The Department of Health and Human Services
 
And
 
The Department of Justice
 
Health Care Fraud and Abuse Control Program
 
Annual Report For FY 2007
 
November 2008  TABLE OF CONTENTS
 
Page 
Executive Summary  1
 
Introduction  3
 
Monetary Results  5
 
Program Accomplishments  7
 
Department of Health and Human Services
 
Office of Inspector General  25
 
Centers for Medicare & Medicaid Services  35
 
Administration on Aging  37
 
Office of the General Counsel  38
 
Health Resources and Services Administration  40
 
Office of the National Coordinator 

     for Health Information Technology  40
 
Department of Justice
              
United States Attorneys  43
 
Civil Division  44
 
Criminal Division  45
 
Civil Rights Division  47
 
Appendix: Federal Bureau of Investigation - Mandatory Funding  51
 
Glossary of Terms  53
 
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 eleventh 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 2007, the Federal Government won or negotiated approximately $1.8 billion in 
judgments and settlements2, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Fund received transfers of approximately $797 
million during this period as a result of these efforts, as well as those of preceding years, in 
addition to $266 million in Federal Medicaid money similarly transferred separately to the 
Treasury as a result of these efforts.  The HCFAC account has returned over $11.2 billion to the 
Medicare Trust Fund since the inception of the Program in 1997. 
Enforcement Actions 
In FY 2007, U.S. Attorneys' Offices opened 878 new criminal health care fraud investigations 
involving 1,548 potential defendants. Federal prosecutors had 1,612 health care fraud criminal 
investigations pending, involving 2,603 potential defendants, and filed criminal charges in 434 
cases involving 786 defendants. A total of 560 defendants were convicted for health care 
fraud-related crimes during the year.  Also in FY 2007, the Department of Justice (DOJ) opened 
776 new civil health care fraud investigations, and had 743 civil health care fraud investigations 
pending at the end of the fiscal year.  The Department opened 218 new civil health care fraud 
cases during the year. 
1Hereafter, referred to as the Secretary. 
2The amount reported as won or negotiated only reflects federal recoveries and therefore 
does not reflect state Medicaid monies recovered as part of any global, federal-state settlements. 
Measures have been put into place to track such related state Medicaid recoveries. 
1
  2
  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 2007
 
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.3  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 
2006, the Tax Relief and Health Care Act or TRHCA (P.L 109-432, 303) amended the Act. 
TRHCA changed the appropriation so that funds allotted from the Account are available until 
expended. TRHCA also allowed for yearly increases to the Account based on the change in the 
consumer price index for all urban consumers (all items; United States city average) or CPI-U 
over the previous fiscal year for fiscal years for 2007 through 2010.  After 2010, the amount 
available in the Account will remain fixed at the 2010 level. 
In FY 2007, the Secretary and the Attorney General certified $249,459,000 for appropriation to 
the Account.  A detailed breakdown of the allocation of these funds is set forth later in this 
report. HCFAC appropriations generally supplement the direct appropriations of HHS and DOJ 
3Also known as the Hospital Insurance (HI) Trust Fund.  All further references to the 
Medicare Trust Fund refer to the HI Trust Fund. 
3  that are devoted to health care fraud enforcement and funded approximately two-thirds of the 
HHS/OIGs appropriated budget in FY 2007.  (Separately, the Federal Bureau of Investigation 
(FBI) received $118.2 million from HIPAA which is discussed in the Appendix.) 
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.  
4
  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 2007, $1.1 
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 2007 
Department of the Treasury 
  HIPAA Deposits to the Medicare Trust Fund             
            Gifts and Bequests $20,061 
            Amount Equal to Criminal Fines $201,437,183 
            Civil Monetary Penalties $12,618,812 
            Asset Forfeiture * $0 
            Penalties and Multiple Damages  $211,114,362 
Subtotal  $425,190,419 
Centers for Medicare & Medicaid Services
  HHS/OIG Audit Disallowances - Recovered $185,671,557 
  Restitution/Compensatory Damages  $186,320,572 
Subtotal  $371,992,129 
Grand Total  $797,182,548 
Restitution/Compensatory Damages to Federal Agencies 
Office of Personnel Management  $107,405,130 
TRICARE  $15,239,740 
HHS/OIG Cost of Audits, Investigations and Compliance           
Monitoring  $7,109,900 
Veterans Administration  $7,013,564 
National Institute of Health  $5,834,065 
Department of Labor  $2,535,064 
Administration for Children and Families  $2,512,194 
Other Agencies  $2,598,055 
Subtotal  $150,247,712 
Relators Payments**  $122,784,396
 TOTAL ***  $1,070,214,656 
*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.  This table does not include the $276.1 million forfeiture by the 
Purdue Frederick Company, Inc., as part of its settlement involving allegations of misbranding Oxycontin. 
**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. 
5
  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)(7) 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). 
6
  PROGRAM ACCOMPLISHMENTS
 
