A MESSAGE FROM THE SECRETARY
I would like to take this opportunity to acknowledge the vital role played by the Office of
Inspector General (OIG) in the Departments efforts to safeguard the Nations human 
services and health care systems. Ridding Medicare and Medicaid of fraud and abuse is one 
of the greatest challenges facing Federal and State authorities responsible for the integrity of
these two national programs.
The Administration has set a policy of zero tolerance for health care fraud and abuse and 
has made the Departments efforts in this area a top priority. We will continue this 
crackdown through implementation of the Medicare integrity and antifraud and abuse 
programs authorized by the Health Insurance Portability and Accountability Act of 1996
(HIPAA).
Crucial to this intensified effort are the numerous antifraud initiatives launched by OIG in
cooperation with other Federal agencies, State and local officials, health care professionals 
and consumers themselves. I am gratified to note the remarkable success of one of those
undertakings, Operation Restore Trust, a project on which OIG worked jointly with the 
Health Care Financing Administration and the Administration on Aging. This interagency 
and interdisciplinary approach to law enforcement is a model that exemplifies the kind of
coordinated planning program required by HIPAA to control health care fraud and abuse. I 
am pleased to note that HIPAA will provide a reliable funding stream for future years, 
allowing OIG to commit to increases in staffing and to expand its presence nationally.
The Inspector General and her staff can be proud of their record of accomplishment, and I 
am confident that their continued dedication and commitment will enable us to make further
inroads in our efforts to enhance the quality of the Nations human services and health care
systems.
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, 1997.  Since 1976, OIGs primary mission has been to protect the
integrity of HHS programs and the health and welfare of the beneficiaries of those programs.
Given  the  Departments  size  and  scope,  this  is  a  broad  mandate.    To  maximize  our
effectiveness in this effort, we have devised innovative ways of working and initiated
collaborative projects with others in areas of common interest.  
We have found that the partnerships forged over the past three years have greatly enhanced
our ability to accomplish our mission.  Among these initiatives were the establishment of the
Executive Level Health Care Fraud Policy Group, through which we and the Department of
Justice have jointly managed development of our investigative cases; the State Medicaid
Audit Partnerships, which have allowed for more effective use of scarce audit resources by
both Federal and State audit sectors; Operation Restore Trust, a 2-year demonstration project
ending in March 1997, which has targeted abuses in home health agencies, nursing homes
and durable medical equipment suppliers; and a 3-year investigative initiative conducted in
coordination  with  other  Federal  and  State  law  enforcement  agencies  to  target  abusive
marketing and billing practices by the Nations largest independent clinical laboratories.  
To enlist the publics involvement in the antifraud campaign, our office has established a
fraud and abuse hotline (1-800-HHS-TIPS) which, since its inception, has received more
than 12,000 complaints that warranted follow-up action.  Further, we are encouraging the
health care industry to voluntarily strengthen internal controls by implementing Medicare
and Medicaid compliance programs based on OIG-developed model compliance programs.
We are also establishing protocols by which providers can arrange for third party review of
certain billing practices.  
Our accomplishments clearly reflect the success of our efforts.  Moreover, through passage
of the Health Insurance Portability and Accountability Act of 1996, that success has been
acknowledged.    The  Health  Insurance  Act  significantly  increases  OIGs  resources  and
authorities  to  combat  health  care  fraud.    Currently,  an  intensified  crackdown  is  being
pursued, with the full support of the Administration.  We have bolstered our investigative
and audit staffs, formulated new antifraud strategies and strengthened our collaboration with
the Health Care Financing Administration, the Administration on Aging, the Department of
Justice and other Federal, State and local law enforcement offices.  The number of OIG
investigators and auditors will increase by about 20 percent this year, and we are opening new field offices in six States.  By tne end of the year 2002, we expect to have nearly twice 
as many investigators and auditors as we had in Fiscal Year 1996.
Over  the  years,  OIG  has  proven  its  value  to  the  American  public  and  the  Nation s
decision-makers.   I am confident that our renewed resources will permit us to continue to do
so. 
June Gibbs Brown
Inspector General HIGHLIGHTS
Introduction
During the 6-month period ending March 31, 1997, the Department of Health and Human
Services (HHS) Office of Inspector General (OIG) carried out a number of initiatives in
furtherance of its mission to protect HHS programs, and the health and welfare of the
beneficiaries served by them.  Highlights of OIGs accomplishments for this reporting
period follow.  In large part, these accomplishments resulted from OIGs efforts to identify
innovative means of maximizing its resources and supplementing those resources through
collaboration with other Federal, State and local agencies in areas of mutual interest.
Health Care Fraud and Abuse Control Program
The recently enacted Health Insurance Portability and Accountability Act of 1996 contains
far-reaching reforms to Federal laws to combat health care fraud and abuse.  The Act
establishes and funds a comprehensive new Health Care Fraud and Abuse Control Program,
to be jointly administered by the HHS Secretary (acting through the Departments Inspector
General), and the Attorney General.  The program features a coordinated effort to fight fraud
and abuse committed against all health plans.  This focus on collaboration among Federal,
State and local health care enforcement programs provides clear congressional recognition
of the highly successful results of Operation Restore Trust, discussed below.  With the
Health Insurance Act, the Congress has enabled continued coordination among enforcement
officials charged with combatting fraud and abuse in Medicare and Medicaid,  and has
expanded the program to include all health programs, both public and private.  Moreover,
the Congress has provided funding to OIG and its partners to ensure continuity of their
important antifraud activities.
In addition to coordinating Federal, State and local health care law enforcement programs,
the statutory goals of the program are:  to facilitate enforcement of all applicable remedies
for such fraud; to provide industry guidance relating to fraudulent practices; to establish a
national Adverse Action Data Bank; and to conduct investigations, audits and other reviews
relating to the provision of and payment for health care in this country.  
The ambitious reforms contained in the Act have had, and will continue to have, a dramatic
effect on OIG operations.  The OIG is directing its current resources toward rapid, effective
implementation of the Health Care Fraud and Abuse Control Program.  The OIG is also
hiring  new  staff  to  assume  these  expanded  responsibilities.    For  more  information
concerning the Health Care Fraud and Abuse Control Program, see page 4.  
i Operation Restore Trust
As noted above, in implementing the Health Care Fraud and Abuse Control Program, OIG
will build upon and extend the proven effective policies and practices of Operation Restore
Trust, a 2-year project which has targeted fraud and abuse in three high-growth areas of the
health care industry:  nursing homes (including hospices), home health agencies and durable
medical equipment (DME) suppliers.  Using the expanded team concept, OIG has worked
jointly on this project with the Health Care Financing Administration (HCFA) and the
Administration  on  Aging  (AoA).    As  the  projects  coordinator,  OIG  assembled
multidisciplinary teams that included investigators from its Office of Investigations and the
States Medicaid fraud control units; auditors and evaluators from OIG and HCFA; quality
assurance specialists from the State surveyors and DME regional carriers; State long-term
care ombudsmen through AoA; and prosecutors from the Department of Justice (DOJ) and
the State Attorneys General.
Funding for the 2-year demonstration project was completed in March 1997.  During the
funding period, Operation Restore Trust yielded remarkable results.  The success of this
cooperative  venture  is  illustrated  by  OIGs  accomplishments  in  working  to  eliminate
inappropriate payments for incontinence supplies.  Medicare Part B covers certain urinary
incontinence  supplies.    An  evaluation  of reimbursements for these  supplies found  that
Medicare allowances for such incontinence supplies had more than doubled in 3 years, from
$88 million in 1990 to $230 million in 1993.  In a December 1994 study, OIG found that
questionable  billing  practices  may  have  accounted  for  almost  half  of  incontinence
allowances in 1993.  Outlays continued to rise to $260 million in Fiscal Year (FY) 1994,
when the evaluation report was released.  During this semiannual period, it became apparent
that  OIGs  exposure  of  these  billing  abuses,  coupled  with  a  coordinated  nationwide
investigation involving more than 20 separate cases, and a concerted effort by HCFAs DME
carriers, had turned the escalating reimbursements significantly downward.  By the end of
FY 1995, the abusive practices OIG identified had all but disappeared, eliminating more
than $100 million a year in questionable payments.  (See page 37)
Operation Restore Trust is discussed in detail in Chapter I of the semiannual report.  Within
the  text  of  the  report,  summaries  of  audits,  evaluations  and  investigations  related  to
Operation Restore Trust which were finalized during this 6-month period are labeled with
the symbol        for ready identification.  The labeled summaries are listed in Appendix
G.
