid Reimbursements to Doctors and Dentists Who Breached Their Contracts 
with the National Health Service Corps Scholarship Program" (ACN: 12-53225). This
report found that many NHSC defaulters received substatial amounts of 
reimbursement from Medicare and Medicaid. The limited test showed that the 
Deparment could have recovered about $2. 
3 millon of the $9 millon in overdue 
principal owed by these individuals through the offset. The OIG has consistently 
supported the use of Medicare offsets to repay the defaulter 
s obligation. 
In order to determine the use of these provisions we examined legislation , collected 
program data, obtained Offce of General Counsel legal opinions 
, and held discussions 
with offcials in the PHS and the Health Care Financing Administration (HCFA). 
Legislatve AUlhorities

The Medicare and Medicaid Patient and Program Protection Act of 1987 added 
section 1128(b)(l4) of the Social Security Act (42 V.  C. S I 320a-7(b)(14), which  authorizes the: Secretary to exclude an individual from participation in Medicare 
Medicaid, the Maternal and Child Health, and Social Servces block grant programs if 
he/she has defaulted on a health education scholarship or loan secured by the 
Department, provided the Secretary "has taken all reasonable steps available" to 
secure repayment. The individual is excluded from these programs until the loan is 
repaid. 
The Omnibus Budget Reconcilation Act of 
1987 added section 1892 (42  e. 
1395ccc) to the Social Security Act, which requires the Secretary to enter into a 
Medicare offset agreement with defaulters. Under the terms of an offset agreement 
the individual agrees to accept assignment for all Medicare servces and have 
deductions made to repay the obligation, according to a formula agreed to by the 
defaulters refuse to enter into such an agreement, or if the 
Secretary. Should 
defaulter later breaches the offset agreement, the Secretary is required to 
immediately exclude" the individual and to "immediately" refer the matter to the 
Department of Justice, which must "imediately" commence a collection action. 
If the individual entering into an offset agreement is employed by a Health 
Maintenance Organition (HMO), Comprehensive Medical Plan (CMP), or group 
practice, the Secretary will deduct amounts due from Medicare payments to the Hlvl0 
CMP or group practice. These entities then have the right to collect the deducted 
amouijt from the individual. 
The exclusion authorities in the sections described above have been delegated by the 
Secretary to the OIG. 
Prm 
NHSC Scholahip 
The NHSC scholarship program offers a servce-connected scholarship which includes 
a student s tuition and fees, a monthly stipend and a lump-sum payment to cover all 
other reasonable educational expenses. It is in exchange for professional service in In 
area of physician shortage after completion of 
medical training. A scholarship 
, with a minimum of 2 
recipient must serve 1 year for each year of support received
years of servce and a maxmum of 4 years of service. 
Each individual who has entered the scholarship program is required to provide
servce in the full time clinical practice of the individual's profession as a member of
the NHSC for the period of time specified in the individual's contract. Should the
recipient breach the contract, that individual is to repay one to three time:s the
scholarship amount plus interest and late charges, depending upon the: time the 
individual defaults. 
When a NHSC scholarship recipient defaults, the PHS attempts to collect the loan 
amount, penalties and interest. The individual is first notified of the 
obligation to pay 
within 1 year, is sent a reminder notice at 6 months, and finally is sent a demand 
does not respond, the PHS notifies the: credit bureau network. 
letter. If the individual 
generally notifies the Internal Revenue Service to offset any ta.x refunds, and rt:fers the  commercial collection agency. If the collection agency is 
delinquent account to 
unsuccessful after 6 months, the account is returned to the PHS. At that time the 
PHS prepares the necessary justification and refers the account for collection to the 
Department of Justice. 
Since the program began in 1972, the NHSC has provided over $469 milion in 
scholarships to 13 825 recipients. For the 1990-1991 school year, there are 71 
participants who will receive almost $5 milion in scholarships. Funding for the 
program was cut sharply beginning in 1984, when only $6.3 milion was available for 
scholarships. In subsequent years funding ranged between about $2 milion and $4 
millon. It  significantly increased 
was not until the 1991-1992 school year that funding 
to about $20 millon. 
As of April 1, 1991, 2738 NHSC scholarships were currently outstanding. Slightly 
more than half of these, 1506 or 55 percent, are in good standing: 
131 scholarship recipients were stil in school. 
Another 920 individuals were repaying their servce obligation by practicing 
in an area of physician shortage. 
, repayment of servce was temporarily deferred. 
In 455 cases
However, 1232 NHSC scholarship recipients have breached their agreements and 
defaulted on obligations of approximately $188.9 milion. This amount consists of 
principal and penalties of $99.6 milion and accrued interest of $89.3 milion. This 
represents about nine percent of the individuals who have received scholarships since 
the program began in 1972. 
221, valued at $27.9 milion, while technically in default, are in statutory 
repayment or in a grace period. 
449 accounts, valued at $68.5 milion, remain at PHS in various stages of