EXPENDITURES 
In the eleventh year of operation, the Secretary and the Attorney General certified $249.459 
million as necessary for the Program.  The following chart gives the allocation by recipient: 
FY 2007 ALLOCATION OF HCFAC APPROPRIATION4 
(Dollars in thousands) 
Organization  Allocation 
Department of Health and Human Services
   Office of Inspector General5 $165,900 
Office of the General Counsel $5,131 
Administration on Aging $3,128 
   Centers for Medicare & Medicaid Services (CMS) $22,997 
Health Resources and Services Administration6  0 
   Office of the National Coordinator for Health 
Information Technology (ONC)  $490 
Subtotal  $197,666 
Department of Justice
    United States Attorneys $31,358 
Civil Division $14,779 
Criminal Division $2,180 
Civil Rights Division  $2,376 
Nursing Home and Elder Justice Initiative  $1,100 
Subtotal  $51,793 
Total  $249,459 
4In FY 2007, funds became available until expended. 
5In addition, HHS/OIG obligated $4 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).  
6In FY 2007, the Office of Inspector General provided funding to the Health Resources 
and Services Administration to support the Healthcare Integrity and Protection Data Bank 
(HIPDB) program. 
7  ACCOMPLISHMENTS 
Overall Recoveries 
During this fiscal year, the Federal Government won or negotiated approximately $1.8 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 approximately $797 
million during this period as a result of these efforts, as well as those of preceding years, in 
addition to $266 million in Federal Medicaid money similarly transferred to the Treasury 
separately as a result of these efforts7. 
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 2007, HHS collected approximately $185.7 
million in HHS/OIG recommended recoveries. 
Departmental Collaboration 
The Attorney General and the Secretary maintain regular consultation at both senior and staff 
levels to facilitate, coordinate and accomplish the goals of the program.  HHS and DOJ hold 
senior level meetings on a quarterly basis.  These meetings provide a forum for the leadership of 
both Departments to ensure that the program operates effectively, in coordination across various 
administrative, civil and criminal activities, and that any impediments to effective operation of the 
HCFAC program are minimized. 
Similarly, the quarterly meetings between the Centers for Medicare & Medicaid Services (CMS) 
and Law Enforcement entities (representatives include members of the Criminal Division, the 
Civil Division, the Executive Office for the United States Attorneys (EOUSA), the Federal 
Bureau of Investigation (FBI), and HHS/OIG), provide an opportunity for staff from each agency 
to discuss and resolve operational issues which arise in the identification and prosecution of 
health care fraud schemes, as well as to provide timely updates on operational initiatives and 
programmatic changes which impact the Governments anti-fraud efforts.  
In addition to the quarterly interagency meetings at the Departmental senior management and staff 
levels, EOUSA and CMS host a monthly national conference call during which Assistant United 
States Attorneys from all districts have the opportunity to interact directly with CMS 
representatives, receive timely reports on CMS operations, and obtain answers to questions related 
to specific issues regarding current investigations.  The Departments also convene interagency 
staff-level working groups as needed to develop mutual proposals for improving our health care 
fraud fighting capabilities. 
7 Note that some of the judgments, settlements, and administrative actions that occurred 
in FY 2007 will result in transfers in future years, just as some of the transfers in FY 2007 are 
attributable to actions from prior years. 
8  Each Department routinely enlists senior staff from the other to participate in staff training 
programs, thereby encouraging the free-flow of shared expertise and accessibility.  The 
Department of Justices Criminal Division and HHS/OIG initiated a special program in 2007, 
which provides an opportunity for HHS/OIG counsel to serve in 6 month details to gain 
experience managing criminal health care fraud investigations and trial experience in Federal 
court with Criminal Division colleagues. 
Medicare Fraud Strike Force  
In 2007, to combat improper billing for durable medical equipment and HIV infusion therapy 
services8, the Departments of Justice and Health and Human Services launched a Medicare Fraud 
Strike Force in Miami, Florida. The DOJ Criminal Division, Fraud Section, along with the 
United States Attorneys Office for the Southern District of Florida led the strike force and 
implemented a targeted criminal, civil and administrative effort against individuals and health 
care companies that fraudulently bill the Medicare program. 
The strike force began operations in Miami-Dade County, Florida in March 2007, and ceased 
initial investigatory operations 7 months later.  The strike force was structured in 5 teams with 
criminal prosecutors, a licensed nurse, federal and state agents, and local police investigators.  The 
federal and state agents included personnel from HHS/OIG, the FBI, City of Hialeah Police 
Department, and the Florida Medicaid Fraud Control Unit.  The strike force investigations 
concentrated on HIV/AIDS infusion therapy fraud and durable medical equipment fraud (DME). 
A summary of prosecution accomplishments follows as of the end of September 30, 2007: 
74 cases indicted involving charges filed against 120 defendants who collectively billed 
the Medicare program more than $400 million; 
35 guilty pleas negotiated and four jury trials litigated, winning guilty verdicts on all 
counts charged; 
Sentences to confinement for all 21 defendants sentenced during the fiscal year, averaging 
more than 52 months of incarceration. 
In addition to these strike force accomplishments, a dramatic reduction was seen in billing and 
payments for Medicare Part B during the strike force period.  The following graph shows the 
dramatic reduction in billings and payments for Medicare Part B services during the strike force 
period of March 1, 2007 through September 30, 2007 compared to the same 7 month period of 
8In an evaluation conducted at the end of 2006, HHS/OIG found that CMS has had 
limited success controlling the aberrant billing practices of infusion therapy providers in South 
Florida. HHS/OIG's evaluation concluded that CMSs and its contractors attempts to control 
inappropriate payments to providers in South Florida counties using various administrative tools 
had not been effective because aberrant HIV infusion providers adjusted their billing patterns and 
circumvented controls. Additional information regarding this evaluation can be found in the 
HHS/OIG narrative under Infusion Therapy for Beneficiaries with HIV/AIDS. 
9  2006. While there is no quantifiable way to distinguish the specific and unique impacts that law 
enforcement and administrative activities have contributed to the decreases in Medicare durable 
medical equipment (DME) claims submission and payments during the strike force operational 
period, DOJ prosecutors have anecdotal evidence that supports two major areas of law 
enforcement impact: (1) undercover operations revealed that the threat of prison time and rapid 
prosecution had a significant impact on those that are committing or may be inclined to commit 
fraud; and (2) the elimination of Medicare payments for compounded aerosol medications as a 
result of Strike Force prosecutions had a significant direct impact by eliminating a major series of 
fraud schemes that also included claims for collateral equipment. 
Medicare claims data show that during the active investigatory phase of the Medicare Fraud Strike 
Force, March 1 through September 30, 2007, submitted claim amounts for DME decreased by 
more than $1.2 billion to $661 million from $1.87 billion during the same 7 month period of the 
previous year; similarly, DME paid amounts fell by $255 million from March 1 September 30, 
2007 to $230 million from $485 million over the same 7 month period of 2006. 
In addition to the Medicare Fraud Strike Force initiative, DOJ, HHS/OIG, working with their 
other law enforcement partners, have brought to successful conclusion the investigation and 
prosecution of numerous health care fraud schemes.  
10
  During FY 2007, the many significant HCFAC Program accomplishments included the following: 
Pharmaceutical Fraud 
	  The Purdue Frederick Company, Inc., along with its President, Chief Legal Officer, and 
former Chief Medical Officer pled guilty to charges of misbranding Purdues addictive and 
highly abusable drug, OxyContin.  The government alleged that Purdue fraudulently 
misbranded OxyContin as being less addictive and less subject to abuse and diversion than 
other pain medications. As part of the global resolution, Purdue and the executives paid a 
total of $634.5 million to resolve their criminal and civil liabilities. In particular, Purdue 
forfeited $276.1 million to the United States, paid the United States and State government 
agencies $160 million to resolve liability for false claims made to Medicaid and other 
government healthcare programs, set aside $130 million to resolve private civil claims 
(with unclaimed amounts to revert to the United States), paid $5.3 million to the Virginia 
Attorney Generals Medicaid Fraud Control Unit to fund future health care fraud 
investigations, paid $20 million to fund the Virginia Prescription Monitoring Program, and 
paid the maximum statutory criminal fine of $500,000. In addition, the three Purdue 
executives paid over $34.5 million to the Virginia Medicaid Fraud Control Unit. 
	  Bristol-Myers Squibb Company (BMS) and its generic division, Apothecon, paid the 
United States $328 million to resolve a broad array of allegations involving illegal drug 
pricing and marketing activities. BMS and Apothecon agreed to pay an additional $187 
million to State governments based on the same allegations. The civil settlement resolves 
allegations that (1) BMS and Apothecon set and maintained inflated prices knowing that 
federal health care programs used these prices for reimbursement, and then marketed the 
spread the difference between the reported price used by Medicare to set 
reimbursement rates and the price charged to customers   to induce sales by increasing 
providers profits; (2) BMS paid kickbacks to doctors in the form of bogus consulting fees 
to induce them to purchase BMSs drugs; (3) BMS paid kickbacks to wholesalers and 
retail pharmacies to induce purchases of generic products; (4) BMS promoted its atypical 
antipsychotic drug, Abilify, for juvenile use and to treat dementia related psychosis  uses 
that were not approved by the Food and Drug Administration (FDA); and (5) BMS 
violated the Medicaid Drug Rebate Act, 42 U.S.C.  1396r-8, by reporting false best 
prices to the government for its drug Serzone, which resulted in BMS underpaying 
quarterly rebates owed to the Medicaid program. 
	  Aventis Pharmaceuticals, Inc., paid $180 million to resolve allegations that the company 
engaged in a scheme (1) to set and maintain fraudulent and inflated prices for its drug, 
Anzemet, knowing that federal health care programs established reimbursement rates 
based on those prices, and (2) to use the difference between the inflated prices reported 
and the actual prices charged to its customers to market, promote, and sell this drug. 
Aventis additionally paid $10 million to several State governments based on the same 
allegations. 
11
  	  InterMune, Inc., agreed to pay $30.2 million to resolve allegations that it marketed its 
drug, Actimmune, for uses not approved by the FDA resulting in federal health program 
losses. The government alleged that InterMune marketed Actimmune for idiopathic 
pulmonary fibrosis (IPF), a fatal disease that causes scarring of lung tissue.  Although the 
company had failed to demonstrate Actimmunes efficacy for IPF, it nevertheless misled 
physicians and the public to believe that the drug trial had been successful.  InterMune 
paid an additional $6.7 million to state Medicaid programs. 
	  Jazz Pharmaceuticals, Inc., (Jazz) paid $20 million to resolve criminal and civil allegations 
relating to the illegal marketing practices of its wholly-owned subsidiary, Orphan Medical, 
Inc., (Orphan).  As part of this resolution, Orphan pled guilty to felony misbranding, in 
violation of the Food, Drug, and Cosmetic Act (21 U.S.C.  331(a) and 333(a)(2)) in 
connection with its illegal promotion of the prescription medication Xyrem, also known as 
gamma-hydroxybutyrate or GHB, for unapproved uses.  GHB is a powerful and fast-
acting central nervous system depressant that has been subject to abuse as a recreational 
drug and is classified by HHS as a date rape drug. 
	  Cell Therapeutics, Inc., (CTI) of Seattle, Wash., paid $10.5 million to resolve allegations 
that it off-label marketed its anti-cancer drug, Trisenox, to treat various forms of cancer for 
which the drug had not been approved by the FDA.  The settlement further resolved 
allegations that CTI paid kickbacks in the form of sham consulting agreements to induce 
physicians to prescribe Trisenox. 
	  Medicis Pharmaceutical Corp. agreed to pay the government $9.8 million to resolve 
allegations that the company promoted the use of a topical skin preparation, Loprox, for 
use in children under the age of 10, without approval of the FDA.  The government alleged 
that from approximately November 2001 through April 2004, Medicis  sales personnel 
targeted pediatricians and urged them to use Loprox  as a treatment for diaper rash.  The 
use of Loprox, which is approved by the FDA as a fungicide for patients over 10 years of 
age, is not a medically accepted indication for the treatment of diaper dermatitis and 
other skin disorders in children under age 10. 
Fraud by Pharmacies 
	  The owner of Florida Pharmacy and F&M Medical was convicted by a federal jury in 
Miami for conspiring to defraud the government, submitting false claims to Medicare, and 
receiving kickbacks. The owner was sentenced to 151 months in Federal prison, ordered 
to pay $3.5 million in restitution, and ordered to serve 3 years probation after 
imprisonment. The owner conspired with the owners of Med-Pro Billing and Unimed 
Pharmacy to obtain kickbacks in exchange for referrals to Unimed Pharmacy.  The owner 
received half of what Medicare paid the pharmacy for medically unnecessary 
compounded aerosols. Compounding refers to the process used by pharmacists, rather 
than a pharmaceutical manufacturer, to make medication.  Subsequently, from 2004 to 
2007, the owner began dispensing medically unnecessary DMEs and compounded aerosols 
from the owners own pharmacy, collecting in excess of $3 million from Medicare. 
12
  Evidence at trial established that the owner continued to improperly bill Medicare, even 
after arraignment in this case. 
DME Fraud 
	  The SCOOTER Store, Inc., paid the United States $4 million and gave up many millions 
more in pending claims for reimbursement to Medicare, to settle allegations that the 
company violated the FCA.  The settlement resolved allegations that The SCOOTER Store 
engaged in a multi-media advertising campaign to entice beneficiaries to obtain power 
