Department of Health
and Human Services
Office of Inspector General
Semiannual Report
October 1, 1997 - March 31, 1998
June Gibbs Brown
Inspector General STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative
reporting and enforcement responsibilities and authorities are listed below:
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF MANAGEMENT AND
BUDGET CIRCULARS
P.L.   96-304  Supplemental Appropriations and Rescissions Act of 1980
P.L.   96-510  Comprehensive Environmental Response, Compensation and Liability Act
P.L.   97-255  Federal Managers Financial Integrity Act
P.L.   97-365  Debt Collection Act of 1982
P.L.   98-502  Single Audit Act of 1984
P.L.   99-499  Superfund Amendments and Reauthorization Act of 1986
P.L. 101-576  Chief Financial Officers Act of 1990
P.L. 102-486  Energy Policy Act of 1992
P.L. 103-62   Government Performance and Results Act of 1993
P.L. 103-355  Federal Acquisition Streamlining Act of 1994
P.L. 103-356  Government Management Reform Act of 1994
P.L. 104-191  Health Insurance Portability and Accountability Act of 1996
P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996
P.L. 104-208  Federal Financial Management Improvement Act of 1996
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25 User Charges
A-  50 Audit Follow-up  
A-  76 Performance of Commercial Activities
A-  87 Cost Principles for State, Local and Indian Tribal Governments
A-102 Grants and Cooperative Agreements with State and Local Governments
A-110 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
A-122 Cost Principles for Nonprofit Organizations
A-123 Management Accountability and Control
A-127 Financial Management Systems
A-129 Policies for Federal Credit Programs and Non-Tax Receivables
A-133 Audits of States, Local Governments and Non-Profit Organizations
General Accounting Office  Government Auditing Standards
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES
Criminal investigative authorities include:
Title   5, United States Code, section 552a(I)
Title 18, United States Code, sections on crime and criminal procedures as they pertain to OIGs oversight of
departmental programs and employee misconduct
Title 42, United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 1320a-7b, the Social Security
and Public Health Service Acts
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as
those at:
Title 31, United States Code, section 3729 et seq., the False Claims Act and 3801 et seq., the Program Fraud Civil
Remedies Act
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320b-10, 1320c-5, 1395l, 1395m, 1395u, 1395dd and
1396b A MESSAGE FROM THE SECRETARY
One of the Department of Health and Human Services (HHS) foremost priorities is the
continuing fight against fraud and abuse in the Nations health care programs.  This
Administration has focused unprecedented attention on these areas and we are proud of the
significant strides already made.
The intensified crackdown on fraud and abuse by the HHS Office of Inspector General
(OIG) and its partners within and outside the Department has yielded a new, more detailed
picture of the nature and scope of the fraudulent activities aimed at the Medicare and
Medicaid systems.  New audits and surveys have helped investigators pinpoint areas of
vulnerability and ongoing patterns of abuse, which in turn have led to changes in program
policy and law enforcement techniques.
In January 1998, the President sent to the Congress the first annual report of the Health
Care Fraud and Abuse Control Program created by the Health Insurance Portability and
Accountability Act (HIPAA) of 1996.  This joint report by HHS and the Department of
Justice reflects the remarkable progress made in rooting out health care fraud and abuse in
the first full year of HIPAA funding.  Nearly $1 billion was returned to the Medicare Trust
Funds in Fiscal Year 1997, the largest amount ever.  Also, the Department excluded more
than 2,700 individuals and entities from doing business with Medicare, Medicaid and other
Federal and State health care programs for engaging in fraud or other professional
misconduct.  
We have also seen significant advances in the area of child support enforcement, another top
Administration priority.  Along with the Office of Child Support Enforcement and its other
partners in government, OIG has developed procedures designed to expedite the detection
and prosecution of absent parents who are delinquent in their child support.
While we can all be proud of these outstanding results, much remains to be accomplished.
Vital to the Departments ongoing efforts to enhance the effectiveness of these and other
HHS programs is the excellent work being done by the Inspector General and her staff.
This report reflects not only accomplishments already realized, but a shared commitment
for the future.
Donna E. Shalala FOREWORD
This semiannual report highlights the activities and accomplishments of the Department of
Health and Human Services (HHS) Office of Inspector General (OIG) for the 6-month
period ending March 31, 1998.  Once again, we have seen marked progress in our efforts to
promote efficiency and effectiveness in the Departments programs and operations, and to
reduce their vulnerability to fraud, waste and abuse.
In recent years, OIGs heightened emphasis on interdisciplinary teamwork within its own
organization and greater collaboration with other Federal and State agencies have resulted in
a more forceful response to the growing problems of fraud and abuse.  This coordinative
approach, employed so successfully in Operation Restore Trust, has greatly enhanced our
ability to protect the Federal dollars allotted to the Departments programs.  Moreover, we
are gratified that many of the policy changes advocated by OIG in response to the findings
and recommendations arising from Operation Restore Trust activities have been adopted by
the Administration and the Congress. 
The additional resources and authorities provided by the Health Insurance Portability and
Accountability Act (HIPAA) of 1996 have enabled us to further intensify and extend our
antifraud efforts.  As anticipated by HIPAA, we have continued to expand into additional
geographical areas.  Currently, there are OIG investigative offices in 31 States and the
District of Columbia; by the year 2003, we plan to have an OIG presence in virtually all
States. 
Pursuant to HIPAA, the Attorney General and the Secretary, acting through the Inspector
General, established a national Health Care Fraud and Abuse Control (HCFAC) program in
Fiscal Year (FY) 1997 to coordinate Federal, State and local law enforcement activities with
respect to health care fraud and abuse.  In January 1998, the Secretary and the Attorney
General published a joint report on the programs first year accomplishments, noting that
almost $1 billion was recovered as a result of the restitutions, fines, judgments, settlements,
administrative impositions, collections and offsets brought about through HCFAC activities.
While much has been accomplished, OIG recognizes that the Federal Government alone
cannot solve the problems of fraud and abuse.  Accordingly, we have continued to invite the
health care community to fully cooperate, support and join in our antifraud efforts.  In one
such initiative, OIG has worked with its partners in government and the health care industry
to develop guidance on compliance programs which providers may implement voluntarily.
Such  guidance  is  intended  to  help  companies  self-regulate  and  self-report.    The  OIG
released its first guidance for clinical laboratories in February 1997.  During the current semiannual period, OIG issued compliance guidance for hospitals.   Outlining the seven
fundamental elements of an effective compliance program, OIG also identified specific
areas of hospital operations that have proven to be particularly vulnerable to fraud and
abuse.  We will continue to work in collaboration with provider groups to develop similar
guidance in other areas.
With the cooperation of our partners and the ongoing support of the Administration and the
Congress, we are confident that our efforts will continue to have a positive impact in
strengthening and protecting HHS programs and operations.
June Gibbs Brown
Inspector General
  HIGHLIGHTS
Introduction
During the 6-month period ending March 31, 1998, the Department of Health and Human
Services (HHS) Office of Inspector General (OIG) continued to maximize its impact through
a  heightened  emphasis  on  interdisciplinary  teamwork  within  its  own  organization,  and
greater  collaboration  with  other  Federal  and State agencies.   The  effectiveness of this
partnership  approach  is  amply  demonstrated  by  the  results  of  many  of  the  initiatives
described in this semiannual report.  Highlights of OIGs accomplishments for this period
follow.
Health Care Fraud and Abuse Control Program
The OIG has long been committed to aggressive efforts to prevent and detect health care
fraud.  Those efforts to combat such fraud were consolidated and strengthened by the Health
Insurance Portability and Accountability Act of 1996 (HIPAA).  The HIPAA directed the
Attorney  General  and  the  Secretary  of  HHS,  acting  through  the  Inspector  General, to
establish a national Health Care Fraud and Abuse Control Program to accomplish a number
of purposes, chief among them to coordinate Federal, State and local law enforcement
activities with respect to health care fraud and abuse.  Other important statutory goals are to
facilitate enforcement of all applicable remedies for health care fraud; to provide industry
guidance relating to fraudulent practices; to establish a national adverse actions data bank;
and to conduct investigations, audits and other reviews relating to the provision of and
payment for health care in this country.  
The HIPAA, strengthened by the Balanced Budget Act of 1997, brought much needed
authorities  and  resources  to  oversight  of  health  care  services.    With  these  additional
resources, OIG has intensified and expanded its activities in the health care field and is now
able to coordinate a more effective effort to curb those who exploit the Nations health care
systems, particularly Medicare.  The accomplishments during the first year of expanded
antifraud efforts brought about by HIPAA were reported in the first Annual Report of the
Departments of HHS and Justice submitted to the Congress in January 1998.   As required
by the Act, the report identifies program funds expended on health care antifraud activities
during Fiscal Year (FY) 1997, and the dollars returned to the Medicare Trust Funds during
that year.  These monetary results reflect the most successful year ever in the Nations efforts
to detect and punish fraud and abuse against health care programs.  For example, during FY
1997,  a  total  of  $1.087  billion  in  criminal  fines,  civil  judgments  or  settlements,  and
administrative impositions was collected or otherwise recovered for all Federal health care
programs.  Of this, nearly $1 billion was restored or transferred to the Medicare Trust Funds.
With the enhanced resources provided by HIPAA, OIG continues to expand its investigative,
audit  and  evaluation  staffs,  and  to  extend  coverage  to  geographical  areas  that  were
i underserved in recent years.  Such growth will further bolster OIGs ability to fulfill its
responsibilities under HIPAA.  In addition, OIG made major strides in the area of preventing
health care fraud and abuse through provision of industry guidance.   The OIG reached
consensus with the health care industry on companion regulations to a new exception (set
forth in HIPAA) to the anti-kickback statute for certain managed care arrangements.  Use of
the negotiated rulemaking process to develop the regulations was mandated by the Congress
when it created the exception.  
For further information on these and other accomplishments under the Health Care Fraud
and Abuse Control Program, see page 2.
Compliance Program Guidance for Hospitals
In February 1998, OIG released compliance program guidance for hospitals to assist in
developing measures to combat fraud and abuse in the hospital industry.  The guidelines are
part of OIGs continuing efforts to work with health care providers to promote voluntary
compliance with the applicable statutes, regulations and program requirements pertaining to
Federal and other health care programs.  The guidance sets out the seven fundamental
elements  of  an  effective  compliance  program,  and  identifies  specific  areas  of  hospital
operations  that,  based  on  prior  Government  enforcement  efforts,  have  proven  to  be
vulnerable to fraud and abuse.  (See page 17)
Prescription Drugs
In a study entitled "Excessive Medicare Payments for Prescription Drugs,"  OIG found more
evidence that Medicare was consistently paying too much for prescription drugs.  For more
than one-third of the 22 drugs reviewed in this study, Medicare paid more than double the
actual average wholesale price to physicians and suppliers.  The Congress used the draft of
this report, as well as previous related studies, to reduce Medicare payment rates for drugs
by 5 percent in the 1997 Balanced Budget Act.  The change in pricing methodology will
save the Medicare program $370 million over the next 5 years.  Moreover, OIG found that
Medicares current Epogen reimbursement rate of $10 per 1,000 units administered exceeds
the current cost of purchasing the drug by about $1.  Reducing the rate to $9 per 1,000 units
administered would result in annual savings of approximately $94 million to the Medicare
program and $24 million to its beneficiaries.
In addition, a series of evaluations was conducted on the subject of prescription drug use in
nursing  homes.    Medication  problems  and  concerns  raised  collectively  by  these  three
coordinated  reports  demonstrate  the  need  for  stronger  monitoring  and  more  positive
enforcement of existing regulations and required reviews of medication usage in nursing
homes.  (See page 30 )
Laboratory Fraud and Abuse
In a nationwide audit, OIG determined that Medicare carriers reimbursed independent and
physician  laboratories  for  claims  involving  unbundled  and/or  duplicate  chemistry,
hematology and urinalysis tests that should have been grouped together (bundled) and paid
ii at a lesser amount, and for additional indices that were not ordered, received or needed by a
physician.  As a result, OIG estimated that carriers overpaid these providers more than $50
million between July 1, 1993 and June 30, 1995.  During the same 2-year period, an
additional $31 million could have been saved if policies had been adopted to preclude
payment for additional automated hematology indices.  (See page 23)
Also during this reporting period, OIG successfully completed several criminal and civil
cases related to billing for these unbundled tests on the part of independent laboratories and
physicians.  Convictions and settlements were also obtained for other types of fraudulent or
abusive activities involving these health care providers.  Among the most reprehensible of
these cases were those involving kickbacks and fraudulent billing for tests on nursing home
patients that either were not performed or were not necessary.  (See pages 18 and 23)
Durable Medical Equipment Fraud
Over the years, the durable medical equipment (DME) industry has been the source of a
variety of fraud and abuse problems.  More than 3 years ago, the Health Care Financing
Administration (HCFA) published new regulations addressing some of the recurring DME
reimbursement problems, especially those created by telemarketing and carrier shopping.
As fraud cases involving these problems appear to be diminishing, however, others continue
to grow.  During the present reporting period, DME fraud convictions accounted for 23 of
OIGs 96 health care criminal convictions.  Monetary returns from DME companies, owners
and other participants totaled more than $40.5 million for the period.
In the New York area alone, 12 convictions were obtained.  Many of the convictions for
DME fraud were for kickbacks and for billing for equipment not provided or of lesser cost
than that claimed.  (See page 27)
Hospice Care
During  this  reporting  period,  several  initiatives  focused  on  hospice  care,  a  treatment
approach which recognizes that an individuals impending death warrants a change from
curative to palliative care, such as pain control and symptom management.  The OIGs
investigations and audits uncovered abusive billings by selected providers, and evaluation
studies  and  audits  revealed  systemic  vulnerabilities  for  hospice  services  provided  in  a
nursing home setting.
The OIGs consolidated report discussed 12 hospice studies in which auditors, in partnership
with physicians from Medicare peer review organizations, reviewed long-term patients
medical files.  Although some of these hospices are still being evaluated, OIG estimates that
Medicare paid a total of $83 million for beneficiaries whose diagnoses did not justify
enrollment in the hospice program.  A hospice in Illinois, for instance, received over $10
million in Medicare overpayments for ineligible beneficiaries.
Taking a different perspective, another review questioned whether Medicare reimbursement
for hospice care provided to nursing home patients may be excessive.  This reimbursement
iii level is the same as that for hospice care provided to patients in their homes, even though
nursing home hospice patients receive almost 46 percent fewer services.  Finally, OIG
examined the contractual relationships between hospices and nursing homes.  This report
noted that financial incentives -- rather than clinical needs -- could influence decisions about
patient care.  
The Balanced Budget Act of 1997 addressed some of the problems noted above.  For
example, the Act requires more frequent recertifications of eligibility and allows patients
whose conditions improve to be discharged from hospices without loss of future benefits.  In
addition, in response to OIGs recommendations, HCFA is taking a number of actions to
reduce ineligible hospice enrollments and to prevent other abusive activities. (See page 21 -
22)
Child Support Enforcement
The OIG, the Department of Justice and the Federal Bureau of Investigation have developed
procedures for expediting detection and prosecution of parents in one State who refuse to
pay past due support for a child in another State.  A single agent has been designated as
contact in each judicial district for responsibility for these cases.  The success of this effort is
largely due to cooperative efforts with the Office of Child Support Enforcement, which has
been key in obtaining the involvement of State and local officials.  As a result, OIG has
initiated  more  than  250  cases  nationwide.    Some  23  convictions  and  court-ordered
restitutions of more than $640,00 were obtained during this period.   Especially active has
been the Federal Eastern District of Virginia, whose operation "Long Arm" has served as a
model for other judicial districts.  (See page 44)
OIG Work in Performance Measurement
In order to identify work done in the area of performance measurement, OIG has labeled
some items throughout this report as performance measures with the symbol            .
Performance measures are used to evaluate the achievement of a program goal, such as the
efficiency of an immunization program which is measured by the number of inoculations
provided per dollar of cost.  In OIGs opinion, the audits, inspections and investigations
identified  with  the  performance  measure  symbol  offer  management  information  about
whether  some  aspect or all of the programs  or  activities reviewed are achieving their
missions and goals.  These proposals are provided to management for their consideration as
they develop their performance measures.  (See Appendix F)
Internet Address
This semiannual report and other OIG materials may be accessed on the Internet at the
following address: http://www.dhhs.gov/progorg/oig
iv Table of Contents
Chapter I  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1
Fraud and Abuse Control Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Beneficiary Awareness of Medicare Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
A.  Physicians at Teaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
B.  Diagnosis Related Group Payment Window Project . . . . . . . . . . . . . . . . . . . . . .6
C.  Operation Bad Bundle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
D.  Patient Transfers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
E.  Bacterial Pneumonia Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Other Hospital Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Resolution of Patient Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Medicare Hospital Discharge Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Hospital Closure:  1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Partial Hospitalization Services and Costs Claimed by a Florida
Community Mental Health Center  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Fraud and Abuse Sanctions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
B.  Civil Penalties for Patient Dumping  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
C.  Civil Penalties for False Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
D.  Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Hospice Eligibility  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 A.  Consolidated Hospice Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
B.  Beneficiary Eligibility at Illinois Hospice Provider  . . . . . . . . . . . . . . . . . . . . .22
Hospice Patients in Nursing Homes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Clinical Laboratory Tests Performed by Independent Laboratories and
Physicians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Laboratory Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Portable Imaging Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Medical Equipment Suppliers:  Assuring Legitimacy  . . . . . . . . . . . . . . . . . . . . . . . . . .26
Medicare Orthotics  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .27
Excessive Medicare Payments for Prescription Drugs  . . . . . . . . . . . . . . . . . . . . . . . . . .30
Prescription Drug Use in Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Review of Epogen Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Medicare Ambulance Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
State Ambulance Policies and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Medicare Contractor Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Federal and State Partnership: Joint Audits of Medicaid  . . . . . . . . . . . . . . . . . . . . . . . .33
Medicaid Reimbursement to Ohio Nursing Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Medicaid Payments for Pathology and Laboratory Services in Virginia  . . . . . . . . . . . .34
Reimbursement Method for Indiana Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .37
Results-Based Systems for Public Health Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Contract/Grant Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Internal Controls over Purchase Card Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 A.  National Institutes of Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
B.  Food and Drug Administration  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
State AIDS Drug Assistance Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .40
Superfund Financial Activities at the Agency for Toxic Substances and
Disease Registry  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Chapter III  ADMINISTRATION FOR CHILDREN 
AND FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .43
Child Support Enforcement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
States Child Care Certificate Systems: An Early 
Assessment of Vulnerabilities and Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Foster Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
A.  Retroactive Claims Submitted by Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
B.  Rate-Setting Methodology for Foster Family Agencies in California . . . . . . . .47
Discretionary Grants Awarded to Alleviate Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
A.  Risk of Awarding Equity Investment Grants . . . . . . . . . . . . . . . . . . . . . . . . . . .47
B.  Grants Awarded in Mississippi  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Community Services Block Grants in Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Protection and Advocacy for the Disabled  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Marylands Ombudsman for the Elderly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Chapter IV  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
A.  Office of Inspector Generals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .52
B.  Quality Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .54 A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
B.  Funds Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .56
A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
B.  Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Training and Administrative Costs Charged to Federal Programs  . . . . . . . . . . . . . . . . .57
Governmental Accounting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
A.  New York Certificates of Participation Expenses . . . . . . . . . . . . . . . . . . . . . . .58
B.  Georgia Telecommunications Fund Adjustments  . . . . . . . . . . . . . . . . . . . . . . .58
C.  Georgia Self-Insurance Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
D.  Delaware Employees Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Reviews of Departmental Service Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
A.  Division of Payment Management  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
B.  Division of Computer Research and Technology  . . . . . . . . . . . . . . . . . . . . . . .59
Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
APPENDIX A - Savings Achieved Through Policy and Procedural 
Changes Resulting from Office of Inspector General
Audits, Investigations and Inspections October 1997 
through March 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - Unimplemented Office of Inspector General 
Recommendations to Put Funds to Better Use . . . . . . . . . . . . . . .B-1
APPENDIX C - Unimplemented Office of Inspector General Program 
and Management Improvement Recommendations  . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the Inspector General 
Act of 1978, as Amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1 Health Care 
Financing 
Administration Chapter I
HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General
Activities
The Health Care Financing Administration (HCFA) is responsible for administering the
Medicare and Medicaid programs.  Medicare Part A provides hospital and other institutional
insurance for persons age 65 or older and for certain disabled persons, and is financed by the
Federal  Hospital  Insurance  Trust  Fund.    Medicare  Part  B  (Supplementary  Medical
Insurance) is an optional program which covers most of the costs of medically necessary
physician and other services, and is financed by participants and general revenues.
The Medicaid program provides grants to States for medical care for low-income people.
Eligibility for Medicaid is, in general, based on a persons eligibility for cash assistance
programs.    State  expenditures  for  medical  assistance  are  matched  by  the  Federal
Government using a formula that measures per capita income in each State relative to the
national average.
The Office of Inspector General (OIG) has devoted significant resources to investigating and
monitoring  the  Medicare  and  Medicaid  programs.    These  activities  have  often  led to
criminal, civil and/or administrative actions against perpetrators of fraud and abuse.  They
also have helped ensure the cost-effective delivery of health care, improved the quality of
health care and reduced the potential for fraud, waste and abuse.
Over the years, OIG findings and recommendations have contributed to many significant
reforms in the Medicare program.  Such reforms include implementation of the prospective
payment system (PPS) for inpatient hospital services and a fee schedule for physician
services;  the  Clinical  Laboratory  Improvement  Act  Amendments  of  1988;  regional
consolidation of claims processing for durable medical equipment (DME); establishment of
fraud  units  at  Medicare  contractors;  prohibition  on  Medicare  payment  for  physician
self-referrals; and new payment methodologies for graduate medical education.
The OIG has documented excessive payments which led to statutory changes to reduce
payments for hospital services, indirect medical education, DME and laboratory services.
To ensure quality of patient care, OIG has assessed clinical and physiological laboratories;
evaluated the medical necessity of medical equipment and of services provided by home
health agencies; analyzed various State licensure and discipline issues; reviewed several
1 aspects of medical necessity and quality of care under PPS, including the risk of early
discharge; and evaluated the care rendered by itinerant surgeons and the treatment provided
by physicians performing in-office surgery.
The OIG also audits HCFAs financial statements, which account for more than 83 percent
of Department of Health and Human Services (HHS) outlays.  In addition to issuing an
opinion on the statements, OIG has assessed compliance with Medicare laws and regulations
and the adequacy of internal controls.
Fraud and Abuse Control Program
During this reporting period, OIG took additional steps toward implementing the new
responsibilities assigned by the Health Insurance Portability and Accountability Act of 1996
(HIPAA).  The HIPAA establishes a comprehensive program to combat fraud committed
against all health plans, both public and private.  The legislation required the Departments of
Justice (DOJ) and HHS to establish a Fraud and Abuse Control Program, effective January
1, 1997.  Under the joint direction of the Attorney General and the Secretary, acting through
the HHS Inspector General, the Fraud and Abuse Control Program is to achieve certain
statutory goals:  coordinating Federal, State and local law enforcement efforts relating to
health care fraud; conducting investigations, audits and evaluations relating to health care in
the United States; facilitating enforcement of the civil, criminal and administrative statutes
applicable to health care; providing industry guidance relating to fraudulent health care
practices; and establishing a national data bank to report final adverse actions against health
care providers.
To fund the coordinated antifraud effort, HIPAA directs that an amount equaling recoveries
derived from health care cases -- including civil monetary penalties, fines, forfeitures and
damages assessed in criminal civil or administrative health care cases -- be transferred to the
Federal Hospital Insurance Trust Fund.  Monies are appropriated from the trust fund to a
newly  created  expenditure  account,  called  the  Health  Care  Fraud  and  Abuse  Control
Account,  in amounts that  the Secretary and the Attorney General annually certify are
necessary to finance antifraud activities.  Of the amount so certified and appropriated, a
stipulated sum is available only for "activities of the Office of Inspector General of the
Department  of  Health  and  Human  Services,  with  respect  to  Medicare  and  Medicaid
programs."
During this semiannual period, the Government reported on the accomplishments achieved
during the first full year of operation under the Health Care Fraud and Abuse Program,
including  a  summary  of  the  expenditures  and  recoveries  under  the  program.    These
monetary results document the most successful year ever in the Nations efforts to curb
abuses against health care programs.  For example, during FY 1997, a total of $1.087 billion
in  criminal  fines,  civil  judgments  or  settlements,  and  administrative  impositions  was
collected or otherwise recovered for all Federal health care programs.  Of this, nearly $1
2 billion was restored or transferred to the Medicare Trust Funds.  Also, more than 2,700
individuals and entities were excluded from federally sponsored health care programs, a 93
percent increase over 1996.
Although the additional authorities and resources provided by HIPAA have increased the
effectiveness of the Governments antifraud efforts, the Government, alone, cannot solve the
problem of fraud and abuse.  Accordingly,  OIG has redoubled its efforts at enlisting the help
of the provider and beneficiary communities to prevent impropriety.  Foremost among these
preventive  efforts  during  the  reporting  period  were  reaching  consensus  on  negotiated
rulemaking involving potential kickbacks in shared risk arrangements; issuing program
compliance  guidelines  for  hospitals;  and  participating  in  a  broad  beneficiary  outreach
program.  
Section 216 of HIPAA created an exception to the anti-kickback statute for certain managed
care arrangements, including remuneration between Medicare eligible health maintenance
organizations (HMOs) and competitive medical plans, and individuals or entities providing
items or services.  In addition, the statute excepted remuneration between any organization
and an individual or entity that has a risk-sharing arrangement, if a written agreement places
the individual or entity at "substantial financial risk" for cost or utilization of the items or
services  provided.    Section  216  further  directed  the  Department  to  use  a  negotiated
rulemaking  process  to  establish  companion  regulations.    The  negotiated  rulemaking
committee was comprised of 21 industry representatives, a representative each from OIG
and the Department of Justice.   In January 1998, the committee reached consensus on a
final proposal which will be the basis for an interim final rule to be published in the spring.
The consensus proposal provides for two new safe harbors.  The first will protect managed
care plans and their providers where the Federal health care programs, including Medicare
HMOs, most Medicare + Choice plans, Medicaid managed care plans and TriCare, pay such
plans on a capitated basis.  The second will protect employer sponsored group health plans
where the providers under such plans are placed at substantial financial risk for the cost or
utilization of Medicare items or services. 
The OIG also released compliance program guidelines to assist in developing measures to
combat fraud and abuse in the hospital industry.  The guidelines are part of OIGs continuing
efforts to work with health care providers to promote voluntary compliance with applicable
statutes, regulations, and program requirements governing Federal and other health care
programs.  The guidelines are discussed further on page 17.
In addition, OIG has pursued other measures designed to promote fraud prevention, among
them, issuance of fraud alerts, advisory opinions and other guidance as part of an ongoing
effort to promote the highest level of ethical and lawful conduct by the health care industry.
The OIG continued to work in conjunction with the Administration on Aging, HCFA and
various advocacy groups to develop an outreach campaign to educate beneficiaries and
3 others who work directly with the elderly to recognize Medicare and Medicaid fraud, waste
and abuse when they encounter it, and to know how and where to refer it.