Laboratory Initiatives
In coordination with HCFA, DOJ and other law enforcement agencies, OIG is concluding a
3-year initiative targeted at abusive marketing and billing practices by the Nations largest
independent clinical laboratories.  During this reporting period, three of these laboratories
signed agreements to pay a total of $642 million to settle civil and/or criminal liability for
these practices.  One result of this initiative was a series of lawsuits initiated by private
citizens as well as OIG audits and investigations against smaller laboratories.  Yet another
ii was  an  interagency  project  focusing  on  billings  by  hospital-based  outpatient  clinical
laboratories.  During this period, nine hospitals signed agreements to settle possible charges
of unbundling laboratory test panels to obtain higher Medicare reimbursement.  As with the
independent  clinical  laboratories,  all  the  agreements  contained  corporate  integrity
requirements to ensure compliance with Medicare-regulated billing practices.  (See pages 7
and 31)
Child Support Enforcement
Recently OIG expanded its participation in child support cases under deputation from DOJ.
Several successful prosecutions and orders for restitution have already been obtained.  In
addition, OIG and the Internal Revenue Service (IRS) conducted a joint review that found
that a simple coordinated approach between the Office of Child Support Enforcement and
IRS  could  help  identify  noncustodial  parents  who  misrepresent  childrens  living
arrangements on their tax returns.  This approach would have resulted in additional tax
liabilities of $212 million in 1993.  Moreover, this study and other information developed
independently by IRS indicate that total annual tax losses of $1.4 billion or more could
result from noncustodial parents inappropriately claiming custody of children on Federal
income tax returns.  (See pages 52, 53)
Health Education Assistance Loan Program
The OIG has been very successful in enforcing program rules and returning tax dollars
through its involvement in the Health Education Assistance Loan (HEAL) program under
which the Department provides money to students seeking an education in a health-related
field.  Unfortunately, some loan recipients ignore their indebtedness.  At this point, OIG
excludes them from participating in the Medicare, Medicaid and other Federal programs.
Upon being notified of their exclusion, some of these health professionals immediately
repay  their  entire  HEAL  debt.    Others  enter  into  settlement  agreements  whereby  the
exclusion is stayed while the individuals pay monthly amounts to satisfy their debts; if they
default on these agreements, they are then excluded until their entire debt is repaid.
As of the conclusion of this reporting period, 707 individuals had entered into settlement
agreements or completely repaid their HEALs.  The amount of money already repaid and
being repaid through settlements totals over $43 million.  (See page 47)
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
iii 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.sbaonline.sba.gov/ignet/internal/hhs/hhs.html
iv Table of Contents
Page
Chapter 1  OPERATION RESTORE TRUST . . . . . . . . . . . . . . . . . . . . . . . .1
Chapter II  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .3
Fraud and Abuse Control Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
A. Physicians at Teaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
B. Diagnosis Related Group 72 Hour Window Project . . . . . . . . . . . . . . . . . . . . . .6
C. Ohio Outpatient Laboratory Unbundling Project  . . . . . . . . . . . . . . . . . . . . . . . .7
Hospital Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Hospital Closure:  1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Hospital Patient Transfers Incorrectly Paid as Discharges  . . . . . . . . . . . . . . . . . . . . . . . .9
Medicare Beneficiary Interest in Health MaintenanceOrganizations
in 1995  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Medicare Health Maintenance Organization Appeal
and Grievance Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Medicare Beneficiary Satisfaction:  1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Medicare Beneficiary Satisfaction with 1996 Medicare Handbook . . . . . . . . . . . . . . . .12
Medicare Beneficiary Satisfaction with Supplemental Health Insurance   . . . . . . . . . . .12
"Know Your Number" Brochure for Dialysis Patients  . . . . . . . . . . . . . . . . . . . . . . . . . .12
Medicare Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
A. Arkansas Blue Cross Blue Shield:  Parts A and B . . . . . . . . . . . . . . . . . . . . . . .13
B. Blue Cross Blue Shield of Colorado:  Part B  . . . . . . . . . . . . . . . . . . . . . . . . . .13 Costs Claimed by Blue Cross and Blue Shield of Michigan . . . . . . . . . . . . . . . . . . . . . .13
A. Post Retirement Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
B. Pension Plan  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
C. Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Fraud and Abuse Sanctions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
A. Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
B. Civil Penalties for False Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
C. Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Medicare Payments to Excluded and Unlicensed Health Care Providers . . . . . . . . . . . .20
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Home Health Care Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
A.  Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
B.  Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
C. Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Low-Cost Home Health Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Home Health Agency Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Hospice Eligibility    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
A.  Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
B.  Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
C.  Texas   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
D. Puerto Rico  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Nursing Home Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Laboratory Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Separately Billable End Stage Renal Disease Laboratory Tests  . . . . . . . . . . . . . . . . . . .33
Durable Medical Equipment Regional Carrier Overpayments . . . . . . . . . . . . . . . . . . . .33
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .34 Lymphedema Pumps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Incontinence Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Medicaid Special Status Classifications Submitted by Health
Maintenance Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Pharmacy Acquisition Costs for Drugs Reimbursed under Medicaid   . . . . . . . . . . . . . .39
Medicaid Reimbursement for Clinical Laboratory Tests  . . . . . . . . . . . . . . . . . . . . . . . .40
A. Payments in 14 States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
B. Virginia  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
C. Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Federal and State Partnership: Joint Audits of Medicaid  . . . . . . . . . . . . . . . . . . . . . . . .41
A. Montana:  Drug Delivery System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
B. Montana:  Transportation Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
C. Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Wisconsins Medicaid Managed Care Program Financial Safeguards  . . . . . . . . . . . . . .42
Effectiveness of Medicare and Medicaid Fraud Units  . . . . . . . . . . . . . . . . . . . . . . . . . .42
A. Surveillance and Utilization Review Subsystem Referrals . . . . . . . . . . . . . . . .43
B. Carrier Fraud Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Chapter III  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .45
Indian Health Services Tribal Management Grants Program . . . . . . . . . . . . . . . . . . . . .46
Medical Personnel Credentialing and Privileging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
National Marrow Donor Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Ryan White Comprehensive AIDS Resource
Emergency Act:  New York Eligible Metropolitan Area . . . . . . . . . . . . . . . . . . . . . . . . .47
Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .47
Grantee Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Superfund Financial Activities of the National Institute of
Environmental Health Sciences  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Chapter IV  ADMINISTRATION FOR CHILDREN AND
FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .51
Child Support Enforcement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Unpaid Child Support and Income Tax Deductions  . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Head Start Grantees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
A. Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
B. Colorado  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Welfare Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Chapter V  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
A. Office of Inspector Generals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .56
B. Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .58
A. Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
B. Funds Put to Better Use  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .60
A. Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
B. Legislative and Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . .60
C. Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Proposed Changes to Office of Management and Budget Circular A-21
Regarding Financial Management of Recharge Centers . . . . . . . . . . . . . . . . . . . . . . . . .62
Compliance with the Prompt Payment Act   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Review of Cost Transfers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62 Ohio Pension Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
APPENDIX A - Implemented Office of Inspector General
Recommendations to Put Funds to Better Use
October 1996 through March 1997  . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - Unimplemented Office of Inspector General
Recommendations to Put Funds to Better Use . . . . . . . . . . . . . . .B-1
APPENDIX C - Unimplemented Office of Inspector General
Program and Management Improvement
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the Inspector General
Act of 1978, as Amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
APPENDIX G - Audits, Inspections and Investigations Related
to Operation Restore Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 Operation
Restore
Trust Chapter I
OPERATION RESTORE TRUST
Operation Restore Trust targets fraud, waste and abuse in home health
agencies, nursing homes and durable medical equipment suppliers in five
States:  New York, Florida, Illinois, Texas and California.