scooters paid for by Medicare, Medicaid, and other insurers.  Instead of the zippy power 
scooters that were advertised, The SCOOTER Store sold the beneficiaries the more 
expensive power wheelchairs that they did not want, need, and/or could not use.  By 
representing to physicians that their patients wanted and needed power wheelchairs, The 
SCOOTER Store obtained thousands of Certificates of Medical Necessity from 
physicians who, the government alleged, did not know about the companys fraudulent 
practices. The SCOOTER Store then billed government and private health care insurers 
for power wheelchairs, which were far more costly than power scooters, and collected 
millions of Medicare and Medicaid dollars. 
	  In Texas, after a 2 week trial, a supplier of DME was found guilty of five counts of health 
care fraud due to the submission of false claims to the Medicare program.  The jury heard 
evidence that the supplier hired recruiters to target elderly and disabled Medicare 
beneficiaries for unnecessary DME such as power wheelchairs.  Through former 
employees and the recruiters, the supplier bought and sold false certificates of medical 
necessity for the items and sought reimbursement in excess of $1.6 million from the 
Medicare program. The court sentenced the supplier to 120 months incarceration and 
restitution of over $1.6 million. 
	  In Texas, a defendant was sentenced to 80 months incarceration and was found liable for 
an amount in excess of $2 million for the defendants involvement in a motorized 
wheelchair scheme. As part of the scheme, over 500 Medicare beneficiaries were 
transported from Louisiana to a Texas clinic.  For each beneficiary transported to the 
clinic, the defendant received between $200 and $1,000 from various DME suppliers.  At 
the clinic, one of three doctors performed a psychiatric evaluation on beneficiaries and 
then signed certificates of medical necessity and prescriptions for wheelchairs. 
	  In Florida, three subjects were sentenced for their roles in a scheme to submit false claims 
to Medicare for medically unnecessary DME.  The DME company owner was sentenced to 
63 months in jail, and the owners spouse was sentenced to 6 months of home 
confinement. As part of the scheme, the company owner paid Medicare beneficiaries for 
the use of their Medicare numbers in order to submit the false claims.  In addition, a 
physician was paid for fraudulent prescriptions for the medically unnecessary DME.  For 
the physicians involvement in the scheme, the physician was sentenced to 36 months in 
jail. The three subjects were ordered to pay $1.3 million in joint and several restitution. 
13
  	  In New York, an individual was sentenced to 15 months incarceration (time served) and 
ordered to pay $334,000 in restitution for involvement in a scheme to bill for medically 
unnecessary services.  The individual, who owned a DME company, was involved in a 
scheme to pay individuals to participate in staged accidents so patients could be given 
DME and be referred for treatments that were not provided and/or not necessary.  In turn, 
insurance companies were billed for fraudulent claims. 
	  The owner of a Miami health care company was sentenced to 37 months incarceration, 
followed by 3 years of supervised release, and was ordered to pay restitution in excess of 
$290,000, after pleading guilty to submitting more than $2 million worth of fraudulent 
bills to the Medicare program.  The owner of MV Research, Inc., a DME company, 
pleaded guilty to one count of engaging in a scheme to defraud Medicare.  The owner 
admitted that from January 2007 through March 2007, approximately $2.2 million worth 
of claims were submitted to the Medicare program for equipment that was never actually 
provided to Medicare beneficiaries. The owners scheme involved obtaining Medicare 
numbers for approximately 250 Medicare beneficiaries, obtaining Medicare provider 
numbers for approximately 10 doctors, and submitting approximately 4,000 claims to 
Medicare. 
	  The owner and operator of a Florida DME company was sentenced to 121 months in 
prison and ordered to pay approximately $1.7 million in restitution for submitting more 
than $3 million worth of fraudulent claims to the Medicare program.  At trial, the 
government called witnesses who testified that the owner paid kickbacks to Medicare 
beneficiaries throughout Miami-Dade County to gain access to their Medicare information. 
The owner then billed Medicare for unnecessary services on behalf of these patients, 
including oxygen concentrators and nebulizers.  The patients testified that they 
participated in the scheme because they needed the money.  According to trial testimony, 
the owner paid $100 per month if the patients agreed to accept unneeded aerosol 
medications, such as Albuterol, and related respiratory equipment. 
Hospital Fraud 
	  Raritan Bay Medical Center agreed to pay the government $7.5 million and enter into a 
Corporate Integrity Agreement (CIA) with HHS/OIG to settle allegations that it defrauded 
the Medicare program.  In addition to its standard payment system, Medicare pays 
supplemental reimbursement to hospitals and other health care providers in cases where 
the cost of care is unusually high.  These cases are known as outliers.  Between January 
1998 and August 2003, Raritan Bay purposefully inflated charges for inpatient and 
outpatient care to make these cases appear more costly than they actually were, and 
thereby obtained outlier payments from Medicare that it was not entitled to receive.  The 
settlement was the result of qui tam complaints filed by three whistle blowers. 
	  Eleven Commonwealth of Pennsylvania hospitals agreed to pay approximately $4 million 
to the Medicare Program to resolve allegations of erroneous infusion therapy and/or blood 
transfusion claims. These settlements were part of a larger investigation of 26 
14
  Pennsylvania hospitals which has returned approximately $11 million to the Medicare 
program to date. 
Home Health Fraud 
	  In Ohio, the former owner of a home health company was sentenced to 13 years 
incarceration and ordered to pay $564,000 in restitution for health care fraud, money 
laundering, and for drug and weapons charges.  Investigation revealed that the owner 
solicited members of an immigrant community to accept unnecessary medical services and 
billed Medicaid for those services.  To facilitate the fraud, doctors signed plans of care to 
indicate that patients were in need of skilled nursing and home health aid services.  In 
reality, patients had not been seen by the doctors.  In addition, reimbursements from 
claims submitted to Medicaid were diverted to support the owners drug habit and to fund 
personal business ventures. 
	  In Ohio, a former owner of a home health agency was sentenced to 97 months in prison 
and ordered to pay $2.7 million in restitution pursuant to a conviction for a scheme to 
defraud the Government. The investigation revealed that from October 2001 through May 
2003 Medicaid was billed for skilled nursing services that were not rendered as claimed. 
The owner billed for 14 hours of services per week when only one hour per week or less of 
services was actually provided.  During the trial, it was also revealed that the owner 
instructed employees to falsify nursing notes. 
	  In Iowa, the owner of several health care related companies, including Medicare-certified 
home health agencies, a pharmacy, and a medical supplies and equipment company, was 
sentenced to 46 months imprisonment upon convictions for Medicare fraud, and 
embezzling from an employee pension fund.  The United States District Court ordered 
restitution in excess of $2 million regarding the Medicare fraud and more than $3 million 
regarding the employee pension fund.  The defendant is also subject to forfeiture of real 
property and personal property in the amount of $2.7 million.  The defendant 
accomplished the Medicare fraud in a variety of ways including: concealing relationships 
with various business entities; selling goods and services from one company to another 
at inflated costs; and improperly passing on costs to Medicare that were not related to 
Medicare. 
HMO Fraud 
	  In Illinois, the court entered a judgment for $334 million against Amerigroup, Illinois Inc., 
after finding that the company had fraudulently skewed enrollment in its Medicaid HMO 
program by refusing to register pregnant women and by discouraging registration by 
individuals with pre-existing conditions. Amerigroup had entered into contracts with the 
Illinois Department of Public Health requiring the company to provide health care services 
to Medicaid eligible individuals in Illinois. In violation of these contracts, Amerigroup 
engaged in a cherry-picking scheme to ensure that those who enrolled in its HMO 
program represented a disproportionately healthy population of Medicaid-eligible 
individuals. As a result, Amerigroup reduced its medical losses and increased its profits.  
15
  Amerigroup has appealed the judgment.  Damages for Illinois and the United States 
totaled $48 million, but were automatically tripled under FCA and the Illinois 
Whistleblower Reward and Protection Act to $144 million.  Civil penalties in this case 
totaled $190 million. 
Kickbacks 
  Medco Health Solutions (Medco) agreed to pay the government $155 million plus interest 
and entered into a CIA with HHS/OIG to settle allegations that the New Jersey-based 
company submitted false claims to the government, solicited and accepted kickbacks from 
pharmaceutical manufacturers to favor their drugs, and paid kickbacks to health plans to 
obtain business. The settlement also covered allegations that Medco, among other 
conduct, cancelled valid prescriptions it could not timely fill in order to avoid paying 
penalties under its contract, shorted pills from prescriptions it filled, and, when filling 
prescriptions, used drugs other than those prescribed by the physicians to earn undisclosed 
rebates from drug manufacturers.  This settlement arose from a qui tam complaint by 
relators, whose share of the settlement is approximately $24 million. 
  In Tennessee, the owner of a physical therapy company pled guilty to violating the 
anti-kickback statute and was sentenced to 4 months in prison and ordered to pay 
$173,000 in restitution. The owner paid kickbacks to doctors based on the percentage of 
profits earned on patients referred to the company for physical therapy services.  During 
the investigation, it was also revealed that the owner employed unlicensed physical 
therapists, billed for more therapy than was provided, and prepared fraudulent medical 
records for a Medicare audit. 
  Rural/Metro Corporation, agreed to pay the United States over $2.5 million and enter into 
a CIA with HHS/OIG to resolve allegations that the company submitted false claims to the 
government. The government alleged that the ambulance company provided illegal 
inducements to hospitals in Texas in exchange for referrals. The Arizona-based company 
provided or offered inducements to Texas hospitals in the form of contracts known as 
swapping arrangements.  Such contracts gave the medical facilities discounts on 
transports in exchange for the referral of all or some of the ambulance transports of 
Medicare patients being discharged from the hospitals. 
  Larkin Community Hospital in Miami and its current and former owners agreed to pay 
$15.4 million and enter into a CIA with HHS/OIG to settle federal and Florida civil health 
care fraud claims against them.  The government alleged that in 1997 Larkin paid 
kickbacks to physicians in return for patient admissions.  Also, from 1998 to 1999, 
Larkins owners conspired with others to admit patients to Larkin for medically 
unnecessary treatment.  Some of these patients came from assisted living facilities owned 
and operated by those involved in the scheme. 
  Zimmer, Inc., Depuy Orthopaedics, Inc., Biomet Inc., and Smith & Nephew, Inc., 
manufacturers of hip and knee surgical implant products, agreed to pay $311 million to 
settle claims that from at least 2002 through 2006 these companies used consulting 
16  agreements with orthopedic surgeons to induce the purchase of their devices.  In particular, 
the government's investigation found that the firms paid surgeons hundreds of thousands 
of dollars a year for consulting contracts and lavished them with trips and other expensive 
perquisites in exchange for using the companies products exclusively.  In addition to the 
civil settlements, the four companies executed deferred prosecution agreements requiring 
new corporate compliance procedures and the appointment of federal monitors to review 
their compliance with these procedures. 
Prohibition on Self Referrals 
	  SCCI Health Services Corporation (SCCI) and its subsidiary, SCCI Hospital Ventures Inc., 
paid the United States $7.5 million to settle allegations that the companies violated the 
statutory limitations on physician self-referrals and the False Claims Act.  SCCI, which 
was purchased by Triumph Hospital in 2005, operates long term acute care facilities across 
the United States.  The government alleged that from November 1996 through at least 
1999, SCCI entered into prohibited financial relationships with three physicians and paid 
these physicians illegal payments in violation of the physician self-referral statute.  The 
government further alleged that from November 1996 through at least 1999, SCCI either 
submitted or caused false claims to be submitted to the Medicare program, as a result of 
these prohibited financial relationships, in violation of the FCA. 
	  Northside Hospital and two physician owned entities, Blood and Marrow Transplant 
Group of Georgia (BMTGA) and Atlanta Blood Services (ABS), agreed to pay $6.37 
million to resolve allegations that they knowingly violated the physician self-referral 
statute by entering into improper referral relationships with each other to increase their 
Medicare reimbursement. Among other things, the government alleged that Northside 
hospital had purchased platelet products from ABS at an inflated price and had paid the 
physician owners of the transplant group medical directorship fees that exceeded fair 
market value. 
	  A corporation operating a sports medicine and rehabilitation facility, along with the 
owners of the real estate in which the facility was located, and 4 physicians, paid over $1 
million to settle allegations that they violated the physician self-referral statute by 
submitting claims to Medicare, based on referrals that were tainted by an improper 
financial relationship. The governments investigation and subsequent settlement was 
based on the filing of a whistle blower suit and focused on allegations that the rent paid to 
the property owner exceeded fair market value and reflected the value of the referrals that 
the facility received from the landlord.          
Fraud by Physicians 
	  In Tennessee, a multi-agency health care fraud investigation of a 42-physician cardiology 
practice, resulted in a civil settlement of over $1.7 million in recoveries to Medicare and 
the TennCare Medicaid program, as well as, a criminal pretrial diversion agreement 
requiring reimbursements of over $1.2 million to more than 11,000 patients and multiple 
insurance programs.  This investigation, initiated by the filing of a qui tam complaint, 