collection; that is, they are being prepared for referral to a collection

agency, are at a collection agency, or are being prepared for referral to the

Department of Justice.

562 accounts, valued at $92.7 milion, have been forwarded for collection to

the Department of Justice. Most are over 3 years old.

Medicare offset procedures could be initiated against the 1011 ddaulters representing 
$161 milion whose loans are in different phases of the collection process. Of the 
accounts, 78 percent have been delinquent for over 3 years. If offset agreements are 
not obtained, exclusion procedures must be initiated for the:se ddaulters.  Prm
PSA Scholarship 
In existence for only 1 year, for those entering medical school in 1973, the PSA 
scholarship was offered in exchange for professional servce in an area of physician 
shortage upon completion of medical training. Each student received no more than 
physician 
$5000 in 1 year. The students determined before beginning school which 
shortage area they wanted to serve in after graduation. A scholarship recipient had to 
serve 1 year for each year of support. Only about 100 students ever received a PSA 
scholarship. 
The PSA scholarship defaulters are subject to the same debt collection activities 
NHSC defaulters.
There are at present 66 default cases at the PHS, representing about $2. 
milion. 
About six of these cases have been referred to the Department of Justice.
ledicare offset procedures could be initiated against the 66 defaulters representing 
$2.3 milion. If offset agreements are not obtained, exclusion procedures must be 
initiated for these defaulters. 
HEA Pram 
The HEAL program is an insured-loan program administered by the Department for 
students in the health professions. It insures loans made by nonfederal lending 
institutions and is intended to operate without using Federal funds. Insurance 
premiums deducted from the loan principal at the time of the award are deposited 
into the Student Loan Insurance Fund (SLIF), which reimburses the holder of the loan 
for the outstanding debt in the event of the borrower s default, death, disabilty or 
bankruptcy. The HEAL program has been experiencing financial problems due to an 
increasing default rate. 
When a HEAL borrower defaults, the lender must initiate litigation in the State court. 
If this collection effort is not successful, the SLIF reimburses the lender and the case 
is referred to PHS. The PHS then attempts to have the defaulter repay his/her lo 
obligation; if the individual does not respond, the same colkction activities PHS uses 
with NHSC defaulters are used with HEAL defaulters. 
Approximately $2.7 bilion in HEAL loans are currently outstanding: 
$1.3 billon represents the amount in loans presently held by students stil! in 
training. 
Approximately $1 billion, represente:d by 45 364 loans, is currently heing 
repaid or is in forhearance or deferment status.  Approximately $110 milion, represented by 6800 loans in delinquent
, is 
.status - that is repayment is up to 
150 days late. Should the account 
remain unpaid past  , these caes wil 
those 150 days become defaults. 
Approximately $268 millon, representing 7486 HEAL loans, are in default. The 
debt
vares widely among defaulters, raging from severa thousad dollars to over $100
thousad. 
1266 loans, representing $38. 6 milion, while technically in default
, are in 
statutory repayment or in a grace 
period. 
2583 cases, representing approximately $98 milion, are in litigation at the 
State level. 
2077 default caes, representing about $71.4 milion are at the PHS , which 
is seeking repayment. 
1560 default claims, representing $60 milion, have been referred to the 
Deparment of Justice. Forty percent of these defaulters have judgments 
against them.