The OIG  continues to provide direction, technical assistance and advice regarding the
creation  of  the  final  adverse  action  data  bank  mandated  by  HIPAA,  now  named  the
Healthcare  Integrity  and  Protection  Data  Bank  (HIPDB).    The  Health  Resources  and
Services Administration continues its work on the implementation on behalf of OIG.  The
OIG  chairs the  Executive Steering Council,  which includes representatives from DOJ,
HCFA  and  HHSs  Assistant  Secretary  for  Management  and  Budget  (ASMB).    These
representatives participate in the oversight of HIPDB.  The OIG also acts as liaison to
involve other Federal and State law enforcement agencies in both reporting to and querying
HIPDB.
The OIG has added additional staff to accomplish its responsibilities under the expanded
antifraud and abuse program.  Implementation of HIPAA has been a cooperative effort.  The
OIG has and will continue to work closely with other components of HHS, chiefly HCFA
and ASMB.
Copies of the OIGs hospital compliance program guidance, as well as other materials
developed by OIG as part of its effort to identify and curb health care fraud, are available on
the Internet at http://www.dhhs.gov/progorg/oig. 
Beneficiary Awareness of Medicare Fraud
In 1996, OIG launched an initiative called "Outreach" whose primary goal is to combat
Medicare fraud, waste and abuse.  The initiative involves three activities: creation of a more
user-friendly hotline; establishment of partnerships with HCFA, the Administration on
Aging and the American Association of Retired Persons; and inauguration of a nationwide
outreach campaign to educate beneficiaries and other citizens on Medicare fraud.  As part of
that campaign, OIG conducted a telephone survey to assess current beneficiary knowledge
and awareness of Medicare fraud.
The OIG found that more than half of beneficiaries believe that Medicare fraud is common,
and they overwhelmingly agree that it is their personal responsibility to report suspected
cases of Medicare fraud.  Further, beneficiaries appear to be well-positioned to identify
potential  Medicare  fraud  with  three  out  of  four  saying  that  they  "always"  read  their
Explanation  of  Medicare  Benefit  statements.    However,  beneficiaries  believe  that
recognizing fraud is difficult and most have never received information on Medicare fraud.
They are not aware of agencies working to stop Medicare fraud nor of the toll-free number
to report Medicare fraud.  Finally, most beneficiaries agree that they would be more likely to
report Medicare fraud if they knew more about it.
4 The survey findings not only confirm the need for a campaign to educate beneficiaries, but
also  provide  OIG  with  baseline  data  on  Medicare  beneficiaries  current  awareness  of
Medicare fraud.  The survey will be repeated in 1 to 2 years to assess the effectiveness of the
outreach campaign. (OEI-12-97-00440)
Major Hospital Initiatives
The OIG has launched four national projects and one State project involving civil actions at
hospitals that were falsely billing the Medicare program.  Four of the five grew from OIG
hospital audits that identified irregularities in Medicare billing practices.
A.  Physicians at Teaching Hospitals
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules
governing reimbursement to physicians at teaching hospitals (also known as the PATH
initiative).  The specific objectives of the PATH audit initiative are to verify compliance with
the Medicare rules governing payment for physician services provided by residents and
interns, and to ensure that all claims for physician services accurately reflect the level of
service provided to the patient.
Medicare pays the costs of training residents and interns through the graduate medical
education (GME) program.  Medicare also pays an additional amount in recognition of the
additional costs  associated  with  training residents and  interns (also known  as indirect
medical education or IME).  These payments can total over $100,000 per resident per year.
Medicare paid approximately $8.1 billion to teaching hospitals in 1996 for the costs of
training residents and interns.  The Medicare payments described above include payments to
teaching physicians for their role in supervising residents and interns.
The fundamental tenet of the PATH initiative is that in order to receive reimbursement from
Medicare Part B for a service rendered to a patient, the teaching physician must have
personally provided that service or have been present when the intern or resident furnished
the care.   Physicians claiming reimbursement for services performed by the intern or
resident alone are making a duplicate claim--one that has already been paid for under Part A
through the GME and IME payments.
The PATH audits also include a review of Part B claims information and medical records to
determine if the teaching physician claimed the appropriate reimbursement for the level of
service provided.  The Medicare billing systems vulnerability to upcoding is a longstanding
concern at OIG.  The PATH reviews are designed to detect patterns or practices of upcoding,
resulting in unwarranted loss to the Medicare Trust Fund.
The  PATH  initiative  has  been  undertaken  as  a  result  of  OIGs  extensive  audit  and
investigative work in this area.  To date, four institutions have entered into settlements with
5 the Federal Government to resolve their False Claims Act liability for overpayments related
to improper claims submitted in the teaching setting.  These settlements have resulted in the
Governments recovery of approximately $67 million.  As a condition of settlement, these
institutions have also implemented corporate integrity programs to prevent and detect future
improper claims.  An audit completed at two other institutions disclosed no major problems
with either billings in the teaching setting or upcoding, demonstrating that providers can and
do bill the Medicare program correctly.
To determine whether, and to what extent, problems similar to those noted above were
present at other teaching institutions throughout the country, the PATH project was expanded
into a national initiative, but limited to those institutions that received guidance from the
Medicare Part B carriers communicating the applicable HCFA reimbursement standards.  In
addition  to  conducting  focused  audits  of  these  providers  medical  billing  records,  the
providers are given the opportunity to conduct a self-audit with Government oversight and
to report their findings to OIG.
B.  Diagnosis Related Group Payment Window Project
In  1995,  OIG  and DOJ launched a  national project  to  recover overpayments made to
hospitals as a result of claims submitted for nonphysician outpatient services that were
already included in the hospitals inpatient payment under the PPS.  Hospitals that submit
claims  for the  outpatient  service  in  addition  to the inpatient admission  are, in  effect,
submitting duplicate claims for the outpatient services.  In addition, the project seeks to
recover for those services rendered to beneficiaries during the inpatient admission that
should be included in the diagnosis related group (DRG), but are separately charged.  A
prevalent pattern of abuse was identified through repeated OIG audits of hospital claims for
inpatient services under PPS.  Prior to the inception of this project, OIG had issued four
reports to HCFA identifying approximately $115.1 million in Medicare overpayments to
hospitals caused by these improper billings.
This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for
outpatient services.  These hospitals receive notification from the local U.S. Attorneys
Office  concerning  OIGs  identification  of  erroneous  claims  and  the  facilitys  potential
exposure under the False Claims Act.  The hospitals are given the opportunity to enter into a
settlement with the Government under which the financial exposure of the institution is
substantially less than if litigated under the Act.  Compliance measures to prevent and detect
erroneous billing are also  required  under the terms  of the settlement.  The project is
primarily coordinated by the U.S. Attorneys Office - Middle District of Pennsylvania.  As of
the end of the reporting period, settlements had been executed with approximately 2,300
hospitals and about $57 million had been recovered.
One  of  the  most  important  parts  of  this  project  is  the  stipulation  in  each  settlement
agreement  that  each  hospital  will  assure  compliance  with  proper  billing  for
6 inpatient/outpatient services.  It is hoped that the deterrent effect of possible civil actions,
along with promised compliance, will remove this source of improper claims.
C.  Operation Bad Bundle
The OIG, DOJ and multiple States have joined forces to combat Medicare and Medicaid
fraud in hospital outpatient laboratory billing practices.  A project begun in Ohio by OIG,
DOJ, the State of Ohio and the Medicare fiscal intermediary proved so successful, it was
expanded to other States as Operation Bad Bundle.  This project seeks to recover multiple
damages for improper and excessive claims submitted for hematology and automated blood
chemistry tests by hospital outpatient laboratories.  These abusive practices stem from the
improper unbundling and double billing of laboratory tests and in certain cases the billing
for certain medically unnecessary tests, which have been found to be widely practiced
abuses.
Clinical laboratory services were particularly vulnerable to these abuses because of the
multiple number of tests ordered at one time and the capability of automated equipment to
run numerous tests from one sample at a low cost.  Under Medicare guidelines, the hospitals
were  required  to  bill  certain  groupings  of  blood  tests  using  a  bundled  code  and  the
reimbursement for blood chemistry tests bundled into a panel is significantly less than that
for each test run separately.
The OIG and DOJ are working together on the national project to provide targeting data to
the United States Attorneys offices interested in pursuing this recovery initiative in their
districts.  The OIG also collaborated with DOJ to produce two model settlement agreements,
including  compliance  measures,  which  were  disseminated  to  all  participating  districts
throughout the United States.
Operation Bad Bundle targets hospital outpatient laboratories using a computer-based audit
of claims submitted for outpatient laboratory services along with a preliminary investigation.
Where the initial audit and preliminary investigation uncover suspected fraudulent practices,
the United States Attorneys Office will send a letter to each hospital identifying the abusive
practice at that facility and its potential exposure under the False Claims Act.  In many
jurisdictions, the hospitals are invited to participate in a self-audit program, the results of
which are separately verified by the United States Attorneys Office.  In recognition of their
participation in this self-audit process, the hospitals generally receive the benefit of double,
rather than triple, damages for settlement purposes.  In certain jurisdictions, the hospitals
may not be asked to do a self-audit, in which case up to treble damages have been sought.
In these cases, however, the hospital may request the opportunity to do a self-audit in
exchange  for  the  benefit  of  paying  only  double  damages.    The  settlement  amount  is
determined  on  a  hospital-specific  basis.    The  terms  of  all  of  the  settlements  require
implementation of compliance measures to  prevent future similar misconduct within the
hospitals clinical laboratories.
7 In a related lawsuit, a Federal court in Ohio granted the Secretarys motion to dismiss a
lawsuit filed by the Ohio Hospital Association and the American Hospital Association.  The
hospital associations suit had challenged the Department of Justices use  (on behalf of the
Secretary) of the False Claims Act in connection with laboratory billing issues.  The action
was brought against the Secretary to halt the Ohio Hospital Project, which has since evolved
into Operation Bad Bundle.  Thus far, 114 hospitals have entered settlements in Operation
Bad Bundle, with settlements totaling more than $26.3 million.  More hospitals are expected
to settle in the near future.
D.  Patient Transfers
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for
patient transfers between two PPS hospitals.  Under Medicare reimbursement rules, the
hospital transferring a patient is to receive a per diem payment based on the length of stay,
and the hospital receiving the transferred patient is to be paid a diagnosis-related payment
based on the final discharge code.
Since 1986, however, OIG has found that many transferring hospitals inappropriately claim
full diagnosis-related payment rather than the per diem payment.  The HCFA has already
acted on OIGs first report, which identified $227 million in recoveries and savings.  The
OIGs second report, issued in November 1996, and a more recent computer analysis of
claims disclosed additional overpayments of approximately $165 million.  Currently, OIG is
working with the U.S. Attorneys offices nationwide to address this continuing problem.
E.  Bacterial Pneumonia Project
The OIG and DOJ are investigating whether hospitals across the country have routinely
assigned  the  incorrect  diagnosis  code  to  hospital  admissions  for  bacterial  pneumonia.
Medicare pays for inpatient hospital services based on DRGs, which are assigned based on
the diagnosis codes identifying the condition(s) treated during the hospital admission.  One
diagnosis code is to be used for  "bacterial pneumonia - other specified bacteria," i.e., where
a physician diagnoses the patient with a pneumonia caused by a specific bacteria and there is
no other diagnosis code for that particular bacteria.  This code should rarely be used since
there  are  specific  diagnosis  codes  for  pneumonia  caused  by  almost  all  known
pneumonia-causing types of bacteria.  Because cases that should properly be coded as "other
specified  bacteria"  are  expected  to  be  complex,  such  cases  are  generally  assigned  a
higher-paying DRG than most pneumonia cases.  The OIG believes that many hospitals
have been using the "other specified bacteria"  diagnosis code for hospital admissions where
the physician has not diagnosed a specific bacteria as the cause of the pneumonia.  In such
cases,  the  hospital  should  use  a  different  diagnosis  code  for  "bacterial  pneumonia  -
unspecified," which generally results in the case being assigned to a DRG which pays
several thousand dollars less than the code for "other specified bacteria."
8 The OIG is currently investigating the coding for bacterial pneumonia at over 100 hospitals.
To date, one hospital has entered into a settlement with the Government based on its
Medicare inpatient coding of bacterial pneumonia cases.  The settlement included payment
of over $600,000 and an agreement by the hospital to implement compliance measures to
prevent future Medicare billing or coding problems.
Other Hospital Investigations
The following cases are significant examples of other hospital cases resolved during this
period which were not part of the special projects described above:
 A Mississippi medical center and its former employee agreed to settle their
liabilities for submitting claims for services which were not rendered, not
medically necessary or insufficiently documented during June 1994 through
August 1995.  The employee, the hospitals psychiatrist, had caused the
filing of the claims.  Their agreements, including penalties, totaled $647,000
of which $347,000 went to Medicaid, $289,065 to Medicare and $10,935 to
the  Civilian  Health  and  Medical  Plan  of  the  Uniformed  Services
(CHAMPUS).
 A New York hospital agreed to an out-of-court settlement of more than
$43,170, of which $14,840 is reimbursement for investigative costs, for
billing  improper  codes.    The  hospital  was  paid  for  an  uncommon  eye
procedure (ophthalmic ultrasound) but the examining physician declared
she had never performed the procedure.  Further investigation showed that
the hospitals billing company was using a faulty computer program which
improperly converted to Medicare billing codes.  As a result, 270 of these
claims were paid between 1993 and 1997.  The OIG also identified six other
procedures improperly converted, including 810 chest x-rays paid for by
Medicare.  Settlement with another hospital affected by the faulty computer
program is pending.
 After a Florida cancer center requested assistance in determining whether it
had processed radiation oncology billing errors, a review showed it had
been overpaid $655,570 by Medicare and $173,350 by Medicaid.  The
center improperly billed the technical components for radiation oncology
services to hospital inpatients which had already been billed by the hospital.
Investigation showed that the billings were errors and not fraudulent.  The
center agreed to pay $831,500 to the Medicare trust fund.
9 Resolution of Patient Transfers
In a prior review, OIG reported on improperly paid patient transfers under the Medicare
prospective  payment  system  and  recommended  that  HCFA  take  action  to  resolve  the
improper payments.  This follow-up review demonstrated that as a result of HCFAs efforts,
the  large  majority  of  the  original  13,771  unresolved  transfers  have  been  successfully
resolved  and  the Medicare  Part A  Trust  Fund has  recovered  more  than  $8.4  million.
Therefore, OIG recommended that HCFA consider its actions on the transfers as completed.
(CIN:  A-06-97-00007)
Medicare Hospital Discharge Planning
In this inspection, OIG determined that hospital ownership of nursing homes seemed to have
little influence on which nursing homes patients were referred, although it did influence the
length of stay in both the hospital and the nursing home.  The OIG found shorter hospital
stays combined with longer nursing home stays for patients who went to hospital-owned
nursing homes.  In contrast, hospital ownership of home health agencies did seem to have an
influence on which home health agencies patients were referred.  Ownership also influenced
the duration of home health agency services, but the impact on hospital stays was not clear.
Beneficiaries who went to hospital-owned services reported better continuity of care for
both home health agency and nursing home services.  Hospital ownership did not impact
beneficiaries level of satisfaction.  The recently enacted Balanced Budget Act of 1997
partially addressed OIG concerns about shifting patients prematurely from hospitals to other
facilities of theirs.  It also required disclosure of ownership and dissemination of information
about all available nursing homes and home health agencies to patients being discharged
from the hospital, as OIG recommended. (OEI-02-94-00320)
Hospital Closure:  1996
This final report on hospital closures in 1996 is the latest in a series of annual reports on this
subject since 1987.  Thirty-seven hospitals closed in 1996 -- 0.7 percent of all hospitals.
This is the same number that closed in 1995.  At the same time, five hospitals opened.  Most
of the hospitals that closed were small and had low occupancy rates.  The average daily
patient load in the year prior to closure was 5 in rural hospitals and 38 in urban hospitals.
Although residents of a few communities had to travel greater distances for hospital care,
most had emergency and inpatient medical care available within 10 miles of a closed
hospital. (OEI-04-97-00110) 
Partial Hospitalization Services and Costs Claimed by a Florida
Community Mental Health Center
Medicare  covers  partial  hospitalization  services  --  specialized  outpatient  mental  health
services -- if they are reasonable and necessary for diagnosing and treating a beneficiarys
mental condition.  Community mental health centers that provide these services receive
10 interim  Medicare  payments  during  the  year  and  a  year-end  settlement  based  on their
Medicare cost report. 
In Florida, one community mental health center claimed reimbursement totaling $4.5 million
for services provided to 305 beneficiaries in FY 1995.  The OIGs review of services
provided to 43 of these beneficiaries disclosed that 74 percent did not meet Medicare
eligibility criteria or were considered unallowable by medical review personnel because they
were not adequately documented, not reasonable and necessary, or not ordered.  The fiscal
intermediary agreed with OIGs recommendation to recover a $1.2 million overpayment and
to place the four providers owned by the center under focused medical review with special
emphasis on beneficiary eligibility.  (CIN: A-04-96-02118)
Co-issued with the above report was another pointing out that the same centers FY 1994
cost report, which claimed costs totaling $2.3 million, included $1.4 million that was not
related  to  patient  care,  not  reasonable  and  necessary,  or  not  supported  with  sufficient
documentation.  As a result, the fiscal intermediary began to recover the unallowed costs,
and HCFA suspended payments pending full recovery.  The OIG recommended that the
fiscal intermediary review subsequent cost reports for similar unallowable costs, and the
intermediary agreed.  (CIN: A-04-96-02124)
Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 1,831 sanctions, in the form of exclusions or
civil actions, on individuals and entities for engaging in fraud or abuse of Federal and State
health care programs and/or their beneficiaries.  More than half the exclusions were based
on  conviction  of  program-related  crimes,  conviction  for  the  illegal  manufacture  or
distribution of controlled substances, conviction related to patient abuse or loss of license to
practice health care.  Monetary penalties can be assessed under several civil monetary
penalty (CMP) authorities which have been delegated to OIG.
A.  Program Exclusions
Title  XI  of  the  Social  Security  Act  provides  a  wide  range  of  authorities  to  exclude
individuals  and  entities  from  program  participation.    Exclusions  can  be  imposed  for
conviction  of  fraud  against  a  private  health  insurer,  obstruction  of  an  investigation,
distribution of a controlled substance, revocation or surrender of a health care license, or
failure to repay health education assistance loans (HEALs).  Exclusion is mandatory for
those  convicted  of  program-related  crimes,  crimes  related  to  patient  abuse,  felony
convictions for defrauding other health care programs and felony convictions for the illegal
manufacture or distribution of controlled substances.  A number of OIG exclusions involve
failure to repay HEALs, as discussed in the chapter on Public Health Service Operating
Divisions.
11 The Balanced Budget Act of 1997 was designed to ensure further protection of the integrity
of  Medicare  and  other  Federal  and  State  health  care  programs  for  current  and  future
beneficiaries, and to combat fraudulent and abusive program activities.  As a result of the
Act, the scope of an OIG exclusion now extends beyond Medicare and the State health care
programs to any Federal health care program.  The OIG will directly impose exclusions
from all Federal health care programs.  The Act also provides for a mandatory exclusion of
not less than 10 years for individuals who have been  convicted on one previous occasion of
one or more offenses under a Federal health care program, and a permanent exclusion if the
individual has been convicted of two or more previous occasions of one or more offenses
under a Federal health care program (including program-related crimes, patient abuse, health
care fraud and convictions relating to controlled substances).  
During this reporting period, OIG imposed exclusions on close to 1,400 individuals and
entities in all.  The following are examples of some of the exclusions that were imposed
during this reporting period:
 An Arkansas medical transportation driver was excluded for 20 years for
filing false claims under the Medicaid program.  As part of the scheme, he
purchased completed transportation forms from Medicaid recipients, when
no corresponding Medicaid services had been provided.  He  also submitted
multiple transportation forms for payment for transportation services and
inflated the total number of miles driven.  The driver was sentenced to 10
years incarceration and ordered to make restitution of $220,550.
 A physician in New York was excluded for 25 years for Medicaid fraud.
Damages to the  program in the case were $1.6 million, with a direct benefit
to the physician of $157,000.  He was ordered to make restitution of this
amount, and sentenced to incarceration for 30 months.  The physician billed
and was paid by Medicaid for treatment, procedures and tests that were
either not rendered or not medically necessary.  He created bogus charts
indicating various medical conditions for which the procedures and tests
were ordered.
 A husband and wife team who were emergency medical technicians  in West
Virginia  were  convicted  of  mail  fraud  and  sentenced  to  18  months
incarceration followed by 3 years probation, and restitution of $10,000.  The
conviction involved claims for ambulance services which were medically
unnecessary  because  they  involved  fully  ambulatory  patients,  trips  to
regularly  scheduled  doctor  appointments,  and  non-emergency  trips  to
dentists, pharmacists and other health providers.  Medicaid recipients were
called and asked about trips to doctors, and the technicians completed forms
12 corresponding to those visits despite not using an ambulance.  Both husband
and wife were excluded for 10 years.
 A Mississippi certified nurses aide was convicted of hitting a nursing home
resident multiple times with a closed fist, violently grabbing the residents
arm and pushing her against the wall.  The aide received a 1-year jail term
and was excluded for 10 years.
 A New York physician was convicted of sexual abuse for sodomizing a
patient  who  was  incapable  of  consent  by  reason  of  being  physically
helpless.  The physician was sentenced to incarceration for up to 10 years
and was  excluded from Medicare participation for at least 15 years.
 In the first exclusion involving a felony conviction related to prescription
and distribution of controlled substances, a director of nursing in Missouri
was excluded for the minimum mandatory period of 5 years.  She phoned a
pharmacy  and  ordered controlled substances  and  other  medications  for
nursing home residents when they had not been prescribed by a physician.
She then diverted the drugs for her own use.  The pharmacy in turn billed
and was reimbursed by the Medicaid program.
 A dentist in Michigan was excluded for 10 years after  his conviction for
submitting fraudulent claims to insurance companies in order to obtain
money to which he was not entitled.  The dentist inappropriately submitted
bills to more than one insurance carrier for the same services, billed for
alleged  medical services which were, in fact, dental services, billed for
services not rendered, and failed to return to the insurance companies the
excess compensation he received as a result of his fraudulent billings.  As a
result of his conviction, he was sentenced to 24 months incarceration.  The
financial loss approximated $93,000.
 A conviction in a scheme to defraud the State compensation insurance fund
in California resulted in a 15-year exclusion for a private citizen.  As part of
the scheme, the individual grossly under-reported monies paid to temporary
employees, falsely stated that temporary employees had performed clerical
or sales work, used fictitious names on reports sent to the State fund, sent
clients forged certificates of workers compensation insurance, used cash to
impede the State funds detection of the scheme, and destroyed incriminating
documents  and  erased  computer  data  tying  him  to  the  scheme.    The
individual  was  sentenced  to  30  months  incarceration  and  restitution  of
$1,817,186.
13  An osteopath in Pennsylvania was convicted on 25 counts of dispensing and
distributing a controlled substance.  He received 40 months incarceration,
followed by 3 years probation, and 500 hours of community service.  He
was excluded for 10 years.
 A physician was indefinitely excluded after being forced to surrender his
license to practice in New Jersey.  The surrender was the result of sexual
misconduct related to his maintaining a sexual relation with an individual
while treating her as a psychiatric patient.  He also committed insurance
fraud.
 A New York physician was indefinitely excluded because his license was
revoked.  The revocation was based on his conviction for making false
business entries relating to CT scans, and on the intent to commit insurance
fraud.
 After the State of Illinois revoked the license of a physician when his
medical charts documented a poor quality of care, he was excluded from the
Medicaid  program.    The  physician  failed to provide  adequate  physical
examinations, improperly prescribed medications containing the narcotic
codeine,  did  not  respond  appropriately  to  abnormal  lab  test  results,
inappropriately prescribed excessive antibiotics and improperly prescribed
medication without obtaining essential information.  The physician has been
excluded until the State reinstates his eligibility.
B.  Civil Penalties for Patient Dumping
Section  1867  of  the  Social  Security  Act  (42  U.S.C.  1395dd)  provides  that  when  an
individual presents to the emergency room for examination or treatment, a hospital which
has a Medicare provider agreement is required to provide an appropriate medical screening
examination to determine whether that individual has an emergency medical condition.  If
an individual  has such a condition, the hospital must provide, within the capabilities of the
staff and facilities available at the hospital, treatment to stabilize the condition, unless a
physician certifies that the individual should be transferred because the benefits of medical
treatment elsewhere outweigh the risks associated with transfer.  If a transfer is ordered, the
transferring hospital must arrange for a safe transfer, which includes providing stabilizing
treatment to minimize the risks of transfer, making sure the receiving hospital has agreed to
accept the transfer and effecting the transfer through qualified personnel and transportation
equipment.  A hospital is prohibited from delaying provision of examination or treatment to
inquire about an individuals method of payment or insurance status.  Further, a hospital
with specialized capabilities or facilities may not refuse to accept an appropriate transfer of
an individual who needs those services if the hospital has the capacity to treat the individual.
14 The OIG is authorized to impose CMPs of up to $50,000 against a hospital for each instance
where the hospital negligently violates any of the requirements of section 1867 of the Act.
In addition,  OIG may impose a CMP up to $50,000 against a physician who is responsible
for the examination or treatment of an individual in a participating hospital, including a
physician on-call, for each negligent violation of any of the requirements of section 1867.
The OIG collected $710,000 in CMPs from 21 providers during this reporting period.  The
following are examples of CMP cases resolved by OIG:
 A hospital in Maryland paid $150,000 in penalties to resolve allegations of
dumping patients because of insurance status.  Patients presented to the
emergency  room  for  evaluation  and  treatment  and  before  receiving  a
medical  screening  examination,  their  HMO  was  routinely  contacted  for
authorization to pay for services rendered at the emergency room.  When
such  prior  authorization  was  denied,  the  individuals  did  not  receive  a
screening examination or treatment.
 A Florida hospital paid $42,500 in penalties for allegedly failing to provide
an appropriate medical screening to a woman who was brought to the
hospital parking lot after suffering a stroke in her truck.   The emergency
staff  refused  requests  for  assistance  from  her  husband  and  the  police
because the woman had not been brought into the building.  Hospital staff
told the husband to call an ambulance for help.
 An  Arkansas  hospital  paid  $30,000  for  allegedly  failing  to  provide  an
appropriate medical screening, treatment or transfer of a pregnant woman
who presented with  contractions.  A nurse paged the on-call physician who
ordered the nurse to transfer the patient to another hospital because she was
covered by Medicaid.  The patient was discharged and had to independently
transport herself to the other hospital.
 A New York hospital paid $35,000 in penalties for allegedly discharging an
AIDS patient with an unstable emergency medical condition.  The patient
died approximately 6 hours after being discharged and later taken to another
hospital.