17  focused on the knowing retention by the cardiology practice over the previous 10 years, of 
overpayments from Medicare, TennCare, private insurers and the practices patients. 
During the latter overt part of the investigation prior to the settlement, the cardiology 
practice identified and issued refunds of an additional $700,000 in overpayments owed to 
government programs, private patients, and their insurers.  
	  A former Florida dermatologist was sentenced to 22 years in prison, ordered to pay 
$3.7 million in restitution, forfeit an additional $3.7 million, and pay a $25,000 fine for 
performing 3,086 medically unnecessary surgeries on 865 Medicare beneficiaries.  The 
dermatologist was found guilty of health care fraud and false statements following a 
4-week trial that showed that the doctor routinely falsely diagnosed patients with skin 
cancer in order to bill Medicare for expensive and unnecessary invasive surgeries.  From 
1998 through 2004, a detailed analysis showed that nearly all the biopsies performed were 
diagnosed as cancer and resulted in invasive surgeries.  In fact, some of the specimens 
diagnosed as skin cancer were actually slides which contained chewing gum, Styrofoam, 
or skin tissue of the dermatologists employees.  During the trial, it was also revealed that 
the doctor had established a quota whereby five surgeries each day were performed for 
which Medicare paid between $1,500 and $2,000 per surgery. 
	  In Florida, a physician was sentenced to 24 months incarceration and ordered to pay 
$727,000 in restitution for involvement in a health care fraud scheme.  For cash payments, 
the physician signed blank prescriptions and certificates of medical necessity for patients 
the physician never saw.  In turn, co-conspirators submitted claims to Medicare for DME 
and other items or services that were either not medically necessary or were not provided 
to beneficiaries. 
	  In Washington, D.C., a doctor was sentenced to 5 months incarceration and ordered to pay 
$155,000 in restitution for health care fraud. From October 2001 through March 2003, the 
doctor submitted claims to Medicare for Reteplase injections that were not given. 
Reteplase is a drug generally given in a hospital emergency room within the first three 
hours of a patient experiencing myocardial infarction (or a heart attack).  The doctor 
submitted claims for one patient who purportedly had been injected 119 times. 
	  In Oklahoma, a physician was sentenced to 33 months in prison and ordered to pay 
$544,000 in restitution for health care fraud. From January 2000 to May 2005, the 
physician billed for dosages of Remicade and Procrit which far exceeded the amount of 
those drugs in the physicians inventory. 
	  In Florida, a doctor was sentenced to 78 months in prison and ordered to pay $504,000 in 
restitution and forfeit an additional $705,000 after a jury found the doctor guilty on all 
counts of an 89 count indictment which included 44 charges of health care fraud.  The 
physician, who practiced dermatology, provided lesser services, or no services at all, but 
billed Medicare for highly complex surgical closure procedures. 
	  In Washington, D.C., an ophthalmologist was sentenced to 18 months in prison, 6 months 
home detention, and ordered to pay over $1 million in restitution and a $50,000 fine for 
18
  health care fraud and filing a false tax return.  The ophthalmologist billed Medicare, other 
federal health care programs, and private insurers for services either not provided or not 
medically necessary.  In addition, the ophthalmologist paid personal expenses and salaries 
to the opthamologists children and housekeeper with funds from the medical practice and 
falsely recorded these payments on corporate records as legitimate business expenses.  The 
ophthalmologist also took charitable deductions on personal income tax returns for 
contributions made to a non-profit organization that were used, in part, to pay for a family 
vacation. 
Fraud by Other Practitioners 
	  The Stryker Corporation (Stryker) and its former outpatient therapy division, 
Physiotherapy Associates, Inc., (Physiotherapy), paid the United States $16.6 million to 
settle allegations that Physiotherapy defrauded Medicare and other federal health care 
programs. The settlement resolves allegations that Physiotherapy submitted claims for 
services to Medicare, state Medicaid programs, and TRICARE that were falsely billed as 
one-on-one services or that were rendered by providers other than licensed therapists.  In 
addition, the settlement resolves the allegation that Physiotherapy improperly retained 
excess or duplicate payments it received from federal health care programs. 
	  In New York, a dentist was sentenced to 18 months in jail and ordered to forfeit $5 million 
in assets as a result of being found guilty of defrauding the Medicaid program.  The dentist 
had been excluded from participating in the Medicaid program in 1995.  However, the 
dentist devised a scheme to maintain a dental practice, which was comprised of 95 percent 
Medicaid patients.  The excluded dentist hired junior dentists with valid Medicaid 
provider numbers and paid them on a per diem basis to perform basic procedures so that 
treatment could continue to be provided to Medicaid patients.  The excluded dentist 
provided the more complex procedures and billed Medicaid for all the services performed 
in the practice under the provider numbers of the junior dentists.  In an attempt to cover up 
the scheme, the dentist created management companies so that the Medicaid funds 
received in the names of the junior dentists could be deposited. 
	  In Michigan, a dentist was sentenced to 15 months in prison and ordered to pay $147,000 
in restitution and a $50,000 fine for health care fraud.  The dentists spouse was ordered to 
pay almost $10,000 for making a false statement.  The dentist submitted or caused to be 
submitted claims to insurers for services that were not rendered.  The investigation 
revealed that claims were for services purportedly rendered when the dentist was actually 
on travel or for services purportedly rendered by the former owner of the practice who had 
been deceased since January 1996.  In addition to the fraud scheme, it was revealed that 
the dentist, who had been diagnosed with Hepatitis, did not disclose the condition to 
patients or take certain precautionary measures when treating patients. 
	  In Kansas, a Wichita couple that operated a drug and alcohol counseling center was 
sentenced to 92 months in Federal prison and ordered to pay $1.2 million in restitution. 
The couple engaged in a scheme to defraud Medicaid by submitting false claims for 
services that were not provided. The Medicaid beneficiaries who were supposed to have 
19
  received drug and alcohol counseling services included infants and children 12 years and 
younger.  In one case, the beneficiary of counseling services named in the claim was only 
36 days old. The defendants have appealed the courts decision.   
	  In New Jersey, the owner of two physical therapy clinics was sentenced to 54 months in 
prison and ordered to pay $3.8 million in restitution after admitting to defrauding 
Medicare by submitting claims for physical therapy services, evaluations, and 
reevaluations allegedly provided to patients, which were false in one or more ways.          
	  In Texas, an owner/operator of a physical therapy clinic was sentenced to 51 months in 
prison for conspiracy to commit health care fraud.  A co-defendant was previously 
sentenced to 33 months in prison.  In addition, the two were ordered to pay $1.3 million in 
joint and several restitution.  The investigation revealed that from April 1999 through July 
2000, claims submitted to Medicare and Medicaid were for physical therapy services that 
were not performed, or were not properly supervised. 
	  In Arizona, a podiatrist was ordered to pay $400,000 in restitution for a previous guilty 
plea to theft of Government funds. The podiatrist billed Medicare for debridements when 
only routine foot care was provided.  Routine foot care is a service not covered by 
Medicare. 
Cost Report Fraud 
	  National Century Financial Enterprises, Inc., (NCFE), one of the nations largest medical-
finance outfits, provided billions of dollars in funding for its clients, including Homecare 
and Hospital Management, Inc., (HHM) in Kentucky.  Companies such as NCFE provide 
medical accounts receivable financing.  A health care provider is granted a credit line that 
is based on the net realized value for billings to third party payors, such as commercial 
insurance companies, HMOs, Blue Cross Blue Shield, Medicare and Medicaid.  These 
receivables are pooled and sold as asset backed securities to institutional investors.  
Through its cost report submission, and with the assistance of NCFE, HHM improperly 
sought reimbursement from Medicare for NCFE financing costs that were actually 
associated with the agencys acquisition of other home health agencies.  NCFE ceased 
doing business and filed for bankruptcy protection.  Its successor settled claims in the 
amount of $1.35 million. 
Hospital Cost Report Fraud 
	  A Federal trial court found two plaintiffs, and their two single-employee corporations, RIB 
Medical Management Services, Inc., and Navatkuda, Inc., liable for more than $15.6 
million in treble damages and $31,000 in civil penalties for having submitted false claims 
to the Medicare program. The court ruled that between 1997 and 1999, defendants billed 
Medicare for almost $8 million in unallowable costs that included amounts for a fictitious 
lease, reimbursement for unused hospital space, and millions of dollars in costs that were 
actually attributable to the defendants business enterprises unrelated to Bayview Hospital 
20
  and Mental Health Systems in Chula Vista, California.  The defendants have appealed the 
judgment. 
	  Integris Baptist Medical Center, Inc. and Integris Health, Inc. (Integris) agreed to pay the 
United States $12.2 million to resolve allegations they violated the FCA by submitting 
inflated claims to the Medicare program in their annual cost reports.  This settlement 
resolved allegations that Integris: submitted false claims in its annual Medicare cost 
reports that included inflated costs related to Integris organ transplant department; 
improperly sought payment from Medicare for post-transplant and non-transplant related 
costs that Integris knew were not reimbursable under the Medicare program; and sought 
Medicare reimbursement for liver and heart organ acquisition costs related to transplant 
services that were provided to patients who were not Medicare beneficiaries. 
	  Jackson Memorial Hospital paid the United States $14.25 million to resolve allegations 
that it violated the FCA by submitting claims for unallowable costs in their annual cost 
reports. In particular, the government alleged that the hospital had submitted inflated 
Medicaid claims for inpatient services rendered and submitted inflated claims for 
Medicare disproportionate share payment adjustments for services provided to indigent 
patients. 
Medicaid Fraud 
	  Maximus, Inc. agreed to pay $42.7 million to settle allegations of fraud in connection with 
claims to the Medicaid program. The District of Columbia Child and Family Services 
Agency (CFSA) hired Maximus to assist it in submitting claims to Medicaid for targeted 
case management services provided by the District to children in its foster care program. 
The United States alleged that Maximus caused CFSA to submit claims for every child in 
the foster care program whether or not targeted case management services had been 
provided to the child.  Maximus also entered into a deferred prosecution agreement with 
the United States Attorneys Office for the District of Columbia. 
	  In Illinois, a licensed speech-language pathologist was sentenced to 6 months home 
detention and ordered to pay $60,000 in restitution for health care fraud.  From January 
2001 to September 2002, the speech-language pathologist billed the Medicaid program for 
services that were not provided. The investigation revealed that, to support this improper 
billing, the pathologist altered or caused to be altered records to make it appear as if 
undelivered services had in fact been delivered. 
	  In West Virginia, a billing company and its owner were sentenced in relation to a scheme 
to submit false claims to the Medicaid program. The billing company was sentenced to 5 
years probation and ordered to pay $353,000 in restitution.  The investigation revealed that 
the Medicaid program was routinely billed twice for each ambulance transport service 
provided. 
21
  Secondary Payor Fraud 
	  Harris County Hospital District (Hospital District), in Harris County, Texas, paid the 
United States and the State of Texas $15.45 million to settle allegations that the Hospital 
District submitted false claims and made false statements to the Medicare and Texas 
Medicaid programs. The government alleged that the Hospital District violated the 
Medicare and Medicaid secondary payer rules and improperly billed for services provided 
to imprisoned individuals.  Under the secondary payer rules, a health care provider is 
generally required to bill a third party insurer, when available, rather than Medicare or 
Medicaid. Here, the government alleged that the Hospital District routinely sought 
payment from Medicare and Medicaid without regard to third party liability insurance.  As 
a result, Medicare and Medicaid paid claims that should have been paid by third-party 
insurers. 
Other Fraud 
	  Cook County Hospital (CCH) and the Hektoen Institute, a non-profit institute that 
provided administration services for Cook County Hospitals research projects, paid $5.5 
million to resolve allegations that they submitted false and fraudulent claims for a research 
grant funded by the National Institute on Drug Abuse (NIDA), a division of the National 
Institutes of Health. NIDA had awarded CCH a grant to study substance abuse treatment 
for drug addicted pregnant women and the effectiveness of that treatment as compared to 
the drug treatment that was already available (the control group). The settlement 
resolved allegations that CCH provided NIDA false numbers of project subjects in order to 
continue receiving government funding and that it misreported to NIDA that the study was 
randomized when it knew that its research assistants had compromised the randomization 
protocol. 
	  In Michigan, an attorney specializing in health care law was sentenced to 13 months 
incarceration and ordered to pay $98,000 in restitution for mail fraud.  The attorney was 
hired by a physician group to negotiate a contractual joint venture agreement with a 
physical therapy company.  As part of the negotiations, the attorney was tasked with 
obtaining an official advisory opinion from HHS/OIG to ensure that the arrangement 
would not violate the anti-kickback statute. However, the attorney did not request and 
obtain an advisory opinion from HHS/OIG but instead prepared false documents on copied 
HHS/OIG letterhead which falsely stated the joint venture met with the approval of 
HHS/OIG. 
In California, the operator of a company which purported to provide health care coverage 
	 