Initiated by the Office of Inspector General (OIG) in March 1995, Operation Restore Trust is
an ambitious interdisciplinary project in which Federal and State agencies join to fight fraud,
waste and abuse in home health agencies, nursing homes, and the medical equipment and
supply industry.  The initial 2-year demonstration phase of the project is an example of the
team concept OIG has found fruitful over the years, based on collaboration and sharing of
resources among multiple law enforcement agencies.  The 2-year demonstration phase
targeted five States which account for 40 percent of the Nations Medicare and Medicaid
beneficiaries:  New York, Florida, Illinois, Texas and California.  Funds available under the
demonstration authority of Operation Restore Trust support only Operation Restore Trust
projects during the 2-year demonstration period.
As the projects coordinator, OIG assembled teams that included investigators from its
Office of Investigations and the States Medicaid fraud control units; auditors and evaluators
from both OIG and the Health Care Financing Administration (HCFA); quality assurance
specialists from the State surveyors and durable medical equipment regional carriers; State
long-term care ombudsmen through the Administration on Aging; and prosecutors from the
Department of Justice and the State Attorneys General.  These teams have been conducting
financial audits of providers, criminal investigations and referrals to Federal and State
prosecutors,  civil  and  administrative  sanctions  and  recovery  actions,  and  surveys  and
inspections of nursing facilities.  The collective experience of these teams also is used to
recommend to HCFA and the Congress program adjustments to prevent future fraud and to
reduce waste and abuse.  
The OIG also enlisted the support and participation of the public and the industries that the
initiative targets.  A hotline (1-800-HHS-TIPS) was established to receive allegations of
fraud and abuse on a confidential basis.  To further educate the public and health care
providers, OIG will continue its practice of issuing special fraud alerts to identify and
describe fraudulent and abusive health care practices.
1 All OIG ongoing and new investigations, audits and inspections related to fraud and abuse
in the targeted areas of the five States were included into the project, so that they might
benefit from its focused attention, expertise and energies.  At the present time, there are 210
pending cases.  One hundred fifty-five of the 210 cases are joint investigations with other
law enforcement agencies, including the Federal Bureau of Investigation, the United States
Postal Service, the Railroad Retirement Board OIG, the Defense Criminal Investigative
Service and State Attorneys General offices.
Since the special hotline was established in June 1995, it has received 13,794 complaints
related to Department programs.  Resolving these complaints has resulted in recovering
approximately $5.2 million of overpayments.
Thus far, 74 criminal convictions, 58 civil actions and 54 current indictments are attributable
to Operation Restore Trust.  In addition, 219 providers have been excluded.  Also, OIG has
identified a total of more than $167 million in fines, recoveries, settlements and civil
monetary penalties owed to the Federal Government.
To date, 47 audit and inspection reports related to Operation Restore Trust have been issued.
At the present time, another 31 audits and evaluations are underway.  In addition, HCFA has
completed  reviews  at  168  home  health  agencies  and  nursing  homes.    Further,  OIGs
Operation Restore Trust activities have either resulted in proposals or supported existing
proposals to change policy in order to correct systemic weaknesses.  
The funding for the 2-year Operation Restore Trust initiative terminated at the end of March
1997.  However, the team approach using the talents of multiple agencies will continue to be
used in OIGs future work.
Within the text of the semiannual report, summaries of audits, evaluations and investigations
related to Operation Restore Trust which were finalized during this 6-month period have
been labeled with the symbol       for ready identification.  The labeled summaries are
listed in Appendix G.  Operation Restore Trust is but another example of how OIG is
working to ensure the integrity and efficiency of the Medicare and Medicaid programs and
to protect the beneficiaries of those programs.
2 Health Care 
Financing 
Administration Chapter II
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 certain services and medical equipment; analyzed various
State licensure and discipline issues; reviewed several aspects of medical necessity and
3 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 under the Chief Financial Officers Act and
the Government Management Reform Act.  The HCFA has been designated as a separate
reporting entity because it represents more than 82 percent of Department of Health and
Human Services outlays.
Fraud and Abuse Control Program
During this reporting period, OIG took steps toward implementing its significant new
responsibilities under the Health Insurance Portability and Accountability Act of 1996
(Public Law 104-191).  The Act establishes a comprehensive program to combat fraud
committed against all health plans, both public and private.  This legislation required the
Departments of Justice (DOJ) and Health and Human Services (HHS) to establish a Fraud
and Abuse Control Program, no later than 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, the Act directs that an amount equalling 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 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." 
In the first year of operation under the new fraud control program (Fiscal Year 1997), the
Secretary and the Attorney General certified $104 million for appropriation to the account.
Of these funds, "not less than $60 million and not more than $70 million" are to be available
for OIG for Medicare and Medicaid work.
In addition to establishing the Fraud and Abuse Control Program, the Act directs the
Attorney General and the Secretary to issue guidelines to carry out the program, including
guidelines on the collection of information from health plans, and the confidentiality of such
4 information.  In fulfillment of this mandate, OIG and DOJ drafted implementing guidelines
that were approved by the Attorney General and the Secretary in December 1996.  The OIG
has begun the important job of hiring additional auditors, investigators, evaluators and
attorneys to accomplish the offices responsibilities under the expanded antifraud and abuse
program.  Regulations mandated by the Act are under development, and those pertaining to
OIGs process for securing formal advisory opinions were issued (see page 60).  The OIG is
providing technical assistance to the Department in establishing the Adverse Action Data
Bank.    The  OIG  has  also  begun  the  important  process  of  tracking  expenditures  and
recoveries in health care cases so as to be able to accurately assess the effectiveness of the
Fraud and Abuse Control Program.  
Implementation of the Act has been a cooperative effort.  The OIG has and will continue to
work closely with other components of HHS, chiefly HCFA and the Office of the Assistant
Secretary for Management and Budget.
Major Hospital Initiatives
The OIG has launched two national projects and one State project involving civil actions at
hospitals that were falsely billing the Medicare program.  All three 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 reimbursements to physicians at teaching hospitals (PATH) and other Medicare
payment rules.  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 to ensure that the claims accurately reflect the level of service provided to the patient.  
The  PATH  initiative  has  been  undertaken  as  a  result  of  OIGs  extensive  audit  and
investigative work in this area.  To date, two institutions have entered into settlement with
the Federal Government to resolve their civil False Claims Act liability for overpayments
related to improper claims submitted in the teaching setting and to upcoding, i.e., charging a
higher level of service than was actually delivered.  These settlements have resulted in the
Governments recovery of more than $41 million in overpayments and penalties.  As a
condition  of  settlement,  these  institutions  have  also  implemented  corporate  integrity
programs in order to prevent and detect future erroneous claims.  
In addition to conducting focused audits of these providers medical billing records, OIG is
trying a new approach -- giving the institution the opportunity to conduct a self-audit with
Government oversight and to report its findings to OIG.
5 Medicare pays the costs of training residents and interns through the Graduate Medical
Education (GME) program.  Medicare also pays an additional amount per diagnosis-related
group in recognition of the additional costs associated with training residents and interns.
These  reimbursements  can  total  over  $100,000  per  resident  per  year.    Medicare  paid
approximately $8 billion to teaching hospitals in 1996 for the costs of training residents.
The Medicare payments described above include payments to teaching physicians for their
role in supervising residents and interns.
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.  The project addresses two issues:  whether teaching physicians are
performing the services themselves or in the presence of the residents and whether the levels
of services are being billed accurately.  The Medicare billing systems vulnerability to
upcoding is a longstanding concern at OIG.  That concern is focused on identifying patterns
of abuse, not isolated, inadvertent mistakes.
At the initiation of each PATH review, OIG gathers the guidance available to the hospital
from  the  local  Medicare  contractor,  as  well  as  the  hospitals  internal  policies  on
documenting and billing physician services.  These guidelines and instructions are an
important component in the PATH review and are used to establish the standard by which
the institutions Medicare billings are evaluated.
Over 20 hospitals have already elected the self-audit approach.  In addition, there are
currently two OIG-conducted audits underway.