 An  Illinois  hospital  allegedly  did  not  provide  an  appropriate  medical
screening,  treatment or transfer of a pregnant woman in labor.  The on-call
physician never came in to examine her and instead gave instructions that
she be transferred.  The woman was sent by private automobile to a hospital
approximately  15 minutes  away where  she gave birth  20 minutes after
15 arrival.  The hospital was subject to a maximum CMP of $25,000 because it
had fewer than 100 beds and paid $20,000 in penalties.
C.  Civil Penalties for False Claims
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and
assessments against  health care  providers  who submit  false or improper claims to the
Medicare and State health care programs.  The CMP law allows recoupment of monies lost
through illegitimate claims as well as the imposition of additional penalties, and it also
protects health care providers by affording them due process rights.  The OIG also assists
DOJ in bringing cases against wrongdoers under the False Claims Act.  Many providers
elect to settle their cases prior to litigation.  As part of resolving these cases, OIG frequently
imposes corporate integrity programs on entities as a condition for being allowed to remain
as a provider in the Medicare program.  These integrity programs are designed to prevent a
recurrence of the fraudulent activities which gave rise to the case at issue.  The Government,
with the assistance of OIG, recouped more than $84.4 million through both CMP and False
Claims Act civil settlements related to the Medicare and Medicaid programs during this
reporting period.  Some examples of these cases include:
 A chain of four nursing homes in Philadelphia agreed to settle liability for
grossly deficient diabetes monitoring, decubitus ulcer care and other nursing
care  which received widespread publicity in the area.  The HCFA sent
survey teams and found violations that led to a notice of termination.  The
OIG investigated and found treatment poor enough to justify a False Claims
Act suit.  Faced with these actions, the chain agreed to pay $500,000 over 5
years and up to $150,000 a year for the cost of a monitor selected by the
Government,  to  abide  by  specific  standards  of  care  and  to  develop  a
compliance program.
 In Utah, two doctors along with another man and their now-defunct portable
x-ray company agreed to pay more than $214,200 to settle civil liabilities
for  false  Medicare  and  Medicaid  claims.    They  charged  $65  each  for
multiple trips to a nursing home when they only made one trip and took
x-rays of multiple patients.
 A Mississippi cardiologist and his office manager agreed to resolve their
liability for false Medicare claims, paying $100,000 for penalties and actual
damages of $35,792.  The office manager submitted claims on behalf of the
cardiologist  indicating  that  myocardial  perfusion  imaging  had  been
performed,  when  the  cardiologist  did  not  even  have  the  necessary
equipment.    The  office  manager,  who  is  not  a  physician  and  has  no
Medicare number, claimed he was told by the carrier to bill this code to
recover for pharmacological services rendered in conjunction with EKGs.
16  A New Jersey physician agreed to pay $30,000 to settle his civil liability for
filing improper Medicare claims.  He had EKGs and other diagnostic testing
equipment installed in his office by a laboratory that provided ultrasound
and nuclear imaging diagnostic tests.  He performed the diagnostic tests but
contracted with another physician to interpret the test results.  He then billed
Medicare for the interpretations of the tests.  The loss to Medicare over a
2-year  period  was  more  than  $19,000.    The  laboratory  remains  under
investigation.
 A Pennsylvania urologist agreed to pay $25,000 and enter a compliance
program to resolve civil liability for false Medicare claims.  Between 1992
and 1995, the urologist billed Medicare for unnecessary services, falsified
documentation,  waived  beneficiary  co-payments  and  engaged  in  other
violations.  The $25,000 is twice the amount he was overpaid.
 In New Jersey, a CMP action was settled against a podiatrist for submitting
false Medicare claims.  The podiatrist agreed to pay $20,000 -- $2,000 at the
time he signed the agreement, plus a 10 percent interest rate per year until
the balance is paid.  In February 1994, the podiatrist was excluded from
participating in the Medicare program for 2 months after he defaulted on a
Health  Education  Assistance  Loan.    However,  during  the  time  of  his
exclusion, he submitted 110 false Medicare claims for podiatry services he
provided to beneficiaries.  Although the Medicare carrier paid only $1,600,
the CMP damages could have totaled $706,000.
 A New Hampshire nephrologist agreed to pay $20,000 to settle liability for
filing false Medicare claims.  He had expressed to the Government concerns
regarding his Medicare billings and claims.  An OIG auditor analyzed the
claims  and  found  some  false  and  misleading.   He  received  a  monthly
"capitation fee" for patients under his care who had end stage renal disease.
Nonetheless, he submitted claims for "office visits" and "unrelated services"
for these patients, when reimbursement for these services was included in
the monthly capitation fee. 
D.  Compliance Activities
One  of  the  important  factors  in  Federal  sentencing  guidelines  is  whether  or  not  an
organization has established compliance standards.  This has increased the efforts by the
private sector to develop methods to reduce violations under the False Claims and CMP
Acts.  The OIG has begun a significant outreach effort with the private sector to discuss
these endeavors.
17 To further assist the private sector in this area, OIG is developing compliance program
guidance  for  the  various  parts of  the  health  care  industry which  providers may adopt
voluntarily.  To this end, OIG developed a model corporate compliance plan for laboratories,
which was released in February 1997. 
During this reporting period, OIG issued compliance program guidance for hospitals.  This
guidance, like that provided to clinical laboratories, is premised on OIGs belief that a health
care provider can use internal controls to more efficiently monitor adherence to applicable
statutes, regulations and program requirements.  The seven fundamental elements of an
effective compliance program are:  written policies, procedures and standards of conduct;
designation  of  a  compliance  officer  and  compliance  committee;  conducting  effective
training and education; developing effective lines of communication; enforcing standards
through  well-publicized  disciplinary  guidelines;  conducting  internal  monitoring  and
auditing; and responding promptly to detected offenses and developing corrective action
initiatives.  Using these seven building blocks, OIG identified specific areas of hospital
operations  that,  based  on  prior  Government  enforcement  efforts,  have  proven  to  be
vulnerable to fraud and abuse.  The guidelines were further enhanced by the input of
hospital trade associations and others with expertise in the hospital industry.
In addition to developing model corporate compliance plans, OIG also monitors and verifies
the completion of corporate integrity obligations that have been and are being established as
a result of settlement negotiations following an OIG investigation or audit.  Currently, OIG
is monitoring 230 Government-imposed corporate integrity plans.  These plans cover the
range of providers from small physician offices to large laboratory corporations.  Most
corporate integrity plans are for 5 years and require a major effort by the provider to ensure
that the company is operating within HCFA regulations and the parameters established by
the corporate integrity plan.  Failure to adhere to the corporate integrity agreement could
result in exclusion of the provider. 
Kickbacks
Many businesses engage in referrals to meet the needs of customers or clients for expertise,
services or items which are not part of their own regular operations or products.  The
medical profession relies heavily upon referrals  because  of the myriad  specialties and
technologies associated with health care.  If referrals of Medicare or Medicaid patients are
made in exchange for anything of value, however, both the giver and receiver may violate
the Medicare/Medicaid anti-kickback statute.
Among  its  provisions,  the  anti-kickback  statute  penalizes  anyone  who  knowingly  and
willfully solicits, receives, offers or pays remuneration in cash or in kind to induce or in
return for:
18  referring an individual to a person or entity for the furnishing, or arranging
for the furnishing, of any item or service payable under the Medicare or
Medicaid programs; or
 purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the
purchasing, leasing or ordering of any good, facility, service or item payable
under the Medicare or Medicaid programs.
Violators are subject to criminal penalties, or exclusion from participation in the Medicare
and Medicaid programs, or both.  The following cases are some of the examples of the
settlements and sentencings for this crime:
 As  a  result  of  the  ongoing  investigation  of  a  Florida  impotence  clinic
company, the owner of a mobile diagnostic laboratory agreed to pay the
Medicare Trust Fund $1.77 million and the Internal Revenue Service (IRS)
$230,000.  The laboratory owner paid kickbacks not only to impotence
clinic owners but also to numerous physicians in the area for Medicare
patient referrals.  During the investigation, $2.3 million of his assets were
frozen. 
 Another  subject  of  the  Florida  impotence  clinic  case,  the  owner  of  a
diagnostics  service  in  Florida  was  sentenced  for  paying  kickbacks  for
Medicare patient referrals by clinic owners.  The kickbacks were disguised
as rental or marketing fees paid to the clinics.  He was sentenced to 4
months house arrest and 5 years probation, and ordered to make restitution
of $106,000 to Medicare. 
 The office manager of a Florida multi-physician practice was sentenced to
21 months in prison and 3 years of supervised release for conspiracy to
defraud Medicare.  He was also ordered to pay $50,420 in restitution.
Between August 1993 and August 1994, he accepted about $23,000 from a
clinical laboratory owner in return for referrals.  Upon learning of the OIG
investigation, he and the laboratory owner drew up a bogus, backdated
consulting contract  to  give  the appearance of its being part of a valid
agreement.  Despite the contract, the office manager was convicted at trial
of all 15 counts of conspiracy and kickbacks.
Criminal Fraud
The most common fraud investigated by OIG against health care providers is the filing of
false claims or statements in connection with the Medicare and Medicaid programs, as
illustrated in the following cases:
19  The owner of two home health agencies (HHAs) was sentenced in Texas for
making false statements in a Medicare cost report.  Her family wrote off
personal expenses  in the cost reports.  She then funneled the proceeds
through the two  HHAs and eventually into the  familys personal bank
account.  She was sentenced to 42 months in prison and 3 years probation,
ordered to make restitution totaling more than $2.26 million and fined
$111,540.  She was further ordered to make immediate payment of more
than $66,370, which was the profit from sale of her residence, and to forfeit
two parcels of property, estimated as worth $300,000, to be paid to the
Department.  The HHAs were placed on 5 years probation.  Charges against
her husband and son were dropped.
 A  psychiatrist  was  sentenced  in  Georgia  after  being  convicted  of
Medicare/Medicaid fraud.  He was sentenced to 87 months incarceration, 36
months of supervised release and 400 hours of post-release community
service.  His medical groups former business manager was sentenced to 33
months incarceration and 36 months supervised release.  The defendants
conspired to defraud Medicare, Medicaid and CHAMPUS by filing claims
for  services  not  rendered  as  claimed  or  not  covered  by  the  programs.
Between 1992 and 1996, the Government paid the group more than $5.2
million.
 In Florida, two brothers were sentenced after pleading guilty to conspiracy
to defraud Medicare.  After operating a furniture store in Miami for 20
years, the brothers decided to open a clinic.  Within a few months, they
found they were not making enough money and elected, along with three
doctor employees, to bill for more expensive tests on all patients.  More
than  4,100  false  claims  were  submitted  to  Medicare,  and  the  brothers
received over $1 million.  One brother was sentenced to 21 months in prison
and 3 years supervised release, and ordered to pay $5,000 in restitution.
The second brother was sentenced to 10 months in prison and 2 years
supervised release.  Earlier he, his wife and the clinic agreed to pay $1
million to settle civil liability.
 Three persons were sentenced to prison in New York for their participation
in a scheme to defraud Medicare, the Social Security Administration (SSA),
the Department of Labor (DOL) and various private insurance companies.
One person was ordered to serve 27 months in prison and to pay restitution
of $49,400  to insurance companies.  She had falsified nursing receipts
submitted  to  the  companies  for  reimbursement.    A  second  person  was
ordered to serve 24 months and to pay $66,900 to SSA and an insurance
company for falsifying her own disability claims to receive reimbursement.
20 A third person, a psychologist, was sentenced to 87 months in prison and
ordered to pay restitution of $590,600, of which $515,900 goes to Medicare
and  the  remainder  to  DOL  and  various  insurance  companies.    The
psychologist diagnosed people, brought to her by an individual who pled
guilty earlier, with post-traumatic stress disorder as a result of auto accidents
that never happened.  She then billed Medicare, DOL and various insurance
companies for services not performed.  Some beneficiaries received money
for their part in the scheme.
 A Florida podiatrist was sentenced for mail fraud, making a false statement
and fraud in relation to false Medicare claims after he had been excluded
from the program.  In 1991, the podiatrist pled guilty and was sentenced in
Pennsylvania for defrauding the Medicaid program, and as a result was
excluded from Medicare and State health care programs for 8 years.  Later,
while still on probation, he moved to Florida and applied for and received a
Medicare provider number after making false statements on his application.
He  then  billed  Medicare,  through  the  practices  with  which  he  was
associated,  for  services  to  beneficiaries  in  nursing  homes,  adult  living
facilities and outpatient surgery centers as well as at the medical office.  He
was sentenced to 18 months imprisonment, followed by 3 years supervised
release, and ordered to make restitution of $29,739.
 As a result of an OIG investigation requested by the Iowa Medicare carrier
and a county prosecutor, a carrier employee pled guilty to armed robbery
and forgery related to Medicare and other insurance fraud.  The employee
was terminated in May 1997 for failing to come to work for 3 days, after
which his theft of two checks from the agency was discovered.  One of the
checks was payment for Medicare crossover claims.  He was also a suspect
in numerous crimes in the area.  Interviewed in jail, he admitted stealing the
checks  because  he  needed  to  recoup  large  gambling  debts.    He  was
sentenced to 15 years in prison for forgery of the Medicare checks, 10 years
for armed robbery and 15 years on each of three remaining counts.  All
sentences are to be served consecutively, for a total of 70 years.
Hospice Eligibility 
In the two reports summarized below, OIG reviewed the eligibility of beneficiaries for the
Medicare hospice program.
A.  Consolidated Hospice Report
This  report  consolidated  the  results  of  several  earlier  audits  of  the  Medicare  hospice
program.  Previously, OIG issued 5 individual hospice reports to HCFA recommending that
the regional home health intermediaries recover $17.2 million for payments to ineligible
21 beneficiaries; another 7 hospices accounting for ineligible payments totaling $65.8 million
are pending further OIG action.
The  OIG  determined  that  some  hospices  failed  to  adhere  to  the  6-month  prognosis
requirement,  especially  for  various  noncancer  patients;  the  complexity  of  the  hospice
regulations applicable to nursing home patients gave rise to abusive practices; a nationwide
chain of hospices engaged in several practices which led to the enrollment of hospice
patients  who  were  not  terminally  ill;  and  internal  controls  were  weak  with  respect to
physician certifications of terminal illness, claims processing and other areas.  
In  the  consolidated  report,  OIG  made  broad  recommendations  to  prevent  the  various
problems and abusive practices identified in its reviews.  The HCFA generally concurred
with the recommendations in the draft report.  The Balanced Budget Act of 1997, enacted
after publication of OIGs draft report, resulted in numerous modifications to Medicares
hospice benefit, one of which addressed an OIG recommendation.  (CIN:  A-05-96-00023)
B.  Beneficiary Eligibility at Illinois Hospice Provider
At a hospice provider in Illinois, OIG evaluated the medical records of 224 individuals who
had been in hospice care for more than 210 days, the point (at the time of the review) when a
beneficiary enters the final authorization period for benefits.  The evaluation found that 213
of these beneficiaries were not eligible and that, as a result, Medicare overpaid more than
$10 million.
Because the findings in this report are included in pending criminal and civil cases against
the hospices previous owner, OIG did not recommend that HCFA independently recoup the
overpayments.  The OIG did, however, reemphasize recommendations made in the roll-up
report discussed above, particularly those calling for improved controls over the "cap" (or
maximum  amount)  reporting  system  used  in  the  reimbursement  process.    (CIN:
A-05-96-00024)  
Hospice Patients in Nursing Homes
Since 1986, patients can receive hospice care either in their homes or in medical facilities,
including nursing homes.  In an inspection reviewing hospice care provided to nursing home
patients, OIG found that hospices receive the same daily reimbursement from Medicare for
nursing home patients as they would for patients living at home, even though they provide
fewer services in the nursing home setting.  Further, OIG identified incentives which might
financially reward hospices for premature elections by patients of the hospice benefit.  The
Balanced Budget Act of 1997 began to address some of these problems by requiring periodic
recertification of eligibility.  The OIG recommended that HCFA seek legislation to modify
Medicare or Medicaid payments for hospice patients living in nursing homes in order to
make the program more effective.  (OEI-05-95-00250)
22 In a related report examining the contractual relationships between hospices and nursing
homes, OIG expressed concern that some decisions about patient care might be influenced
by financial rather than clinical factors.  The OIG recommended that HCFA work with the
hospice associations to educate the hospice and nursing home communities on avoiding
potentially fraudulent and abusive activities that might influence decisions on patient benefit
choices and care, and work with the States to develop regulations defining what is included
in  their  nursing  home  room  and  board  payment.    The  HCFA  concurred  with  both
recommendations.  (OEI-05-95-00251)
Clinical Laboratory Tests Performed by Independent
Laboratories and Physicians
The objective of this nationwide audit was to determine the adequacy of procedures and
controls  used  by  Medicare  carriers  to  process  payments  for  clinical  laboratory  tests
performed by independent and physician laboratories.  Specifically, the OIG review was
designed to determine whether certain chemistry, hematology and urinalysis tests were
appropriately grouped together (bundled into a panel or profile) and not duplicated for
Medicare payment purposes and whether certain additional automated hematology indices
paid by the Medicare program were ordered by physicians.
The OIG estimated that, nationwide, Medicare carriers overpaid independent and physician
laboratories about $50.2 million for these three types of tests during the period July 1, 1993
through June 30, 1995.  For the same period, an additional $30.8 million could have been
saved  if  policies  had  been  adopted  to  preclude  payment  for  additional  automated
hematology indices.
The OIG recommended that HCFA direct Medicare carriers to implement procedures and
controls to ensure that clinical laboratory tests are appropriately grouped together, not
duplicated for payment purposes and actually ordered by physicians.  Also, OIG proposed
that HCFA consider eliminating separate reimbursement for additional indices and that the
identified  potential  overpayments  be  recovered  through  coordination  with  applicable
investigative agencies.  The HCFA generally concurred with the recommendations and
agreed to take corrective action.  (CIN:  A-01-96-00509) 
Laboratory Fraud
During Fiscal Year (FY) 1997, OIG, in coordination with DOJ and other law enforcement
agencies, concluded a 3-year initiative targeted at abusive marketing and billing practices by
the Nations largest independent clinical laboratories.  The initiative grew out of an audit and
a criminal investigation of one of the Nations largest laboratories and its fraudulent schemes
involving the "unbundling" of clinical laboratory tests.
23 During the course of this initiative, OIG found numerous problems in the ways that most
independent clinical laboratories were charging Medicare for clinical tests.  In turn, industry
awareness of the initiative spawned a series of qui tam lawsuits against laboratories.  Under
the qui tam provisions of the False Claims Act, a private party may sue on behalf of the
Government to recover damages and penalties flowing from the submission of false claims
to the Government.  The Act requires the party to file the action under seal and to disclose
all material evidence to DOJ, which conducts an investigation to determine whether the
Government should intervene.  In its investigation, DOJ works closely with the Federal
agency allegedly victimized.  The private party initiating the suit is awarded a portion of any
damages or penalties assessed.  These qui tam cases, as well as audits and investigations of
smaller laboratories, are significant not only because of the recovery of Medicare funds but
also because they highlight vulnerabilities that continue to put Medicare at risk.
Several  successful  laboratory  cases  were  completed  during  this  period,  of  which  the
following are examples:
 A nationally known provider of ultrasound and imaging diagnostic tests
agreed  to  pay  $4.2  million  to  settle  allegations  it  entered  an  illegal
arrangement with doctors throughout the United States.  The laboratory
marketed its services  to doctors who were not  trained to  interpret test
results, telling them they could bill for the professional component of the
tests.  When a doctor ordered an imaging test from the laboratory, it billed
Medicare for the technical component.  It then sent the test to a specialist for
interpretation, who did not bill Medicare but charged the referring doctor a
low  flat  rate.    The  doctor  then  billed  Medicare  for  the  professional
component  and  got  the  difference  between  the  specialists  fee  and  the
Medicare-allowed amount.  As a result, the laboratory received a total of
$2.1 million in Medicare payments to which it was not entitled.
 In Illinois, another laboratory and its owner agreed to settle civil allegations
that  they  submitted  false  claims  totaling  more  than  $1.6  million  for
transtelephonic EKGs.  The services were supposedly provided to nursing
home patients in Illinois, Indiana, Michigan, Tennessee, Kentucky, and
North and South Carolina.  The services were either medically unnecessary
or never rendered.  The owner had dissipated a large part of his assets, and
therefore the amount of settlement was only $200,000, including $12,000 in
EKG equipment.  The owner agreed to a lifetime program exclusion.
 In New Jersey, the physician owner of a laboratory entered a civil settlement
agreement to pay the Government $500,000 for submitting false Medicare
claims.  The physician performed various non-invasive tests on large groups
of Medicare beneficiaries living in senior citizen apartment complexes.  He
24 billed Medicare for tests that were medically unnecessary and were not
ordered by the patients attending physicians.
Portable Imaging Services
Nursing homes arrange for ancillary services, such as x-rays, for patients who require them.
Portable x-ray and EKG services provided to nursing home patients may be billed either by
a skilled nursing facility to the Part A fiscal intermediary (billing under arrangement) or by
the portable supplier to the Part B carrier (direct billing).
In this inspection, OIG found that portable chest x-rays cost far more than non-portable
chest x-rays.  The following chart illustrates the stark differences in cost of nursing home
resident chest x-rays taken in 1994.
PORTABLE CHEST X-RAYS BILLED UNDER 
ARRANGEMENT ARE MOST COSTLY
 
Physician's 
$32.13
Office
Nursing Home Using
$50.35
Own Equipment
Hospital Outpatient 
$51.07
Department
Portable in Nursing
$108.67
Home - Billed Directly
Portable in Skilled Nursing
$291.74
Facility - Under Arrangement
$0 $50 $100 $150 $200 $250 $300 $350
Average allowed amount per chest x-ray
The OIG found that more than 60 percent of chest x-rays rendered to nursing home patients
were performed by portable x-ray suppliers in 1994. 
Based on these and other findings, OIGs draft report to HCFA included recommendations
for changes that would have saved an estimated $66 million in 1 year.  Subsequent to release
of the draft report, the Balanced Budget Act of 1997 was enacted.  While the Act contains
provisions which address the intent of OIGs recommendations, including establishment of a
prospective payment system for beneficiaries in Part A covered stays in skilled nursing
facilities, OIG is concerned that the cost of ancillary services has been inflated by the
practices described in its report.  Accordingly, OIG recommends that, in implementing the
Balanced Budget Act, HCFA take into account the inflated charges for services billed under
arrangement  and  transportation  charges  that  were  excessive  or  prorated  incorrectly.
(OEI-09-95-00090)
25 In a related report examining nursing home perspectives, OIG concluded that patients in
nursing homes routinely receive portable services because portable services are less costly
and more convenient for nursing homes and they believe that portable services are easier
and more convenient for the patient.  Respondents were unable to shed much light on the
reasons for billing under arrangement.  The OIG also noted that records of patients receiving
portable services are not secure. 
The OIG recommended that HCFA enforce the current requirement that physicians justify
the need for portable services, which could save as much as $63.7 million in 1 year, and
remind  nursing  homes  that  suppliers  should  not  have  access  to  patient  records.
(OEI-09-95-00091)
Medical Equipment Suppliers:  Assuring Legitimacy 
In this inspection, OIG set out to determine whether persons who obtain DME billing
numbers are operating bona fide businesses.  Of the 420 enrolled suppliers and 35 new
applicants reviewed, OIG found that 1 of every 14 suppliers and 1 of 9 new applicants did
not have a physical address.  Moreover, 41 percent of the suppliers and 40 percent of new
applicants  failed  to  meet  at  least  one  Medicare  standard,  such  as  the  one  related  to
warranties.  The OIG noted that oversight of suppliers who work out of their homes is
difficult since they are typically away during normal business hours.  Further, the ease and
low cost of obtaining a DME number may encourage abusers to get into the program. 
To help ensure ethical DME suppliers, OIG recommended that HCFA charge an application
fee, require a surety bond, conduct on-site visits, require training for new suppliers, increase
the  review  of  inactive  numbers,  seek  authority  to  require  applicants  Social  Security
numbers and impose a 6-month wait for denied applicants to reapply.  The HCFA concurred
with the recommendations and various actions have since been taken.  For example, the
Balanced Budget Act of 1997 authorized Medicare to collect Social Security numbers and
required suppliers to have a surety bond. (OEI-04-96-00240)
Medicare Orthotics
An orthosis is a device applied to the outside of the body that supports a body part.  In a
review of billing for Medicare orthotics, OIG found that at least 19 percent of those
provided were medically unnecessary, representing $6.4 million in Medicare payments.
Another  5  percent  of  orthotic  devices  were  medically  questionable,  representing  $1.5
million.
The Medicare orthotics industry is fairly evenly divided between two types of suppliers:
orthotists and DME companies.  According to the billing review, 68 percent of questionable
cases were supplied by  DME companies, in contrast to 35  percent of orthotist cases.
Moreover, OIG determined that the billing controls of the DME regional carriers (DMERCs)
26 were limited.  The OIG also found that 68 percent of the cases in nursing facilities were
questionable.
Among  its  recommendations,  OIG  proposed  that  HCFA  and  the  DMERCs    develop
guidelines that better define orthotic devices; develop policies for orthotic billing codes;
develop screens for billing many orthotic devices on the same day or within a short time
frame; and pay special attention to billing for orthotics in nursing homes.  The HCFA
concurred with the recommendations.  (OEI-02-95-00380)
Fraud Involving Durable Medical Equipment Suppliers
The DME industry has consistently suffered from waves of fraudulent schemes in which
Medicare or Medicaid is billed for equipment never delivered, higher-cost equipment than
that actually delivered, totally unnecessary equipment or supplies, or equipment delivered in
a different State from that billed in order to obtain higher reimbursement.  A few years ago,
HCFA published new regulations addressing reimbursement problems that have recurred
over  the  years,  especially  those  created  by  telemarketing  and  carrier  shopping.
Consolidation  of  claims  processing  into  four  regional  jurisdictions,  as  specified  in the
regulations, may resolve many of these problems.  In the meantime, OIG continues to obtain
settlements and convictions of unscrupulous suppliers for other schemes.  Conspicuous
success was especially evident in several DME cases in New York.
 In New York, 3 more persons were sentenced in a case involving a medical
supply company and its subsidiaries, bringing to 14 the number sentenced
of the 19 originally indicted.  A physician was sentenced to 46 months in
prison,  and  ordered  to  pay  $1.23  million  in  restitution  for  signing
certificates of medical necessity (CMNs) for patients he never saw.  A
woman was sentenced to 1 year probation for her part in laundering money
from two company subsidiaries.  Conspirators at the company arranged to
have about $100,000 paid to a company the woman worked for, and she
gave the checks to her boss, since deceased, who put them in his account for
subsequent payoffs.  The woman returned to the Government some $57,000
intended  for  payoffs.    Also,  an  accountant  was  sentenced  to  4  years
probation and fined $30,000 for aiding and assisting in filing false tax
returns.  The accountant arranged for large sums of monies to be laundered
through the bank accounts of the companys subsidiaries.  He was granted a
downward departure from sentencing guidelines because of his cooperation
in the investigation of several participants.  Two subjects remain for legal
action in this case, one of whom is a fugitive.