to more than 20,000 people across the country was sentenced to 25 years in Federal prison 
and ordered to pay more than $20 million in restitution for a scheme which bilked small 
22
  businesses and their employees out of millions of dollars in health care premiums. 
Individual victims, who thought they were insured, were left facing more than $20 million 
in unpaid claims when the company was shut down.  The sentencing judge said the crime 
led victims to suffer a gnawing fear about huge unpaid medical bills.  The company 
purported to operate pursuant to the Employee Retirement Income Security Act of 1974 
(ERISA) which allows employers and certain organizations such as unions to offer health 
care coverage plans which are not subject to state insurance regulation.  In 2004, the (then) 
United States General Accounting Office (GAO) issued a report that examined the actions 
of this company and other similar entities.  The report, Private Health Insurance: 
Unauthorized or Bogus Entities Have Exploited Employers and Individuals Seeking 
Affordable Coverage (GAO 04-512T), was presented to the Senate Committee on 
Finance. 
23
  24
  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 the HHS/OIG.  In FY 2007, The Secretary and the Attorney General jointly allotted 
$165.9 million to the HHS/OIG.  
The HHS/OIG participated in investigations or other inquiries that resulted in 709 prosecutions or 
settlements in FY 2007, of which 557 or 78 percent were health care cases.  A number of these are 
highlighted in the Accomplishments section. During FY 2007, the HHS/OIG also excluded a total 
of 3,308 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 approximately $185.7 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 2007, the 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 $39 billion -- $29.8 billion in Medicare savings, and $9.2 
billion in savings to the Medicaid program. Additional information about savings achieved 
through such policy and procedural changes may be found in the HHS/OIG Semiannual Report, 
on-line at http://oig.hhs.gov/publications/semiannual.asp. 
Exclusions 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in the abuse or neglect of patients or 
fraud. During FY 2007, the HHS/OIG excluded a total of 3,308 individuals and entities.  Among 
these were exclusions based on criminal convictions for crimes related to Medicare or Medicaid 
(694), or to other health care programs (282); for patient abuse or neglect (268); or as a result of 
licensure revocations, suspensions or surrenders (1,681).  This list of conduct is not meant to be 
exhaustive, but identifies the most prevalent causes underlying HHS/OIGs exclusions of 
individuals or entities in FY 2007.  Among those excluded by HHS/OIG from participation in 
Medicare, Medicaid, and other federal health care programs were the following: 
25
  	  A registered nurse (RN) in New Jersey was excluded for a minimum period of 95 years 
based on a conviction on multiple counts related to patient abuse or neglect.  The RN was 
sentenced to multiple consecutive life sentences for the murder and the attempted murder 
of patients under the individuals care. In addition, the individuals nursing license was 
revoked in the states of New Jersey and Pennsylvania. 
	  A physician in Florida was excluded for a minimum period of 70 years based on a 
conviction related to a prescription drug fraud scheme.  From April 1998 through March 
2002, the physician prescribed controlled substances that were not medically necessary. 
As a result, one patient died of a drug overdose in 2001.  The physician was sentenced to 
50 years incarceration, and surrendered the physicians license to practice medicine in the 
State of Florida. 
	  The owner of a Georgia-based pharmaceutical wholesale distributor, was excluded for a 
minimum period of 70 years based on a conviction related to a racketeering scheme 
involving prescription drugs that were unlawfully obtained and diverted from 1996 to 
2003. The owner was sentenced to 20 years of incarceration and ordered to pay over $27 
million in restitution. 
	  An unlicensed physician in Colorado was excluded for a minimum period of 20 years 
based on a conviction for the illegal practice of medicine, perjury, theft, assault (recklessly 
causing bodily harm), and criminally negligent homicide.  The physician did not have a 
license to practice as a doctor of naturopathic medicine, yet treated patients with illegal 
and unapproved substances and employed unapproved procedures for more than 30 
months. The physicians actions caused the death of a patient, and the physician was 
sentenced to 8 years of incarceration. 
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. 
HHS/OIG has stepped up its affirmative enforcement actions under these authorities.  Examples 
include:   
	  Medical Center of Arlington, Texas, (MCA) agreed to pay $30,000 to resolve allegations 
that it violated the screening, stabilization, and transfer provisions of the patient dumping 
statute when a woman in her 39th week of pregnancy presented to MCAs labor and 
delivery department with contractions.  After approximately 35 minutes of observation, an 
on-duty obstetrician ordered that the patient be discharged with instructions to go straight 
to another hospital that was nearly 21 miles away.  The patient traveled with her husband 
by private automobile and upon arrival the patient was almost fully dilated. 
26
  	  Advanced Neuromodulation Systems, Inc., (ANS) agreed to pay $2.95 million and to enter 
into a 3-year corporate integrity agreement to resolve its liability for allegedly violating the 
Civil Monetary Penalties Law.  The HHS/OIG alleged that, among other practices, ANS 
offered and paid remuneration to potential and existing referral sources in exchange for 
referrals to ANS for the purchasing, leasing, ordering, arranging for, or furnishing of 
medical devices that were manufactured by ANS and that were payable by a federal health 
care program. 
	  A research facility in California agreed to pay $450,000 to settle allegations that it was in 
violation of regulations governing the Select Agent Program.  The HHS/OIG alleged that 
the facility transferred vials of a select agent to two laboratories located in Florida and 
Virginia.  During the transfers, the toxin was released from the shipped vials.  An 
investigation of the packaging for the shipments revealed several violations of regulations 
governing the shipment of select agents.  HHS/OIG also alleged that the facility failed to 
comply with security and access requirements by allowing an individual not authorized to 
have access to select agents to package the shipments. 
	  Midwest Medical Laboratory, Inc., (MML) agreed to pay more than $711,000 and enter 
into a 5-year exclusion from participating in the federal healthcare programs for 
submitting claims to Medicare Part B for payment for services allegedly rendered to 
beneficiaries who are residents of skilled nursing facilities (SNFs) in a stay already 
covered by Medicare Part A. 
Studies, Audits, and Evaluations 
HHS/OIG conducts numerous studies, audits and evaluations that disclose questionable or 
improper conduct in Medicare and Medicaid, and recommends corrective actions that, when 
implemented, correct program vulnerabilities and save program funds.  Among these were: 
State Medicaid Financing Schemes.  HHS/OIG has maintained its focus on questionable state 
financing schemes designed to maximize federal payments under Medicaid. 
	  Provider Taxes. Medicaid regulations permit a state to finance its share of the cost of its 
Medicaid program by imposing a broad-based and uniform tax on providers.  HHS/OIG 
conducted an audit of Missouris tax on its providers, and found that the state received $23 
million in federal matching funds as a result of using $13 million in provider taxes not 
permitted by regulation.  However, because of certain limitations contained in the 
regulations, HHS/OIG recommended the refund of only $8 million. 
	  Disproportionate Share Hospital (DSH) Payments. States are required to make DSH 
payments to hospitals for the uncompensated costs of providing care for a disproportionate 
number of low-income patients or patients with special needs. An audit in New 
Hampshire found that the state did not comply with the DSH limits for 24 of the states 28 
DSH hospitals by not properly determining the hospitals allowable costs in accordance 
with the Medicare principles of cost reimbursement, as CMS guidance requires. 
27  HHS/OIG recommended that the state refund $35.3 million to the Federal Government. 
Similarly, two audits in New Jersey found that two DSH hospitals received a total of $22.2 
million ($11.1 million Federal share) in DSH overpayments by erroneously including 
nonreimbursable costs in its hospital-specific DSH limit calculations.  HHS/OIG 
recommended that the two hospitals refund to the Federal Government $10 million and 
$1.1 million, respectively. 
School-Based Health Services 
	  Medicaid covers the costs of providing children with school-based health services, such as 
physical therapy, speech pathology, and psychological counseling, as well as associated 
administrative costs. HHS/OIG audited the claims for school-based services submitted by 
three states. An audit in Maryland found that Marylands use of an unsupported 
reimbursement rate of $82 per service had not complied with reimbursement provisions 
specified in its CMS-approved state Medicaid plan. As a result, it received $65.5 million 
($32.8 million Federal share) in overpayments between State fiscal years 2002 and 2004. 
HHS/OIG recommended the refund of the $32.8 million Federal share.  In Minnesota, 
HHS/OIG found that, when claiming the administrative costs of its school-based services, 
the state did not proportionally allocate the costs among all benefitting programs, included 
unallowable indirect costs in its calculations, and used inaccurate cost reports.  The audit 
recommended that the Minnesota refund $9.7 million to the Federal Government.  Finally, 
in Nevada, HHS/OIG found that the state claimed $5.8 million in unallowable 
administrative costs, and recommended their refund. 
Medicaid Family Planning Services.  The Federal Government reimburses the costs of Medicaid 
family planning services at an enhanced 90 percent matching rate.  These services are intended to 
assist patients in preventing or delaying pregnancy or to otherwise control family size.  
	  Medicaid Managed Care Programs. In a report that consolidated the results of reviews of 
seven states claims for the cost of family planning services provided through Medicaid 
managed care programs, HHS/OIG found that six states had inflated the factors or rates 
used to calculate the costs reimbursable at the enhanced federal matching rate.  For the 
$302.9 million in claims reviewed in the audit, six of the seven states claimed unallowable 
costs with a Federal share totaling $21.7 million. HHS/OIG recommended that, among 
other steps, CMS issue specific guidance to states to quantify a reasonable portion of the 
managed care capitation payments that may be attributed to family planning services. 
	  Medicaid Pharmacy Claims. HHS/OIG found that two states improperly received 
enhanced Federal Medicaid funds for the cost of prescription drugs that do not qualify as 
family planning services.  In New Jersey, HHS/OIG found that the state had incorrectly 
designated 227 drug codes as being related to family planning, and recommended that the 
state refund the resulting overpayment of $2.2 million to the Federal Government. 
Similarly, New York incorrectly designated 246 drugs as being related to family planning, 
and recommended that the state refund the resulting overpayment of $6.1 million to the 
Federal Government. 
28
  	  Abortion-Related Services. Medicaid funds are available for abortion-related services 
only when the life of the mother would be endangered if the fetus were carried to term. 
The enhanced 90-percent matching rate for family planning services is not available for 
any abortion or abortion-related services.  HHS/OIG found that New York improperly 
received federal reimbursement at the enhanced 90-percent matching rate for abortion-
related laboratory services that either did not qualify as Medicaid family planning services, 
or were unallowable for reimbursement at all.  HHS/OIG did not conduct a full medical 
review of all the claims, and so recommended only that the state work with CMS to 
determine the allowability of the $3.2 million in payments for abortion-related services 
questioned in the audit. 
Medicaid Community Mental Health Centers (CMHC) 
	  Under the Medicaid Rehabilitation Option (MRO) services program, clinical mental health 
services are provided to individuals, families, or groups living in the community who need 
aid intermittently for emotional disturbances or mental illness.  HHS/OIG estimated that 
Indiana overpaid Community Mental Health Centers (CMHC) providers at least $33.4 
million ($21.3 million Federal share) in reimbursement for MRO services provided during 
FY 2003. Of the 200 randomly selected MRO services provided by CMHCs in Indiana, 
64 did not meet federal and state reimbursement requirements.  HHS/OIG recommended 
that Indiana refund $21.3 million to the Federal Government. 
Medicaid Drug Pricing 
	  New Drug Pricing Data.  HHS/OIG found that as of September 2006 many states had not 
yet decided whether to use Average Manufacturer Price (AMP) data and/or retail sales 
price (RSP) data to calculate the amount their state Medicaid programs reimburse for 
prescription drugs. States use of this data has the potential to reduce Medicaid 
prescription drug expenditures, which reached $41 billion in 2005.  Although the Deficit 
Reduction Act of 2005 (P.L. 109-171, DRA) requires CMS to provide both AMP and RSP 
data to the states, the states are not required to use the data.  To ensure that AMP and RSP 
data are accurate, reliable, and accessible, HHS/OIG recommended that CMS explicitly 
define AMP and its calculation; furnish states with interim guidance and/or information 
regarding AMP data; and explicitly detail the RSPs definition, calculation, and method of 
collection when distributing RSP data to states. 
	  Fluctuations in Average Manufacturer Prices.  In a review of fluctuations in the average 
manufacturer prices (AMPs) of pharmaceuticals, HHS/OIG found that AMPs did not 
fluctuate substantially from the second quarter of 2005 to the second quarter of 2006 and 
that roughly equal numbers of AMPs decreased as increased, contrary to concerns raised 
by industry that the AMP was too volatile to serve as a payment basis.  However, AMPs 
for single-source drugs (that is, brand name products for which there are no generic 
versions) were more prone to increases between quarters.  The DRA requires CMS to 
make AMP data available to states as of July 1, 2006, for optional use in setting the 
reimbursement amounts paid to pharmacies that dispense prescription drugs to Medicaid 
29
  beneficiaries. States use of AMPs is expected to help reduce Medicaid prescription drug 
expenditures. 
	  Medicaid Federal Upper Payment Limits.  Beginning January 1, 2007, pursuant to DRA, 
Medicaid Federal upper limits (FUL) are to be based on 250 percent of the lowest AMP 
rather than 150 percent of the lowest price published in the national compendia.  The 
Federal upper payment limits help ensure that the Federal Government acts as a prudent 
buyer by taking advantage of current market prices for multiple-source drugs.  In a 
preliminary assessment, HHS/OIG found that provisions of the DRA are likely to cause 
substantial decreases in FUL amounts.  HHS/OIG recommended that CMS take steps to 
identify when a new Federal upper limit amount may not be representative of a drugs 
acquisition cost to pharmacies and, in those situations, determine the proper course of 
action (working with Congress, if necessary).  (However, a court-issued preliminary 
injunction has prevented CMS from implementing these new FULs.  As such, FULs 
continue to be calculated using the prior formula, based on the lowest possible published 
price, i.e., AWP or the wholesale acquisition cost.) 
Medicaid Eligibility 
	  In three states, HHS/OIG determined whether Medicaid beneficiaries met federal and state 
eligibility requirements and whether the states provided adequate documentation of 
eligibility determinations for payments made from January 1 through June 30, 2005.  New 
York and California both made Medicaid payments on behalf of beneficiaries who did not 
meet federal and state eligibility requirements.  Furthermore, the states did not always 
adequately document all eligibility determinations.  Based on its sample results, HHS/OIG 
estimated that New York made more than 4.2 million payments totaling $230.4 million 
(Federal share) on behalf of ineligible beneficiaries.  In addition, HHS/OIG estimated that 
case file documentation did not adequately support eligibility determinations for an 
additional 15.3 million payments totaling $2.8 billion (Federal share).  Similarly, 
HHS/OIG estimated that California made 4.7 million payments totaling $133 million 
(Federal share) on behalf of ineligible beneficiaries.  It also estimated that case file 
documentation did not adequately support eligibility determinations for an additional 2.5 
million payments totaling $117 million (Federal share).  HHS/OIG did not recommend 
recovery against either state because a disallowance may be taken only if the errors are 
detected through a States Medicaid Eligibility Quality Control program, but did 
recommend that the states use the results of these reviews to ensure compliance with 
federal and state eligibility requirements. 
Florida generally made Medicaid payments on behalf of beneficiaries who met federal and 
state eligibility requirements and provided adequate documentation of eligibility 
determinations.  HHS/OIG recommended that Florida use the results of the review to help 
ensure continued compliance with federal and state Medicaid eligibility requirements. 
30
  Medicaid Services to Deceased Beneficiaries 
	  HHS/OIG found that providers in 8 of 10 audited states received an estimated total of 
$27.3 million ($15.1 million Federal share) in Medicaid overpayments, which the states 
never recovered, for services claimed to have been provided after beneficiaries deaths. 
HHS/OIG recommended that CMS work with states to ensure that they use all available 
data sources to identify deceased beneficiaries, match those data against paid claims files 
and recover identified overpayments, and encourage states to establish post payment 
reviews to mitigate the effect of delays in receiving data regarding beneficiaries dates of 
death. 
Medicaid Provider Enrollment Safeguards: Medical Equipment Providers 
	  In a study of 15 states, HHS/OIG found that states employed a variety of provider 
enrollment standards to safeguard their Medicaid DME programs.  Such standards 
included licensure of providers, posting a sign and hours of operation, and obtaining surety 
bonds. HHS/OIG found that only seven of the states required Medicaid providers to enroll 
as providers in the Medicare program, which subjects Medicaid providers in these states to 
Medicare standards. The remaining eight states did not require providers to enroll in the 
Medicare DME program. Despite the presence of standards, HHS/OIG found that most of 
the 15 states were not routinely verifying whether providers met all state DME provider 
enrollment standards, and 7 of the 15 states were not conducting routine site visits at initial 
enrollment.  Finally, only 6 of the 15 states reported that they either routinely re-enrolled 
providers or had recent initiatives to re-enroll providers to ensure all met the provider 
enrollment standards. 
Medicare DME 
	  On the basis of unannounced site visits in 2006 to 1,581 suppliers of durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS) in Miami-Dade, Broward, and 
Palm Beach Counties, HHS/OIG found that 31 percent (491) did not maintain facilities or 
that their facilities were not open for business or staffed, in violation of Medicare 
regulations. As of November 30, 2006, these DMEPOS suppliers billed Medicare for 
almost $237 million and were allowed over $97 million between January 1 and November 
30, 2006. HHS/OIG referred these suppliers to CMS to consider potential revocation of 
their Medicare billing numbers. Through unannounced site visits, HHS/OIG also found 
that 14 percent of the suppliers (216) did not meet one of three other Medicare 
requirements reviewed, such as the need to post hours of operation.  HHS/OIG 
recommended that CMS strengthen the supplier enrollment process for DMEPOS 
suppliers and ensure that suppliers meet Medicare standards and suggested several specific 
actions CMS could take to do so. 
31
  Prescription Drug Plan Sponsors Compliance Plans 
	  In an examination of adherence on the part of 79 prescription drug plan sponsors to 
guidance relating to the establishment of compliance plans, HHS/OIG found that although 
all prescription drug plan sponsors had compliance plans, 72 of 79 compliance plans did 
not address one or more of CMSs 17 requirements. One required element of compliance 
plans is the development of a comprehensive plan to detect, prevent, and correct fraud, 
waste and abuse. This requirement was addressed in some way by all plans, yet only 15 of 
79 compliance plans addressed all 11 of CMSs recommendations regarding the design of 
these anti-fraud plans. 
Medicare Home Oxygen Equipment 
	  In a study of home oxygen equipment, HHS/OIG found that if Medicare rental payments 
for oxygen were limited to 13 months, the program and its beneficiaries would save 
approximately $3.2 billion over 5 years.  HHS/OIG found that based on the 2006 median 
fee schedule, Medicare will allow $7,215 for 36 months for concentrators that cost only 
$587, on average, to purchase.  Over the 36 months, beneficiaries will incur $1,443 in 
coinsurance. Suppliers commonly provide used concentrators, which can last for several 
years. If Medicare treated concentrators like capped rental items by limiting rental 
payments to 13 months, the program and its beneficiaries would realize considerable 
savings. HHS/OIG recommended that CMS work with Congress to further reduce the 