Medicare offset procedures could potentially be initiated 
against the 6220 defaulters 
representing $229.4 milion. If offset agreements are not obtaned 
, exclusion
procedures must be initiated for 
these defaulters. 
MEODOLOGY 
In order to determine the effectiveness of these provisions we examined legislation
collected program data, obtained Offce of Genera 
Counsel legal opinions, and held 
discussions with offcials in the PHS and the Heath Care Financing Administration
(HCFA). 
This information was collected in April 1991.  FINDINGS

ened in an  agree wi sclahip 
PHS ha not  offset  or loan deaulters. 
Th 
The Congress enacted legislative authority in 1987 requirg the Department to offer 
HE 
NHSC and  defaulters a Medicare offet agreement to recover some of the 
financial loss. However, the Department has not yet employed this option. Until 
recently, the PHS and HCF A offcials had said that regulations governing the offset 
process had to be published prior to offering the offet agreements. Therefore, the 
process has not yet been implemented. 
fu  req 
No  retins are  in ord to imle offet predes. 
, we believe that HCFA has 
Based on advice from the Offce of the General Counsel
the authority to implement offset procedures 
without further regulations. This 
conclusion is based on the followig factors: 
(1)  The terms of an offet agreement are detailed with suffcient 
specificity in Section 1892, thus making further regulatory 
guidance unnecessary; 
(2)  Since an offset agreement by its very nature is agreed to by the 
defaulting individual, there are no due process concerns raised 
by proceeding in the absence of further regulations; and 
(3)  Under 42 CFR  401.607( d), HCF A has the regulatory authority 
to implement collections by offset. Section 1892 treats past-due 
scholarship and loan obligations as debts to HCF A for purposes 
of offset against Medicare payments, and then requires transfer 
of the amounts deducted from the Trust Fund to the General 
Treasury to be credited against the debtor s obligations. Exsting 
regulations are, therefore, broad enough to encompass the 
implementation of offsets under Section 1892. 
Although the HCF A published a proposed rule on November 6, 1990, designed to 
govern Medicare offset, HCFA's proposed regulatory provisions are solely procedural 
in nature. As HCF A's authority to offset does not derive from or depend upon these 
regulations, it does not need to await publication of final rules before implementing 
offset procedures.  Th PHS. ha failed to implenJ procedes to initiate exlusion. 
The PHS has failed to implement procedures for referrng 
caes to the GIG for 
exclusion of heath cae professionals from the 
Medicare and Medicaid programs who 
have defaulted on a heath care education loan or scholarship obligation. 
The PHS has only used the exclusion option in one 
cae. An osteopath, who was an
NHSC scholarship recipient
, breached his service obligation in 1980 and was 
subsequently notified that he must 
repay the $14 641 borrowed from the program 
interest. He refused all offers to repay his service or financial obligation and was, plus
referred to the OIG for exclusion. 
The PHS has taen the position that it must first refer the cae to the Deparment of
Justice and obtan a judgement before it ca 
exercise the exclusion provision. In 
addition , the PHS has rased the issue of timing of the exclusions under these
provisions. Specifically, whether it is legally 
advisable or permissible to delay exclusion
actions until after a 
judgement has been obtaned 
against the defaulter in court.
Further PHS contends it cannot 
, the  pursue exclusion without speific regulations that 
address implementation. (See PHS comments for their current position) 
Th PHS need not await a prior judgmenJ agains a defauer in Fedral cour 
before
exluding tha defauter 
from Medicare. 
Based on advice from the Offce of the Genera Counsel
, we believe Section 1892 