B. Diagnosis Related Group 72 Hour 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 prospective payment system
(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.  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 will receive notification from the U.S. Attorneys Office
concerning OIGs identification of erroneous claims and the facilitys potential exposure
under the Federal Civil 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
6 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  being  coordinated  by  the  U.  S.  Attorneys  Office -  Middle  District  of
Pennsylvania.  As of the end of the reporting period, settlements have been executed with
804 hospitals.  The total anticipated recovery under this nationwide project is approximately
$90 million to $110 million over the next 2 years from an estimated total of more than 4,400
hospitals.
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
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. Ohio Outpatient Laboratory Unbundling Project
The OIG, DOJ and the State of Ohio have joined forces to combat Medicare and Medicaid
fraud in hospital outpatient laboratory billing practices.  The Ohio Outpatient Laboratory
Unbundling Project seeks to recover overpayments related to erroneous or excessive claims
submitted for urinalysis, organ panel, hematology and automated blood chemistry tests by
hospital outpatient  laboratories.  These abusive  practices stem from the unbundling of
laboratory tests, which has been found to be a widely practiced abuse (see page 31).
Laboratory services are particularly vulnerable to this practice because of the number of
tests ordered at one time and the capability of equipment to run several tests from one
sample.  The reimbursement for tests bundled into a panel is less than that for each test run
separately.
The Ohio Project targets hospital outpatient labs through an ongoing computer-based audit
of claims submitted for outpatient laboratory services.  A notice is then sent to each hospital
identifying the scope of the abusive practice at that facility and its potential exposure under
the Federal Civil False Claims Act.  The hospitals are invited to participate in a self-audit
program, the results of which are separately verified by the State of Ohio Auditors Office.
In recognition of their participation, the hospitals generally receive the benefit of double
damages for settlement purposes.  The terms of the settlement require implementation of
compliance measures to correct the identified misconduct, and a separate payment to the
Ohio State Auditors Office for its independent review and verification of the audit reports
submitted by the facility.
To date, OIG has recorded settlements with nine hospitals that have recovered more than $6
million.  At least another 16 settlements are expected, for an estimated project total of close
to $10 million.  The OIG and DOJ are working together on a national project to obtain
recoveries in unbundled laboratory claims in hospital outpatient laboratories, and to provide
7 data to the United States Attorneys Offices interested in pursuing this recovery initiative in
their districts.  The OIG is also collaborating with DOJ to produce a model settlement
agreement, including compliance measures.
See page 41 for other State partnership work.
Hospital Fraud
Besides the major national projects related to hospitals overbilling of Medicare, several
other cases involving hospital fraud reached closure during this period.
 A former controller and vice president of finance at a New Jersey medical
center was sentenced to 25 months in prison for tax evasion, embezzlement
and fraud.  He was ordered to make restitution of more than $1 million to
the hospital and $24,870 to Medicare Part A.  He was also fined $20,000.
The official became a cooperating witness shortly after subpoenas were
issued in this case, which involved kickbacks and false billing schemes that
cost the hospital nearly $3.8 million.  His early cooperation significantly
advanced the investigation of the executive vice president of finance at the
hospital and other defendants.  The executive vice president was sentenced
earlier to 55 months in prison and ordered to  repay $21,000 -- which was
all he was able to pay.  Three others who also pled guilty have yet to be
sentenced.
 Also in New Jersey, a corporation operating four hospitals agreed to pay the
Government $875,000 to resolve civil liabilities under the False Claims Act
and the civil monetary penalties (CMP) law.  Between 1986 and 1995, the
corporation  billed  Medicare  twice  for  the  same  service  or  billed  both
Medicare and the patients private insurance.  Rather then refunding the
outstanding credit balances to Medicare, the corporation kept more than
$350,000 and transferred the money to its operating account.  As part of the
settlement, the corporation agreed to enter into a comprehensive corporate
compliance program to prevent recurrence of the problem.
Hospital Closure:  1995
In past years, the closure of general, acute care hospitals generated public and congressional
concern.  In response, OIG issued a report in May 1989 which described the nationwide
phenomenon of hospital closure in 1987.  Since that time, OIG has issued annual reports on
the extent, characteristics and impact of hospital closure.  Overall, OIG determined that the
hospitals that closed were small and had low occupancy rates.  Most patients were able to
get medical care nearby.
8 The OIGs inspection of hospital closure in 1995 produced similar findings.  As indicated in
the following chart, 37 general, acute care hospitals closed in that year.  While this was 21
more than in 1994, it was still less than in any other year since OIG began its series of
reports.
HOSPITAL CLOSURE
Number of Closures in U.S.
100
88
80 76
69
60 56 57
50
42
40 37
20 16
0
1987 1988 1989 1990 1991 1992 1993 1994 1995
Year
Although residents in 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.  At the time of OIGs inspection, 17 of the 37 closed hospital facilities were being
used for health-related services and plans were being made to use 3 additional vacant
hospitals for health-related services.  (OEI-04-96-00060)
Hospital Patient Transfers Incorrectly Paid as Discharges
Under  Medicare  regulations,  PPS  payments  are  available  at  the  full  prospectively  set
diagnosis related group (DRG) rate for patients who are discharged from the hospital;
payments for transfers between PPS hospitals are determined through the calculation of per
diem amounts and the actual length-of-stay at the transferring hospital.  Previously, OIG
identified incorrectly reported transfers under Medicares PPS through November 1991,
resulting in approximately $227 million of recoveries and savings.  In accordance with
9 OIGs recommendation, HCFA agreed to develop an edit to detect these types of coding
errors and alert the intermediary to take corrective action.
In a follow-up review, OIG found that intermediaries continued to make payments for
incorrectly reported transfers, and identified another 43,000 incorrectly reported transfers
and approximately $127.3 million of potential overpayments for the 3-year period ended
December 31, 1994.  The OIG determined that the PPS transfer edit does detect incorrectly
reported PPS transfers, but that fiscal intermediaries may not be processing them according
to HCFAs instructions.  The OIG recommended that HCFA advise all intermediaries that the
PPS transfer instructions must be followed when processing future transactions, assist OIG
in identifying the cause of the problem, and cooperate with Department of Justice efforts to
recoup past overpayments and penalties.  In response to the draft report, HCFA agreed with
OIGs recommendations.  (CIN:  A-06-95-00083)
Medicare Beneficiary Interest in Health Maintenance
Organizations in 1995
Based on a 1995 national survey of randomly selected Medicare beneficiaries, this study
found that general awareness of health maintenance organizations (HMOs) had increased
since 1994.  Seventy percent of beneficiaries had heard of HMOs, and about 44 percent
knew whether or not they lived in locations where they could join an HMO.  Of the
respondents, 35 percent expressed an interest in joining an HMO.  Of those who were not
interested, about 33 percent said the main reason was they could not select their own
physicians.  Only 7 percent of the beneficiaries expressed concern about quality of care in an
HMO.  At the same time, only 17 percent of the beneficiaries were aware that they would
have appeal rights if they joined an HMO.  
While HCFA has done much to enhance beneficiaries choices in medical care, OIG believes
that further steps might be taken to educate Medicare beneficiaries about Medicare HMOs,
and explore ways that allow beneficiaries greater freedom to choose their own physicians in
managed care settings.  (OEI-04-93-00151)
Medicare Health Maintenance Organization Appeal
and Grievance Processes
An inspection on the Medicare HMO appeal and grievance process resulted in a series of
four final reports on various aspects of the subject.  The OIG found that most beneficiaries
were aware of their general right to complain about HMO services and payments.  However,
they were less aware of the particular circumstances under which they could exercise this
right.  The OIG also found some problems regarding communication between HMOs and
patients about denial of payments or services.  Other weaknesses included:  HMOs not fully
complying with HCFAs directives for processing appeals and grievances; marketing and
enrollment  materials  and  operating  procedures  containing  incorrect  or  incomplete
10 information  on  appeal  and  grievance  rights;  and  HMOs  not  maintaining  statistical
information needed for the ongoing evaluation of appeal and grievance practices.