rental period for oxygen equipment. 
Certification and Oversight of Medicare Hospices 
	  In a study of state oversight of Medicare hospices, HHS/OIG found that, as of July 2005, 
86 percent of Medicare hospices were certified by state agencies within 6 years, as 
required at that time, and 14 percent averaged 3 years past due.  In addition, HHS/OIG 
found that 46 percent of the hospices surveyed were cited for at least one health 
deficiency, and 15 percent received repeat citations for the same deficiency during 
previous surveys. CMS and state agencies rarely use methods other than certification 
surveys and complaint investigations to monitor or enforce hospice performance. 
HHS/OIG recommended that CMS provide guidance to state agencies and CMS regional 
offices regarding analysis of existing data and identification of at-risk hospices; include 
hospices in federal comparative surveys and annual state performance reviews; seek 
regulatory or statutory changes to establish specific requirements for the frequency of 
hospice certification; and seek legislation to establish additional enforcement remedies, in 
addition to termination, for poor hospice performance. 
Hospital Wage Data 
	  In a summary report on 21 hospitals cost reports, HHS/OIG found wage data totaling 
$377.9 million that did not comply with Medicare requirements.  Under the acute care 
hospital inpatient prospective payment system, CMS adjusts the Medicare prospective 
32
  payment system (PPS) base rate paid to participating hospitals by the wage index 
applicable to the area in which the hospital is located. CMS updates wage indexes 
annually based on data that hospitals include in their cost reports.  However, the 21 
hospitals reported unallowable, misstated, unsupported, and misclassified wages and other 
costs, as well as related hours.  As a result, 17 of the 21 hospitals overstated their average 
hourly wage rates, and the remaining 4 hospitals understated their rates.  Generally, 
hospitals that overstate wage data will receive higher Medicare reimbursement at the 
expense of hospitals that report accurate or understated wage data.  HHS/OIG therefore 
recommended that CMS develop a corrective action plan to address hospital reporting 
errors and offered specific steps for CMSs consideration. 
Medicare Outlier Payments 
	  Under the outpatient PPS, CMS may make additional payments, called outlier payments, if 
the cost of care is extraordinarily high in relation to the average cost of treating 
comparable conditions or illnesses. HHS/OIG determined that CMSs practice of not 
retroactively adjusting erroneous outpatient outlier payments creates vulnerabilities in the 
outpatient outlier program and is inconsistent with CMSs general policy on revisiting 
incorrectly calculated payments, as well as CMSs policy of retroactively adjusting 
inpatient PPS outlier payments. Based on prior reviews, HHS/OIG calculated that the 
CMHCs received net outlier overpayments totaling $24.4 million, and recommended that 
CMS issue regulations to require adjustments of outpatient outlier payments at final cost 
report settlement, or after the settlement, retroactive to the beginning of the cost report 
period when an error caused by the fiscal intermediary or provider is identified after the 
cost report is settled. 
Medicares Program Safeguard Contractors:  Activities To Detect and Deter Fraud and 
Abuse 
	  HHS/OIG found that program safeguard contractors (PSC) differed substantially in the 
number of new investigations and case referrals to law enforcement.  Some had minimal 
activity in these primary workload categories.  Neither the size of a PSCs budget nor its 
oversight responsibility (dollar amount of Medicare paid claims) was strongly correlated 
with the number of new investigations or the number of new case referrals produced in 
2005.  HHS/OIG also found that most PSCs had minimal results from proactive data 
analysis. HHS/OIG recommended that CMS review PSCs with especially low volumes of 
activity in investigations and case referrals for Medicare Parts A and B, and that CMS 
require PSCs to provide more detailed explanations of their investigations, case referrals to 
law enforcement, and proactive data analysis activities in their monthly reports. 
Infusion Therapy for Beneficiaries with HIV/AIDS 
	  HHS/OIG found that CMS has had limited success controlling the aberrant billing 
practices of infusion therapy providers in South Florida.  In the last half of 2006, three 
counties in South Florida accounted for half of the total amount  and 79 percent of the 
33
  amount for drugs  billed nationally for Medicare beneficiaries with HIV/AIDS.  CMS and 
its contractors tried to control inappropriate payments to providers in these three South 
Florida counties using various tools, including payment suspensions, prepayment reviews, 
provider number revocations, claims processing edits, and onsite investigations of existing 
providers. HHS/OIG determined that these efforts have not been effective because 
aberrant HIV infusion providers have adjusted their billing patterns and circumvented 
controls, and recommended that, among other steps, CMS treat South Florida as a 
high-risk area and mandate announced and unannounced site visits for certain infusion 
therapy providers. 
Oversight of CMS Error Rate Testing 
	  In a review of the FY 2006 Comprehensive Error Rate Testing (CERT) program, 
HHS/OIG found that CMS had ensured that its two CERT contractors had appropriate 
controls to ensure that medical and quality assurance reviews and initial and follow-up 
document requests followed established procedures and operated effectively.  In addition, 
CMS described several actions it had taken toward initiatives to reduce the CERT error 
rate. CMS and the contractors have taken appropriate action on the recommendations in 
HHS/OIGs FY 2005 audit report. 
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 2007, the 
HHS/OIG, in consultation with DOJ, issued 18 advisory opinions.  A total of 166 advisory 
opinions have been issued during the 11 years of the HCFAC program. 
	  Corporate and Other 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, Integrity Agreement or other similar agreement. 
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 2007, HHS/OIG was monitoring compliance with more than 380 such 
agreements. 
34
  Centers for Medicare & Medicaid Services 
In FY 2007, the Centers for Medicare & Medicaid Services (CMS) was allocated approximately 
$23 million to fund a variety of projects related to fraud, waste, and abuse in the Medicare 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: 
Medicaid/State Childrens Health Insurance Plan (SCHIP) Financial Management Project: 
During late 2004 and throughout 2005, CMS hired 100 funding specialists, including accountants 
and financial analysts, who work to improve CMSs financial oversight of the Medicaid program. 
The primary goal for the Medicaid funding specialists during 2007 was to assist in the reduction 
of cumulative questionable reimbursement by 15 percent.  Through the efforts of these specialists, 
CMS identified and resolved $4.3 billion of approximately $8 billion in cumulative questionable 
costs. Furthermore, an estimated $652 million in questionable reimbursement was actually 
averted due to the funding specialists preventive work with states to promote proper state 
Medicaid financing methods prior to implementation. The funding specialists activities have 
included reviews of proposed Medicaid state plan amendments that relate to reimbursement; 
development of financial management reviews; research regarding state Medicaid financing 
policy and practices; working with states to resolve the Medicaid and SCHIP portions of the 
Office of Management and Budget (OMB) Circular A-133 Single State audits9; and, identify the 
sources of the non-Federal share of Medicaid program payments to ensure proper financing of 
Medicaid program costs. 
Payment Error Rate Measurement (PERM) 
PERM is the program that CMS uses to implement the Improper Payments Information Act of 
2002 (IPIA), which requires HHS to measure improper payments in Medicaid and SCHIP.  In 
order to comply with the IPIA, CMS elected to use federal contractors to measure Medicaid and 
SCHIP error rates in a subset of states every year.  In 2006, CMS measured the national fee-for
service Medicaid error rate, and the interim results of the measurement based on the first two 
quarters of 2006 were published in the 2007 Performance and Accountability Report (PAR). 
States participating in the 2006 cycle were also provided with their individual error rates.  As of 
2007, the PERM project was expanded into measuring error rates for fee-for-service and managed 
care in both the Medicaid and SCHIP programs.  The PERM contractors will also calculate and 
report on beneficiary eligibility error rates for both programs even though the states conduct the 
actual reviews. 
9OMB Circular A 133-Audits of States, Local Governments, and Non-Profit 
Organizations, is issued pursuant to the Single Audit Act of 1984, P.L. 98-502, and the Single 
Audit Act Amendments of 1996, P.L. 104-156. It sets forth standards for obtaining consistency 
and uniformity amount Federal agencies for the audit of States, local governments, and non
profit organizations expending Federal awards.  
35  The results of the 2007 measurement will be published in the 2008 PAR, as well as a final 
national annual Medicaid fee-for-service component error rate based on all four quarters of 2006. 
36
  Administration on Aging 
In FY 2007, the Administration on Aging (AoA) was allocated $3.128 million in HCFAC funds to 
develop and disseminate consumer education information targeted 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 support 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.  
The $3.128 million in HCFAC dollars specifically support infrastructure, technical assistance and 
the other SMP program support and capacity-building activities designed to enhance the 
effectiveness of state-wide Senior Medicare Patrol programs (SMP) which are funded from a 
separate Congressional appropriation.  These SMP programs recruit retired professionals to 
educate and assist Medicare beneficiaries to detect and report health care fraud, error, and abuse in 
the Medicare and Medicaid programs.  According to the most recent annual performance report 
from the Assistant Inspector General for Evaluation and Inspections dated May 2008, during 
2007, over 10,300 active volunteers served the 57 SMP projects. These volunteers perform an 
essential function of this program, contributing over 308,000 hours in efforts to share the SMP 
message of fraud awareness and prevention within the senior community. 
Outreach to senior consumers is a key element of the SMP program.  During 2007, SMP projects 
conducted over 13,700 media events and held over 8,400 community education events to increase 
beneficiary awareness about issues related to Medicare and Medicaid integrity.  In addition, 
almost 240,000 beneficiaries were educated through group sessions conducted by SMP programs, 
and, over 131,000 were educated through one-on-one counseling sessions. 
As a result of educating beneficiaries, the projects received over 70,000 inquiries from or on 
behalf of beneficiaries and resolved 87 percent of the inquiries.  In addition, SMP projects 
received over 17,600 complex issues, requiring further research, assistance, case development 
and/or referral. While the SMP program staff was able to address the majority of these issues for 
beneficiaries, over 4,000 of these issues, with an estimated dollar value of over $1.5 million, were 
referred to law enforcement, CMS integrity contractors, state Medicaid Fraud Control Units, or 
other entities for further action. During 2007, over $7.4 million in healthcare expenditures were 
avoided as a result of actions taken by the SMP program. 
Since the programs inception, SMP projects have educated approximately 3.26 million 
beneficiaries and received close to 105,000 complex issues (complaints) from beneficiaries who 
have detected billing or other discrepancies based on that information.  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, over $105.6 million has been reported as savings attributable to the program since its 
inception. 
37
  Office of the General Counsel  
In FY 2007, The Office of General Counsel (OGC) was allocated approximately $5.13 million in 
HCFAC funding to supplement OGCs efforts to support program integrity activities.  OGC 
provides legal support consistent with the statutory authority of the HCFAC program.  While a 
considerable portion of these funds supported OGCs litigation activity, both administrative and 
judicial, OGC placed an increased focus upon program integrity review in 2007.     
FCA and Qui Tam Actions:  OGC provides litigation support to DOJ in actions relating to 
Medicare or Medicaid fraud under the FCA.  In 2007, OGC participated in FCA matters that 
recovered over $1.1 billion for the Medicare and Medicaid programs. 
Suspensions and Revocations:  OGC assists HHS in deciding whether to suspend payments to 
Medicare providers and suppliers, or to revoke billing privileges when problems are discovered. 
During 2007, OGC attorneys were involved in hundreds of suspension and revocation actions 
involving millions of Medicare dollars and many different segments of the healthcare industry, 
including DME suppliers, ambulance companies, physicians, therapists, home health agencies, 
and diagnostic testing facilities. Some OGC offices experienced dramatic increases in the volume 
of suspension and revocation work, because of satellite CMS offices (in Los Angeles and Miami) 
which aggressively focused on identifying overpayments and curbing fraud and abuse in problem-
prone areas. 
Civil Monetary Penalties (CMPs):  CMS has the responsibility for administering numerous civil 
monetary penalty provisions enacted by Congress to enforce program compliance and payment 
integrity.  For example, CMS is authorized to impose CMPs on nursing homes which fail to meet 
certification standards. During 2007, OGC provided legal advice to CMS regarding the 
development and imposition of CMPs and defended CMS in administrative appeals and judicial 
litigation resulting from these cases. OGC recovered or established the right to recover over $8.5 
million in CMPs in 2007. 
Nursing Home Enforcement:  OGC devotes considerable resources to assist CMS in its efforts to 
assure that nursing home residents receive the high quality of care that the law requires.  OGC 
provides legal advice to CMS regarding the imposition of remedies and defends HHS in 
administrative hearings when enforcement decisions are challenged.  OGC worked very closely 
with CMS during 2007 to refine its policies with respect to special focus facilities.  These 
nursing facilities, which are habitually out of compliance with federal certification requirements, 
have become the top priority for CMS enforcement efforts as the agency tries to maximize its 
limited resources to target the nations poorest performing nursing homes. 
Other Provider Enforcement: OGC provided a variety of legal services in support of CMSs 
efforts to ensure quality of care and enforce participation requirements at hospitals and other types 
of providers, including home health agencies, hospices and rehabilitation facilities.  Terminations 
of providers are particularly sensitive matters, particularly in rural or semi-rural areas without 
readily accessible alternative providers, generally causing exceptional community anxiety and me
38
  dia scrutiny.  Therefore, OGC works closely with CMS in developing appropriate responses in 
such matters. 
Bankruptcy Litigation:   OGC protects Medicare funds by asserting CMSs recoupment rights to 
collect overpayments, arguing to continue suspension or termination actions against debtors, 
seeking adequate assurances from the bankruptcy court that CMSs interests in the debtor's estate 
will be protected, arguing for the assumption of the Medicare provider agreement as an executory 
contract, and petitioning for administrative costs where appropriate.  OGCs bankruptcy workload 
continues to be extensive and complex.  In 2007, OGC vigorously asserted CMSs interests in 
numerous bankruptcy and receivership actions, negotiated agreements to recover overpayments, 
and aggressively advanced the use of Medicare's recoupment authority. 
Medicaid Integrity:   The DRA created within CMS a new Medicaid Integrity Program having 
responsibility for federal audits of Medicaid providers and increased support for state program 
integrity efforts.  During 2007, OGC provided wide-ranging legal advice to CMS to help establish 
the Medicaid Integrity Group.  OGC saw increased involvement in 2007 in Medicaid Integrity 
issues as CMS devoted more resources to financial reviews and oversight, including placing CMS 
accountants on site at state Medicaid agencies and as states continue to present innovative 
proposals to reconfigure their programs and to draw down federal financial participation (FFP) at 
or beyond the margins of the regular Medicaid program.  OGC saw a significant increase in the 
provision of legal advice to CMS regarding proposed disallowances and the filing of Medicaid 
disallowance appeals before HHS Departmental Appeals Board (DAB)  During 2007, OGC was 
successful in obtaining decisions upholding millions of dollars in disallowances of FFP. 
Review of Regulations and Manual Provisions Implementing the MMA: OGC provided 
extensive advice to CMS on developing a compliance program for Part D sponsors and Medicare 
Advantage (MA) plans, including identifying enforcement options against sponsors that are 
noncompliant or violate program rules, such as Marketing Guidelines.  The compliance program 
will likely serve as an important deterrent of fraud in the Part D program.  OGC spent a significant 
amount time during 2007 helping CMS propose changes to its compliance regulations for the MA 
and Part D programs. As part of these proposed changes, CMS has a more efficient and 
streamlined approach to taking actions against plans that fail to meet regulatory requirements.  In 
many cases, changes were proposed to make the requirements uniform across MA and Part D 
plans. Also, CMS specified timeframes for contract determinations, and rules by which parties 
can appeal a CMP.  The proposed rule was published in the Federal Register on May 25, 2007. 
HIPAA Enforcement:  During 2007, OGC supported the CMS Office of e-Health Standards and 
Services in investigating security incidents as part of HIPAA Security Rule enforcement efforts. 
OGC also drafted the HIPAA Security Guidance, published December 28, 2006, addressing the 
disclosures of electronic protected health information following the loss, theft, or misuse of data 
stored on laptops or other portable devices, or accessed remotely.  OGC supported HHS 
establishment and operation of a Personally Identifiable Information Breach Response Team. 
Additionally, OGC supported CMS efforts to educate and assist covered entities within the health 
care industry to prepare to comply with the provisions of the HIPAA National Provider Identifier 
Rule, codified at 45 CFR. Part 162. 
39
  Health Resources and Services Administration 
In FY 2007, the Health Resources and Services Administration received an allocation of over 
$450,000 from the HHS/OIG to supplement the overall operations and maintenance of the 
Healthcare Integrity and Protection Data Bank (HIPDB) 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. 
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. 
As a result of continual efforts to maximize advancements in information technology, in May 
2007, HIPDB introduced and executed the Proactive Disclosure Services (PDS) Prototype.  With 
this service, all eligible entities that choose to register their practitioners with the National 
Practitioners Data Bank and/or the HIPDB will be notified of new reports that name any of their 
registered practitioners as subjects within 24 hours of the HIPDBs receipt of the report.  This 
service will be offered in addition to, and not as a replacement of, the traditional HIPDB querying 
service. This service will, in effect, continuously query enrolled practitioners.  The PDS service 
has the potential of improving the quality of health care and patient safety by ensuring that entities 
that credential, license, and/or employ health care practitioners are alerted to the existence of a 
reported adverse action or medical malpractice payment immediately.  As of September 30, 2007, 
the HIPDB has successfully processed 7,147,056 queries from health plans, state and federal 
agencies. 
Office of the National Coordinator for Health Information Technology 
In FY 2007, the Office of the National Coordinator for Health Information Technology (ONC) 
was allocated $490,000 in HCFAC funding. 
In FY 2006, ONC contracted with RTI International for a project to reduce the incidence of 
improper payment and fraudulent activities in Electronic Health Record Systems.  In June 2007, 
RTI submitted its final report to ONC, entitled Recommended Requirements for Enhancing 
Data Quality in Electronic Health Record Systems.  This report included recommendations for 
model requirements for electronic health records which included proactive approaches to prevent 
inappropriate access to electronic health information and to prevent fraud and medical identity 
theft. 
ONCs current anti-fraud project, while funded in 2007, will be conducted in 2008.  ONC has 
contracted with Booz Allen Hamilton for a medical identity theft project to engage experts and the 
public in a public town hall meeting to develop a knowledge base for medical identity theft and to 
develop a report and a roadmap for actions to help prevent, detect, and remedy medical identity 
theft. Part of ONCs mission is to ensure that patients' health information is secure and protected 
40
  in electronic health information exchanges and in electronic health records.  Preventing medical 
identity theft is a key component to building consumer trust in electronic health information 
exchange.  This project builds upon ONCs previous projects and brings together both 
governmental and private stakeholders. 
41
  42
  FUNDING FOR THE DEPARTMENT OF JUSTICE
 