very clea about the PHS obligations: PHS must attempt to enter into a Medicare 
offset agreement with each defaulter in the HEAL  NHSC or PSA programs. 
If the 
individual refuses to enter into such an agreement or later 
breaches the agreement,
the PHS must " immediately " refer the case to the Attorney Genera for a collection 
action and simultaeously forward the matter to OIG which must " immediately
exclude " the individual from the 
Medicare program, until the entire past-due 
obligation is repaid. 
It is quite clea that the  may not await a court judgment of default before an 
PHS 
exclusion can be imposed. The statutory mandate to exclude, concurrent with referral
to the Deparment of Justice , makes it legally impermissible to delay exclusion until a 
judgment is obtaned. 
nur 
Preliminary daa suggests a considerable  of NHSC an HEAL defauters are 
Medicare providers. 
An informal computer match with NHSC defaulters and 
Medicare data performed 
severa yeas ago revealed that approximately 70 percent of the 
defaulters were 
Medicare providers. However, there was no follow-up on this match 
, and no current
information is available on these defaulters.  The HCFA recently completed a computer match of a random sample of 100 HEAL 
defaulters with Medicare data in order to determine how many are Medicare 
providers. The information provided to HCF A included the defaulter s name, health 
discipline, debt balance, date of birth, last school attended, social security number amI 
address. The match revealed that 38 are Medicare providers. However, the data 
could not show whether these 38 are actually biling Medicare. 
The computer match had two limitations: (1) it included specialties that do not 
usually bil Medicare, such as dentistry and pediatrics; and (2) it did not identify 
defaulters practicing as part of an HMO, CMP or group practice which is biling 
Medicare. Thus, 38 percent may be a conservative estimate of the number of 
defaulters being reimbursed by Medicare. Finally, the match did not identify those 
providers biling Medicaid.
The PHS plans to contact individual carrers to determine the 
earnings of the 38 
providers and then contact the providers to offer them an opportunity to offset their 
Medicare reimbursement. Additionally, the PHS plans to implement a mechanism to 
systematically refer cases to HCF A fqr offset. However, the PHS has not established a 
time schedule to  these plans. 
carr  out 
Mones collcted though Medare offets  HEA defaulers are not
retu to th progrms, but mu be defproom  NinH StCh a gnde nl fu of the Treas. 
Under 31 U.  3302 and related Comptroller General opinions, agencies are 
e. 
ordinariy required to deposit all moneys they receive for the use of the United State:s 
in the general fund of the Treasury as miscellaneous receipts. The only two general1y 
recognized exceptions to this rule allow an agency to retain money it collects if it has 
specific statutory authority to do so  if the moneys qualify as "refunds to 
appropriations. 
Under the Medicare offset provisions of 9 1892 of the Social Security Act, Congress 
specifically authorized, as a credit toward past-due obligations, the transfer of funds 
equal to the amount of the offset from the Trust Fund to the general fund in the 
Thus, any moneys received through Medicare offset from those 
Treasury, 9 1892(  e). 
who have defaulted on their NHSC scholarship obligations or health education loans 
cannot be channelled back to those scholarship and loan programs, but must be 
deposited into the general fund of the Treasury. 
Moreover, any moneys recovered from NHSC defaulters, whe:ther through Medicare 
offset agreements or some other means, are returned to the general fund of the 
Treasury. In fiscal year 1990, NHSC defaulters made cash repayments in the amount 
of $9.5 milion, which could not be returned to the NHSC scholarship program. 
With respect to the HEAL program, however, there is an inconsistency worth noting. 
Title VII, Subpart I of the PHS Act, in establishing a program of federally-insured 
student loan assistance for health education, established a student loan insurance fund  SLIF fund"
) into which the Secretary must deposit all amounts received 
connection with his/her operations under the loan program. By its terms, this would 
appear to encompass any and all proceeds from collection activities against defaulters 
including Medicare offsets authorized under S 1892. See S 734(a) of the PHS Act. 
However, S 733(t) of the PHS Act references the offset  1892 of the 
provisions of 
Social Security Act, stating that "(p )rocedures for reduction of payments under the 
Medicare program are provided under section 1892 of the Social Security Act." Thus 
the general statutory authority enacted in S 734 appears to be limited by the language 
of S 733 and thereby made inapplicable to moneys collected by offset. Unlike all 
other moneys, propert, or assets derived by the Secretary in connection with his 
operation of the HEAL program, which are deposited in the SLIF fund, moneys 
collected by offet would be deposited in the general fund of the Treasury as required 
by Section 1892 of the Social Security Act.  RECOMMENDATIONS