The OIG recommended that HCFA:  more actively monitor HMOs; standardize marketing
and enrollment materials; ensure that HMOs properly distinguish and process appeals and
grievances; require HMOs to report minimum statistical information; establish minimum
requirements for case file documentation; and modify the HMO/Competitive Medical Plan
Manual.  In its comments, HCFA agreed that improvements are needed in the appeal and
grievance  processes  and  summarized  its  initiatives  in  this  area.    (OEI-07-94-00280;
OEI-7-94-00281; OEI-07-94-00282; OEI-07-94-00283)
Medicare Beneficiary Satisfaction:  1995
In OIGs fifth survey to determine beneficiary experience and satisfaction with Medicare
services, 80 percent of respondents said the program is understandable.  As illustrated in the
following chart, these results were similar to those of earlier years.
BENEFICIARIES UNDERSTAND
THE MEDICARE PROGRAM
Percent
90
79% 79% 80%
80 75%
73%
70
60
50
40
30
20
10
0
1989 1991 1993 1994 1995
Year
The OIG found that beneficiary understanding of and satisfaction with certain Medicare
services had improved; for example, claims were processed with greater speed and fewer
problems.    However,  several  other  areas  continued  to  need  improvement.    The  OIG
recommended  that  HCFA  develop  a  plan  for  improving  beneficiary  satisfaction  and
understanding in the problem areas noted in the report.  (OEI-04-93-00150)
11 Medicare Beneficiary Satisfaction with 1996
Medicare Handbook
More than 500 beneficiaries responded to OIGs survey of satisfaction with the new 1996
Medicare Handbook.  Most Medicare beneficiaries who received the new handbook thought
it provided them with enough information to understand Medicare benefits.  Most preferred
the  condensed  1996  version  to  the  more  detailed  earlier  versions  of  the  handbook.
Twenty-seven  percent  of  respondents,  however,  said  they  had  not  received  the  1996
handbook.  Beneficiary opinions were mixed on how often they would like to receive the
handbook.  The HCFA plans to examine its distribution strategies to determine ways to
improve the dissemination of the handbooks.  (OEI-04-96-00280)
Medicare Beneficiary Satisfaction with Supplemental
Health Insurance 
In the 1995 survey of Medicare beneficiary satisfaction, 942 beneficiaries were asked about
their satisfaction with insurance that supplements Medicare coverage.  The survey indicated
that 84 percent of beneficiaries have medical coverage in addition to Medicare, and they are
satisfied with their supplemental policies.  Most said they would call the insurance company
that issued the supplemental policy if they had problems with their supplemental policies.
(OEI-04-93-00154)
"Know Your Number" Brochure for Dialysis Patients
An inspection of the HCFA "Know Your Number" Brochure for end stage renal disease
patients found that the brochure shows promise as a tool for improving the health and
well-being of dialysis patients.  That is especially true when the dialysis facility actively
promotes the use of the urea reduction ratio (URR) or urea kinetic model (KT/V) numbers.
The OIG found that the brochure was somewhat successful in increasing patient awareness
of URR or KT/V tests used by dialysis facilities to measure adequacy of dialysis.  However,
there were problems with dissemination of the brochure.  The majority of patients did not
receive it, and most of those who did were not familiar with the tests used by their dialysis
facilities to measure adequacy of dialysis and the associated target numbers.  Furthermore,
the inspection found that some facilities do not calculate patients URR or KT/V numbers on
a monthly basis.  
The OIG made a number of recommendations to deal with these shortcomings, and HCFA
concurred with them.  However, a new concern arose after the drafts were issued.  The
HCFA informed OIG that it had no requirement for facilities to measure adequacy of dialysis
at prescribed intervals but that its revised End Stage Renal Disease Conditions for Coverage
will soon require facilities to calculate adequacy of dialysis quarterly.  In contrast, the
upcoming National Kidney Foundations Dialysis Outcome Quality Initiative guidelines will
recommend a monthly calculation.  The OIG is concerned that facilities will interpret
HCFAs Conditions for Coverage as the acceptable standard and conduct adequacy testing
12 only quarterly.  The OIG is convinced that facilities should be required to calculate adequacy
numbers monthly and urges HCFA to reconsider to amend the Conditions for Coverage
accordingly.  (OEI-06-95-00320; OEI-06-95-00321)
Medicare Administrative Costs
The HCFA contracts with private insurance companies (fiscal intermediaries and carriers) to
process and pay Medicare claims.  The OIG reviews the allowability of costs claimed for
reimbursement by these contractors.
A. Arkansas Blue Cross Blue Shield:  Parts A and B
The  OIG  recommended  a  financial  adjustment  of  $1.4  million  for  unallowable
administrative costs claimed by Arkansas Blue Cross Blue Shield for fiscal years (FYs) 1989
through  1994.    The  unallowable  costs  included:    over  $800,000  in  understated
complementary credits from its private insurance business; more than $118,000 for its share
of  interest  earned  on  an  HMO  reserve  balance  for  employee  health  insurance;  nearly
$68,000 used to fund a general contingency reserve for a preferred provider organization as
part of its employee health insurance plan; over $228,000 in excess executive compensation
costs  allocated  during  FYs  1991  through  1994;  and  nearly  $59,000  in  miscellaneous
expenses.  The company agreed with $1.2 of the questioned costs and disagreed with the
findings  on  employee  health  insurance  and  executive  compensation  costs.    (CIN:
A-06-96-00008)
B. Blue Cross Blue Shield of Colorado:  Part B
This OIG review of the administrative costs claimed by Blue Cross Blue Shield of Colorado
resulted in a recommended financial adjustment of $4.2 million due to costs claimed in
excess  of  approved  budget  amounts.    Almost  $260,000  of  the  $4.2  million  was  also
unallowable for other reasons.  This amount consisted of excessive executive compensation
of $141,000 and unallowable cafeteria costs of $116,000.  The contractor disagreed with
OIGs  findings  and  recommendations.    The  HCFA  will  resolve  this  matter.    (CIN:
A-07-96-02001)
Costs Claimed by Blue Cross and Blue Shield of Michigan
Blue Cross and Blue Shield of Michigan administered Medicare Parts A and B operations
under cost reimbursement contracts until the contractual relationship was terminated in
1994.
A. Post Retirement Costs
At HCFAs request, OIG reviewed the companys $9 million claim for post retirement costs
estimated to be incurred after termination of the Medicare contracts.  The OIG determined
that the claim represented a retroactive change in the basis of accounting and a request for
reimbursement of unfunded costs, which are not permitted under the Federal Acquisition
13 Regulations.  Accordingly, OIG recommended that the claim for $9 million be denied.  The
company disagreed, arguing that the costs would have been allowable if the contract had
continued until the costs were funded.  However, HCFA concurred with OIGs analysis and
recommendation.  (CIN:  A-07-96-01177)
B. Pension Plan
The OIG determined that as of January 1995, the company had excess Medicare pension
assets of almost $12 million.  Regulations and the Medicare contracts provide that pension
gains which occur when the Medicare contract terminates should be credited to the Medicare
program.  Accordingly, OIG recommended that the company remit almost $12 million in
excess pension assets to the Medicare program.  While the company disagreed, asserting that
the calculations should have considered future benefits and a lower retirement age, HCFA
concurred with OIGs analysis and recommendation.  (CIN:  A-07-96-01176)
C. Administrative Costs
The OIGs audit of the companys final claim for Medicare Parts A and B administrative
costs identified unallowable costs of $1.7 million.  These costs included:  over $500,000 in
unallowable severance pay for terminated employees and over $800,000 in professional
consultant fees, post-retirement benefit costs, data entry costs, executive incentive awards
and other costs which were unreasonable, unallowable and improperly allocated.  The
company generally disagreed with OIGs findings and recommendations; however, HCFA
was supportive of OIGs position.  (CIN:  A-05-95-00059)
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:
 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
14  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:
 One of the Nations largest DME suppliers agreed to pay $1.6 million to
settle allegations that it submitted false Medicare claims for patients referred
through kickback arrangements with providers in Georgia, Florida and New
Mexico.  A group of four physicians in Georgia agreed to pay almost
$350,000 for accepting the kickbacks, under the guise of a sham consulting
contract, for referring patients for oxygen supplies.  The supplier agreed to
enter  a  corporate  integrity  agreement  to  undertake  measures  to  ensure
compliance with applicable laws and Medicare rules and regulations.