United States Attorneys 
In FY 2007, the United States Attorneys Offices (USAOs) were allocated approximately $31.35 
million in HCFAC funding to support civil and criminal health care fraud and abuse litigation as 
exemplified in the Program Accomplishments section. The USAOs dedicated substantial 
resources to combating health care fraud and abuse in 2007, and HCFAC allocations have 
supplemented those resources by providing funding 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 health care fraud, and each district has a designated 
Criminal Health Care Fraud Coordinator and a Civil Health Care Fraud Coordinator.  Civil cases 
are also obtained by USAOs by means of qui tam complaints.  Under the FCA, a qui tam plaintiff 
(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. 
In addition to the positions funded by HCFAC, the Executive Office for United States Attorneys 
Office of Legal Education uses HCFAC funds to train AUSAs and other DOJ attorneys, as well as 
paralegals, investigators, and auditors in the investigation and prosecution of health care fraud.  In 
2007, courses and presentations on health care fraud included the Civil and Criminal Health Care 
Fraud Trial Practice Seminar and the Affirmative Civil Enforcement for Auditors, Investigators 
and Paralegals Seminar.  USAOs also handle most criminal and civil appeals at the Federal 
appellate level. 
Criminal Prosecutions 
In FY 2007, the USAOs received 878 new criminal matters involving 1,548 defendants, and had 
1,612 health care fraud criminal matters pending,10 involving 2,603 defendants. The USAOs filed 
criminal charges in 434 cases involving 786 defendants, and obtained 560 federal health care 
fraud related convictions. 
Civil Matters and Cases 
USAOs play a major role in health care fraud enforcement by bringing affirmative civil cases to 
recover funds that federal health care programs have paid as a result of fraud, waste, and abuse. 
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. 
Civil AUSAs, similar to their criminal counterparts, litigate a wide variety of health care fraud 
matters including false billings by doctors and other providers of medical services, overcharges by 
10When a USAO accepts a criminal referral for consideration, the office opens it as a 
matter pending in the district. A referral remains a pending matter until an indictment or 
information is filed or it is declined for prosecution. 
43  hospitals, Medicaid fraud, kickbacks to induce referrals of Medicare or Medicaid patients, fraud 
by pharmaceutical companies, and failure of care allegations against nursing home owners.  
In FY 2007, USAOs opened 776 new civil health care fraud matters.  At the end of FY 2007, the 
USAOs had 1,284 civil health care fraud matters and 743 cases pending.  Civil health care fraud 
referrals are often made to USAOs through the law enforcement network described herein, and 
these cases are usually handled primarily by the USAOs, though they are sometimes handled 
jointly with the Civil Division.  The other principal source of referrals of civil cases for USAOs is 
through the filing of qui tam (or whistleblower) complaints.  These cases are often handled jointly 
with trial attorneys within the Civil Division, but may be handled solely by the USAO. 
Civil Division 
In FY 2007, the Civil Division was allocated approximately $15.88 million in HCFAC funding to 
support civil health care fraud litigation (this amount includes $1.1 million allotted for the Elder 
Justice and Nursing Home Initiative). Civil Division attorneys pursue civil and criminal 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 Employees Health 
Benefits Program (FEHB), and other government health care programs. 
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 durable medical equipment 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 Physician Self-Referral laws; claims 
of false price reporting and illegal marketing of pharmaceuticals and medical devices by 
companies and related entities; and allegations that nursing homes have failed to provide 
necessary care to the elderly.  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 price reporting 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 FDA.  In addition, close 
communication with state Medicaid Fraud Control Units and state attorneys general is ongoing to 
ensure that federal and state investigations and litigation are coordinated. 
44
  In addition to these accomplishments, the Elder Justice and Nursing Home 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 
senior and infirm population.  The Department does this, in part, by enforcing the civil FCA 
against skilled nursing facilities and other long tem care provides that knowingly bill Medicare or 
Medicaid for services that were not provided or were so deficient as to render them worthless. 
DOJ, through the initiative, also makes grants to promote prevention, detection, intervention, 
investigation and prosecution of elder abuse and neglect, and to improve the scare forensic 
knowledge in the field. 
Criminal Division 
In FY 2007, the Criminal Division was allocated $2.18 million in HCFAC funding to support 
criminal health care fraud litigation, prevention and interagency coordination.  The Criminal 
Divisions Fraud Section supports the federal white collar crime enforcement community through 
litigation, coordinating investigations and initiatives, implementing white collar crime policy, and 
conducting policy and legislative work.  The Fraud Section initiates and coordinates complex 
health care fraud litigation and supports the USAOs with legal and investigative guidance, 
training, and, in certain instances, provides trial attorneys to prosecute health care fraud cases. 
During FY 2007, the Fraud Section opened or filed 78 health care fraud cases involving charges 
against 144 defendants; obtained 65 guilty pleas; and litigated three jury trials, winning guilty 
verdicts on all counts charged.  While most of the sections litigation involved Medicare Fraud 
Strike Force cases handled with the United States Attorneys Office for the Southern District of 
Florida described previously in this report, section attorneys also prosecuted the following cases 
involving physicians and a clinic owner: 
	  A physician who pleaded guilty to conspiring to defraud Medicare of $5.1 million 
for the physicians  role in causing the submission of claims for unnecessary drugs 
to be taken by injection by alleged HIV patients when it was known that the drugs 
were unnecessary and could harm the patients if actually taken. 
	  A physician who pleaded guilty to conspiring to defraud Medicare, Medicaid, and 
other health care benefit programs of more than $1.8 million by causing medically 
unnecessary cardiology tests to be administered to patients.  As a condition of the 
plea agreement, the physician agreed to give up the physicians medical license and 
to be permanently excluded from participation in federal health care programs. 
	  A medical clinic owner who pleaded guilty, along with 20 other codefendants, to 
conspiring to submit $2.5 million in private insurance payments under personal 
injury protection provisions for alleged victims in a staged automobile accident 
scheme. 
In addition to its health care fraud litigation, the Fraud Section also provided legal guidance to 
FBI and HHS agents, health program agency staff, AUSAs and Criminal Division attorneys on 
45
  criminal, civil and administrative tools to combat health care fraud, and worked on an interagency 
level through the following activities: 
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 
patient medical records, including HIPAA medical privacy requirements, 
compliance with the Substance Abuse Patient Medical Records Privacy Act and 
regulations, and coordinating referrals from the HHS Office for Civil Rights on 
possible criminal violations of the HIPAA privacy statute; 
providing training and training materials for AUSAs, investigative agents, support 
 