Authorities to Return Recovered Moneys to the Program 
1. The PHS should seek legislative authority to enable the Secretary to return money 
recovered from NHSC and PSA scholarship defaulters to the program 
rather than 
to the general fund of the Treasury. Additionally, the PHS should seek legislative 
authority to enable the Secretary to return money recovered from HEAL 
defaulters through Medicare offsets to the SLIF fund rather than the general fund 
of the Treasury. This would provide continuing support for program goals and 
objectives. 
Medare  Agreemts 
Ofset 
2. The PHS should immediately offer offset agreements to loan and scholarship 
defaulters and refer them to HCF A for implementation. 
3. The HCF A should take immediate action to implement offset procedures as 
authoried in Section 1892 of the Social Security Act. 
Exluns 
Medicare 
4. The PHS should refer to the OIG those cases where an offset agreement cannot 
be negotiated or is breached for 
exclusion concurrently with referrng the case to 
the Department of 
Justice for initiation of a collection action. 
Discun 
Medicare offset agreements could potentially be entered into with 7361 defaulters of 
the health education scholarship and loan programs, representing $392. 7 milion as 
shown below. 
Numbers of  Outstanding 
Program  Defaulters  Balances 
NHSC  1011  $161 
PSA 
HEAL  6220  229.4 
TOTAL  7297  $392. 
Presently, it is difficult to estimate the total dollar amount that might actually 
recovered through offset agreements because of uncertainties concerning the degree of 
participation in the Medicare and Me:dicaid programs by ddaulters. However  signifcant dollar amounts may be subject to such offsets in the NHSCscholarship 
program and could be available for future scholarship recipients. For example, the 
Federal povernment could collect as much as $7 milion dollars during the first year. 
The $7 milion approximation is based on a conservative estimate that 700 defaulters 
are Medicare providers (70 percent of the 1011 NHSC defaulters) with the Federal 
Government collecting $10,000 from each defaulter through Medicare offsets during 
the fist year. The PHS currently projects that scholarship recipients will need an 
500. Thus, if this money was 
average of 3 years support of approximately $82,
returned to the scholarship program, funding would be available for 85 scholarship 
recipients. 
Additional benefits would accrue to the NHSC scholarship program and other health 
education assistance programs through the so called "sentinel effect" whereby 
implementation of offsets in some cases might discourage others from defaulting. This 
would have the effect of increasing the number of NHSC recipients who fulfill their 
obligations by servng in underserved areas.
FU 
ACTONS 
We wil in the coming months perform a match of loan and scholarship defaulters with 
provider reimbursement data from State Medicaid programs, HMO, CMP and group 
practices. 
COMM 
We received comments from PHS, HCFA and ASPE which concur, fully or in part 
with our recommendations. These comments are included in Appendix A. 
While PHS concurs with our recommendation that it should seek legislative authority 
to return monies recovered from Medicare offsets from HEAL defaulters to the 
HEAL program, it does not concur that it must do the same for the NHSC. The PHS 
cites Section 338F of the Public Health Service Act as authorizing the establishment of 
a NHSC Membership Replacement Fund, to which monies equal to the amounts 
collected from defaulters may be paid to sites needing a replacement health 
professional. However, Section 338F requires a Congressional appropriation before 
being implemented, and such an appropriation seems unlikely due to time and fiscal 
constraints. We therefore believe that PHS should seek additional legislative authority 
to return monies collected from NHSC defaulters directly to the scholarship program. 
The PHS advocates that, for certain practical reasons, referrals of NHSC and PSA 
scholarship cases for exclusion be prioritized, with judgement cases being rderred first. 
We understand that in the short run it is reasonable and prude:nt to prioritize: 
judgment cases. However, we would emphasize that PHS is legally required by statllt 
to exclude both pre-judgement and judgement defaulters. We feel there shaulL! he fair 
and consistent treatment of all categories of defaulters. Since the:re is already a 
substantial backlog of NHSC cases awaiting judgments, we feel any further da:lay for  payment should be avoided. We recommend that PHS develop the capacity to 
simultaneously refer NHSC and PSA default cases to the OIG for Medicare 
offset/exclusion and to the DOJ for the initiation of a collection action.  APPENDIX A 
COMMENTS  -. ..
:..  --  I  
,.""f  r.l'a")
DEPART.\\ENT OF HEALTH &. HUl'1A'\ SER\'lCES  P'JCI:C HeJith SerJicc
(1..nL  t. CA 
tt. ,,

;2.l1JI
Memorandum
-t""...n 
Date 199'
'SEP  2 4 
Healt
From Assistant Secretdry for 
Subjec 0 I G D  p 0 r t It Use 0 f  d i car e 0 f f set A g r e e men: s a :1 d 
aft R  " OEI-02-91-00550 
Exclusions for NH5C and HEAL Loan Defaulters,
Inspector General, 

aft r 
At t a c h e d are the PHS co mm e n t s  on the sub j e c t d r  e p 0 r t . 
The actions 
concur fully or in part with all recommendations. 
ti na  kdene 0t ar ilp  1 ann e d to imp 1 e men t the s e  re co mm end a t ion s are des  rib e 
in the attached document. 
o.h1
Mason, M.  , Dr.