 The owner of a New York DME company agreed to pay $80,000 to resolve
civil liabilities for submitting false claims to the Medicare program.  She
paid kickbacks to a doctor for signing certificates of medical necessity
(CMNs).  She paid approximately $1,500 in exchange for the CMNs, which
she then used to bill Medicare more than $40,000 for medical equipment.
Earlier, in a related criminal action, the woman pled guilty to kickback
violations after she was videotaped making seven payments to the doctor.
The doctor, who became a confidential informant, agreed to cooperate in the
investigation.  The woman will be excluded from participation in Medicare
and State health care programs for at least 5 years.
 The owner of a psychiatric hospital in Missouri entered for the hospital a
plea of guilty to making a false claim to Civilian Health and Medical Plan of
the Uniformed Services (CHAMPUS).  The administrator of the hospital
was  indicted  earlier  for  paying  kickbacks  to  a  physician  for  referring
psychiatric patients to the hospital.  The hospital was sentenced to 5 years
probation and ordered to pay close to $63,160 in restitution.  In lieu of a
monetary fine, the hospital must produce a community service plan within
30 days.  Both the owner and the hospital agreed to cooperate in the
prosecution  of  the  administrator  and  the  physician  for  Medicare  and
CHAMPUS fraud.  The two had worked together earlier at another hospital,
at which the physician was convicted of accepting kickbacks.
15 Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 1,353 sanctions, in the form of exclusions or
civil recoveries, on individuals and entities for engaging in fraud or abuse of the Medicare
and Medicaid programs and/or their beneficiaries.  Over half of the exclusions were based
on conviction of program-related crimes, conviction of controlled substance manufacture or
distribution, conviction related to patient abuse or loss of license to practice health care.
Monetary  penalties  can  be  assessed  under  several  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 the Medicare, Medicaid, Maternal and Child Health Services
Block Grant, and Block Grants to States for Social Services programs.  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 or crimes relating to patient abuse.
A significant number of OIG exclusions involve failure to repay HEALs, as discussed in
more detail in the chapter on the Public Health Service.  During this reporting period, OIG
imposed exclusions on 1,344 individuals and entities in all.
The OIG reviews all factors  involved  in  a case to determine  whether an  exclusion is
appropriate  and,  if  so,  the  proper  length  of  the  exclusion.    Factors  reviewed  include
information solicited directly from the provider and information obtained from outside
sources  such  as  courts,  licensing  agencies,  or  other  Federal  or  State  programs.    The
following exclusions are examples of some imposed during this reporting period: 
 A California psychiatrist and two unlicensed psychotherapists were each
excluded for 10 years after being convicted of defrauding the California
Medicaid  program  (Medi-Cal).    They  had  devised  a  scheme  where
unlicensed individuals undertook psychiatric counseling sessions and their
clinic billed Medi-Cal as if a psychiatrist had been present throughout the
entire session.  The loss to the Medi-Cal program as a result of this scheme
was in excess of $500,000.
 An Oklahoma physician was required to make restitution to Medicare of
$190,000  after being convicted for his part in a conspiracy to defraud
Medicare in which he received remuneration for referring patients to a
psychologist.  After his conviction, he was excluded for 10 years.
16  The owner of a clinic in California was convicted of defrauding Medi-Cal
by submitting claims for the services of an unlicensed physician.  The court
ordered her to pay restitution of $100,000.  After being convicted, the clinic
owner was excluded for 10 years.
 A Florida DME company owner and the sales manager of the company
were each excluded for 10 years.  These exclusions were the result of their
convictions for defrauding the Medicare program of over $108,000.  They
had submitted claims for DME and diagnostic x-ray tests which had not
been ordered or determined to be medically necessary by a physician, and
for equipment which had not been provided to beneficiaries.  As a result of
the owners exclusion, the two companies that he owned were also excluded
from program participation for 10 years.
 A Louisiana mental health rehabilitation provider and her company were
each excluded for 10 years.  Her exclusion was based on her conviction for
defrauding the Medicaid program of $280,000 by billing for services which
had to be ordered by a physician, or in some instances, performed under the
supervision of a physician when no such order existed or no physician
supervision was provided.
 An exclusion of 20 years was imposed on an Illinois physician.  He had
been convicted of aggravated criminal sexual assault of patients who were
children as well as child pornography involving these patients.
 A Texas dentist was found guilty of involuntary manslaughter after giving a
patient  a  fatal  overdose  of  sedatives  during  gum  surgery.    After  this
conviction, the dentist was excluded for 15 years.
 The owner of a Pennsylvania medical center was convicted of defrauding
insurance companies by submitting fraudulent medical bills and reports to
them.  He was ordered to pay over $106,000 in restitution to the insurance
companies.  As a result of this conviction, he was excluded for 10 years
from program participation.
 A 10-year exclusion was imposed on the manager of a medical service for
his  part  in  a  scheme  to  defraud  health insurance  companies.   He  had
instructed company staff to fabricate fraudulent medical bills and reports
describing medical treatment purportedly rendered to personal injury clients
and to submit the claims to the insurance companies.  He was ordered to pay
restitution of $100,000 to the insurance companies.
17  The  Idaho  Department  of  Health  and  Welfare  sanctioned  a  Medicaid
personal  care  services  provider  for  intentionally  submitting  claims  for
services which were not provided.  Based on this action, he was excluded
from program participation for 10 years.
B. 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 Federal Civil 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 almost $937 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 Pennsylvania-based ambulance company entered a global settlement of
allegations that it billed the Government for nonallowable transportation
services.  The company agreed to forfeit $4.6 million in payments withheld
by the Medicare carrier.  Criminal investigation of several individuals is
ongoing.  Decisions on program exclusion have been postponed pending
negotiation of a corporate integrity agreement with its new owner.
 A Wisconsin rehabilitation center entered a consent agreement to repay
$326,000 to Medicare for submitting claims for nonallowable services.  The
company billed for individual occupational therapy when it was actually
done in group sessions.  It also claimed lease costs that were considerably
higher  than  fair  market  price  for  the  region.    To  escape  making  the
repayment, the company attempted to file for bankruptcy and the owner
attempted to sell the company.  However, the judge ordered that neither
action could be taken until the Medicare settlement was entered.
 A speech therapist, who practiced in Iowa and Minnesota, and his wife
agreed to pay $300,000 to resolve civil liability for submitting false claims
to Medicare.  They set up several corporations to bill for speech therapy.
Investigation showed that from 1988 till 1991 they billed for noncovered
services disguised as covered services, billed for services performed by
unlicensed aides and filed false cost reports.  The loss to Medicare was
18 approximately  $835,000.    A  review  of  the  speech  therapists  financial
statements  showed  funds  were  not  available  to  make  the  Government
whole.  In 1993, he was sentenced to prison, ordered to pay $40,000 in
restitution and excluded from Medicare and State health care programs for
his part in the scheme.
 An Iowa podiatrist agreed to pay $100,000 to resolve his civil liability for
submitting  improper  Medicare  claims.    Between  1993  and  1995,  the
podiatrist billed for whirlpool treatments each time a patient visited his
office.  He also billed for removal of skin lesions when in fact he was
performing noncovered routine foot care.  The improper billing resulted in
an overpayment of approximately $61,000.
Other major settlements are described under the sections on kickbacks, and laboratory and
DME fraud.
C. Compliance Activities
The question of whether or not an organization has established compliance standards and
procedures is an important factor in Federal sentencing guidelines.  As a result, there has
been a growing effort by the private sector to establish methods to reduce violations under
the Federal Civil False Claims and CMP Acts.  The OIG has begun a significant outreach
effort with the private sector to discuss these endeavors.
To provide further assistance to the private sector in this area, OIG is developing model
compliance plans for the various parts of the health care industry which providers may adopt
voluntarily.  On February 24, 1997, the Inspector General announced the release of the
Model Compliance Plan for Clinical Laboratories.  During the drafting of the plan, OIG
consulted with the clinical laboratory industry, DOJ and HCFA, whose comments were
considered and incorporated into the plan.  The plan sets forth the fundamental components
of an effective corporate  compliance  plan.   The  model offers  advice  and guidance to
providers in the clinical laboratory industry who are initiating or maintaining voluntary
compliance  programs.    Copies  of  the  plan  have  been  sent  to  numerous  health  care
professional associations.  The plan will also be published in the Federal Register and posted
on the Internet.  The OIG will release additional model plans specific to many types of
health care providers.