 In New York, the former owner of a DME company was sentenced to 33
months  imprisonment  and  3  years  probation,  and  ordered  to  pay  $2.5
million in restitution for his part in a multi-million-dollar Medicare fraud
27 scheme.  The owner supplied air conditioners, televisions and microwaves
to  beneficiaries  in  exchange  for  their  Medicare  numbers,  then  billed
Medicare $12 million for DME not medically necessary.  Two company
sales personnel and the physician who signed the CMNs have also pled
guilty.  The owners co-conspirator is believed to have fled to Russia.
 Another DME company owner was also sentenced in New York, after a trial
conviction for filing false Medicare claims, paying kickbacks and money
laundering.  He paid physicians kickbacks in return for patient referrals and
CMNs for equipment such as lymphedema pumps.  The owner not only
made cash payments to doctors but also purchased items such as computers,
jewelry, and Rolex watches to conceal his kickbacks.  In one instance, he
even fabricated the purchase of a medical practice.  The fake purchases
earned him the money-laundering conviction.  He was sentenced to 70
months in prison and 3 years supervised release, ordered to pay $100 in
special assessments, and made to forfeit $335,000 in cash and 3 vehicles.
 Investigations in two other cases resulted in convictions and same-day
sentencings of two owners of DME companies.  The owner of one company
must serve 6 months home detention and 5 years probation.  He had paid a
physician informant $3,380 in kickbacks for signing fraudulent CMNs, for
which Medicare paid him $25,370 -- which he must repay.  The co-owner of
another  DME  company  paid  the  same  physician  informant  $5,760  in
kickbacks  for  CMNs,  for  which  Medicare  paid  $123,600.    Both  were
videotaped paying the kickbacks.  The co-owner of the second company
was scheduled for jail, but the judge ordered 5 years probation, and no
restitution, on the basis of personal problems.
 Yet another owner/operator of a New York DME company was sentenced to
5 years probation and ordered to pay $20,000 in restitution for conspiracy to
pay kickbacks.  He supplied air conditioners, microwaves, seat lift chairs
and  angora  underwear  to  Medicare  beneficiaries  in  exchange  for  their
accepting back supports, then billed Medicare for DME not supplied.  He
received a downward departure from sentencing guidelines because of his
cooperation in investigations of several DME companies.
Successful DME cases elsewhere are shown in the following examples:
 In Florida, two sisters and the two companies they owned agreed to pay a
total of close to $1.6 million to resolve liability for billing Medicare for
DME that was either not provided as claimed or medically unnecessary.
One sister and her company agreed to pay more than $1.5 million, while the
28 second and her company agreed to pay $44,690.  The sisters deposited the
Medicare  reimbursements  in  their  joint  personal  account  and  used  the
money to buy real estate.  They both agreed to permanent exclusion from
Medicare and State health care programs.
 A North Carolina man was sentenced to a term of 87 months incarceration
and 2 years supervised release for defrauding the Medicare program.  He
also was ordered to pay a special assessment of $300 and more than $1.86
million in restitution.  The man established numerous fictitious medical
supply  companies  supposedly  doing  business  in  the  Charlotte,  North
Carolina area.  He and other persons used the firms to bill Medicare for over
$13 million for nonexistent supplies, of which more than $2 million was
approved.  The carrier, however, placed about one half of the funds in an
escrow account pending resolution of the investigation.  When Medicare
denied  payment,  the  culprits  shifted  the  scheme  to  private  insurance.
During  the  investigation,  the  Government  seized  three  residences,  one
franchise business, seven automobiles, 35 bank and investment accounts,
cash,  travelers  checks  and  jewelry.    Sentencing  is  pending  on  three
additional defendants, and two others have fled the country.
 The owner of an orthotics and prosthetics center was sentenced in Texas to
25 months imprisonment and 5 months home confinement for Medicare
fraud.    He  was  also  ordered  to  pay  $172,930  in  restitution.    He  had
furnished prostheses to beneficiaries and then billed Medicare for additional
parts not supplied.          
 A sales representative  for  a  now-defunct Alabama DME  company  was
sentenced to 18 months in prison for filing $900,000 in fraudulent Medicare
claims.    The  woman  went  from  door  to  door  in  California,  soliciting
beneficiaries Medicare numbers for $100 to $200.  She got a physician to
sign blank CMNs, photocopied the blank CMNs and filled them in as she
got Medicare numbers from beneficiaries.  Over a 3-month period, she
received  $82,000  in  commissions  for  submitting  false  claims  for
lymphedema pumps and alternating pressure pads.
 A  Pennsylvania  DME  manufacturer  agreed  to  pay  $50,000  to  resolve
liability  for    involvement  in  violation  of  Medicare  point-of-sale  rules.
Independent  dealers  of  the  companys  equipment  --  with  the  owners
knowledge and assistance -- billed carriers in other regions rather than the
region in which the equipment was sold, to obtain higher reimbursement.
Separate criminal and civil proceedings were brought against the dealers
which resulted in recoveries of $3.4 million.
29 Excessive Medicare Payments for Prescription Drugs
The OIG compared Medicare allowances for drugs with drug acquisition prices available to
the physician and supplier communities.  The OIG found that Medicare payments for 22
drugs exceeded actual wholesale prices by $447 million in 1996.  For the 22 drugs reviewed,
Medicare payments based on manufacturers published average wholesale prices were 41
percent higher than the actual wholesale prices available.  For more than one-third of the 22
drugs  reviewed,  Medicare  paid  more  than  double  the  actual  average  wholesale  price
available to physicians and suppliers.  The OIG also found that there is no consistency
among carriers in establishing and updating Medicare drug reimbursement amounts.
The information in this report provides further support for a recommendation made in an
earlier report, "Medicare Payments for Nebulizer Drugs," in which OIG proposed that HCFA
reexamine  its  Medicare  drug  reimbursement  methodologies  with  a  goal  of  reducing
payments as appropriate.  The HCFA concurred with the recommendation.  In this report,
OIG also recommended that HCFA require all carriers to reimburse a uniform allowed
amount for each common procedural coding system drug code. (OEI-03-97-00290)
Prescription Drug Use in Nursing Homes
The use of inappropriate or contraindicated drugs may be a contributing factor to the high
health care costs in the elderly population as well as a quality of care concern.  The OIG
undertook an inspection, using three different approaches, to provide insight into several
issues relating to prescription drug use in nursing homes.  
The first report describes prescription drug use in Texas nursing facilities.  The second report
presents  the  results  of  a  national  survey  of  consultant  pharmacists  who  perform
federally-mandated monthly drug regimen reviews in nursing homes.  The third report
discusses  the  results  of  a  pharmaceutical  review  of  254  sampled  Texas  nursing home
patients and includes OIGs specific recommendations.
Medication problems and concerns raised collectively by these three coordinated reports
demonstrate the need for stronger monitoring and more positive enforcement of existing
regulations and required reviews of medication usage in nursing homes.  Accordingly, OIG
recommended that HCFA continue  to monitor and encourage reductions in the use of
potentially inappropriate prescription drugs in the elderly nursing home population; work
with other Federal and State agencies to identify and analyze reasons for the rapid escalation
in  costs  and  claims  for  certain  types  of  drugs  used  in  nursing  homes; strengthen the
effectiveness and impact of medication reviews conducted by consultant pharmacists in
nursing homes; require nursing homes to ensure that the curriculum for required ongoing,
in-service training for personal care staff includes information on how to recognize and
report signs of possible contraindications, adverse reactions or inappropriate responses to
medications; strengthen and enforce coordination and communication among the involved
30 health care team members in nursing homes; and more vigorously pursue enforcement of
resident  health  outcomes.    The  HCFA  concurred  with  the  recommendations.
(OEI-06-96-00080; OEI-06-96-00081; OEI-06-96-00082)
Review of Epogen Reimbursement
The OIG found that the current Epogen (EPO) Medicare reimbursement rate of $10 per
1,000 units administered exceeds the current cost of purchasing EPO by approximately $1.
The Social Security Act provides that the Secretary may set an appropriate reimbursement
level  for  EPO  beginning  January  1,  1995.    Accordingly,  OIG  recommended  that  the
Secretary consider reducing Medicare reimbursement to $9 per 1,000 units administered,
resulting in savings to Medicare of approximately $94 million and to its beneficiaries of
approximately $24 million per year beginning in 1998.  In response to the draft report,
HCFA concurred and agreed to pursue this change.  In fact, the Presidents FY 1999 budget
calls for a 10 percent reduction in the EPO reimbursement rate.  (CIN:  A-01-97-00509)
Medicare Ambulance Payments
The OIG determined that policy on Medicare payments for ambulance services lacked
common sense.  In 26 States, Medicare paid more for routine, nonemergency basic life
support  (BLS)  transportation  than  it  did  for  advanced  life  support  (ALS)  emergency
transportation.  Moreover, ambulance payment policies were vulnerable to fraud and abuse.
The complexity of the then current system enabled transportation suppliers to bill for ALS
services when BLS services were provided, misrepresent the patients true medical condition
and avoid carrier program safeguards.  Carriers reported widespread abusive situations
involving unnecessary transports, oxygen, EKGs and other services.  Over the past 5 years,
OIG had more than 100 convictions involving ambulance suppliers.
The OIG concluded that these problems were the result of extremely complex payment
methods and inconsistent policies, and recommended that HCFA seek legislative authority to
develop a fee schedule for ambulance transportation.  Actual savings from simplification and
more uniform policies would depend on how base rate and mileage were defined and the fee
schedule  allowances  for  them,  but,  if  implemented  as  suggested,  OIG  projected  that
Medicare could save at least $242 million annually.  Since issuance of OIGs draft report,
the Balanced Budget Act of 1997 was enacted, requiring that HCFA establish a fee schedule
for Medicare ambulance payments.  (OEI-05-95-00300)
State Ambulance Policies and Services
Medicare ambulance costs and services skyrocketed to almost $2 billion in 1995.  In this
study, OIG found that all States  regulate ambulance services; however,  less  than  half
mandate levels of service and only one -- Hawaii -- requires advance life support services.
Only two States use Metropolitan Statistical Areas and non-Metropolitan Statistical Areas to
designate ambulance service areas.  Previous OIG studies have recommended that HCFA
31 base reimbursement on the patients condition rather than the type of vehicle and personnel
used.  The OIG continues to support this recommendation.  In addition, OIG recommended
that HCFA reevaluate its proposal to use the Metropolitan Statistical Area/non-Metropolitan
Statistical Area designation as the basis for granting waivers when determining a waiver
policy  in  its  final  rule  on  ambulance  coverage.    The  HCFA  concurred  with  the
recommendations. (OEI-09-95-00410)
Transportation Fraud
A common Medicare fraud scheme associated with transportation and ambulance companies
is the submission of claims for transportation of patients to a hospital when they are really
taken somewhere else for which claims are nonreimbursable.  Other schemes include billing
singly for patients who were transported as a group and simply creating false claims.  The
following cases are examples of some of those settled during this reporting period.
 In New York, the owner of an ambulance company was sentenced after
pleading guilty to filing a Medicare claim for ambulance transport when an
ambulette was actually used.  The company was paid more than $14 million
for  similar  false  claims  and  for  transporting  ambulatory  patients  to
free-standing dialysis centers.  Investigators took videotapes of patients
watering their plants and sitting outside waiting for the ambulance.  The
owner was sentenced to 9 months home confinement and 3 years probation,
and ordered to pay $64,000 in restitution, the cost of electric monitoring and
a $20,000 fine.  The judge wanted to impose a jail sentence but agreed to
the more lenient sentence after a cardiologist testified to the owners failing
health.
 The owner of a Maryland ambulance company was sentenced to 5 years
supervised  probation  and  ordered  to  pay  $33,990  in  restitution  for
submitting false Medicare claims.  He submitted claims for transporting
patients to free-standing dialysis centers, which is not covered by Medicare.
He also transported multiple patients in the same ambulance at the same
time, and then billed Medicare as if each had taken a separate trip.
Medicare Contractor Administrative Costs
Under  agreements  with  HCFA  and  Blue  Cross  and  Blue  Shield,  Associated  Insurance
Companies, Inc. (AIC) reviews, audits and pays Medicare Parts A, B and durable medical
equipment claims.  The AIC (now known as Anthem) is entitled to reimbursement for
reasonable administrative costs subject to limitations specified in the agreements.
The OIGs review of $87 million in administrative costs claimed by AIC in FY 1994 and
1995 showed that over $2.5 million was inappropriately claimed.  The overclaim resulted
32 primarily because AIC understated complementary insurance credits, claimed executive
salary  increases  which  exceeded  average  increases  for  comparable  positions,  claimed
non-Medicare related costs, claimed costs that exceeded actual costs and overstated return
on investment.  In addition to recommending procedural corrections and improvements to
internal controls, OIG recommended a $2.5 million financial adjustment.  In response to the
draft report, AIC concurred with $83,272 of the recommended financial adjustment.  (CIN:
A-05-97-00005)   
Federal and State Partnership: Joint Audits of Medicaid
One of  OIGs major  initiatives has been  to  work  more  closely  with  State  auditors in
reviewing the Medicaid program.  To foster the creation of these joint review efforts and to
provide broader coverage of the Medicaid program, the Partnership Plan was developed.
The partnership approach has been an overwhelming success in ensuring more effective use
of scarce audit resources by both the Federal and the State audit sectors.
To  date,  partnerships  have  been  developed  with  19  State  auditors,  11  State  Medicaid
agencies and 2 State internal audit groups.  Extensive sharing of audit ideas, approaches and
objectives has taken place between Federal and State auditors.  Completed reports have
resulted in recovered and/or identified overpayments and potential program savings of $140
million in Federal and State Government funds.
Medicaid Reimbursement to Ohio Nursing Facilities
In a prior report, OIG estimated, based on a statistical sample, that Medicaid overpayments
to hospitals and long-term care (LTC) facilities in Ohio totaled about $29.3 million from
January 1989 through December 1992. These overpayments occurred because the State paid
LTC providers the full daily per diem rate rather than the 50 percent rate that applies when
hospital leave days are used by beneficiaries; paid the normal Medicaid per diem rate to LTC
providers for dates of service for which beneficiaries were covered by Medicare; and made
duplicate payments to LTC facilities for the same service. The OIG recommended that Ohio
identify and recover the actual amount of overpayments made to the providers.  
In response, the State engaged a consulting group to review overpayments and to initiate a
retroactive  recovery  process.    The  consulting  group  identified  over  $34  million  in
overpayments from January 1, 1989, through May 31, 1996 (a longer period than that
covered by the OIG audit).  The OIGs follow-up determined that the methodology used by
the  consulting  group  to  identify  Medicaid  overpayments  was  reasonable.    The  OIG
recommended  that  the  State  recover  the  $34  million  overpayment,  and  Ohio  officials
concurred  with  the  findings  and  recommendations  in  the  draft  report.    (CIN:
A-05-97-00028)
33 Medicaid Payments for Pathology and Laboratory Services in
Virginia
To  help  physicians  diagnose  and  treat  ailments,  patients  often  undergo  pathology  and
clinical laboratory tests.  Medicaid reimbursement for these tests is limited to the amount
paid by the Medicare program.  However, a prior OIG review noted that the Virginia
Medicaid agency had paid more than Medicare for many laboratory claims in Calendar
Years (CYs) 1993 and 1994.  This follow-up review found a similar situation for CYs 1995
and 1996, when the agencys payments exceeded the Medicare limits by $3.2 million ($1.6
million Federal share).  The OIG recommended that the State agency revise its fee schedules
and  procedures  to  limit  Medicaid  reimbursement  to  those  amounts  recognized  by  the
Medicare program and adjust its quarterly expenditure report to HCFA for the $1.6 million
overpayment.  (CIN: A-03-97-00200)   
Reimbursement Method for Indiana Hospital
In an earlier review, OIG determined that a hospital in Indiana had received Medicaid
overpayments based on a reimbursement system patterned after the Medicare Tax Equity
and Financial Responsibility Act of 1982.  Final settlement of reimbursement levels under
this system depended on the number of discharges made during a fiscal year.  The OIG
found that the payment system was unsuitable for the hospital because it served long-term
patients and had few discharges.  Despite that, the hospital received numerous interim
payments from Medicaid and was paid approximately $800,000 over actual costs in 1991.
The OIG recommended that Indiana confer with HCFA to negotiate a settlement with the
hospital on all outstanding overpayments.
In this follow-up, OIG reviewed Indianas proposed settlement of $3.1 million (estimated
Federal share $2 million) to resolve all overpayment issues for 1988 through 1995.  The
OIG found the amount to be reasonable and recommended that Indiana go forward with the
settlement.  (CIN:  A-05-97-00029)
Medicaid Fraud
At present, 47 States have Medicaid fraud control units (MFCUs) and are receiving funds
and technical assistance from OIG.  Three States have received waivers from establishing
MFCUs as required by the Omnibus Budget Reconciliation Act of 1993.  The MFCUs
conduct  investigations  and  bring  to  prosecution  persons  charged  with  defrauding  the
Medicaid program or with patient abuse and neglect.
During FY 1997, OIG administered approximately $80.5 million in grants to the MFCUs to
facilitate their mission.  The MFCUs reported __ convictions and $__ million in fines,
restitutions and overpayments collected for the period July 1, 1997 through December 31,
1997.
34 Although most Medicaid fraud cases are investigated by the MFCUs, OIG occasionally
works with them and/or other law enforcement agencies on such cases.  The following
instances of successful results in these cases bear noting:
 An Ohio man and his corporation, which operated four group homes for the
mentally  retarded,  were  sentenced  after  being  convicted  on  44  counts
related to Medicaid fraud, including theft of Government funds, mail fraud,
Medicaid false claims and money laundering.  Between 1990 and 1994, the
man and the corporation filed Medicaid cost reports containing falsified
expenses for the homes, including personal expenses, invoices for fictitious
services or supplies, and  inflated expenses.   He  had actually  spent the
money to hire a go-go dancer as a  consultant, to install a sound system for a
go-go nightclub and for various other personal pleasures.  The man was
sentenced to 4 years incarceration, and he and his corporation were ordered
to pay $423,260 in restitution.  The loss to Medicaid over a 2-year period
was more than $490,000.  The corporation owner, who has a doctorate and
is a former college professor, pled guilty in 1989 to drug trafficking and
theft.
 A Washington, D.C. taxi driver was sentenced to 14 months in prison for
Medicaid fraud.  From December 1993 through March 1995, he obtained
blank taxicab vouchers from sources inside several health care facilities.  He
filled  out  the  vouchers,  using  inter-State  destinations  to  obtain  a  high
reimbursement  rate.    He  submitted  the  vouchers  for  Medicaid
reimbursement, thereby defrauding the program of $31,890.  The taxi driver
had been investigated by the OIG earlier and prosecuted for working the
same scheme.
 An Illinois hospital agreed to pay $75,000 to settle its civil liability for
submitting  false  claims  to  Medicaid.    Through  one  of  its  physician
employees, the hospital billed Medicaid for acupuncture services related to
its drug and alcohol program.  The hospital knew or should have known that
Medicaid does not cover acupuncture.  The hospital refused to enter a
corporate integrity  agreement, and  the Department reserved its right to
pursue permissive exclusion.  The settlement amount is approximately 3.5
times the overpayment.
 A State Medicaid agency returned more than $1.7 million it overpaid for
ventilator-dependent clients.   It  paid a capitation  rate for acute care in
addition to the capitation rate for ventilator-dependency in 1994, 1995 and
1996.    The  overpayment  was  discovered  in  the  course  of  another
investigation of the agency.  Since the system used by the agency for this
35 period was closed out at the end of 1996, the overpayment probably would
not have been discovered otherwise.
36 Public Health Service
Operating Divisions Chapter II
PUBLIC HEALTH SERVICE OPERATING
DIVISIONS
Overview of Program Area and Office of Inspector General
Activities
The  activities  conducted  and supported  by the  Public  Health  Service  (PHS)  operating
divisions represent this countrys primary defense against acute and chronic diseases and
disabilities.  These programs provide the foundation for the Nations efforts in promoting
and enhancing the continued good health of the American people.  These independent
operating divisions within the Department include: National Institutes of Health (NIH), to
advance our knowledge through research; Food and Drug Administration (FDA), to assure
the safety and efficacy of marketed drugs, biological products and medical devices; Centers
for Disease Control and Prevention (CDC), to combat preventable diseases and protect the
public  health;  Health  Resources  and  Services  Administration  (HRSA),  to  support  the
development, distribution and management of health care personnel, other health resources
and services; Indian Health Service (IHS), to improve the health status of Native Americans;
Agency for Toxic Substances and Disease Registry (ATSDR), to address issues related to
Superfund toxic waste sites; the Agency for Health Care Policy and Research (AHCPR), to
enhance the quality and appropriateness of health care services and access to services
through scientific research and the promotion of improvements in clinical practice, and in
the organization, financing and delivery of services; and the Substance Abuse and Mental
Health Services  Administration (SAMHSA),  to  assist States in refining and expanding
treatment and prevention services.
The Office of Inspector General (OIG) has concentrated on a variety of public health
programs and issues such as biomedical research funding, substance abuse, Indian health
services, drug approval processes and community health center programs.  The OIG has
looked  at  the  regulation  of  drugs,  foods  and  devices,  and  explored  the  potential  for
improving these activities through user fees.  The OIG has conducted audits of colleges and
universities which annually receive substantial research funding from the Department, as
well as audits of the financial statements and operations of the PHS operating divisions.  The
OIG continues to examine policies and procedures throughout the agencies to determine
whether proper controls are in place to guard against fraud, waste and abuse.  These
activities  include  preaward  and  recipient  capability  audits.    This  oversight  work  has
37 provided valuable recommendations to program managers for strengthening the integrity of
agency policies and procedures.
Results-Based Systems for Public Health Programs
The Department has been considering performance partnership grants for some of its public
health programs for several years.  At the request of the Assistant Secretary for Planning and
Evaluation, OIG reviewed results-based initiatives in the preventive health, maternal and
child  health,  substance  abuse  and  mental  health  programs  of  several  States.    The
results-based accountability initiatives examined were generally of two types:  broad efforts
at  Statewide  strategic  planning  and  priority  setting,  and  systems  focused  on  target
populations and specific program interventions.  The OIG found that the 11 States reviewed
had several characteristics in common:  public pressures for better government, top-level
commitment  and  extensive  stakeholder  involvement.    While  State  officials  saw  many
benefits from development and implementation of results-based systems and were using data
in various ways, they noted that it would be inappropriate to base programmatic, budgetary
or contracting decisions solely on such data.  The OIG identified several issues confronted
by  the  States  in  developing  their  accountability  systems  (formulation  of  the  measures
themselves; the availability, reliability and timeliness of the data; the use of the results; and
system capacities) and outlined many of the challenges facing the Department as it considers
future  directions  for  its  performance  partnership  grant  initiative.    (OEI-05-96-00260;
OEI-05-96-00261)
Contract/Grant Fraud
Resolution of charges of misusing grant funds from NIH occurred in two cases involving
universities:
 A  civil  lawsuit  was  settled  against  an  Illinois  university  and  a  former
professor of obstetrics, gynecology and pathology there, for misapplying
approximately  $550,000 in grant funds from NIH.  The university had
received a grant totaling $1.9 million over 7 years to design and implement
a  computer-based  system  to  help  cytopathology  laboratories  diagnose
cervical cancer and precursor lesions.  In about the sixth year, the university
notified NIH that the professor was suspected of misapplying grant funds.
The  OIG  found  he  used  some  of  the  funds  for  salaries,  computer
maintenance, telephones and equipment in connection with other, private
business.  The university is to pay $250,000 and the professor $400,000 to
settle the suit.
 In California, a U.S. Attorneys office received a check for $135,999 from a
university, completing the terms of a civil agreement for a researchers
falsification of research data submitted to NIH.  The university also paid
38 $30,000 to the relators counsel.  A former university staff member had
entered a qui tam alleging the false data was submitted for the purpose of
obtaining a grant for immunology research.  The relator received $10,125.
Internal Controls over Purchase Card Activities
During this reporting period, OIG made two reviews of internal controls over purchase card
activities.  These cards provide a cost-saving method of making small purchases.
A.  National Institutes of Health
In a review of NIHs internal controls over and use of purchase cards, OIG determined that
NIH had generally designed and implemented adequate management controls.  However,
OIG made recommendations to improve those controls in such areas as separation of duties,
payment  of  sales  taxes  and  recording  of  sensitive  property  procurements.    The  NIH
generally concurred with the recommendations.  (CIN:  A-15-96-80003)
B.  Food and Drug Administration
In a similar review at FDA headquarters, OIG found the agency to be in compliance with
guidelines issued by the General Services Administration.  However, because certain basic
internal controls, such as separation of duties, are inherently missing in FDAs purchase card
system,  OIG  recommended  that  FDA  evaluate  the  effectiveness  of  its  compensating
controls.  The FDA concurred with the recommendation.  (CIN: A-15-97-80002)
State AIDS Drug Assistance Programs
Recent  amendments  to  the  Ryan  White  Comprehensive  AIDS  Resources  Emergency
(CARE) Act require States to use a portion of CARE Act funds for AIDS drug assistance
programs.  If they elect to do so, these programs may participate in the 340B program,
which  provides  discount  prices  for  drugs  purchased  directly  from  manufacturers  or
wholesalers.  
In analyzing 1996 expenditures for five large State AIDS drug assistance programs that
chose not to participate in the 340B drug pricing program, OIG found that the programs
could have purchased an additional $4.4 million (8 percent) in drug therapies had they
participated.    Since  participation  in  the  340B  drug  pricing  program  holds  significant
potential for providing additional drug therapies and improving the quality and length of life
for individuals with AIDS, OIG recommended that HRSA take several actions to encourage
such  participation.    In  response  to  the  draft  report,  HRSA  agreed  with most  of  these
recommendations.  (CIN: A-01-97-01501)  
39 Exclusions for Health Education Assistance Loan Defaults
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees
commercial loans to students seeking an education in a health-related field of study.  The
students are allowed to defer repayment of these loans until after they have graduated and
begun to earn some money.  The Departments Program Support Center (PSC) takes all steps
that it can to ensure repayment.  However, some loan recipients ignore their indebtedness.
After PSC has exhausted all efforts to secure repayment of these debts, it declares the
individual in default.  Once the individual has been declared in default, the Social Security
Act permits, and in some instances mandates, exclusion from Medicare and State health care
programs for nonpayment of these loans.  During this 6-month period, 193 individuals were
excluded as a result of PSC referral of their cases to OIG.
Individuals who have been excluded as a result of their default may enter into settlement
agreements whereby the exclusion is stayed while they pay specified amounts each month to
satisfy their debt.  If they default on these settlement agreements they are then excluded until
their entire debt is repaid, and they have no right to appeal these exclusions.  Some of the
health professionals, upon being notified of their exclusion, immediately repay their HEAL
debt.
At the conclusion of this reporting period, 900 individuals had taken advantage of the
opportunity and entered into settlement agreements or completely repaid their HEALs.  The
amount  of  money  being  repaid,  through  settlement  agreements  or  through  complete
repayment,  totals  over  $55.7  million.    The  following  are  examples  of  some  of  these
settlements:
 After being notified that she was excluded as a result of her failure to repay
her HEAL debt, an Ohio osteopath entered into a settlement agreement to
repay almost $176,000.