Attachment
IG 
DIG-
AS 
DIG-
EI 
DIG-
AIG-
MP 
OGC/IG 
EXSEC 
I ..
DATSE  PUBLIC HEALTH SERVICE (PHS) COH!1ENTS ON THE OFFICE OF

INSPECTOR GENERA (OIG) lA..AGEl1ENT ADVISORY REPORT " USE

NATIONJ...

OF MEDICARE OFFSET AGREE!1ENTS AND EXCLUSIONS. FOR 
HEALTH SERVICE CORPS (NHSC) AND HEALTH EDUCATION ASSISTANCE

02-91-00550 
LOAN DEFAULTERS (HEAL), " OEI-
General Comment

Administration (HRSA) has 
The Health Resources and Services 
numer of defaulters and the 
reviewed the OIG' s estimates of the 
balances as set forth 
amounts of outstanding scholarship or loan  figures 
accurate. The 
in the report and has found them to be 
data contained in HRSA' 
reported are in agreement with the 
quarterly reports. 
OIG Recommendation 
enable the Secretary to 
PHS should seek legislative authority to 
Physician Shortage Area 
return money recovered from NHSC and 
(PSA) scholarship defaulters to the program rather than to the 
general fund of the Treasury. Addi  PHS should seek 
tionally 
Secretary to return money 
legislative authority to enable the 
recovered from HEA defaulters through Medicare offsets to the

Student Loan Insurance Fund (SLIF) rather than the general fund
of the Treasury. 
This would provide continuing support for 
program goals and objectives.

PHS Comment

that PHS should seek

We do not concur with the recommendation 
re-use money paid back by

legislative authority to recover and 
PHS already has legislative

NHSC and PSA scholarship defaulters. 
the same goal.

authority which would achieve essentially 
Service Act authorizes the 
Section 338F of the Public Health 
establishment of the NHSC Member Replacement Fund, to which 
from defaulters may be
monies equal to the amounts collected 
appropriated.  would be paid to si tes whic 
Amounts in the fund 
as the result of a scholar 
need a replacement health professional 
commitment. The sites ' use of the 
breaching his/her service 
forth in the statute, i. 
funds is restricted to purposes set  e. 
professional to provide 
recruiting and employment of a health 
entity or to enter

primary health services to patients of the 
the services

into a contract with such a professional to provide 
to the patients. PHS will submit to the Office of Management a

Budget appropriation language for fiscal year 1993 to implemen:

Section 338F. 
PHS should seek 
We concur with the OIG recommendation that 
recovered by Medicare 
legislative authority to return monies 
oSfL f IsFe)ts.  from HEAL dcefoalulletcetriso ntso,  the HEAL Program  (i.  , the f sets 
Other HE  Internal Revenue Service of  and debtor payments after return of the note to the government 
HEA Program.
are presently returned directly to the 
Furthe 
ore, such direct return would be consistent with 
treatment of refunds and collections afforded other HRSA

Programs. 
OIG Recommendation 
Lmediately offer offset 
PHS should  agreements to loan and 
scholarship defaulters and refer successfully negotiated 
agreements to the Health Care Financing Administration (HCFA) for 
implementation. 
PHS Comment

We concur. At a Departmental level meeting on May 30, 1991, PHS

received clarification that it can now offer Medicare offset

agreements to loan and scholarship defaulters. PHS will

expeditiously notify HCFA when agreements are negotiated with the 
Lmediate actions 
defaul ters so that HCFA may take the necessary 
defaulters. 
to recover the appropriate amounts from the 
It should be noted, however, that the OIG's estimated impact of

HEA defaulters could be misleading. The only
Medicare offset on 
HEA loans subject to offset are those on which we have paid a 
SLIF. 
claim from the  Our current procedure, once a claim has 
been paid from the SLIF# is to notify the defaulter that the 
Government is the holder of the note and advise the debtor that a

repayment agreement must be negotiated within 30 days. If there

is no agreement within that period, the debtor is given an

additional 60 days to enter into a Medicare offset agreement. 
Failing that, the debtor will then be referred to the Department
of Justice 
(DOJ) for enforced collection as appropriate. 
OIG Recommendation 
PHS should refer to OIG for exclusion of those cases where an 
offset agreement cannot be negotiated within 90 days of the 
tial offer or is subsequently breached concurrently with 
ini 
referring the case to the DOJ for initiation of a collection 
action. 
PHS Comment