The  OIG  is  also  monitoring  and  verifying  the  completion  of  corporate  integrity  plan
obligations that have been and are being established as a result of settlement negotiations
following  an  OIG  investigation  or  audit.    Currently,  OIG  is  monitoring  70
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
19 operating within HCFA regulations and the parameters established by the corporate integrity
plan.  Failure to adhere to the corporate integrity agreement within the agreed time limit
could result in the exclusion of the provider.
Medicare Payments to Excluded and Unlicensed
Health Care Providers
In a review in Maryland, OIG determined that the Medicare program continues to reimburse
individuals who have either been excluded by OIG from participation in the program or still
practice even though their Maryland licenses were suspended or revoked.
Specifically, OIG found that 22 percent of the excluded individuals (6 of 27) and 15 percent
of the unlicensed individuals (6 of 40) billed for and received Medicare reimbursement for
services provided during the time of their exclusion or while unlicensed.  Further, OIG
found that individuals whose Maryland licenses were suspended or revoked relocated to
other States where they continued to treat Medicare beneficiaries, and current databases
containing exclusion and adverse licensure actions were incomplete and inaccessible.
The OIG recommended that HCFA:  ensure that Medicare contractors establish controls to
preclude  payments  to  excluded  and  unlicensed  providers;  expand  OIGs  data  match
nationally to identify payments made to excluded providers; and recover the erroneous
payments identified in the review and subsequent data matches.  Moreover, OIG proposed
that HCFA confirm that its contractors get licensing information from the appropriate State
agencies and that Medicare payments are terminated to unlicensed individuals; institute edits
to prevent inappropriate payments; continue to support proposals to create a comprehensive
database to capture negative actions on all health care providers and be accessible to all
parties; and work with the Public Health Service to implement section 1921 of the Social
Security Act requiring States to provide information to the Secretary regarding specified
adverse licensing actions taken by the State entity responsible for licensing of health care
providers.  The HCFA agreed with OIGs recommendations.  (CIN:  A-14-96-00202)
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:
 A Florida physician and acupuncturist were sentenced for conspiracy in
fraudulently  billing  Medicare  $1.9  million.    The  acupuncturist  and  her
former husband, who co-owned six acupuncture clinics, hired the physician
and other medical doctors to prescribe physical therapy when the couple had
performed non-billable acupuncture.  The physician also backdated physical
examinations, and had others backdate them, to make them appear to have
20 been  done  before  the  couple  began  treatments.    The    physician  was
sentenced to 30 months in prison and ordered to repay $144,390.  The
acupuncturist, who pled guilty and testified against him, was sentenced to
36 months probation and ordered to pay back $927,000, the actual amount
Medicare overpaid.  Her former husband is a fugitive and is believed to
have fled to Hong Kong.
 The  former  chief  executive  officer  of  a  vascular  diagnostic  testing
laboratory was sentenced in Georgia to 51 months incarceration.  Over a
3-year period, the officer used his position to cause submission of Medicare
and Medicaid claims for services not performed.  He was convicted on 100
counts of false claims, one count of attempting to induce a witness to give
false testimony before a grand jury and one count of giving false testimony
himself to  the  grand jury.   He  was fined $65,000  and ordered  to pay
$219,600 in restitution.  At the time, he was on parole as a result of a 1985
conviction for Medicare/Medicaid fraud and related drug charges.
 A  judgment  was  entered  in  Pennsylvania  against  the  owner  of  several
personal care boarding homes.  He was ordered to pay $500,000, sell his
personal care homes and turn over the proceeds to the Federal Government.
The  court  also  ordered  that  he  be  permanently  enjoined  from  future
ownership,  management,  operation  or  employment  in  a  commercial
boarding home or personal care home.  Earlier, he was charged in a civil suit
with posing as a medical doctor in order to defraud the Medicaid program
through the residents of the homes, as well as stealing their Social Security
and Supplemental Security Income checks, and providing inadequate care to
the residents.
 A physician was sentenced in Ohio to 36 months incarceration and fined
$195,000  for  billing  Medicare,  Blue  Cross  Blue  Shield  and  a  private
insurance company for physical therapy services that were not provided.
The  physician  and  his  office  manager  also  participated  in  a  scheme
involving  insurance  fraud.   The  office manager  claimed injury  from  a
no-contact  auto  accident,  for  which  the  physician  submitted  159  false
insurance  claims.    The  physician  also  claimed  payment  for  two
sigmoidoscopies performed on the office manager, which she claimed she
could not recall.  The physicians conviction was the result of the testimony
of the office manager, who was dismissed earlier as a defendant.
 A California urologist was sentenced to 24 months in prison for submitting
false claims to Medicare.  He had pled guilty to submitting claims for
complex procedures he did not perform.  Earlier he agreed to pay $440,000
21 in damages and penalties, which were paid before the sentencing.  The
urologist  will  be  excluded  from  Medicare  for  10  years  because  of
aggravating  circumstances:    he  performed  invasive  procedures  such  as
cystourethroscopies (visual examinations of the bladder and urethra) and
cystometrograms  (assessments  of  the  bladders  neuromuscular function)
which he admitted were not medically necessary.  He has surrendered his
medical license.
 A consent judgment was entered in New York by which an optometrist will
repay $120,000 in Medicare claims for post-cataract surgery eyeglasses
which were not provided.  The optometrist also billed Medicare for another
optometrists services in exchange for a portion of the proceeds.  The
judgment was based on his earlier criminal conviction, for which he served
probation and made restitution of $24,000.
 The  operator  of  a  Mississippi  laboratory  was  sentenced  to  15  months
incarceration for billing Medicare for doppler tests that were never done.
The false billing resulted in an overpayment of $35,000.  He was fined
$1,000 and placed on 3 years supervised release following his prison term.
A civil settlement of $85,000 has also been obtained from the owners of the
laboratory.
 A Washington State chiropractor pled guilty to one count of submitting a
false claim to an employee welfare benefit program.  The chiropractor also
billed Medicare and the Department of Labor for services for patients who
missed or cancelled their appointments.  The plea agreement called for him
to pay a total of $102,110 in restitution, fines and civil monetary penalties.
He was immediately sentenced to 3 years probation.
 A  California  psychiatrist  was  sentenced  for  conspiracy  and  mail  fraud
related  to  submitting  false  Medicare  and  private  insurer  claims.    The
psychiatrist  was  sentenced  to  15  months  incarceration  and  3  years
probation,  and  ordered  to  pay  $85,930  in  restitution.   He  allowed  his
brother-in-law, who operated an optometry practice, to use his license to
charge for tests that were either never performed or medically unnecessary.
The brother-in-law was sentenced earlier to 5 months in jail and 5 months
home detention, and ordered to pay restitution of $150,000.  
 Three related ambulance companies in Connecticut agreed to pay $700,000
to resolve their civil liability for the submission of false claims to the
Medicare program.  Between 1991 and 1994, the companies submitted
fraudulent claims for transporting mostly ambulatory patients from their
22 residences  or  nonskilled  nursing  homes  to  renal  dialysis  clinics.    The
Medicare  overpayment  was  approximately  $541,000.    As  part  of  the
settlement, the companies must enter a corporate compliance plan designed
to prevent recurrence of improper billings.
 A Texas woman was sentenced to a year and a day in prison and ordered to
make  restitution  of  $41,500  she  had  stolen  in  Medicare  and  Medicaid
checks.  While employed by a doctor as an office manager, she submitted
claims for a personal friend, although no services were performed.  When
the checks came in, the two split the proceeds, with the woman taking the
larger amount.  The friend was sentenced to a year of probation and fined
$2,550.