 Two Illinois physicians signed settlement agreements to repay their HEAL
debts after being excluded for defaulting on their obligations.  One agreed to
repay over $161,000, and the other over $306,600.
 A settlement agreement was signed by a New York podiatrist to repay his
HEAL debt of over $203,000.
 A Connecticut dentist entered into a settlement agreement to repay a HEAL
debt in excess of $172,000.
40  Shortly after being notified of his exclusion for defaulting on his HEAL
debt, a Florida physician entered into a settlement agreement to repay over
$238,000.
Superfund Financial Activities at the Agency for Toxic
Substances and Disease Registry
The Hazardous Substance Response Fund, commonly known as the Superfund, is used to
respond to emergency environmental hazards and to pay for removing toxic substances.
Through  agreements  with the  Environmental  Protection  Agency, certain  HHS agencies
receive Superfund money to carry out health-related activities mandated by law.
During FY 1996, ATSDR obligated about $58.7 million in Superfund monies and disbursed
approximately $59 million obligated during and prior to that year.  The OIG concluded that
the agency generally administered the Superfund monies in accordance with applicable laws
and regulations.  However, OIG determined that ATSDR should  ensure that all grantees
obtain  and  submit  required  independent  audit  reports;  maintain  adequate  supporting
documentation related to its interagency agreement for administrative and support services
with CDC; and submit the Minority Contractor Utilization Report to EPA in a timely
manner.  In response to the draft report, ATSDR concurred with OIGs  recommendations.
(CIN:  A-04-97-04599)
41 Administration 
for Children
and Families,
and Administration 
on Aging Chapter III
ADMINISTRATION FOR CHILDREN AND
FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General
Activities
The Administration for Children and Families (ACF) provides direction and funding for
programs designed to promote stability, economic security, responsibility and self-support
for  the  Nations  families.    The  major  programs  have  included:  Aid  to  Families  with
Dependent Children (AFDC), Emergency Assistance (EA), Child Support Enforcement
(CSE), Foster Care, Job Opportunities and Basic Skills (JOBS) training, Family Preservation
and Support, Head Start, and the Child Care and Development Block Grant program. 
The Personal Responsibility and Work Opportunity Act of 1996 eliminated the AFDC, EA
and  JOBS  programs  as  of  FY  1997  and created the  Temporary Assistance for  Needy
Families  (TANF)  block  grant,  which  was  designed  to  reduce  dependency  on  welfare
programs.  The block grant eliminated individual entitlement to assistance, established time
limits on benefits and set strong work participation requirements.  However, the Act gave
States and tribal governments greater flexibility to establish and operate programs structured
to their needs.  While the Federal role in TANF has changed, OIG will continue to ensure
program integrity, identify opportunities for program improvement, and provide Federal and
State management with useful information regarding the goal of moving individuals and
families from welfare dependency to self-sufficiency.
In addition, OIG reviews the Departments programs that serve children, and has issued
several reports in this area.  The OIG reports have focused on ways to increase the efficient
use of the program dollar, more effective program implementation, and how to better
coordinate program implementation between the Federal and State and local governments. 
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants
to  States  for  establishment of  comprehensive  community-based  systems  that  assist the
elderly in maintaining their independence and in remaining in their homes as long as
possible.    The  assistance  is  targeted  to  the  socially  and  economically  disadvantaged,
especially  the  low-income  minority  elderly, and  includes supportive  services,  nutrition
services, education and training, low-cost transportation and housing, and health services.
The OIG has reported opportunities for program improvements to target the neediest for
43 services; expand available financial resources; upgrade data collection and reporting; and
enhance program oversight.
Child Support Enforcement
The United States Attorney General has placed enforcement of the Child Support Recovery
Act of 1992 as a top Department of Justice (DOJ) priority.  The Act made it a Federal
misdemeanor crime for a parent in one State to refuse to pay past due support for a child in
another State, when the support has been owed for more than 1 year or exceeds $5,000.  Any
subsequent offense is a felony violation.
The DOJ has been working since 1993 with the Federal Bureau of Investigation (FBI) and
the Department of Health and Human Services (HHS) Office of Child Support Enforcement
to  develop  an  avenue  for  child  support  cases  administered  by  State  offices  (partially
federally funded) to go directly to the appropriate U.S. Attorneys offices for adjudication.
The OIG became part of this effort in 1995, initially concentrating only on cases involving
AFDC payments necessitated by parental failure to provide ordered support.  More recently,
OIG has expanded its participation in child support cases under a deputation from DOJ to
include all violations of the Child Support Recovery Act.
The OIG has made the investigation of these matters a high priority.  It is a member of the
DOJ task force established by the President to develop "best practice" approaches to the
enforcement of the Child Support Recovery Act.  The OIG is a major participant in several
pilot programs designed to develop these investigative practices.
To date, OIG has initiated over 250 child support cases nationwide.  These cases have
resulted in approximately 77 arrests, 50 convictions, and court-ordered restitution of close to
$5.7 million.  Prosecutions in this area are unique in that sentences ordered by a judge take
into account the need for the defendant to continue to be able to pay.  Therefore, alternative
sentencing  options  --  such  as  work  release,  home  detention  and  probation  where
nonpayment is a violation -- are ordered.
In several Federal districts, the U.S. Attorneys office has been aggressive in pursuing child
support enforcement cases.  One of the first to be most active was the Eastern District of
Virginia, which dubbed its operation "Long Arm" and vigorously prosecutes nonpaying
parents  OIG  turns  up.    The  following  examples  illustrate  some  of  the  circumstances
involved in the Virginia cases:
 The man who had been at the top of Virginias 10 most wanted "deadbeat
dads" list since 1991 was sentenced to 8 nights in jail and 5 years probation.
The judge told him that if he "survives jail" he will have to pay the $54,290
he  owes  in  child  support  and  $5,960  in  unpaid  medical  bills  for  his
44 11-year-old son living in Virginia.  The man fled to Florida in 1988 and
avoided detection by working under false social security numbers and not
filing income tax returns.  He also has three children in Pennsylvania by his
first wife and two more in Kentucky by another wife.  Until recently, he
never supported any of his children, despite his earning more than $40,000 a
year.  His son went to the sentencing with his mother because he wanted "to
see what his father looked like." 
 Another man was sentenced to 60 days in jail for failure to pay child
support.  The man, who lives in Florida, had been ordered to pay $629 a
month in the support of his two children, but he had made no payments
since April 1995 despite being employed and owning more than $28,000 in
common stock.  As part of his sentence he was ordered to pay the $27,000
he owed in past-due child support.
 A man who had not made a payment since October 1992 pled guilty and
was sentenced to 5 years probation, directed to spend 5 weekends in jail and
ordered to pay more than $24,660.
 Another man who also pled guilty was sentenced to 5 years probation and
ordered to pay $15,540 in restitution.
In all, 11 individuals were successfully prosecuted in the Eastern District of Virginia during
this period for failing to pay court-ordered child support.  The following cases are examples
of some of these cases successfully prosecuted elsewhere:
 A man who now resides in North Carolina where he operates a commercial
and residential roofing business pled guilty in a Maryland Federal court to
violating the Child Support Recovery Act.  When the man and his wife
divorced, a Maryland county court awarded her custody of their child and
ordered him to pay $288 a month in child support.  He was indicted in
August 1997, owing $10,000.  At the time of his arrest he turned over
$7,700 as a term of release, and when he pled guilty he paid $3,200 -- the
rest  of  the  arrearage  plus  the  payment  for  September.    The  man  was
sentenced to 5 years probation and is specifically required to continue the
$288 monthly payments.
 After pleading guilty and paying his arrearage, a man was sentenced in
Texas to 5 years probation and a $10 special assessment for failing to pay
$14,970 in child support for his 10-year-old son who lived in California
with his former wife.  The father was employed as a computer specialist
with an investment company and earned $73,540 in 1996.
45  In Oklahoma, a man was sentenced to 6 months probation and ordered to
pay the $51,500 in arrears in child support.  In 1978, he had been ordered to
pay $75 per month for each of his three children who lived with their
mother in Oklahoma.  He left Oklahoma for Montana, where he has been
living with his current spouse since 1992.  Between the two, they have an
income of over $50,000.
States Child Care Certificate Systems: An Early 
Assessment of Vulnerabilities and Barriers
In  this  review  of  States  child  care  certificate  systems  under  the  Child  Care  and
Development Fund, administered under the Child Care and Development Block Grant, OIG
found that parental choice  may be restricted by low provider payment rates and high
copayment rates.  Further, OIG noted that child care consumer education appears limited,
and State efforts may not be sufficient to ensure that health and safety standards are met.
The OIG recommended that ACF set forth the goal that States monitor all providers through
professional inspections and know the backgrounds of all providers through background
checks; help States establish background registries and a toll-free number to report problems
and concerns; disseminate information about effective ways to enhance consumer education;
and  help  States  devise  outcome  measures  of  quality  consumer  education.    The  ACF
concurred with OIGs recommendations.  (OEI-05-97-00320)
Foster Care
During this reporting period, OIG conducted two reviews to determine whether Federal
funds available under the title IV-E foster care program were appropriately used in State
foster care programs.
A.  Retroactive Claims Submitted by Indiana
In  1990,  Indiana  contracted  with  a  consultant  to  enhance  Federal  reimbursement  by
identifying additional eligible foster care claims.  Under the contract, the consultant was to
receive a 15 percent contingency fee based on the incremental increase in retroactive claims
submitted to ACF as prior-quarter adjustments.  The OIG initiated an audit of these claims
because a previous ACF/OIG review had found that $6.4 million in retroactive claims
developed by the same consultant covered ineligible children or duplicated other claims.
The OIGs recent audit determined that documentation was not available to support $8.5
million in retroactive claims submitted by Indiana.  These claims represent prior-quarter
adjustments, applicable to calendar year 1993, which were developed by the consultant and
submitted to ACF during 1995.  In response to OIGs recommendation, the State adjusted its
next quarterly claim for the $8.5 million in unsupported costs.  (CIN: A-05-97-00026)
46 B.  Rate-Setting Methodology for Foster Family Agencies in California
In California, county welfare departments contract with foster family agencies to provide
services to or on behalf of foster children.  With few exceptions, the children placed by these
agencies  have  emotional  or  behavioral  problems  requiring  treatment  services.    To
compensate the agencies for children in the treatment program, State payment rates cover
several cost components, including administrative costs (which are federally reimbursed at
50 percent) and social work costs (which are not eligible for Federal reimbursement).  
The OIGs review found that the rates established for the administrative component were too
high and that administrative payments claimed as costs to the title IV-E program were
significantly greater than the costs reported as incurred by the foster family agencies.  The
review also noted  that the rates established for the social work component, while not
federally reimbursable, provided payments to the agencies that were significantly lower than
the costs reported.  The OIG recommended that the State review the rate methodology and
make revisions to ensure that only costs necessary for the proper and efficient administration
of  the  title  IV-E  foster  care  program  are  claimed  for  Federal  reimbursement.    (CIN:
A-09-96-00082)
Discretionary Grants Awarded to Alleviate Poverty
The ACFs Office of Community Services (OCS) makes discretionary awards under its
Block Grant program to help alleviate the causes of poverty in distressed communities.  As
discussed below, two OIG reviews focused on the accountability of grantees that receive
such awards and the achievement of grant objectives.
A.  Risk of Awarding Equity Investment Grants
Certain OCS awards permit grantees to acquire equity investments (stock purchases) in
other  organizations  which,  in  turn,  are  expected  to  create  new  jobs  for  low-income
individuals.    The  OIGs  review  determined  that  this  type  of  grant severely  limits the
Governments  ability  to  examine  the  use  of  grant  funds  redistributed  to  subsidiary
organizations.    The  achievement  of  grant  objectives  is  difficult  to  monitor,  and  the
accountability of responsible parties for the funds and the disposition of assets is impaired.
As a result, OIG recommended that ACF prohibit these grant arrangements or include the
necessary terms and conditions that would protect Federal interests.  The ACF agreed and
indicated that steps were being taken to protect Federal interests.  (CIN: A-12-97-00007)
B.  Grants Awarded in Mississippi
From 1991 through 1995, a private corporation in Mississippi received four grants totaling
$1.43 million to create permanent full-time jobs for low-income residents of  the  local
community.  The OIG found that the corporation did not create permanent full-time jobs;
used Federal funds for a wide range of purposes unrelated to the grant objectives; did not
provide the private cash and in-kind services it had proposed to ensure the success of the
47 grants; and submitted reports to OCS that were often untimely and inaccurate.  As a result,
the $1.43 million intended to assist families in climbing from poverty provided little or no
benefit.  In addition to recommending that these funds be repaid to the Federal Government,
OIG proposed that the corporation strengthen its management controls and demonstrate the
capability to properly manage and expend any future Federal grants.  Corporation officials
agreed that their grants management controls needed strengthening but did not agree to
refund the grant funds.  (CIN: A-04-96-00105)
Community Services Block Grants in Puerto Rico
To reduce the causes of poverty, grantees in Puerto Rico received $32.9 million through the
Community Services Block Grant Program from October 1, 1994 to September 30, 1996.
The OIG found that Puerto Rico did not follow established policies and procedures in
evaluating the merit of proposed projects and did not effectively monitor grantees after
funds were awarded.  As a result, there was no assurance that the Block Grant funds were
used in the most beneficial manner.
The OIG recommended that the Commonwealth develop a system that will provide funding
only to those grantees that design programs with the most potential for reducing the causes
of poverty; adhere to established policies and procedures for monitoring and documenting
grantee performance; and evaluate current programs to determine grantee effectiveness in
accomplishing  goals  and  objectives.    In  commenting  on  the  draft  report,  Puerto  Rico
officials  generally  agreed  with  OIGs  findings  and  recommendations.    (CIN:
A-02-96-02004) 
Protection and Advocacy for the Disabled
During FY 1996, a private nonprofit corporation in Pennsylvania received $2 million in
Federal funds to provide protection and advocacy services to people with disabilities as
defined in Federal statute.  The funds were furnished by the Departments Administration on
Developmental  Disabilities  and  Center  for  Mental  Health  Services,  as  well  as  the
Department of Educations Rehabilitation Services Administration.  
The  OIG  found  that  the  corporations  financial  management  practices  were  generally
sufficient  to  ensure  that  expenditures  charged  to  Federal  grants  were  allowable  and
reasonable.  However, OIG noted that program income earned by subcontractors was not
reported to the corporation for reuse in the program, certain unallowable costs were charged
to the Federal grants, and financial status reports could not be reconciled to financial
statements  and  general  ledgers.    The  corporation  generally  agreed  with  OIGs
recommendations,  which  focused  on  improving  accountability  for  program  income
amounting to over $400,000 a year.  (CIN: A-03-97-00516)
48 Marylands Ombudsman for the Elderly
Ombudsman programs play an important role in helping to ensure that the elderly are
properly cared for and are protected from abuse in long-term-care facilities, such as nursing
homes.  Ombudsmen are responsible for overseeing these facilities and for identifying,
investigating and resolving complaints of abuse, neglect and exploitation.  
The OIGs review in Maryland found that the local ombudsmen did not always follow State
procedures for reporting and investigating incidences of abuse.  Also, the State ombudsman
had not made annual monitoring reviews of over half of the local ombudsmen programs, and
the Geriatric Nurse Aide Registry, which is required to flag nurse aides who have abused the
elderly, did not always do so.  As a result, nursing facilities that consult the registry to
determine an aides fitness for employment would not be aware of his or her history of
abuse.  The OIG recommended several improvements, and Marylands Office on Aging said
it would work diligently to implement them.  (CIN: A-12-96-00016)     
49 General Oversight Chapter IV
GENERAL OVERSIGHT
Introduction
This chapter addresses the Office of Inspector Generals (OIGs) departmental management
and Governmentwide oversight responsibilities.
The Program Support Center (PSC), a separate operating division within the Department of
Health  and  Human  Services  (HHS),  provides  overall  direction  for  departmental
administrative activities as well as common services such as human resources, financial
management, administrative operations and information technology.  The Office of the
Assistant Secretary for Management and Budget (ASMB) is responsible for the development
of the HHS budget and its execution, as well as the related activities of establishing and
monitoring departmental policy for debt collection, cash management, and payment of HHS
grants and contracts.  The Department also has the responsibility, by virtue of the magnitude
of its funding, to negotiate the payment rates and methods that outside entities, such as State
and local governments, charge for administering HHS and other Federal programs.
The OIG has oversight responsibility for these activities at the departmental level.  A related
major  responsibility  flows  from  the  Office  of  Management  and  Budgets  (OMBs)
designation of HHS as cognizant agency to audit the majority of the Federal funds awarded
to  major  research  schools,  104  State  and  local  government  cost  allocation  plans,  and
separate indirect cost plans of about 1,000 State agencies and local governments.  Also, OIG
oversees the work of nonfederal auditors of Federal money at some 6,700 entities, such as
community  health  centers  and  Head  Start  grantees,  as  well  as  at  State  and  local
governments, colleges and universities, and other nonprofit organizations.  In addition, OIG
is responsible for auditing the Departments financial statements beginning with the FY
1996 statements.
The OIGs work in departmental administrative activities and Governmentwide oversight
focuses principally on financial statement audits, financial management and managers
accountability  for  resources  entrusted,  standards  of  conduct  and  ethics,  and
Governmentwide audit oversight, including recommending necessary revisions to OMB
guidance.
51 Nonfederal Audits
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
awards.  Under this circular, these entities are required to have an annual organizationwide
audit which includes all Federal money they receive.
These annual audits are conducted by nonfederal auditors, such as public accounting firms
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and
assesses the adequacy of the entitys management of Federal funds.  In the first half of FY
1998, OIGs National External Audit Review Center (located in Kansas City) reviewed over
1,700 reports that covered over $452 billion in audited costs.  Federal dollars covered by
these audits totaled $106 billion, about $46 billion of which was HHS money.
The OIGs oversight of the nonfederal audit activity not only provides Department managers
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any
significant areas of internal control weakness, noncompliance and questioned costs that
require formal resolution by Federal officials.
The OIG has developed a strategy to interrelate the work performed by nonfederal auditors
under the Single Audit Act with that required for financial statement audits.  Reliance on
nonfederal audits wherever possible, such as use of single audits for coverage of Medicaid
program expenditures, has the potential to maximize benefit from the audit effort expended
by the public and private sectors.
A.  Office of Inspector Generals Proactive Role
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of
the Departments programs and provide for greater utilization of the data obtained: 
 Through evaluation of reported data, OIG is able to provide basic audit
coverage and analyze reports to identify entities for high-risk monitoring
and trends that could indicate  problems within  HHS  programs.  These
problems  are  brought  to  the  attention  of  departmental  management  to
improve program administration.  In addition, OIG profiles nonfederal audit
findings of a particular program or activity over a period of time to identify
systemic problems.
 To ensure audit quality, OIG maintains a quality control program (discussed
below) and has taken steps to ensure that adequate guidance is available to
the nonfederal auditor.  The OIG actively assists the National Association of
State Auditors, Controllers and Treasurers in performing peer reviews of
State auditors.
52  As a further enhancement of audit quality, OIG provides technical assistance
to  grantees  and  the  auditing  profession  through  its  toll  free  number
(800-732-0679) and through training.  In addition, formal training was
provided to certified public accountant societies and State auditor staff on
issues related to Circular A-133.
 The OIG is also very much involved with OMB and the American Institute
of Certified Public Accountants in developing authoritative guidance for
nonfederal auditors.
B.  Quality Control
To rely on the work of nonfederal auditors, OIG maintains a quality control review process
which  assesses  the  quality  of  the  nonfederal  reports  received  and  the  audit work  that
supports selected reports. 
Uniform procedures are used to review nonfederal audit reports to determine compliance
with Federal audit requirements and Government auditing standards.  During this reporting
period, OIG reviewed and issued 1,747 nonfederal audit reports.  The following table
summarizes those results:
Reports issued without changes or with minor changes 1,556
Reports issued with major changes 10
Reports with significant inadequacies 181
Total audit reports processed 1,747
The  1,747  audit  reports  discussed  above included  recommendations  for  HHS program
officials  to  take  action  on  cost  recoveries  totaling  $13.2  million  as  well  as  2,561
recommendations for improving management operations.  In addition, these audit reports
provided information for 47 special memoranda which identified concerns for increased
monitoring by departmental management.
53 Resolving Office of Inspector General Recommendations
The tables and schedules below summarize actions taken on OIG recommendations to
recover funds or to put them to better use.
A.  Questioned Costs
The following chart summarizes the Departments responses to OIGs recommendations for
the recovery or redirection of questioned and unsupported costs.  Questioned costs are those
costs which are challenged because of a violation of law, regulation, grant, etc.  Unsupported
costs are those costs questioned because they are not supported by adequate documentation.
This information is  provided in accordance with the Supplemental Appropriations and
Rescissions Act of 1980 (Public Law 96-304) and the Inspector General Act Amendments of
1988.  These costs are separate from the amount ordered or returned as a result of OIG
investigations (see page 59).
TABLE  I
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS
Number  Dollar Value 
Questioned Unsupported
A.For which no management
decision had been made by
the commencement of the
reporting period1 416 $424,330,000 $25,251,000
B.Which were issued during
the reporting period 101 $126,201,000  $28,615,000
Subtotals (A + B) 517 $550,531,000 $53,866,000
Less:
C.For which a management
decision was made during 
the reporting period2: 141 $200,056,000 $3,968,000
(i) dollar value of
disallowed costs $77,699,000 $3,814,000
(ii)dollar value of
costs not disallowed $122,357,000 $154,000
D.For which no management 
decision had been made by the 
end of the reporting period 376 $350,475,000 $49,898,000
E. For which no
management decision was
made within 6 months
of issuance3 271 $223,027,000 $44,605,000
See Appendix D for footnotes.
54 B.  Funds Put to Better Use
The following chart summarizes reports which include recommendations that funds be put
to better use through cost avoidances, budget savings, etc.
TABLE  II
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT
TO BETTER USE
Number  Dollar Value 
A.For which no management
decision had been made by
the commencement of the
reporting period1 36 $55,252,000
B.Which were issued during
the reporting period 9 $859,322,000
Subtotals (A + B) 45 $914,574,000
Less:
C.For which a management
decision was made during 
the reporting period:
(i) dollar value of
recommendations that
were agreed to by
management
(a)  based on proposed
       management action 8 $148,091,000
(b)  based on proposed
       legislative action
Subtotals (a+b) 8 $148,091,000
  (ii)dollar value of
recommendations that
were not agreed to
by management  3 $733,326,000 
Subtotals (i + ii) 11 $881,417,000
D.For which no management 
decision had been made by
the end of the reporting 
period2 34 $33,157,000
See Appendix D for footnotes.
55 Legislative and Regulatory Review and Regulatory Development
A.  Review Functions
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review
existing and proposed legislation and regulations, and to make recommendations in the
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the
administration of the Departments programs and on the prevention of fraud and abuse.  In
reviewing  regulations  and  legislative  proposals,  OIG  uses  as  the primary  basis  for its
comments the audits, inspections, investigations and other activities highlighted in this and
previous semiannual reports.  Recommendations made by OIG for legislative and regulatory
change can be found throughout this semiannual report. 
B.  Regulatory Development Functions
The OIG is responsible for developing a variety of sanction regulations addressing civil
monetary penalty (CMP) and program exclusion authorities administered by the Inspector
General, as well as advisory opinion and safe harbor regulations related to the anti-kickback
statute.
Among the regulatory initiatives promulgated during the reporting period were:
OIG Notice of Proposed Rulemaking: Revised Exclusion Authorities Resulting from
Public Law 104-191
The  OIG  issued  proposed  rulemaking  addressing  revised  OIG  sanction  authorities  in
conjunction  with  sections  211,  212  and  213  of  the  Health  Insurance  Portability  and
Accountability Act (HIPAA).  The regulations are specifically designed to  expand the
protection of certain basic fraud authorities, and revise and strengthen the current legal
authorities  pertaining  to  exclusions  from  Medicare  and  all  other  Federal  health  care
programs.  The OIG is presently developing final regulations that will respond to the public
comments received in response to the proposed rulemaking.
Additional Regulatory Activity
The OIG issued non-binding guidelines that are to be used by OIG in assessing whether to
impose a permissive exclusion in accordance with section 1128(b)(7) of the Social Security
Act.  These guidelines identify specific factors with regard to whether an individuals or
entitys continued participation in the Medicare, Medicaid and other Federal health care
programs will pose a risk to the programs or program beneficiaries, and explain how these
factors would be used by OIG to assess a permissive exclusion decision.
The  OIG  also  issued  a  Federal Register  notice  setting  forth  compliance  guidance  for
hospitals developed by OIG in cooperation with, and with input from, several provider
groups and industry representatives.  Development and issuance of this program guidance
56 for hospitals serves as a positive step towards promoting a higher level of ethical and lawful
conduct throughout the health care industry.
Through the negotiated rulemaking committee process, OIG continued to develop interim
final regulations addressing the shared risk exception to the Federal health care programs
anti-kickback provisions in accordance with section 216 of HIPAA.
The OIG also continued to develop proposed rulemakings addressing the HIPAA CMP
provisions, expanded and revised exclusion and CMP sanction authorities resulting from
Public Law 105-33 (the Balanced Budget Act) and the health care fraud and abuse data
collection program for reporting final adverse actions, as well as revised final regulations on
the OIG advisory opinion process.
C.  Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process.  For
example, OIG testified at seven hearings during this 6-month period, principally on health
care  fraud  and  abuse  issues.    On  several  occasions,  the  testimony  concerned  OIG
recommendations which, if implemented, could produce significant annual savings to the
Government.  These recommendations are contained in the OIG Cost Saver Handbook, also
known as the Red Book.  The hearing process offers OIG the opportunity to meet its
statutory  obligation of  keeping the Congress informed of its  work  with  regard to the
effective and efficient operation of Department programs.  The OIG continues to track all
relevant congressional hearings and pending legislation relative to a wide range of issues.
Training and Administrative Costs Charged to Federal Programs
Based on OIGs work covering the period April 1, 1987 through March 31, 1995, the
Departments Division of Cost Allocation (DCA) recovered $31 million from  New York
State  in  December  1997.    This  amount  included  $6  million  more  than  OIG  had
recommended because DCA built on OIGs findings by including costs charged subsequent
to the audit period.  The OIG determined that the State had charged the Federal Government
for certain training and administrative costs that should have been applied to State programs,
which benefitted from the training.  Specifically, the overcharges applied to the Aid to
Families  with  Dependent  Children,  Foster  Care  and  Medicaid  programs.    (CIN:
A-02-96-02000)
Governmental Accounting
Each year, State and local government entities receive over $200 billion for administration
of Federal grants and associated activities.  As part of its Governmentwide cognizance
responsibilities, as defined in OMB Circular A-87, OIG assesses whether charges to Federal
programs  are  in  accordance  with  the  appropriate  Statewide  cost  allocation  plans  and
57 identifies cost containment areas and/or areas where costs are being inappropriately charged.