offset/exclusion for 
We support the concept of Medicare 
scholarship defaulters.  to process the Medic3re 
However 
offset/exclusion through the OIG and the default simultaneously 
through the DOJ does not appear in PSA and NHSC cases to be 
reasons: 
practical for the following  We expect that exclusion of pre-judgment NHSC and PSA 
s liability 
scholarship defaulters, where the individual' 
has not yet been established by a court, will be 
laborious, as the defaulter will undoubtedly use the 
exclusion hearing as another opportunity to challenge 
his/her default status. Litigating each case twice 
(through the administrative exclusion hearing and the 
Federal court litigation) would double the workload of 
the Office of General Counsel (OGC) and the program, 
cases. 
while not disposing of more 
Nei ther OGC nor the Scholarship Program currently has 
sufficient personnel to assist both regional attorneys 
handling exclusion hearings and DOJ attorneys handling 
the Federal court litigation. In both areas, litigation 
support would involve answering numerous questions about 
program operation and policies, investigating factual 
allegations made by defaulters, coming up with 
appropriate witnesses for hearings and trials, and 
providing documents (e. g. , copies of scholarship files 
regulations, policies, and NHSC placement lists. 
Nei ther OGC nor the program has the funds available to 
significantly expand the OGC staff assigned to 
scholarship default  wo attorneys and a secretary 
cases. 
in OGC are now funded by the agency just to handle the 
ongoing Federal court litigation involving scholarship
defaulters. 
and judicial 
With simultaneous administrative 
proceedings comes an increased risk of inconsistent 
outcomes. If the 
administrative hearings official were
to rule against the  overturn the
Departent (i.  e., 
default determination) the Governent' 
s position 
District Court could be severely compromised. We could
also receive resistance from DOJ about prosecuting a case
which the Department lost at the administrative level. 
We believe that it makes sense, in terms of resource management, 
to limit exclusions of scholarship defaulters to those defaulters 
judgments. 
against whom we have  However, we are legally
required 
, under the statute, to exclude pre-judgment defaulters
as well. 
Therefore, we advocate that referrals of NHSC and PSA 
scholarship cases be prioritized, with judgment cases referred
first. 
defaulted HEA cases for 
The PHS will simultaneously refer 
exclusion and collection to the OIG and DOJ respectively in those 
thin 
be negotiated wi 
instances when an offset agreement cannot 
90 days or when a negotiated offset agreement is subsequently 
breached.  S=e: ;.. : - ,  r.. .
..  :.'" 
Ofce of the 
Washington. D.C. 20201

. JJN I 9 199
c- n 

Cr).  0rn 
C'
::-n
rn 
TO:(cid:1) Richard P. Kusserow

Inspector General
 Vv/  ..
F' . ..
Assistant Secretary for

FROM:(cid:1)
Planning and Evaluation

nus
SUBJECT : Review of OIG Draft Management Advisory Report: 
of Medicare Offset Agreements and Exclusions for 
National Health Service Corps and Health Education
" OEI-02-91-00550 
Assistance Loan Defaulters, 
Thank you for giving me the opportunity to review your draft 
of Medicare offset 
management advisory report on the use 
National Health Service corps 
agreements and exclusions for  and Health 
(PSA) SCholarship, 
(NHSC), Physician Shortage (AHreEa)   ters. 
defaul 
Education Assistance Lean 
recent problems with

This is a timely report in light of 
scholarship and loan proFguradm  defaulters and the solvency of the

(SLIF). Your findings and

student Loan Insurance 

recommendations point clearly to the need for the Department to

develop a more coherent and aggressive strategy for pursuing

I understand that since the

offset agreements and exclusions. 
draft report was completed the PHS has changed its position on

the need for regulations governing the offset process prciuorrr etnot

, and I assume that its 
entering into offset agreements
final version of the report.

position will be reflected in the 
submi t legislative proposals

We agree that PHS should develop and 
to enable the Secretary to return money recovered from NHSC and