staff, program agency officials, and state and local law enforcement on health care 
fraud enforcement and medical records privacy issues; 
monitoring and coordinating DOJ responses to legislative proposals, major
 
regulatory initiatives, and enforcement policy matters related to prevention, 
deterrence and punishment of health care fraud and abuse; 
reviewing and commenting on health care provider requests to the HHS/OIG for 
 
advisory opinions, and consulting with the HHS/OIG on draft advisory opinions 
per HIPAA requirements; 
working with USAOs and CMS to improve Medicare contractors fraud detection, 
 
referrals to law enforcement for investigation, and case development work; 
preparing and distributing to all USAOs and FBI field offices periodic summaries 

 
of recent and significant health care fraud cases; and
 
organizing, overseeing and participating in interagency working groups to address 
 
cases and initiatives, often in conjunction with the Civil Division and EOUSA. 
As part of the Criminal Divisions effort, the Organized Crime and Racketeering Section supports 
investigations and prosecutions of health care fraud and other criminal abuses directed at private 
sector employee health benefit plans through which more than 130 million Americans receive 
health care insurance.  Employment based group health plans are the primary source of health 
insurance for Americans who are not yet eligible for Medicare.  Such employee health plans have 
been the target of fraud and abuse by corrupt insurers, employers, labor union officials and benefit 
service providers. The Organized Crime and Racketeering Section supports the USAOs with 
legal and investigative guidance, assistance with drafting indictments, motions, jury instructions 
and appellate briefs. The Organized Crime Section routinely provides guidance and training to 
the Department of Labors Employee Benefits Security Administration and Office of Inspector 
General in connection with investigations of criminal fraud and abuse involving employee health 
benefit plans. The Section reviews and comments on legislative proposals affecting employee 
benefit plans and coordinates criminal legislative initiatives affecting employee health benefit 
plans. 
46
  Civil Rights Division 
In FY 2007, the Civil Rights Division was allocated approximately $2.38 million in HCFAC 
funding to support Civil Rights Division litigation activities related to health care fraud and abuse. 
The Civil Rights Division pursues relief affecting public, residential health care facilities.  The 
Division has also established an initiative to eliminate abuse and grossly substandard care in 
public, 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 DOJ component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C.  1997 (CRIPA).  CRIPA authorizes the 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 
and HHS. 
Fiscal Year 2007 Accomplishments 
As part of DOJs Institutional Health Care Abuse and Neglect Initiative, and as an enhancement to 
ongoing CRIPA enforcement efforts, the Special Litigation Section staff conducted preliminary 
reviews of conditions and services at 23 health care facilities in eleven states during FY 2007. 
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.  Separately, in FY 2007, the Section opened or continued 
formal investigations, entered remedial agreements, or monitored existing remedial agreements 
regarding 57 health care facilities in 22 states, the District of Columbia, and the Commonwealth 
of Puerto Rico. 
In FY 2007, the Section commenced investigations of 7 state-operated facilities for persons with 
mental illness, four state facilities for persons with intellectual and developmental disabilities, and 
one state veterans nursing home.  The facilities are: 
Georgia Regional Hospital in Atlanta, Georgia; Georgia Regional Hospital in Savannah, Georgia; 
Northwest Georgia Regional Hospital in Rome, Georgia; Central State Hospital in Milledgeville, 
Georgia; Southwest State Hospital in Thomasville, Georgia; West Central Georgia Regional 
Hospital in Columbus, Georgia; East Central Georgia Regional Hospital in Augusta, Georgia; 
Clyde L. Choate Developmental Center in Anna, Illinois; Beatrice State Developmental Center in 
Beatrice, Nebraska; Northwest Habilitation Center in St. Louis, Missouri; Howe Developmental 
47
  Center in Tinley Park, Illinois; and Tennessee State Veterans Homes in Murfreesboro and 
Humboldt, Tennessee. 
The Section found that conditions and practices at two state facilities for persons with intellectual 
and developmental disabilities and one state facility for persons with mental illness violate the 
residents' Federal constitutional and statutory rights.  Those facilities are: Lubbock State School 
in Lubbock, Texas; Bellefontaine Developmental Center in St. Louis, Missouri; and Connecticut 
Valley Hospital in Middletown, Connecticut. 
The Section entered settlement agreements to resolve its investigations of one District of 
Columbia facility for persons with mental illness, one state-operated facility for persons with 
intellectual and developmental disabilities, and one state-operated nursing home.  Those facilities 
are:  St. Elizabeths Hospital in Washington, DC; Frances Haddon Morgan Center in Bremerton, 
Washington; and Fort Bayard Medical Center and Nursing Home in Ft. Bayard, New Mexico. 
The Section continued its investigations of 7 residential facilities for persons with developmental 
disabilities: Agnews Developmental Center, in San Jose, California; Sonoma Developmental 
Center, in Eldridge, California; Lanterman Developmental Center, in Pomona, California; Rainier 
Residential Rehabilitation Center, in Buckley, Washington; Frances Haddon Morgan Center, in 
Bremerton, Washington; Conway Developmental Center, in Conway, Arkansas; Lubbock State 
School, in Lubbock, Texas; and, Bellefontaine Developmental Center, in St. Louis, Missouri.  The 
division also continued its investigation of Oregon State Hospital in Portland, Oregon, a facility 
for persons with mental illness. In addition, the Section continued its investigations of three 
publicly-operated nursing homes:  Charlotte Hall Veterans Home, in Charlotte Hall, Maryland; 
the Laguna Honda Hospital and Rehabilitation Center, in San Francisco; California, and C.M. 
Tucker Nursing Care Center in Columbia, South Carolina.  In some of these matters, the Section 
is reviewing voluntary compliance to improve conditions. 
The Section monitored the implementation of remedial agreements for 13 facilities for persons 
with developmental disabilities:  Fort Wayne State Developmental Center, in Fort Wayne, 
Indiana; Pinecrest Developmental Center, in Pinecrest, Louisiana; Hammond Developmental 
Center, in Hammond, Louisiana; Clover Bottom Developmental Center, in Nashville, Tennessee; 
Greene Valley Developmental Center, in Greeneville, Tennessee; Harold Jordan Center, in 
Nashville, Tennessee; Arlington Developmental Center, in Arlington, Tennessee; New Lisbon 
Developmental Center, in New Lisbon, New Jersey; Southbury Training School, in Southbury, 
Connecticut; Woodward Resource Center, in Woodward, Iowa; Glenwood Resource Center, in 
Glenwood, Iowa; Woodbridge Developmental Center in Woodbridge, New Jersey; and Oakwood 
Community Center in Somerset, Kentucky.  It also monitored the implementation of remedial 
agreements regarding community placements from facilities for persons with developmental 
disabilities in Indiana, Puerto Rico, and Washington, D.C. 
The Section monitored the implementation of remedial agreements for five nursing homes: 
Banks-Jackson-Commerce Medical Center and Nursing Home, in Commerce, Georgia; Nim 
Henson Geriatric Center, in Jackson, Kentucky; Reginald P. White Nursing Facility, in Meridian, 
Mississippi; Mercer County Geriatric Center, in Trenton, New Jersey; and A. Holly Patterson 
48
  Extended Care Facility in Uniondale, New York.  The Section also monitored the implementation 
of remedial agreements regarding nine state-operated residential facilities for persons with mental 
illness: Vermont State Hospital, in Waterbury, Vermont; Dorothea Dix Hospital, in Raleigh, 
North Carolina; Broughton Hospital in Morganton, North Carolina; Cherry Hospital, in 
Goldsboro, North Carolina; John Umstead Hospital in Butler, North Carolina; Metropolitan State 
Hospital, in Norwalk, California; Napa State Hospital, in Napa, California; Atascadero State 
Hospital, in Atascadero, California; and Patton State Hospital, in Patton, California.  The Section 
also monitored the implementation of remedial agreements in community-based mental health 
facilities in Hawaii. 
Finally, the Section monitored the implementation of a remedial agreement regarding one 
residential facility for children with visual disabilities:  New Mexico School for the Visually 
Handicapped, in Alamogordo, New Mexico. 
49
  50
  APPENDIX
 
Federal Bureau of Investigation
 
Mandatory Funding
 
AThere 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 2007, $118,218,000. 
In FY 2007, the FBI was separately allocated $118.2 million in HCFAC funds for health care 
fraud enforcement.  The FBI was allocated $4.2 million in funding for cost of living adjustments 
through the Tax Relief and Health Care Act of 2006 in addition to the prior existing statutory 
amount. This yearly appropriation was used to support 759 positions (454 Agent, 305 Support) in 
FY 2007, a decrease of 16 positions from the positions supported in FY 2006 (1 Agent, 15 
Support). The number of pending investigations has shown steady increase from 591 pending 
cases in 1992 to 2,493 cases through 2007.  FBI-led investigations resulted in 625 criminal health 
care fraud convictions11 and 835 indictments and informations being filed in 2007.    
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 (DEA), 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 
National Insurance Crime Bureau, 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, FBI field offices throughout the U.S. have pro-actively addressed significant health care 
fraud through coordinated initiatives, task forces, and undercover operations to identify and 
pursue investigations against the most egregious offenders which may include organized criminal 
activity and criminal enterprises.  Organized criminal activity has been identified in the operation 
of medical clinics, independent diagnostic testing facilities, durable medical equipment companies 
and other health care facilities.  The FBI is committed to addressing this criminal activity through 
11This number includes state and local convictions. 
51  disruption, dismantlement and prosecution of criminal organizations. 
The FBI initiated the Internet Pharmacy Fraud Initiative which focuses on Internet web sites and 
individuals selling illegal prescription drugs and controlled substances.  The overall goal of the 
Internet Pharmacy Fraud Initiative is to identify fraudulent Internet pharmacies and target 
physicians who are willing to write prescriptions for financial gain outside of the doctor/patient 
relationship and with no legitimate medical purpose. Also in the scope of this initiative are 
investigations involving the sale of counterfeit and diverted pharmaceuticals on the Internet.  
During 2007 the FBI continued its support of the Medicare Fraud Strike Force (MFSF) which was 
initiated to combat the prodigious Medicare fraud problem endemic to South Florida.  Its mission 
was to adapt the traditional investigative and prosecutorial methodology to more appropriately 
address the contemporary way in which Medicare fraud is committed.  The Strike Force was a 
concerted effort from DOJ, the United States Attorneys Office in the Southern District of Florida, 
the FBI, HHS/OIG, the Florida Medicaid Fraud Control Unit, and the Hialeah Police Department. 
In 2008 the FBI will continue to support the Strike Force and will work closely with the DOJ as 
this strike force concept is expanded to other areas of the country. 
The FBI has also initiated a new and aggressive training program.  The FBI realizes that the most 
important resource for the successful investigation of health care fraud violations is that of human 
capital.  Therefore, in 2007 and continuing the FBI has begun an aggressive training curriculum to 
include expanding the ability of those who investigate health care fraud matters to attend 
additional training sponsored by private entities such as the NHCAA.  In addition the FBI is 
revamping its virtual academy training sites to include specific blocks related directly to health 
care fraud investigations. 
The majority of funding received by the FBI is used to pay personnel costs associated with the 759 
funded positions. Funds not used directly for personnel matters are used to provide operational 
support for major health care fraud investigations and national initiatives currently focusing on 
Internet Pharmacy fraud, Training and the DOJ Strike Force.  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. 
52
  Glossary Of Terms
 
The Account - The Health Care Fraud and Abuse Control Account 
Atlanta Blood Services - ABS 
AoA - Department of Health and Human Services, Administration on Aging 
ANS - Advanced Neuromodulation System 
AMP - Average Manufacturer Prices 
AUSA - Assistant United States Attorney 
AWP - Wholesale Acquisition Cost 
BMS - Bristol Meyers Squibb 
BMTGA - Blood and Marrow Transplant Group of Georgia 
CCH - Cook County Hospital 
CERT - Comprehensive Error Rate Testing 
CIA - Corporate Integrity Agreement 
CMHC - Community Mental Health Centers 
CMP - Civil Monetary Penalty 
CMPL - Civil Monetary Penalties Law, 42 U.S.C.  1320a-7a 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid Services   
CRIPA - Civil Rights of Institutionalized Persons Act 
CTI - Cell Therapeutics, Inc. 
DAB-Department of Health and Human Services, Departmental Appeals Board 
DEA - Drug Enforcement Admistration 
DME - Durable Medical Equipment 
DMEPOS - durable medical equipment, prosthetics, orthotics, and supplies 
53
  DRA - Deficit Reduction Act of 2005 
DOJ - The Department of Justice 
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 
FFP - Federal Financial Participation 
FTE-Full-time equivalent 
GAO - Government Accountability Office 
GHB - Gamma-Hydroxybutyrate 
HCFAC - -Health Care Fraud and Abuse Control Program or the Program 
HHM - 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 
HIPDB - Healthcare Integrity and Protection Data Bank 
HIV - Human Immunodeficiency Virus 
HMO - Health Maintenance Organization 
IPF - Idiopathic Pulmonary Fibrosis 
IPIA - Improper Payments Information Act of 2002, P.L. 107-300 
HRSA - The Department of Health and Humans Services - Health Resources and Services Administration 
MA - Medicare Advantage plan 
54
  MFSF - Medicare Fraud Strike Force 
MMA - Medicare Prescription Drug, Improvement and Modernization Act of 2003 
MML - Midwest Medical Laboratory 
MRO - Medicaid Rehabilitation Option 
NCFE - National Century Financial Enterprises 
NHCAA - National Health Care Anti-Fraud Association 
NIDA - National Institute on Drug Abuse 
OGC - Office of the General Counsel, Department of Health and Human Services 
ONC - Office of the National Coordinator for Health Information Technology, The Department of Health and Human 
Services 
PAR - Performance and Accountability Report 
PCS - Program Safeguard Contractors 
PERM - Program Error Rate Measurement 
PDS - Proactive Disclosure Service 
PPS - Prospective Payment Systems 
The Program - The Health Care Fraud and Abuse Control Program 
RN - Registered Nurse 
RSP - Retail Sales Price 
SCCI-SCCI Health Services Corporation 
SCHIP - State Childrens Health Insurance Plan 
Secretary - The Secretary of the Department of Health and Human Services 
SMP - Senior Medicare Patrol 
SNF - Skilled Nursing Facilities 
USAO - United States Attorneys Office 
55