During this reporting period, OIG made four reviews at the Departments request. 
A.  New York Certificates of Participation Expenses
New York State has entered into various arrangements for the refinancing and purchase of
equipment and real property through the issuance of Certificates of Participation (COPs).
These certificates (similar to bonds) are offered for sale by a trustee to the general public in
$5,000  increments.    The  State  is  responsible for making payments to  the  trustee  that
approximate the biannual interest and principal payments made by the trustee to certificate
holders.  In a previous audit, OIG found that New York State had charged unallowable
interest to Federal programs for equipment purchased under COPS. 
In  this  review,  requested  by  the  Department  to  fully  resolve  the  interest  issue,  OIG
determined that the State claimed over $60 million in COPS expenses, consisting of $49.7
million in principal payments and $10.5 million ($5.5 million Federal share) in interest
payments, from April 1, 1993, through March 31, 1996.  Because the interest portion of the
claim is not allowable under OMB Circular A-87, OIG noted that the $5.5 million should be
recovered.    The  Department  agreed  with  the  findings  and  recommendation.  (CIN:
A-02-98-02000)
B.  Georgia Telecommunications Fund Adjustments
The OIG evaluated the reasonableness of a refund offered by the Georgia Department of
Administrative Services after the State made adjustments to its Telecommunications Fund.
The refund represents the Federal share of overbillings to the fund for State fiscal years
ending June 1994 and 1995.  The fund was established to centralize the purchasing and
maintenance of telephone and radio equipment and other telecommunications services.
The  OIG  determined  that  the  State  adjustments  to  the  fund  were  reasonable  and
recommended acceptance of the States offer to refund the Federal share of $653,000.
Additionally,  OIG  recommended  that  the  Department  ensure  that  Georgia  make  some
procedural changes in the area of equipment and asset depreciation to improve the funds
future operations.  (CIN: A-04-97-00114) 
C.  Georgia Self-Insurance Funds
Also in Georgia, OIG reviewed the reserve balances in three self-insurance funds:  the
Authorities Liability Fund, which provides coverage for the comprehensive general liability
claims arising from the acts of State representatives; the Employees Liability Fund, which
provides broad coverage to State and local government agencies; and the Tort Liability
Fund, which provides liability coverage for torts committed by State employees.   
As of June 30, 1996, these funds had excess reserve balances totaling $62 million ($5.3
million Federal share).  The excess balances occurred because the funds losses were lower
58 than expected, the State did not use valid actuarial methods for reserve estimates and the
State chose a higher than expected claims level to set reserves.  The OIG recommended that
Georgia repay the excess $5.3 million Federal share.  The State generally agreed with the
finding of excess reserves but disagreed with the dollar amounts.  (CIN: A-04-97-00117)
D.  Delaware Employees Pension Plan
The OIG reviewed the Delaware Public Employees Retirement System to confirm the $493
million surplus fund balance reported for FY 1995 and to compute the Federal share.  This
surplus fund balance contrasted with a $17 million deficit fund balance reported for FY
1996.  The OIG found that the significant difference in the fund balances between the 2
years resulted primarily from a change in reporting methodology arising from the newly
issued  Government  Accounting  Standards  Board  Statement  Nos.  25  and  27.    If  the
methodology used in FY 1995 had been used in FY 1996, a surplus fund balance of $712
million would have been reported.  Noting that the Federal share of this excess would be
about $112.5 million, OIG urged the Department to consider the surplus fund balance in any
future negotiations involving the balance.  (CIN: A-03-97-00453)
Reviews of Departmental Service Organizations
To  support  its  mandated  financial statement audits, OIG  reviews  several  HHS  service
organizations  which  provide  common  accounting  and  administrative  services  to  the
individual  operating  agencies.    During  this  reporting  period,  reviews  of  two  of  these
organizations internal controls were completed by an independent public accountant (IPA),
as discussed below. 
A.  Division of Payment Management
The PSCs Division of Payment Management serves as the fiscal intermediary between HHS
agencies (as well as other Federal departments) and their grant and contract recipients.  The
Divisions  Payment  Management  System  processes  about  $170  billion in  payments to
recipients each year.  The IPA found that the control policies and procedures for this system
were suitably designed and operating effectively.  (CIN:  A-17-97-00011)
B.  Division of Computer Research and Technology
The  NIH  Division  of  Computer  Research  and  Technology  provides  a  variety  of  data
processing services on a fee-for-service basis to NIH and other HHS agencies.  The IPA
concluded  that  the  Divisions  control  structure  policies  and  procedures  were  suitably
designed and operating effectively except for controls over computer room access privileges.
(CIN: A-17-97-00013) 
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 129 successful
criminal actions.  Also during this period, 230 cases were presented for criminal prosecution
59 to DOJ and, in some instances, to State and local prosecutors.  Criminal charges were
brought by prosecutors against 154 individuals and entities.
In addition to terms of imprisonment and probation imposed in the judicial processes, over
$123.6  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this
semiannual period.  Civil settlements from investigations resulting from audit findings are
included in this figure.
60 APPENDIX A
Savings Achieved Through Policy and Procedural Changes Resulting from
Office of Inspector General
Audits, Investigations and Inspections
October 1997 through March 1998
The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary
obligations for expenditures of agency funds or to improve agency systems and operations.  The amounts shown represent
funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or by
management in response to OIG audits, investigations and inspections, including:  actual reductions in unnecessary budget
outlays; deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or
operations; and reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or
insurance or bonds.
Legislative savings are annualized amounts based on Congressional Budget Office estimates for a 5-year budget cycle.
Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the change
is effected or for multiple years, if applicable.  Total savings from these sources amount to $3,777.8 million for this period.
      OIG Recommendation Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Personal Care Services:
Reinstate personal care services as a State Section 13601 of the Omnibus Budget $1,240
optional service.  (CIN:  A-02-93-01022) Reconciliation Act (OBRA) of 1993 repeals
the mandate for Medicaid coverage of
personal care services and allows the States
to cover personal care services furnished
outside the home, effective October 1, 1994.
Medicare Home Health Payments:
Restructure the payment system for home health Subtitle G of Chapter I of the Balanced 1,100
care to eliminate inappropriate incentives which Budget Act of 1997, which pertains to
unnecessarily increase cost and utilization; home health benefits, addresses OIGs
prevent unscrupulous providers from gaining concerns regarding the need to restructure
entry into the program; and improve program and control the payment system for these
controls, such as eligibility determinations and services.  For example, it mandates that a
approval of plans of care and services. prospective payment system be developed
(OEI-04-93-00260; OEI-09-96-00110; CIN: and that the total payments in FY 2000 be
A-04-96-02121) equal to the amount that would have been
paid under the prior system if cost limits
were reduced by 15 percent.  It also
eliminates periodic interim payments to
home health agencies.
Reimbursement for Outpatient Facility
Services:
The Health Care Financing Administration Section 13522 of OBRA 1993 extended the 593
(HCFA) should limit hospital outpatient 5.8 percent reduction in payment for OPDs
department (OPD) facility fees to the applicable through 1998.
ambulatory surgical center (ASC) rate or reduce
payments for OPD services to bring them in line
with ASC payments.  (OAI-85-IX-00046; CIN:
A-14-89-00221)
A-1       OIG Recommendation Implementing Action Savings
in Millions
Medicare Home Health Care Services:
The HCFA should revise Medicare regulations Effective February 1995, Medicare $199.2
to require that the treating physician establish regulations require that a beneficiary be
the plan of care and specifically prescribe the under the care of a physician who
type and frequency of home health services establishes the plan of care and that the
needed. (CIN:  A-04-94-02087) physicians orders for services in the plan
of care specify the medical treatments to be
furnished, the discipline to furnish the
services and their frequency.
Medicaid Estate Recoveries:
The HCFA should make stronger programmatic Section 13612 of OBRA 1993 required 128 
initiatives on estate recoveries and encourage States to recover the costs of nursing
statutory changes to enhance asset control and facility and other long-term care services
recovery activities, such as making liens (or furnished to Medicaid beneficiaries from
some other form of encumbrance) a condition of the estates of such beneficiaries, and
eligibility.  States should be required to recover establish hardship procedures for waiver of
Medicaid personal needs allowance funds from recovery in cases where undue hardship
a deceased individuals estate to offset the cost would result.  
of care.  (OAI-09-86-00078; CIN:
A-01-93-00002)
Medicare Secondary Payer Period for End
Stage Renal Disease Beneficiaries:
Extend the Medicare secondary payer (MSP) Section 13561(c) of OBRA 1993 127
provision to the period of time that end stage maintained the provision to extend the MSP
renal disease (ESRD) beneficiaries have period for ESRD beneficiaries from 12 to
employer group health insurance.  (CIN: 18 months through Fiscal Year 1998.
A-10-86-62016)
Modifications to Medicaid Drug Rebate
Program:
Establish State-specific cost reduction targets Section 13602 of OBRA 1993 permitted 75
based on the comparison of individual State States to operate prescription drug
drug prices with national and international drug formularies meeting certain requirements;
price data; set specific drug price limits for removed current law prohibition on the
brand name drugs similar to those in place for imposition of prior authorization controls
multi-source drugs; or negotiate directly with with respect to new drugs during the first 6
manufacturers for prescription drug discounts months following Food and Drug
and rebates.  The HCFA should support Administration approval; and repealed the
legislation to retain the current procedures for weighted average manufacturer price
computing additional rebates.  (CIN: inflation formula for calculating the
A-06-93-00070; OEI-12-90-00800) additional rebate under current law.
Payment Rates for the Drug Epogen:
The HCFA should reduce the reimbursement Section 13566 of OBRA 1993 reduced the 67
rate not to exceed $10.10 per 1,000 units reimbursement rate for Epogen to $10 per
administered.  (CIN:  A-01-92-00506) thousand units.
Medicare Payments for Unnecessary and
Poor Quality Endoscopies:
The HCFA should reduce the incidence of The OIG accepted the peer review 54.8 
payments for unnecessary and poor quality organizations Fourth Scope of Work as an
gastrointestinal endoscopies. (OEI-09-88-01006) acceptable corrective action plan for HCFA
to address OIGs recommendation and
reduce payments for unnecessary and poor
quality endoscopies.
A-2       OIG Recommendation Implementing Action Savings
in Millions
Intraocular Lenses in Ambulatory Surgical
Centers and Hospitals:
Reduce payments for intraocular lenses (IOLs) Section 13533 of OBRA 1993 reduced $18
to current acquisition costs.  (OEI-05-92-01030) payments for IOLs in ASCs to $150.
Short/Doyle Medicaid Payment Rates:
The State of California should ensure that The HCFA approved a California State plan 5.7
Short/Doyle payments are limited in accordance amendment that modified and clarified the
with the States Medicaid plan and Federal Statess reimbursement policy for
requirements.  (CIN:  A-09-91-00076; CIN: Short/Doyle Medicaid mental health
A-09-92-00094) services.
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Graduate Student Compensation:
The Assistant Secretary for Management and The National Institutes of Health (NIH) 5.7 
Budget (ASMB) should work with the Office of issued a notice in its Guide for Grants and
Management and Budget (OMB) to stipulate a Contracts (NIH Guide, volume 25, number
reasonable standard for graduate student 8, March 15, 1996).  The guidelines provide
compensation charged to federally sponsored that reasonable compensation for graduate
research.  The standard should be based on students will not exceed the amount
assigned responsibilities and should not exceed allowable for a first year postdoctoral level
compensation paid to other individuals for staff member, at the same institution,
similar experience and work.  (CIN: performing comparable work.  In addition,
A-01-94-04002) ASMB has forwarded the OIG
recommendation to OMB with an
endorsement that this subject be addressed
in the next revision of Circular A-21.
ADMINISTRATION FOR CHILDREN AND FAMILIES
$50 Child Support Disregard in the Child
Support Enforcement Program:
The $50 disregard provision, which allowed the Section 302 of the Personal Responsibility 114
first $50 collected from absent parents to be and Work Opportunity Reconciliation Act
turned over to the family and not counted of 1996 eliminated the authority which
against Aid to Families with Dependent allowed the recipient to keep the first $50
Children (AFDC) benefits, did not provide the of child support collected in a month.
AFDC family with any incentive to cooperate
more fully with child support officials in
locating the absent parent and should be
eliminated.  (CIN:  A-02-86-72606)
A-3       Other Implementing Action Savings
in Millions
Results of Investigations:
In addition to any restitution, fines, settlements The Operating Division takes action based $50.4
or judgments, or other monetary amounts on the results of the OIG investigation to
resulting from successful investigations, suspend or terminate payments to the
additional monetary losses are avoided through offending individual or entity.
timely communication of the investigative
results to the Operating Division.
A-4 APPENDIX B
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory
action, or policy determinations by management.  (In many cases, these recommendations are beyond the direct authority of
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as
some of the proposals could have interactive effects if enacted together.
      OIG Recommendation Status  Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Modify Formula for Costs Charged to the
Medicaid Program:
The Health Care Financing Administration The HCFA did not agree with the $4,100
(HCFA) should consult with the Congress on recommendation, and no legislative
modification of the Federal Medical Assistance proposal was included in the Presidents
Percentage formula used to determine the current budget.
Federal share of costs for the Medicaid and
other programs which would result in
distributions of Federal funds that more closely
reflect per capita income relationships.  (CIN:
A-06-89-00041)
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital Although HCFA included a proposal to 1,559
insurance contributions for all State and local mandate Medicare coverage for all State
employees, including those hired prior to April and local government employees in the FY
1, 1986.  If this proposal is not enacted, seek 1990 budget submission, no legislative
legislation making Medicare the secondary proposal was included in the Presidents
payer for retirees of exempt State and local current budget.  Also, HCFA did not agree
government agencies.  (CIN:  A-09-88-00072) with the recommendation to make Medicare
the secondary payer.
Clinical Laboratory Tests:
Develop a methodology and legislative proposal The HCFA agreed with the first 1,130*
to pay for tests ordered as custom panels at recommendation but not the second.  The
substantially less than the full price for Balanced Budget Act of 1997 reduces
individual tests, and study reinstating the Medicare fee schedule payments by
beneficiary coinsurance and deductible lowering the cap to 74 percent of the
provisions for laboratory services as a means of median for payment amounts beginning in
controlling utilization.  (CIN:  A-09-89-00031; 1998.  Also, there will be no inflation
CIN:  A-09-93-00056) update between 1998 and 2002.
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined.
B-1       OIG Recommendation Status  Savings
in Millions
Laboratory Roll-In:
Fees for laboratory services should be included The HCFA disagreed with the $1,100
in Medicare recognized charges for physician recommendation.  The OIG continues to
office visits.  (OEI-05-89-89150; believe that it should be implemented. 
OEI-05-89-89151)
Reduce Hospital Capital Costs:
Determine the extent that capital reductions are The HCFA did not agree with the 820
needed to fully account for hospitals excess recommendation.  Although the Balanced
bed capacity and report the percentage to the Budget Act of 1997 reduces capital
Congress.  (CIN:  A-09-91-00070; CIN: payments, it does not include the effect of
A-14-93-00380) excess bed capacity and other elements
included in the base year historical costs.
Medicaid Payments to Institutions for
Mentally Retarded:
The HCFA should take action to reduce The HCFA nonconcurred with OIGs 683
excessive spending of Medicaid funds for recommendation.  The HCFA believes
intermediate care facilities for the mentally Medicaid statutory provisions allow States
retarded (ICF/MRs) by one or more of the to establish their own payment systems.
following:  take administrative action to control This flexibility allows for the variations
ICF/MR reimbursement by encouraging States found among States in their payment rates
to adopt controls; seek legislation to control and the methods and standards used in
ICF/MR reimbursement, such as mandatory cost determining these rates.  The HCFA and
controls, Federal per capita limits, flat per OIG negotiated an agreement for HCFA to
capita payment, case-mix reimbursement or send the report to all State Medicaid
national ceiling for ICF/MR reimbursements; directors.  This action has been taken.
and seek comprehensive legislation to However, pursuant to section 4711 of the
restructure Medicaid reimbursement for both Balanced Budget Act of 1997, the Secretary
ICF/MR and home and community-based shall conduct a study on the effect on
waiver service for developmentally disabled access to, and the quality of services
people via global budgeting, block grants or provided to beneficiaries of the rate-setting
financial incentive programs. methods used by States.
(OEI-04-91-01010)
Flexible Benefit Plans:
The value of flexible benefit plans should be While HCFA agreed with the 291
included in the definition of wages for the recommendation and has submitted a
hospital insurance portion of the Federal legislative proposal to subject flexible
Insurance Contributions Act.  (CIN: benefit plans to the Hospital Insurance tax,
A-05-93-00066) the proposal was not included in the
Presidents budget.
Hospital Admissions:
Seek legislation to pay for covered services The HCFA proposed to implement OIGs 210
related to 1-day admissions without an recommendation through administrative
overnight stay as outpatient services which are remedies that would designate whether
paid on the basis of the lower of the actual costs specific services are to be covered and paid
or the customary charges in a locality.  (CIN: for as inpatient or outpatient services.  No
A-05-89-00055; CIN:  A-05-92-00006) proposal was included in the Presidents
current budget.
B-2       OIG Recommendation Status  Savings
in Millions
Graduate Medical Education:
Revise the regulations to remove from a The HCFA did not concur with the $157.3
hospitals allowable graduate medical education recommendations.  Although the Balanced
(GME) base year costs any cost center with Budget Act of 1997 contains provisions to
little or no Medicare utilization.  Submit a slow the growth in Medicare spending on
legislative proposal to compute Medicares GME, OIG believes that its
percentage of participation under the former recommendations should be implemented
more comprehensive system.  (CIN: and that further savings can be achieved.
A-06-92-00020)
Chemistry Panel Tests:
The HCFA should update its guidelines by The HCFA agreed with 8 of the 10 tests 130
expanding the national list of chemistry panel recommended for addition to the list and
tests to include 10 tests identified by the OIG added 6 of these tests to its carrier manual.
audit.  (CIN:  A-01-93-00521) The HCFA will periodically review
applicable tests and related equipment.
Also, although a legislative proposal to add
further tests was included in the Presidents
FY 1997 budget, the Congress decided
(through the Balanced Budget Act of 1997)
to achieve savings through other means,
including freezing laboratory payments
through 2002 and reducing the national
payment cap to 74 percent of the median of
all fee schedules. 
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations and has developed a
Medicare claim filing and begin to plan now for corrective action plan.
the policy changes that will become necessary
to achieve an almost completely paperless
environment for processing Medicare claims.
(CIN:  A-05-94-00039; OEI-01-94-00230)
Medicaid Drug Rebate Program:
The best price calculation in the Medicaid drug The OIG is continuing to monitor the 123
rebate program should be indexed to the Medicaid drug rebate program.  Audits will
consumer price index-urban.  (CIN: focus on enhancing the collection of rebates
A-06-94-00039) and providing potential savings to the
rebate program.
Medicaid Cost Sharing:
The HCFA should promote the development of The HCFA provided States with program 122
effective cost sharing programs by:  allowing and administrative flexibility through
States to experiment with cost sharing programs waivers for Medicaid programs.  It plans to
that target new populations and reflect more solicit information from States
substantial cost sharing amounts; and/or implementing cost sharing and distribute it
recommending changes to Federal requirements to States that do not impose it.  Several
allowing for greater State flexibility in States have submitted waiver applications
determining exempted populations and services; to HCFA to develop demonstration projects
allowing for higher beneficiary cost sharing which include experimental cost sharing
amounts; and promoting the use of cost sharing provisions.
in States that do not currently have programs.
(OEI-03-91-01800)
B-3       OIG Recommendation Status  Savings
in Millions
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The HCFA should propose legislation to expand The HCFA agreed to recover the improper $83.5
the diagnosis related group (DRG) payment Medicare billings and to refund the
window to at least 7 days immediately prior to beneficiaries coinsurance and deductible.
the day of admission.  (CIN:  A-01-92-00521) Collection of the overpayment is being
handled by settlement agreements with the
hospitals through the Department of Justice
working with HCFA and OIG.  The HCFA
did not concur with the recommendation to
further expand the payment window.  No
legislative proposal was included in the
Presidents current budget.
Inpatient Psychiatric Care Limits:
Develop new limits to deal with the high cost The HCFA considered a proposal 47.6 
and changing utilization patterns of inpatient recommending that the Medicare 190-day
psychiatric services.  Apply a 60-day annual lifetime limit for psychiatric hospitals be
and a 190-day lifetime limit to all psychiatric extended to general hospitals; however,
care regardless of the place of service.  (CIN: such a proposal was not included as part of
A-06-86-62045) the Presidents current budget.
Medicaid Payments for Employer Group
Health Insurance:
The HCFA should continue to strongly support The HCFA concurred with the first 32
States implementing Section 1906 of the Social recommendation and has been working in
Security Act, and should propose legislation partnership with regional offices and States
that allows States to pay employer group health to promote full implementation.  The HCFA
plan (EGHP) deductibles and coinsurance using deferred comment on the second
Medicaid fee schedules rather than EGHP fee recommendation.
schedules.  (OEI-04-91-01050)
Reduce End Stage Renal Disease Payment
Rates:
The HCFA should reduce the payment rates for The HCFA agreed that the composite 22*
outpatient dialysis treatments to reflect current payment rates should reflect the costs of
efficiencies and economies in the marketplace. outpatient dialysis treatment in efficiently
(CIN:  A-14-90-00215) operated facilities.  While the Omnibus
Budget Reconciliation Act of 1990
prohibited HCFA from changing these
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatment.  A
March 1996 study by ProPAC
recommended an increase to the current
rates, but HCFA did not believe an
across-the-board increase was warranted
and intended to monitor facilities costs and
other factors to determine if a rate increase
would be appropriate.  Toward this end, the
Balanced Budget Act of 1997 requires the
Secretary to audit the cost reports of each
renal dialysis provider at least once every 3
years.
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-4       OIG Recommendation Status  Savings
in Millions
Collect Overpayments from Health
Maintenance Organizations for
Misclassified End Stage Renal Disease
Beneficiaries:
The HCFA should issue clear guidelines for the The HCFA agreed to clarify its policies for $20.5
recovery of overpayments from health collecting overpayments from HMOs.
maintenance organizations (HMOs) and recover However, it collected overpayments
all overpayments occurring at least since 1992 retroactively only to March 1995 for the
that were made to HMOs on behalf of majority of misclassified beneficiaries and
misclassified end-stage renal disease (ESRD) retroactively to October 1993 for the
beneficiaries. (CIN:  A-14-96-00203) remaining beneficiaries who were
misclassified as having ESRD before
enrollment in the HMO.  Due to this limited
recovery schedule, HCFA has not collected
$20.5 million in overpayments which
occurred since 1992.  The HCFA disagreed
with the OIG recommendation to collect the
overpayments retroactively to 1992.
Preclude Improper Medicaid
Reimbursement for Clinical Laboratory
Services:
State agencies should install edits to detect and The HCFA is evaluating the OIG results. 14
prevent payments for clinical laboratory
services that exceed the Medicare limits and
billings that contain duplicate tests, recover
overpayments and make adjustments for the
Federal share of the amounts recovered.  
(CIN: A-01-95-00005; CIN:  A-05-95-00035;
CIN:  A-01-96-00001; CIN:  A-06-95-00078;
CIN:  A-06-95-00031; CIN:  A-04-95-01108;
CIN:  A-04-95-01109; CIN:  A-07-95-01139;
CIN:  A-07-95-01147; CIN:  A-04-95-01113;
CIN:  A-07-95-01138; CIN:  A-09-95-00072;
CIN:  A-05-96-00019; CIN:  A-10-95-00002;
CIN:  A-01-95-00006; CIN:  A-02-95-01009;
CIN:  A-03-96-00200; CIN:  A-03-96-00202;
CIN:  A-03-96-00203; CIN:  A-05-95-00062;
CIN:  A-06-96-00002; CIN:  A-06-95-00100)
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to This policy change was included in 12.8
allow payment for nonemergency advanced life proposed regulations published by HCFA in
support ambulance service only when that level June 1997.  It will be finalized as part of a
of service is medically necessary; instruct negotiated rulemaking process for
carriers to institute controls to ensure that development of an ambulance fee schedule
payment is based on the medical need of the (as mandated by the Balanced Budget Act
beneficiary; and closely monitor carrier of 1997).
compliance.  (CIN:  A-01-91-00513; CIN:
A-01-94-00528)
B-5       OIG Recommendation Status  Savings
in Millions
Medicare Payments for Orthotic Body
Jackets:
The HCFA should require the durable medical The HCFA concurred and has instituted $10.4
equipment regional carriers (DMERCs) to several methods to detect payment trends
closely monitor claims for body jackets, and identify suppliers who have exhibited
including:  analysis of payment trends, abusive practices.  However, payments
provision of an early warning of abusive continue at high levels.  The OIG is
practices and monitoring of suppliers who have currently updating this work.
engaged in abusive practices.
(OEI-04-92-01080)
Medicare Claims for Railroad Retirement
Beneficiaries:
Discontinue use of a separate carrier to process While HCFA has supported legislation in 9.1
Medicare claims for railroad retirement the past, there is currently no legislative
beneficiaries.  (CIN:  A-14-90-02528) proposal before the Congress.
Medicare Orthotics:
Develop guidelines that better define orthotic The HCFA concurred with the 7.9
devices; develop policies for orthotic codes; recommendations.  The HCFA continues to
develop screens for billing many orthotic work with the DMERCs, the American
devices on the same day or within a short time Orthotic and Prosthetic Association to
frame; pay special attention to billing for implement the recommendations.
orthotics in nursing facilities; work with the
American Orthotic and Prosthetic Association
to develop a table of devices that should not be
used together, and consider stricter standards to
determine who is allowed to bill for orthotics.
(OEI-02-95-00380)
Limit Reimbursement for Hospital Beds:
The HCFA should develop a new approach for The HCFA awarded a demonstration project 6.2
reimbursing suppliers of hospital beds used by on this subject in 1996.  The project is
Medicare beneficiaries at home.  The new expected to run in at least three sites for
reimbursement methodology should reflect a two cycles of 2 years each which began in
hospital beds useful life and the number of January 1997.  The Balanced Budget Act of
times a bed can customarily be rented over that 1997 requires the Secretary to conduct a
period.  (CIN:  A-06-91-00080) competition among individuals and entities
supplying Part B items and services.  Even
though only oxygen and oxygen equipment
were specifically mentioned in the statute
for one of the five demonstration projects,
HCFA is planning to include hospital beds
in at least one of the sites.
B-6       OIG Recommendation Status  Savings
in Millions
Third Party Liability Settlements and
Awards:
The HCFA should develop legislative proposals The HCFA agreed that the exception in the $3
to close the loopholes in the Omnibus Budget law contains loopholes.  It indicated that
Reconciliation Act of 1993 that allow Medicaid recommendations could be made to the
beneficiaries, who receive settlements and Congress to amend the exception limiting
awards from third parties as a result of the use of trust funds to certain
accidents, to shelter the assets in irrevocable well-defined necessities (e.g., health care
trusts and retain their eligibility for Medicaid. that is not covered by Medicaid).  The
The HCFA should also develop guidelines to HCFA also agreed to take appropriate
assist States in strengthening Medicaids right action to strengthen Medicaids right to
to recover when trusts are established by third recover from trusts established from third
parties.  (CIN:  A-09-93-00033) party settlements.  In June 1996, HCFA
issued guidelines which set forth advice on
ways in which States can better recover
Medicaid expenditures from established
third-party settlements, especially for the
disabled population.