PSA scholarship defaulters to the program and from HEAL

defaulters to the SLIF rather than to the general fund of the

Treasury .
245-1870.
If you have any questions, please phone Elise Smith on 

Vi! 
In 
Pm 
Martin H. Gerry

mG.I 
AIG-MP
OO/IG 
EXSEO
DAT  & :;9,

SE  ..! / .., ,.  .. =- :' :"' ,.' /..-" 
- ..."'crr. 
RECEiVEj?ea'th Care 
0(. (cid:1) fL'  DEPARTMENT OF HEALTH & HUMAN SERVICES  r.F  tV'" rl"c'. 11... -.f.i' cI L .QCing Administration
5 199 
orandum 
:::::1.1. A2  I" ' 
.:;J 
:1 
Date 
Gail R. Wilensky, Ph.
D.
From 
Administrator 
Dra 
Management Adviory Report - ' 'Use of Medicare Offset Ageements 
Subject OIG 
and Exclusions for National Health Servce Corps and Health Education Assistance 
Loan Defaulters," OEI-02-91-00550 
Inpector General

Ofce of 
the Secretary 
We have reviewed the subject draf management adviory report which 
exaes 
the use of Medicare offset agreements and exclusions on debt collection 
actties of the National Health Servce Corps (NHSC) schola(rhHips,) P hysician 
Shortge Area (PSA), and Health Education Asistace Loan  programs. 
The report found that Medicae offet and exclusion procedures are not being 
employed against defaulters in the Deparent of Health and Human Servces 
scholarship and loan programs for students in the health professions. To date, the 
Public Health Servce (PHS), which is responsible for debt management activties for 
the loan progrms, has not yet implemented the oHffeEt p rocedure and has intiated 
the exclusion option against only one NHSC and  scholarship defaulter. 
OIG specifcally recommends that HCF A take imediate action to implement 
offet procedures as authoried in Section 1892 of the Social Securty Act (the Act). 
forwded 
HCF A concurs with this recommendation. However, PHS has not yet 
agreements to us. 
any requests for offet or any loan or scholarhip defaulters offet 
When PHS refers offset agreements to HCF A, we wi process the Medicare offets 
under the Agency s current authority granted in Section 1892 of the Act HCF A 
199 
publihed a proposed rule, BPO- Federal Register on November 6, 
088P in the 
to specifcaly address the Medicare offet agreements as descnoed in Section 1892 
of the Act. The final rule has been drafted and is being circulated for comment 
within the Agency. 
Thank you for the opportunity to review and comment on this draft report. 
Please advise us whether you agree with our position on the report 
recommendation at your earliest convenience. 
PDIG 
DIG-
DIG-EI 
DIG-
AJ.M 
OGCIIG 
EX SEC
 ' "'
and Human Servces
Department. of Health 
OFFICE OF
INSPECTOR GENERAL
USE OF MEDICARE OFFSET 
AGREEMENTS AND EXCLUSIONS FOR 
NATIONAL HEALTH SERVICE CORPS 
AND HEALTH EDUCATION ASSISTANCE 
LOAN DEFAULTERS
" SERVICES

t-
Richard P. Kusserow 
INSPECfOR GENERA 
~1t"dla DECEMBER 1991 GENRA 
OFFICE OF INSPECfOR 
The mission of the Offce of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Servces' (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs. This 
statutory mission is carred out through a nationwide network of audits, investigations, and 
inspections conducted by three OIG operating components: the Offce of Audit Servces, the 
Offce of Investigations, and the Offce of Evaluation and Inspections. The OIG also informs 
the Secretary of HHS of program and management problems and recommends courses to 
correct them. 
OFFCE OF AUDIT SERVICE 
The OIG's Offce of Audit Servces (OAS) provides all auditing servces for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in 
carrng out their respective responsibilties and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and effciency throughout the Department. 
OFFCE OF INTIGATIONS 
The OIG's Offce of Investigations (01) conducts crinal, civl, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 
unjust enrichment by providers. The investigative effort of 01 lead to criminal convictions 
administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
AN 
OFFICE OF EVALUATION  INSPECIONS 
The OIG's Offce of Evaluation and Inspections (OEI) conducts short-term management and 
program evaluations (called inspections) that focus on issues of concern to the Department 
the Congress, and the public. The fmdings and recommendations contained in these inspection 
reports generate rapid, accurate, and up-to-date information on the effciency, vulnerability, 
and effectiveness of departmental programs. This report was prepared in the New York 
Regional Offce under the direction of Regional Inspector General Thomas F. Tully and 
Deputy Regional Inspector General Alan S. Meyer. Project staff included: 
HEUARTERS 
REGION n 
Renee C. Schlesinger, Project Leader  Maruta Zitans, Program Specialist 
Dcmetra Arapakos