Institutional General and Administrative
and Fringe Benefit Costs:
Revise the Provider Reimbursement Manual The HCFA has published changes to the to be determined
(PRM) to provide explicit guidelines on the PRM to clarify the allowability of several
allowability of certain general and of the cost categories identified in OIGs
administrative and fringe benefit costs.  (CIN: report.  In addition, the Balanced Budget
A-03-92-00017)   Act of 1997 prohibits payments for such
items as entertainment, gifts and donations.
The HCFA should clarify the remaining
cost categories noted in OIGs report, such
as the relationship between employee
benefits and perks; and the difference
between advertising, marketing and public
relations.  
Indirect Medical Education:
Reduce the indirect medical education (IME) The HCFA agreed with the to be determined
adjustment factor to the level supported by recommendation, and the Balanced Budget
HCFAs empirical data.  Initiate further studies Act of 1997 reduces the IME adjustment
to determine whether different adjustment factor from the current 7.7 percent in Fiscal
factors are warranted for different types of Year (FY) 1997 to 5.5 percent in 2001 and
teaching hospitals.  (CIN:  A-07-88-00111) thereafter.  The OIG believes the factor
should be further reduced to eliminate any
overlap with the disproportionate share
adjustment.
B-7       OIG Recommendation Status  Savings
in Millions
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The HCFA was concerned that an indefinite to be determined
provisions to include ESRD beneficiaries MSP provision might encourage insurers to
without a time limitation.  (CIN: drop uneconomical services, namely
A-10-86-62016) facility dialysis and transplantation.  The
HCFA favored indefinitely extending the
MSP provision for all other services and
included this proposal in an earlier budget
submission.  Although the Balanced Budget
Act of 1997 extends MSP policies for
individuals with ESRD to 30 months, OIG
continues to advocate that when Medicare
eligibility is due solely to ESRD, the group
health plan should remain primary until the
beneficiary becomes entitled to Medicare
for old age or disability.  At that point,
Medicare would become the primary payer.
Home Health Agencies:
The HCFA should revise Medicare regulations Although the Congress and the to be determined
to require the physician to examine the patient Administration included provisions to
before ordering home health services.  (CIN: restructure home health benefits in the
A-04-95-01103; CIN: A-04-95-01104; Balanced Budget Act of 1997, HCFA still
OEI-04-93-00262; OEI-04-93-00260; needs to revise Medicare regulations to
OEI-12-94-00180; OEI-02-94-00170; CIN: require that physicians examine Medicare
A-04-94-02087; CIN: A-04-94-02078; CIN: patients before ordering home health
A-04-96-02121; OEI-09-96-00110) services.  While agreeing in principle,
HCFA said it would continue to examine
both coverage rules and conditions of
participation to develop the discipline
necessary for ensuring proper certification.
Modify Payment Policy for Medicare Bad
Debts:
The OIG presented an analysis of four options The HCFA agreed with the to be determined
for HCFA to consider, including the elimination recommendation to include a bad debt
of a separate payment for bad debts, the offset factor in the DRG rates.  The Balanced
of Medicare bad debts against beneficiary Budget Act of 1997 provides for some
Social Security payments, the limitation of bad reduction of bad debt payments to
debt payments to prospective payment system providers, but additional legislative
hospitals that are profitable, and the inclusion of changes are needed to implement the
a bad debt factor in the DRG rates.  The HCFA modifications that OIG recommended.
should seek legislative authority to further
modify bad debt policies.  (CIN:
A-14-90-00339)
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Institute and Collect User Fees for Food and
Drug Administration Regulations:
Extend user fees to inspections of food In the absence of specific authorizing $44.3
processors and establishments. legislation, the Food and Drug
(OEI-05-90-01070) Administration is precluded by statute from
imposing user fees to cover additional
functions.  
B-8       OIG Recommendation Status  Savings
in Millions
Medical Malpractice Coverage:
The Health Resources and Services After conferring with the Department of $10 
Administration (HRSA) should consider Justice, the Department of Health and
seeking a legislative proposal to limit to $1 Human Services has decided not to seek a
million malpractice settlements or judgments legislative change at this time.
involving community and migrant health
centers.  (CIN:  A-04-95-05018)
Recharge Center Costs:
The Assistant Secretary for Management and The Deputy Assistant Secretary for Grants 1
Budget should propose changes to OMB and Acquisition Management concurred
Circular A-21 to improve guidance on the with the recommendations.  In addition, the
financial management of recharge centers.  The Council on Government Relations generally
revision should include criteria for establishing, agreed and stated that the proposed criteria
monitoring and adjusting billing rates to should be included in the Compliance
eliminate accumulated surpluses and deficits; Supplement to OMB Circular A-133, which
preventing the use of recharge funds for provides guidance to independent auditors
unrelated purposes and excluding unallowable in conducting compliance audits of
costs from the calculation of recharge rates; educational institutions.
ensuring that Federal projects are billed
equitably; and excluding recharge costs from
the recalculation of facilities and administrative
cost rates.  (CIN: A-09-96-04003)
ADMINISTRATION FOR CHILDREN AND FAMILIES
Limit Federal Participation in States Costs
for Administering the Foster Care Program:
Limit Federal participation in foster care This proposal was not included in the 247
administrative costs through one of the Presidents current budget.  The
following actions:  limit future increases in Administration for Children and Families
administrative costs to no more than 10 percent generally agreed with the recommendation,
per year; fund administrative activities via a but recently noted that claims for
single block grant with future increases based administrative costs have leveled off in the
on the consumer price index; limit past several years.
administrative costs to a percentage of
maintenance payments; or require States to file
claims for Federal participation within 1 year
after the calendar quarter in which the
expenditure was made.  (CIN:  A-07-90-00274;
OEI-05-91-01080)
GENERAL OVERSIGHT
Simplify Administrative/Indirect Cost
Allocation Systems:
The OMB should simplify the process for Some of OIGs recommendations are cited 660
charging administrative/indirect costs to Federal in the National Performance Review report
programs through reform of the cost allocation that calls for reform of the cost allocation
plans.  Options for reform include use of block process.  The OMBs revision of Circular
grant awards, a flat percentage rate for A-87 addressed those recommendations.
administrative/indirect costs, and negotiation of However, further reform is needed to
a nonadjustable rate for a predetermined address the bulk of administrative/indirect
number of years.  (CIN:  A-12-92-00014) costs charged to the Federal Government.
B-9 APPENDIX C
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency.  More detailed information may
be found in OIGs Program and Management Improvement Recommendations (the Orange Book).
OIG Recommendation Status
HEALTH CARE FINANCING ADMINISTRATION
Improve the Health Care Financing
Administrations Implementation of the
Federal Managers Financial Integrity Act
Program:
The Health Care Financing Administration (HCFA) The HCFA agreed with the intent of most of the
should extend its financial management review to the recommendations.  Although HCFA does not agree with the
Office of the Actuary and to all functional areas of the need to expand financial management reviews to other
Common Work File.  The HCFA also needs to classify systems, such as the Common Work File, Medicare
areas with pending material weaknesses as high risk, contractors are now required to make internal control
adequately implement its cost allocation system, and self-assessments.  Also, since HCFA did not include the
address significant Medicare secondary payer issues in its Office of the Actuary in its management control plan, it did
corrective action plan.  (CIN:  A-14-93-03026) not review the internal controls used in deriving the
accounts payable balance.  The HCFA believes that these
controls are not directly applicable to the calculation of
estimates for its financial reports.
Implement Proper Accountability over Billing
and Collection of Medicaid Drug Rebates:
The HCFA should ensure that States implement The HCFA concurred with the recommendation.  States
accounting and internal control systems in accordance will now be required to maintain detailed supporting
with applicable Federal regulations for the Medicaid drug records of all rebate amounts invoiced to drug companies
rebate program.  Such systems must provide for accurate, using a formal accounts receivable system.  The HCFA
current and complete disclosure of drug rebate issued interim regulations in Fiscal Year (FY) 1996.
transactions and provide HCFA with the financial
information it needs to effectively monitor and manage
the Medicaid drug rebate program.  (CIN:
A-06-92-00029)
C-1       OIG Recommendation Status
Medicare Trust Funds Accounts Receivable
Balances:
The HCFA and its Medicare contractors need an The HCFA agreed with the recommendations and is
integrated financial management system to promote pursuing methods to substantiate the Medicare contractors
consistency and reliability in recording and reporting accounts receivable balances.  Although HCFAs
accounts receivable information.  Also, HCFA should long-range plan continues to focus on a contractor-based
retain proper documentation to support the reported integrated accounting system, the short-term (FY 1998)
balances and should strengthen internal controls on plan focuses on using the contractors existing subsidiary
segregation of duties.  (CIN:  A-01-92-00516; CIN: systems to improve the quality of data and to identify and
A-01-94-00520; CIN:  A-17-94-03032; CIN: document the audit trails necessary to support reported
A-17-95-00051; CIN:  A-17-95-00096) data.  The HCFA requested the Medicare contractors to
"snapshot" their systems at the end of each quarter to keep
a complete audit trail, including transaction level ledgers.
The HCFA also scheduled visits by technical teams to
several contractors to review systems, reconcile financial
data, ensure that appropriate audit trails are available,
assess any short-term system improvements that may be
needed and identify any changes needed to the HCFA
750/751 reports.
Improve Financial Management Systems to
Enhance Financial Reporting:
The HCFA should develop and implement financial A new payables methodology was developed for the FY
management systems and related accounting and 1997 financial statements, and it was accepted by OIG
administrative controls to ensure that all Medicare auditors.  The HCFA is also asking the Medicare
accounts payable and liabilities are reported to the HCFA contractors to review their internal controls, particularly in
general ledger at fiscal year end.  (CIN:  A-14-92-03015; the area of financial reporting.  Data is currently being
CIN:  A-14-93-03027; CIN:  A-17-94-03032; CIN: collected and analyzed.
A-17-95-00051; CIN:  A-17-95-00096)
Consider Recommended Safeguards over
Medicaid Managed Care Programs:
The HCFA should consider safeguards available to reduce The HCFA generally concurred with OIGs
the risk of insolvency and to ensure consistent and recommendations but felt that a broader analysis of
uniform State oversight.  (CIN:  A-03-93-00200) managed care plans was needed to support broad program
recommendations.  The OIG notes that the same concerns
raised in its report have been expressed by the Congress
and the General Accounting Office.  The OIG is continuing
reviews of Medicaid managed care plans.
Provide Additional Guidance to Drug
Manufacturers to Better Implement the
Medicaid Drug Rebate Program:
The HCFA should survey manufacturers to identify the The HCFA did not concur stating that the drug law and the
various calculation methods used to determine average rebate agreements already established a methodology for
manufacturer price (AMP).  The HCFA should also computing AMP.  The OIG disagreed because the rebate
develop a more specific policy for calculating AMP law and agreement defined AMP, but did not provide
which would protect the interests of the Government and specific written methodology for computing AMP.
which would be equitable to the manufacturers.  (CIN:
A-06-91-00092) 
Physician Office Surgery:
The peer review organizations (PROs) should extend The HCFA continues to work with the PROs to refine a
their review to surgery performed in physicians offices. methodology for review of quality of care for ambulatory
(OEI-07-91-00680) services.  The implementation plan is to expand the review
of ambulatory services to additional States, first on a pilot
basis, then on an implementation basis in other States.
C-2       OIG Recommendation Status
Implementing the New Medicare Transaction
System:
The HCFA should take steps early to ensure that the new The HCFA concurred with OIGs recommendations.
nationwide Medicare claims processing system, MTS, is However, on August 15, 1997, HCFA terminated the
designed to assure flexibility and adaptability to meeting contract with the design contractor for development of
future program requirements.  (CIN:  A-14-93-02543) MTS.  The HCFA is assessing its future actions. 
Review Determinations of Graduate Medical
Education Costs:
The HCFA should take steps to ensure that fiscal The HCFA concurred with the recommendation but noted
intermediaries audit teaching hospitals full-time that currently Medicare GME payments are not tied to
equivalent resident counts for the base year used in reported costs, which may affect the accuracy of such costs.
determining graduate medical education (GME)
payments.  (CIN:  A-06-94-00059)
Properly Account for Medicare Secondary
Payer Overpayments:
Although agreement was reached to relieve Blue Cross The HCFA is currently pursuing the recommended
and Blue Shield plans of past due Medicare secondary administrative action through improved information
payer (MSP) overpayments, HCFA should continue to systems to guard against making improper Medicare
implement financial management systems to ensure that payments to the Blue Cross and Blue Shield plans.
all overpayments (receivables) are accurately recorded.
(CIN:  A-09-89-00100)
Investigate Patient Dumping Complaints:
The HCFA should improve its processes for investigating The HCFA concurred with OIGs recommendations.
and resolving complaints involving potential violations of
the Examination and Treatment for Emergency Medical
Conditions and Workmen in Labor Act, commonly
referred to as patient dumping.  (CIN:  A-06-93-00087)
Medicare Beneficiary Satisfaction with
Durable Medical Equipment Regional Carrier
Services:
The HCFA should evaluate ways to increase beneficiary The HCFA concurred.  The HCFA conducts annual
satisfaction with the one durable medical equipment evaluations to identify ways to improve performance.  The
regional carrier with a low rating, and review effective HCFA is also working to develop new outreach techniques
ways to educate beneficiaries on what constitutes fraud to increase beneficiaries knowledge on detecting fraud and
and abuse.  (OEI-02-96-00200) abuse.
Pressure Reducing Support Services:
The HCFA should establish the requirement for periodic The HCFA did not concur.
review and renewal of the medical necessity for
beneficiaries use of group 2 support surface equipment.
(OEI-02-95-00370)
Excessive Medicare Payments for Prescription
Drugs:
The HCFA should examine its Medicare drug The Balanced Budget Act of 1997 reduced Medicare
reimbursement methodologies.  (OEI-03-97-00290) payments by limiting them to 95 percent of the average
wholesale price.  Additional corrective action is warranted
and called for in the Presidents 1999 budget and
legislative program.
C-3       OIG Recommendation Status
Monitor the Validity of Medicare
Fee-for-Service Payments Made under Title
XVIII of the Social Security Act:
Stronger oversight by HCFA is needed to provide A work group has been established to develop a substantive
reasonable assurance of detecting and preventing testing process which will produce a claims error rate.  The
improper Medicare payments and to preserve the HCFAs goal is to use substantive testing to gather data that
solvency of the Medicare Trust Funds.  To ensure is statistically valid to allow for projecting a national error
provider compliance with Medicare reimbursement rules rate and in a format that will benefit HCFA and its
and regulations, HCFA should develop a national error contractors in identifying areas for improvement.
rate to objectively measure improper payments and
performance in reducing such payments. (CIN:
A-17-95-00096)
Improve Medicare Electronic Data Processing
Controls:
Electronic data processing (EDP) controls should be Most improvements relating to access and separation of
improved at the HCFA central office, selected Medicare duties have been completed. The HCFA is still considering
contractor locations, Common Working File (CWF) host system upgrades, is completing an update of the disaster
sites, the CWF maintainer and shared system maintainers. recovery plan, and plans to improve controls making use of
This review was limited to EDP general and application risk analysis and cost benefit analysis. 
controls and did not include EDP management or
operation controls used to administer, process and
account for Medicare expenditures. (CIN:
A-17-95-00096). 
Medicaid Accounts Receivable and Accounts
Payable:
The HCFA should improve its estimation model (State Each State was given the opportunity to indicate, on the
survey) for accounts receivable and accounts payable to survey form, the best source and time to retrieve the
ensure that clear and complete survey instructions are information. The HCFA is currently establishing a process
provided, procedures are implemented to address survey for monitoring the collection of data and is developing a
problems and trend data is appropriately developed. methodology for trend data. 
(CIN:  A-17-95-00096)
Financial Management Controls:
Improvements are needed in the HCFA contractors As a mid- to long-term strategy, HCFA has begun to
controls to protect assets against theft, loss, misuse or analyze the shared systems to find a way to incorporate
unauthorized alteration and to reduce the opportunities accounting and reporting processes into the intermediary,
for perpetuating and concealing errors or irregularities. carrier and durable medical equipment regional carrier
In addition, contractors need to implement the controls shared systems, as well as the CWF.  The HCFAs ultimate
necessary to ensure adequate financial reporting. (CIN: goals are national standardization of the systems and
A-17-95-00096) automation of the claims, financial and reporting processes.
In addition, HCFA has established audit coordinators, held
seminars and contracted audits to review internal controls
and financial reporting at intermediaries and carriers.   
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Improve Blood Establishments Error and
Accident Reporting:
The FDA should ensure that timely error and accident The FDA is taking corrective actions, including developing
reports are submitted by blood establishments currently and implementing revisions to regulations to require
required to submit such reports, and should take unlicensed blood establishments to submit error and
regulatory action to require that unlicensed blood accident reports.  The FDA is also using existing systems to
establishments submit error and accident reports.  (CIN: identify establishments that do not submit timely reports.
A-03-93-00352; CIN:  A-03-95-00350)
C-4       OIG Recommendation Status
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING
Improve the Federal Foster Care Program:
The OIG provided options for the Administration for The ACF concurred and has field-tested its redesigned
Children and Families (ACF) to consider in its efforts to titles IV-B and IV-E child welfare reviews.  A draft notice
improve its partnership with State and local governments of proposed rulemaking is currently in preliminary
in administering the Federal Foster Care program.  The clearance.  In addition, the child welfare waiver
options included streamlining the process; determining demonstrations are allowing several States to test
whether legislative change is needed; and determining if alternative approaches to the title IV-E requirements.
certain program requirements could be changed to
facilitate compliance.  (CIN:  A-12-93-00022)
Develop Effective Practices for Facility
Purchases by Head Start Grantees:
The ACF should work to develop effective practices for The ACF agreed with OIGs recommendations.
handling facility purchases by Head Start program
grantees, particularly in the areas of review and approval
of purchase requests, and accounting for facility
purchases.  (CIN:  A-09-94-00085)
GENERAL OVERSIGHT
Update Cost Principles for Federally
Sponsored Research Activities:
The Department should act to modernize and strengthen The Department intends to begin work on revising hospital
cost principles applicable to hospitals by either revising cost principles when the revisions of the Governmentwide
existing guidelines to conform with Office of cost principles for universities and State and local
Management and Budget (OMB) Circular A-21 or governments (OMB Circulars A-21 and A-87, respectively)
working with OMB to extend Circular A-21 coverage to are finalized by OMB.
all hospitals.  (CIN:  A-01-92-01528)
Guidelines to Reimburse Educational
Institutions and Nonprofit Organizations:
The Department should work with OMB to revise The OMB has revised Circular A-87 to limit PRB costs to
applicable cost principles to reflect the change in the amount funded, and agreed that similar provisions
accounting for post retirement benefit (PRB) costs arising should be incorporated in future modifications of circulars
from implementation of Financial Accounting Standards applicable to educational institutions and nonprofit
Board Opinion 106.  It should also advise negotiators for organizations (OMB Circulars A-21 and A-122,
the Departments Division of Cost Allocation to pay respectively).  In the interim, the Department has issued
special attention to such costs when reviewing fringe instructions to negotiators that PRB costs claimed under
benefit rates for schools and nonprofit organizations. Circulars A-21 and A-122 should be treated in the same
(CIN:  A-01-93-04000) manner as the proposed provisions of Circular A-87.
Implement Random Moment Sampling
Systems and Other Time Studies:
The Department, in conjunction with OMB, should issue The Department agreed with OIGs conclusion and is
definitive, authoritative guidelines for States adopting working with OMB to develop guidelines related to the
random moment time studies.  (CIN:  A-07-93-00645) determination of administrative costs, including standards
for using random moment time studies.
C-5 APPENDIX D
Notes to Tables I and II
Table I
1 The opening balance was adjusted to reflect an upward revaluation of recommendations in the amount of $58.1 million.
2 During the period, revisions to previously reported management decisions included:
CIN:  A-05-91-15510  ONEIDA Tribe of Indians of Wisconsin:  After further review, it was determined
that Federal funds were not charged for the previously disallowed indirect costs of
$179,667.
CIN:  A-06-96-00027  VNA of Texas Hospice Eligibility Review: A more detailed review of
documentation reduced the estimated Medicare overpayment by $86,465.
CIN:  A-05-95-32978  State of Ohio: Further review determined that Federal overpayments were
underestimated by $54,326.
Not detailed are revisions to previously disallowed management decisions totaling $370,196.
3 Audits on which a management decision had not been made within 6 months of issuance of the report:
A.  Due to administrative delays, many of which were beyond managements control, resolution of the following
audits was not completed within 6 months of issuance; however, based upon discussions with management
officials responsible for those audits, resolution of these outstanding recommendations is expected before the
end of the next semiannual reporting period:
CIN:  A-09-96-00071  Audit of Foster Family Agency Rates in California, August 1997, $15,849,210
CIN:  A-05-94-00064  Michigan Blue Cross/Blue Shield, Audit of Administrative Costs, June 1996,
$15,609,718
CIN:  A-09-97-44262  State of California, April 1997, $7,419,900
CIN:  A-09-96-00066  CA Dept of Social Services, September 1997, $6,611,640
CIN:  A-03-91-00552  Independent Living Program-National March 1993, $6,529,545 (Related
recommendation of $10,161,742 outstanding on Table II).
CIN:  A-10-97-48849  State of Oregon, July 1997, $6,379,395
CIN:  A-07-92-00578  Blue Cross/Blue Shield of Texas Inc.-Unfunded Pension Costs, October 1992,
$6,244,637
CIN:  A-05-96-00013  DCFS Training Costs, August 1996, $5,812,360
CIN:  A-04-96-04575  Audit ATSDRs Superfund Financial Accounting June 1997, $5,360,000
CIN:  A-07-97-01028  Review of Training Costs-Kansas, August 1997 $5,136,647
CIN:  A-04-97-04599  Audit of ATSDRs Superfund, September 1997, $4,800,000
CIN:  A-01-97-46859  State of Massachusetts, May 1997, $4,798,706
CIN:  A-07-96-02001  Medicare Part B Administrative Costs at Blue Cross/Blue Shield of Colorado,
December 1996, $4,483,104
D-1 CIN:  A-05-94-00080  Associated Insurance - Medicare Administrative Costs, July 1996, $3,954,632
CIN:  A-09-95-00056  Review of Training Costs-CA Department of Social Services, August 1996,
$3,934,717
CIN:  A-10-96-00004  Audit of Training Contracts, September 1997, $3,840,343
CIN:  A-09-96-00064  Hospice-California, March 1997, $3,450,000
CIN:  A-05-93-00054  Illinois Associated Insurance Group-Contract Audit, October 1993, $3,355,560
CIN:  A-07-93-00633  Pension Segmentation-AETNA Life Insurance Co., October 1993, $3,011,376
CIN:  A-07-92-00585  Pension Segmentation Blue Cross/Blue Shield of California, January 1994,
$2,973,504
CIN:  A-01-95-00504  Medicare Parts A&B Administrative Costs-AETNA, January 1996, $2,938,223
CIN:  A-06-97-43135  State of Texas, February 1997, $2,987,053
CIN:  A-01-96-00508  Medicare Administrative Costs Parts A&B and Travelers, March 1996, $2,803,260
CIN:  A-07-96-01185  Blue Cross/Blue Shield Mountain Pension Segmentation, June 1997, $2,743,438
CIN:  A-07-92-00579  Blue Cross/Blue Shield of Michigan Inc.-Unfunded Pension Costs, $2,535,698
CIN:  A-05-92-00026  Associated Insurance Co.-Medicare Administrative Costs, February 1992,
$2,530,409
CIN:  A-02-91-01006  Blue Shield of Western New York Medicare Administrative CTS Porter, September
1991, $2,379,239
CIN:  A-03-90-02003  Blue Cross of Western PA Administrative Costs FY86-89, August 1993, $2,218,528
CIN:  A-09-95-00074  Home Health Professionals, Pasadena, February 1997, $2,151,179
CIN:  A-02-93-02001  Manpower Demonstration Corp., October 1994, $2,024,444
CIN:  A-06-97-46119  Arkansas Dept. Of Human Services, August 1997, $2,054,508
CIN:  A-02-94-01030  Hospice Eligibility Review in Puerto Rico-Manati, June 1995,$1,598,837
CIN:  A-03-92-19733  State of Maryland, August 1992, $1,505,462
CIN:  A 06-96-00008  Arkansas Blue Cross/Blue Shield Costs, September 1996, $1,442,193
CIN:  A-03-90-00051  Maryland BC/BS Administrative Costs-Part A-FYs 85-88, August 1991, $1,438,414
CIN:  A-02-96-42454  City of New York HRA Agency for Child Development, May 1996, $1,410,441
CIN:  A-05-93-00057  Blue Cross & Blue Shield of Michigan, July 1993, $1,409,954
CIN:  A-10-91-00011  WPS-Keystone Computer Acquisition, October 1992, $1,346,681
CIN:  A-05-95-00042  Blue Cross/Blue Shield Administrative Costs, December 1995, $1,333,598
CIN:  A-02-96-01016  Empire Administrative Costs Part B, April 1997, $1,296,098
CIN:  A-07-93-00070  Blue Cross/Blue Shield-Unfunded Pension Cost Audit, May 1994, $1,290,740
CIN:  A-07-96-01194  Community Mutual Pension Segmentation, July 1997, $1,263,188
CIN:  A-10-97-47406  State of Idaho, April 1997, $1,262,577
CIN:  A-07-94-00762  Health Care Service Corp-Unfunded Pensions Costs, July 1994, $1,233,337
D-2 CIN:  A-07-93-00634  Pension Segmentation-Travelers Insurance Co., October 1993, $1,218,963
CIN:  A-09-96-00061  Blue Shield of California Administrative Costs, December 1996, $1,127,305
CIN:  A-02-94-01029  Hospice Eligibility Review in Puerto Rico-San German, June 1995, $1,070,814
CIN:  A-07-94-00763  Health Care Services Corporation-Pension Segmentation, August 1994, $1,055,458
CIN:  A-05-94-00047  Nationwide Insurance Medicare Part B Administrative Costs, September 1995,
$1,049,309
CIN:  A-07-97-01220  Pro Closeout-McBride CPA, March 1997, $1,006,560
CIN:  A-07-97-01208  Community Mutual Pension, July 1997, $991,972
CIN:  A-06-95-00035  Fees Retained by Child Placing Agencies, February 1996, $988,680
CIN:  A-09-96-00074  Blue Shield of California-Administrative Costs, December 1996, $973,337
CIN:  A-09-94-01010  Closeout Audit-Stratagene, March 1994, $983,208
CIN:  A-05-92-00060  Contractor Audit-Blue Cross/Blue Shield-Administrative Costs, February 1993,
$879,609
CIN:  A-09-96-00088  Audit of  The Care Providers   HHA, August 1997, $877,111
CIN:  A-02-94-01022  Blue Cross/Blue Shield of New Jersey, Administrative Costs-Medicare, September
1997, $864,851
CIN:  A-07-93-00701  Blue Cross/Blue Shield of Massachusetts-Pension Costs Charged Audit, July 1994,
$839,740 
CIN:  A-04-96-02122  Review of Medical Therapy, Inc., September 1997, $761,849
CIN:  A-07-96-01193  Pro Closeout-McBride CPA, August 1996, $751,789
CIN:  A-05-91-00136  Community Mutual Insurance Co., Administrative Costs, August 1992, $720,668
CIN:  A-07-96-01195  New Mexico Pension Segmentation, February 1997, $700,952
CIN:  A-07-93-00699  Blue Cross/Blue Shield of Massachusetts-Pension Segmentation Audit, April 1994,
$658,471
CIN:  A-02-96-01015  Empire Administrative Costs Part A-Gardiner, Kamya and Assoc., April 1997,
$652,492
CIN:  A-06-96-00062  South Plains Community Action Association, July 1996, $639,400
CIN:  A-04-94-01078  Monitoring Admin Cost-Audit Medicare Part B Blue Cross/Blue Shield of South
Carolina, July 1994, $594,092
CIN:  A-04-93-01069  Monitoring Administrative Costs Audit-Medicare Part A-Blue Cross/Blue Shield of
South Carolina, July 1994, $590,844
CIN:  A-07-93-00679  AETNA-Unfunded Pension Cost Audit, May 1994, $590,207
CIN:  A-02-97-47130  Middlesex County Economic Opportunities, June 1997, $578,550
CIN:  A-03-97-00009  Peer Review Systems Inc. Ohio, March 1997, $545,405
CIN:  A-07-96-01198  Rocky Mountain Unfunded Pension, February 1997, $543,421
CIN:  A-02-91-03508  Audit of New Jersey Child Care and Supportive Services, June 1993, $506,710
D-3 CIN:  A-06-92-00017  IHS Creek Contract Closeout, May 1992, $468,217
CIN:  A-03-97-43787  State of Virginia, February 1997, $455,520
CIN:  A-06-93-00042  Blue Cross/Blue Shield of Texas Administrative Costs-Medicare Parts A&B,
January 1993, $434,134
CIN:  A-05-95-00034  Blue Cross/Blue Shield-Medicare Part A, February 1996, $416,524
CIN:  A-07-97-01235  Doshi,Texas, June 1997, $424,255
CIN:  A-03-95-00451  Escheated Warrants-District of Columbia, August 1995, $420,607
CIN:  A-07-96-01188  Pro Closeout-Doshi CPA, August 1996, $432,698
CIN:  A-09-96-00089  Audit of  Med Care Plus HHA, August 1997, $389,497
CIN:  A-01-97-48712  State of Rhode Island & Providence Plantations, August 1997, $369,459
CIN:  A-04-96-01134  HCFA Survey Team-Colonnade Medical, February 1997, $358,338
CIN:  A-04-96-01136  HCFA Survey-Savanah, December 1996, $354,537
CIN:  A-05-92-00126  Wisconsin Westcap Head Start-ACF, March 1993, $347,576
CIN:  A-17-95-00096  FY 1996 HCFA Financial Audit, July 1997, $334,465
CIN:  A-05-93-25697  West Central Wisconsin Community Action Agency Inc., August 1993, $324,759
CIN:  A-03-97-00587  Little Neighborhood Centers, September 1997, $328,757
CIN:  A-09-96-00096  Audit of Mojave HHA Cost Report, July 1997, $327,304
CIN:  A-04-96-01150  Review of Flagship Conv. Center, Newport, CA, April 1997, $287,564
CIN:  A-10-97-49306  State of Alaska, August 1997, $287,125
CIN:  A-04-96-01129  HCFA Survey Team-American Trans. Care, February 1997, $284,378
CIN:  A-06-97-44962  Ki Bois Community Action Foundation, Inc., April 1997, $282,803
CIN:  A-04-96-00107  Review of Selected Head Start Grant Costs-Harambee, May 1997, $270,863
CIN:  A-09-94-30178  State of Arizona, June 1994, $267,021
CIN:  A-09-96-39178  Arizona Affiliated Tribes, Inc., April 1996, $258,824
CIN:  A-03-92-20033  State of Delaware, August 1992, $247,609
CIN:  A-07-93-00710  Blue Cross/Blue Shield of Connecticut-Unfunded Pension Cost Audit, March 1994,
$237,392 
CIN:  A-03-97-48303  Management Systems Applications, July 1997, $230,753
CIN:  A-04-97-01152  Michigan Pro-Closeout Audit, June 1997, $228,630
CIN:  A-04-96-01135  HCFA Survey Washington Manor Nursing, February 1997, $220,483
CIN:  A-09-96-00094  Audit of Dynasty HHA Cost Report, July 1997, $217,720
CIN:  A 05-91-00064  Nationwide Administrative Costs Contract Audit, October 1991, $211,422
CIN:  A-09-95-34788  State of Arizona, August 1995, $209,462
CIN:  A-05-96-00052  Ancillary Costs-NW Community Hospital, June 1997, $206,508
D-4 CIN:  A-06-96-00070  Skilled Nursing Facilities at Methodist Hospital, January 1997, $200,000
CIN:  A-04-96-01149  Review of Presbyterian Hospital of Dallas, April 1997, $198,663
CIN:  A-10-96-00007  Idaho Migrant Council Head Start, March 1997, $192,981
CIN:  A-06-97-47756  State of Louisiana, May 1997, $189,101 
CIN:  A-05-94-29229  West Central Wisconsin Community Action Agency Inc., March 1994, $167,977
CIN:  A-05-96-00031  WIPRO Equipment Depreciation, August 1996, $167,033
CIN:  A-04-96-01124  HCFA Survey of Stafford Ct., February 1997, $161,774
CIN:  A-07-97-01206  Washington/Alaska Unfunded Pension, March 1997, $160,843
CIN:  A-04-97-47239  State of Kentucky, June 1997, $158,071
CIN:  A-09-92-06850  Santa Ysabel Band of Mission Indians, September 1992, $151,081
CIN:  A-01-97-49353  State of Maine, September 1997, $142,516
CIN:  A-07-97-01222  Pro Close-out Doshi CPA, March 1997, $140,332
CIN:  A-04-96-01147  Parker Jewish Geriatric Center, Hyde Park New York, April 1997, $140,188
CIN:  A-05-92-00048  Wisconsin Physicians Services, Pension-Medicare vs. Erisa, October 1992,
$130,577
CIN:  A-06-96-41681  Texas Migrant Council, Inc., March 1996, $129,886
CIN:  A-07-93-00709  Blue Cross/Blue Shield of Connecticut-Pension Segmentation Audit, April 1994,
$119,472
CIN:  A-02-97-47931  Puerto Rico Administration for Families & Children, May 1997, $115,225
CIN:  A-03-95-03329  Henderson Associates, March 1997, $111,289
CIN:  A-02-96-01001  VNS of New York Home Care-HHA, September 1997, $110,841
CIN:  A-07-95-01159  Nebraska Blue Cross/Blue Shield Pension Segmentation, January 1996, $96,955
CIN:  A-07-96-01189  Washington/Alaska Blue Cross Pension, March 1997, $96,740
CIN:  A-06-96-43195  Pueblo of Isleta, June 1996, $92,969
CIN:  A-09-97-48988  State of Nevada, July 1997, $90,405
CIN:  A-07-95-01164  Medicare Administrative Costs-General American, December 1995, $89,929
CIN:  A-03-97-48850  Little Neighborhood Schools Inc., August 1997, $86,478
CIN:  A-02-95-34278  Puerto Rico Dept. Of Health, June 1995, $86,064
CIN:  A-02-95-34279  Puerto Rico Dept. Of Health, June 1995, $85,266
CIN:  A-04-96-38655  State of North Carolina, April 1996, $83,237
CIN:  A-01-96-00505  CFO Audit of HCFAs Financial Statements, July 1997, $80,236
CIN:  A-05-97-48402  Montgomery County Community Action Agency, July 1997, $79,374
CIN:  A-03-97-43787  State of Virginia, February 1997, $78,608
CIN:  A-04-96-01137  HCFA Survey of Daytona Nursing, December 1996, $76,130
D-5 CIN:  A-05-97-48530  Jackson-Vinton Community Action Inc., July 1997, $75,392
CIN:  A-08-96-42696  Blackfeet Tribe of the Blackfeet Indian Reservation, July 1996, $71,988
CIN:  A-03-97-49045  State of Maryland, August 1997, $69,693
CIN:  A-09-97-48489  Pascua Yaqui Tribe of Arizona, June 1997, $68,736
CIN:  A-09-93-00091  Walter McDonald-Indirect Cost Rate Audit, June 1994, $68,663
CIN:  A-08-97-44338  Three Affiliated Tribes, January 1997, $68,468
CIN:  A-09-96-43765  Arizona Affiliated Tribes Inc., September 1996, $66,526
CIN:  A-02-95-34275  Puerto Rico Dept of Health, June 1995, $64, 841
CIN:  A-08-97-46601  UTE Indian Tribe, April 1997, $62,865
CIN:  A-05-96-00072  Michigan Department of Community Health/Medicaid Lab Services, August 1997,
$59,956
CIN:  A-05-96-00051  Ancillary Costs-St. Joseph, June 1997, $58,008
CIN:  A-06-92-19887  Central Tribes of the Shawnee Area Inc., July 1992, $57,944
CIN:  A-09-97-00059  Health Services Advisory Group, May 1997, $57,925
CIN:  A-04-96-40781  State of Alabama, May 1996, $56,573
CIN:  A-03-97-49235  State of Pennsylvania, September 1997, $55,704
CIN:  A-04-96-01125  HCFA Survey- Rosemont, February 1997, $55,306
CIN:  A-09-96-41388  Fresno County Economic Opportunities Commission, February 1996, $50,040
CIN:  A-10-97-47406  State of Idaho, April 1997, $55,012
CIN:  A-04-97-48932  Gaston Community Action Inc., July 1997, $52,720
CIN:  A-09-95-00095  Health Services Advisory Group, December 1995, $49,585
CIN:  A-09-96-39877  Amity Inc., November 1995, $49,358
CIN:  A-03-93-03306  Survey Research Assoc., December 1993, $48,779
CIN:  A-04-96-01122  HCFA Survey-AMI Town County Hospital, February 1997, $47,147
CIN:  A-02-95-34276  Puerto Rico Dept. Of Health, June 1995, $46,842
CIN:  A-05-96-40815  Two Rivers Head Start, February 1996, $44,349
CIN:  A-09-96-39877  Amity Inc., November 1995, $42,725
CIN:  A-01-97-49011  State of Washington, July 1997, $41,772
CIN:  A-05-97-45382  Child Care Resources Inc.-Ohio, November 1996, $36,750
CIN:  A-06-95-00037  Research Training For DHHS /Oklahoma, October 1996, $36,563
CIN:  A-07-97-01218  Doshi, March 1997, $33,752
CIN:  A-06-97-47794  Gulf Coast Community Services Association, July 1997, $32,619
CIN:  A-03-95-33937  Koba Institute Inc., August 1995, $32,575
D-6 CIN:  A-05-97-45225  University of Wisconsin, December 1996, $32,011
CIN:  A-09-96-42547  Maricopa County Arizona, April 1996, $30,766
CIN:  A-05-95-36811  Independent School District -Duluth Minn., April 1995, $30,000
CIN:  A-05-97-48015  Hoosier Valley Economic Opportunity Corp., May 1997, $29,004
CIN:  A-06-92-00017  IHS Creek Contract, May 1992, $28,387
CIN:  A-03-92-00033  Blue Cross of West Virginia Termination, November 1992, $25,200
CIN:  A-03-97-48111  State of Virginia, May 1997, $24,184
CIN:  A-02-97-48759  Head Start Program Archdiocese of San Juan, August 1997, $23,574
CIN:  A-02-97-44455  Community Action Agency of Franklin County, Inc., December 1996, $21,395
CIN:  A-10-97-43797  State of Washington, January 1997, $21,241
CIN:  A-06-97-48531  State of Texas, July 1997, $20,697
CIN:  A-05-96-43041  Hoosier Valley Economic Opportunity Corp., June 1996, $20,438
CIN:  A-05-96-39685  Michigan Family Resources, December 1995, $20,799
CIN:  A-09-97-46954  Shasta County Head Start Action Agency, March 1997, $20,085
CIN:  A-04-97-01163  VIMI Medicare Pro Contract Audit, September 1997, $18,758
CIN:  A-05-93-21928  Wright State University, July 1993, $18,308
CIN:  A-06-96-42704  Eight Northern Indian Pueblos Council, July 1996, $18,165
CIN:  A-03-97-00007  NE Health Care Quality Foundation-Contract Close-Out, March 1997, $17,045 
CIN:  A-01-97-45002  McLean Hospital Corp., March 1997, $16,892
CIN:  A-01-97-44143  Brandeis University, January 1997, $16,602
CIN:  A-06-97-47306  Marie Detty Youth & Family Service Center Inc., April 1997, $16,020
CIN:  A-07-97-01205  Washington/Alaska Pension FACP, March 1997, $15,688
CIN:  A-05-95-34584  Wood County Head Start Inc., December 1994, $14,896
CIN:  A-03-97-00008  NE Health Care Quality Foundation-Vermont, March 1997, $14,596
CIN:  A-10-92-20781  Tulalip Tribes of Washington, September 1992, $14,525
CIN:  A-06-97-42861  Tulsa Community Action Agency Inc., November 1996, $14,157
CIN:  A-09-98-49643  Hui No Ke Ola Pono Inc., October 1997, $13,842
CIN:  A-07-95-01175  Mutual of Omaha-Administrative Costs, August 1996, $13,564
CIN:  A-05-95-36498  Hoosier Valley Economic Opportunity Corp., April 1995, $13,116
CIN:  A-01-97-45487  ABT Associates, January 1997, $12,950
CIN:  A-03-97-47731  State of Delaware, May 1997, $11,880
CIN:  A-09-95-00091  Walter R. McDonald and Associates, September 1995, $11,812
CIN:  A-01-97-47552  State of New Hampshire, May 1997, $11,413
D-7 CIN:  A-03-93-21579  State of West Virginia, April 1993, $11,380
CIN:  A-01-97-48573  New Opportunities for Waterbury, July 1997, $10,675 (Related recommendation of
$122,126 outstanding on Table II).
CIN:  A-09-92-06864  San Juan Southern Paiute Tribe, September 1992, $10,433
CIN:  A-04-97-49204  State of Tennessee, September 1997, $10,269
CIN:  A-10-97-46803  Lutheran Social Services of Washington & Idaho, May 1997, $9,962
CIN:  A-10-97-48639  Nooksack Indian Tribe, August 1997, $9,440
CIN:  A-06-97-48284  East Texas Family Services Inc., August 1997, $9,130
CIN:  A-04-97-01153  MS Foundation-Medical Care Pro Contract Audit, September 1997, $9,070
CIN:  A-09-97-48966  Karidat, July 1997, $8,905
CIN:  A-09-96-40115  Mariannas Association for Retarded Citizens, November 1995, $8,870
CIN:  A-02-95-34277  Puerto Rico Dept. of Health, June 1995, $8,486
CIN:  A-06-97-48062  Cheyenne-Arapaho Tribes of Oklahoma, May 1997, $8,321
CIN:  A-04-96-04211  University of Alabama, October 1997, $8,035
CIN:  A-07-97-01231  Prowest Doshi Washington, June 1997, $8,027
CIN:  A-06-97-47756  State of Louisiana, May 1997, $7,470
CIN:  A-03-91-02004  West Virginia Blue Cross Administrative Costs FYs 85-90 and Termination Costs,
November 1992, $7,556
CIN:  A-10-93-22136  Confederated Tribes of the Grand Ronde Community, December 1992, $7,384
CIN:  A-03-96-38803  Skyline Government Services, November 1995, $7,285 
CIN:  A-04-96-01128  HCFA Survey Team-Ed White Transportation Care, February 1997, $7,244
CIN:  A-07-97-01227  Mt-WY Foundation for Medical Care, June 1997, $7,168
CIN:  A-01-97-49174  Brandeis University, August 1997, $7,068
CIN:  A-09-96-00095  Audit of  A Plus Cost Report, July 1997, $7,062
CIN:  A-02-97-44269  Puerto Rico Dept of Anti-Addiction, October 1996, $6,586
CIN:  A-06-96-40858  Caddo Community Action Agency, Inc., February 1996, $6,557
CIN:  A-08-94-32795  Northern Cheyenne Tribe, September 1994, $6,548
CIN:  A-08-97-43975  Oglala Sioux Tribe, October 1996, $6,494
CIN:  A-04-97-48389  State of Florida, July 1997, $6,337
CIN:  A-04-95-38272  State of Florida, August 1995, $6,101
CIN:  A-07-95-01167  Pension Costs Claimed Nebraska Blue Cross/Blue Shield, January 1996, $6,075
CIN:  A-01-97-48251  State of Connecticut, June 1997, $6,035
CIN:  A-03-97-46029  Monticello Area Community Action Agency, February 1997, $6,000
CIN:  A-06-97-48062  Jobs for Progress, May 1997, $5,924
D-8 CIN:  A-02-96-39964  State of New Jersey, April 1996, $5,497
CIN:  A-09-97-48953  Chemehuevi Indian Tribe, July 1997, $5,246
CIN:  A-06-91-00034  Audit of Collection & Credit Activities at TDHS, January 1992, $5,081
CIN:  A-09-96-40114  Marianas Association for Retarded Citizens, November 1995, $5,040
CIN:  A-03-97-47731  State of Delaware, May 1997, $5,035
CIN:  A-05-97-48671  Stockbridge-Munsee Community, July 1997, $4,968
CIN:  A-09-97-48829  Community Action Commission of Santa Barbara, August 1997, $4,809
CIN:  A-09-97-44435  Commonwealth of the Northern Marianna Islands, October 1996, $4,767
CIN:  A-02-97-49051  Government of the Virgin Islands, August 1997, $4,365
CIN:  A-07-95-01123  Review of CPA Administrative Costs-Blue Cross/Blue Shield of Kansas City, May
1995, $4,045
CIN:  A-02-93-26106  Second Street Youth Center Foundation, July 1993, $3,989
CIN:  A-04-97-01162  HMSA Medicare Pro Contract Audit, September 1997, $3,871
CIN:  A-07-97-01233  Prowest-Doshi, Idaho, June 1997, $3,835 (Related recommendation open on Table
II of $41,301)
CIN:  A-05-96-38947  American Association of Cardiovascular & Pulmonary, December 1995, $3,827
CIN:  A-09-95-39056  Hawaii Dept. Of Health, September 1995, $3,601
CIN:  A-06-97-49060  East Texas Human Development Corp., August 1997, $3,355
CIN:  A-02-97-48714  St. Lawrence County Community Development Program, July 1997, $3,352
CIN:  A-03-95-03318  Trans-management Systems, May 1996, $3,016
CIN:  A-02-96-42965  Seneca Nation of Indians, June 1996, $2,720
CIN:  A-04-97049102  Henley-Roberts Civic Organization, August 1997, $2,719
CIN:  A-03-95-34716  West Virginia Medical Institute Inc., March 1995, $2,688
CIN:  A-01-97-45487  ABT Associates Inc., January 1997, $2,681
CIN:  A-05-96-38861  Menominee Family Resources, February 1996, $2,636
CIN:  A-02-97-49366  Seneca Nation of Indians, September 1997, $2,655
CIN:  A-01-97-45487  ABT Associates Inc., January 1997, $2,596
CIN:  A-05-95-35315  Lake County Economic Opportunity Council, January 1995, $2,650
CIN:  A-03-97-43996  Actuarial Research Corp., October 1996, $2,561
CIN:  A-03-94-30398  Medlantic Research Institute, June 1994, $2,306
CIN:  A-09-96-00054  Blue Cross of California Administrative Costs, August 1996, -$1,653,079
B.  The following audits are open pending the resolution of the contractors termination audit, related termination
agreements and pending lawsuits: 
CIN:  A-07-96-01176  Medicare Excess Pension Assets/Blue Cross Michigan, November 1996,
$11,904,263
D-9 CIN:  A-05-93-00013  Michigan Blue Cross/Blue Shield Medicare Contract Audit, April 1993, $3,010,916
CIN:  A-05-95-00059  Audit of Administrative Costs of Blue Cross of Michigan, January 1997,
$1,787,345
CIN:  A-07-96-01178  Medicare Pension Costs Claimed by Blue Cross-Michigan, November 1996,
$631,248
CIN:  A-07-96-01198  Rocky Mountain Unfunded Pension, February 1997, $543,421
CIN:  A-07-97-01199  Blue Cross Of New Mexico Unfunded Pension Costs, February 1997, $31,372
C.  Report recently closed by the US Attorney and will be resolved within the next month:
CIN:  A-09-9100155  Blackburn Care Home, November 1991, $1,772,944 (Related recommendation of
$662,370 outstanding on Table II).
D.  Report Resolved After the Close of the Period:
CIN:  A-03-94-26611  State of Delaware, December 1993, $163,100 
E.  Report Awaiting Departmental Appeals Board Decision:
CIN:  A-03-92-16229  State of Pennsylvania, March 1992, $468,217
Table II
 1 The opening balance was adjusted to reflect an upward adjustment of $23.2 million.
 2 Management decisions have not been made within 6 months of issuance on 15 reports. 
A.  Discussions with management are ongoing and it is expected that the following reports will be resolved during
the next semiannual reporting period:
CIN:  A-06-91-00089  Audit of CN B Accounts to Detect Status of IHS Cash on Hand, April 1992,
$445,890
CIN:  A-09-96-00079  Health Care Management Skilled Nursing Facilities Medical Supplies, January
1997, $400,000
CIN:  A-02-97-47699  Community Action Organization of Erie County, June 1997, $251,282
CIN:  A-07-97-01231  Doshi Washington, June 1997, $203,510
CIN:  A-06-96-43154  Muskegan Oceana Community Action Against Poverty, June 1996, $130,993
CIN:  A-03-97-48996  North Central West Virginia Community Action, August 1997, $128,919
CIN:  A-02-95-34946  City of Caguas Puerto Rico, March 1995, $64,206
CIN:  A-03-97-49148  Lynchburg Community Action Group, September 1997, $51,629
CIN:  A-04-97-46151  Tallatoona Economic Opportunity Authority, February 1997, $38,051
CIN:  A-06-96-43307  Nueces County Community Action Agency, June 1996, $22,667
CIN:  A-07-97-01232  Doshi Alaska, June 1997, $21,218
CIN:  A-07-97-01230  Doshi Oklahoma, June 1997, $13,461
CIN:  A-03-97-48262  Northern Tier Community Action Corp., June 1997, $9,500
CIN:  A-06-97-45023  Caddo Community Action Agency Inc., November 1996, $8,880
D-10 B.  One report remains open pending the resolution of the contractors termination audit, related termination
agreements and pending lawsuits:
CIN:  A-07-96-01177  Medicare Post Retirement Claim, Blue Cross/Blue Shield of Michigan, November
1996, $8,978,998
D-11 APPENDIX E
Reporting Requirements of the
Inspector General Act of 1978, as Amended
The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is
being furnished to the Congress under separate cover.  Copies are available upon request.
Section of the Act Requirement Page
Section 4(a)(2) Review of legislation and regulations 56
Section 5(a)(1) Significant problems, abuses and throughout
deficiencies
Section 5(a)(2) Recommendations with respect to throughout
significant problems, abuses and
deficiencies
Section 5(a)(3) Prior significant recommendations on appendices B and C
which corrective action has not been
completed
Section 5(a)(4) Matters referred to prosecutive authorities 59
Section 5(a)(5) Summary of instances where information none
was refused
Section 5(a)(6) List of audit reports under separate cover
Section 5(a)(7) Summary of significant reports throughout
Section 5(a)(8) Statistical table I - reports with questioned 54
costs
Section 5(a)(9) Statistical table II - reports with 55
recommendations that funds be put to
better use
Section 5(a)(10) Summary of previous audit reports appendix D
without management decisions
Section 5(a)(11) Description and explanation of revised appendix D
management decisions
Section 5(a)(12) Management decisions with which the none
Inspector General is in disagreement
E-1 APPENDIX F
Performance Measures
In order to identify work done in the area of performance measurement, the Office of Inspector General (OIG) has labeled some
items throughout the semiannual report as  performance measures with the symbol                  . Performance measures
are used to evaluate the achievement of a program goal, such as the efficiency of an immunization program which is measured by
the number of inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations
finalized during this semiannual period offer management information about whether some aspect or all of the programs or
activities reviewed are achieving their missions and goals.  
Page
Beneficiary Awareness of Medicare Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Hospice Patients in Nursing Homes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Medicare Orthotics  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Excessive Medicare Payments for Prescription Drugs  . . . . . . . . . . . . . . . . . . . . . . . . 30
Prescription Drug Use in Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Results-Based Systems for Public Health Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 38
State AIDS Drug Assistance Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
States Child Care Certificate Systems: An Early Assessment of
Vulnerabilities and Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Discretionary Grants Awarded to Alleviate Poverty
B.  Grants Awarded in Mississippi  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Community Services Block Grants in Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Marylands Ombudsman for the Elderly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
F-1 ACRONYMS
ACF Administration for Children and Families
AHCPR Agency for Health Care Policy and Research
AMP average manufacturer price
AoA Administration on Aging
ASMB Assistant Secretary for Management and Budget
ATSDR Agency for Toxic Substances and Disease Registry
AWP average wholesale price
CDC Centers for Disease Control and Prevention
CHAMPUS Civilian Health and Medical Plan of the Uniformed Services
CMP civil monetary penalty
CSE child support enforcement
CY calendar year
DME durable medical equipment
DMERC durable medical equipment regional carrier
DOJ Department of Justice
DRG diagnosis-related group
DSH disproportionate share hospital
EA emergency assistance
EGHP employer group health policy
ESRD end stage renal disease
FDA Food and Drug Administration
FY fiscal year
GME graduate medical education
HCFA Health Care Financing Administration
HEAL health education assistance loan
HHA home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HIPDB Healthcare Integrity and Protection Data Bank
HMO health maintenance organization
HRSA Health Resources and Services Administration
ICF/MR intermediate care facility for the mentally retarded
IHS Indian Health Service
IME indirect medical education
MFCU Medicaid fraud control unit
MSP Medicare secondary payer
NIH National Institutes of Health
OBRA Omnibus Budget Reconciliation Act
OMB Office of Management and Budget
PHS Public Health Service
PPS prospective payment system
PRM provider review manual
PSC Program Support Center
SAMHSA Substance Abuse and Mental Health Services Administration
TANF Temporary Assistance for Needy Families DEPARTMENT OF HEALTH
AND HUMAN SERVICES
Office of Inspector General
330 Independence Avenue, S.W.
Washington, D.C. 20201
Internet Address
http://www.dhhs.gov/progorg/oig