 A former Internal Revenue Service (IRS) mail clerk was sentenced for
impersonating a Federal officer, intimidating a witness and obstructing an
official proceeding.  He was sentenced to 5 months incarceration and 5
months home confinement with electronic monitoring, followed by 1 year
supervised release.  The man was employed by an ambulance company
before  becoming  an  IRS  employee.    During  an  investigation  of  the
ambulance  company  for  falsely  billing Medicare  and Medicaid, several
employees said that the man claimed to be an IRS agent and threatened at
least one of them with a tax audit if he cooperated in the investigation.  The
man was terminated from his IRS job after being convicted of charges.
 A former police officer was sentenced in Pennsylvania to 3 years probation
and 300 hours of community service for Medicare and Medicaid fraud.  As
executive  director  of  a  drug  and  alcohol  rehabilitation  center  in
Philadelphia,  he  had  billed  for  services  not  rendered,  had  billed  for
individual therapy sessions when group sessions had been provided and had
altered clinical records to obstruct an audit by the State.  The sentence
reflected the mans cooperation in the investigation of the centers owners.
The fraud identified amounted to $192,690, but the executive director was
ordered to pay $9,000 because of his financial condition.
 A psychologist was sentenced in Pennsylvania for mail fraud in relation to
Medicare fraud.  She was sentenced to 6 months home detention, for which
she must pay the cost, 12 months probation and 300 hours of community
service.  Over a 4-year period, she billed Medicare for more than 700
services she never provided.  The estimated loss to Medicare was $113,000
for psychological testing and psychotherapy never performed.  When the
carrier  questioned  the  charges,  the  psychologist  created  false  clinical
records.  A civil prosecution is underway.
23  Through its six owners, a company entered into an agreement in Louisiana
to pay $85,000 to resolve Federal civil false claims liability.  The company
conducted diagnostic testing, primarily at nursing homes, and filed false
Medicare  claims  for  services  that  were  either  not  performed  or  not
medically necessary.  The claims, which resulted in a $46,570 overpayment,
were submitted by an employee, who pled guilty separately.  The civil
agreement  with  the  owners  is  based  on  their  "reckless  disregard"  of
company and employee activities.
 In Colorado, the former business manager of three physical therapy clinics
was sentenced to 1 year probation, ordered to perform 40 hours community
service and fined $100 for Medicare fraud.  One of several employees hired
by the owner and operator of the clinics, she falsified working hours, wages,
and personnel qualifications of unlicensed assistants and aides which the
owner used to claim more therapy hours than were actually provided.  The
Medicare fiscal intermediary identified $4 million in overpayments and
disallowances through cost reports filed by the owners companies.  She
was sentenced earlier to 21 months in jail and excluded from Medicare and
State health care programs.  The business managers light sentence was the
result of her cooperation in the investigation and her testimony against the
owner.  A civil case is pending against the owner.
Home Health Care Costs
In the first two of the following reviews of home health care costs, OIG recommended that
HCFA require the Medicare fiscal intermediary (FI) to instruct the home health agencies
(HHAs) on their responsibility to properly monitor their subcontractors for compliance with
the Medicare regulations and  HCFA  guidelines, monitor the FIs  and the home  health
agencies  to  ensure  that  corrective  actions  are  effectively  implemented,  and recover  all
overpayments.  Further, OIG recommended that HCFA direct the FIs to investigate all cases
of  possible  fraud  and  refer  them  as  necessary  to  OIG.    The  HCFA  agreed  with  the
recommendations.
In the third report, OIG made no procedural recommendations because, at the time of the
review, the HHA was in the process of being sold and would no longer participate in the
Medicare program under its present ownership.
A. Florida
The OIG reviewed 100 claims (representing 1,784 home health services) submitted for
Medicare reimbursement by a Florida HHA during the fiscal year ended December 31,
1993.  Thirty-two percent of the sample contained 353 services that did not meet Medicare
guidelines:  23 percent were for 262 services that were not reasonable or necessary; 5
percent were for 69 services provided to beneficiaries who were not homebound; 3 percent
24 were for 17 services which physicians did not authorize; and 1 percent were for 5 services
not provided.  During this fiscal year period, the HHA claimed $12 million in 8,700 claims
representing 151,015 services.  Based on its review, OIG estimates that at least $1.7 million
did not meet the reimbursement guidelines.  (CIN:  A-04-95-01105)
B. Florida
The OIG determined that 44 percent of the claims made by another Florida HHA for home
health  care  services  for  the  year  ended  December  31,  1993,  did  not  meet  Medicare
reimbursement guidelines.  Twenty-five percent of the claims were for services which, in the
opinion of medical experts, were not reasonable or necessary; 14 percent were for services
to beneficiaries who were not homebound; 3 percent were for services which physicians did
not authorize; and 2 percent were for services not provided.  Of the $6.7 million claimed by
the  HHA  for  the  year,  OIG  estimated  that  at  least  $1.2  million  did  not  meet  the
reimbursement guidelines.  In its response to the draft report, HCFA concurred with the
recommendations.  (CIN:  A-04-95-01107)
C. Pennsylvania
In  a  review  of  100  claims  (representing  1,731  services)  submitted  for  Medicare
reimbursement by a Pennsylvania HHA during the period January 1, 1995 through April 30,
1995, OIG  determined that 28  percent contained  324 services that were ineligible for
Medicare reimbursement.  The OIG estimated that at least $2.5 million of $22.6 million
claimed for this period did not meet reimbursement guidelines.
After conviction for Medicare-related offenses, the company and its subsidiaries filed for
bankruptcy.  While HCFA agreed with OIGs recommendation regarding recovery of the
overpayments,  it  was  unable  to  take  administrative  action  because  of  the  bankruptcy
proceedings.  In October 1996, the company entered into a civil settlement agreement
providing for the payment of approximately $232 million to HCFA over several years; the
settlement reflects the estimated overpayments to all subsidiaries over cost report years 1989
through 1996, including those identified in this report.  (CIN:  A-03-95-00011)
Low-Cost Home Health Agencies
As part of the ongoing Operation Restore Trust examination of home health, OIG examined
the effects of home health agencies operating practices on the wide variation in average
number of visits per Medicare beneficiary.  One report, based on a survey of 300 randomly
selected home health agencies, examined operating practices and philosophies of the high-
and low-cost agencies to ascertain whether there were differences which would account for
the variation in the average number of visits per beneficiary.  
The OIG found no differences in operating practices that could account for the variation.
These findings reinforce OIGs conclusion that the explanation for these wide variations
25 among home health agencies in average number of visits per beneficiary probably lies in the
existence or lack of controls on the benefit.  Unless increased oversight can be applied to the
benefit,  regulatory  or  legislative  changes  might  be  necessary.    (OEI-04-93-00291;
OEI-04-93-00263)
Home Health Agency Fraud
Home health agencies are one of the fastest growing segments of the health care industry
because they allow many patients to remain in their own homes at less expense than would
be incurred at a hospital or other institution.  However, as one of the most loosely regulated,
it is quite subject to fraud, as shown in the following examples.
 A Georgia HHA and the company merging with it entered a civil settlement
agreement to pay the Government $255 million for defrauding the Medicare
program.  The former owners conspired to defraud Medicare of more than
$1 million.  The owners and the company were charged with filing cost
reports  that  included  personal  expenses,  political  contributions,  ghost
employees  and  lobbying  expenses.    They  were  also  charged  with
conspiracy,  false  statements,  kickbacks,  witness  tampering  and  money
laundering.  The couple and their company were sentenced earlier on the
criminal aspect of the case.  In addition, the couple was excluded from
participating in Medicare and State health care programs for a total of 25
years.
 An HHA employee was sentenced in Missouri after pleading guilty to
making false Medicare claims.  Over a 2-year period, she misrepresented
herself as a licensed social worker, which cost Medicare more than $23,000
in overpayments.  The HHA owner, a licensed social worker, allowed the
employee to perform psychiatric services on nursing home patients, but she
billed Medicare as if she herself performed the services.  The employee was
sentenced to 21 months imprisonment and 2 years probation, and ordered to
pay $6,000 in restitution.  She was also ordered to seek psychiatric help
after her release from prison.
 Two former  aides in  a Missouri  HHA entered into a pretrial diversion
agreement for Medicare fraud.  An internal audit conducted by the HHA
showed they inflated mileage, which caused the HHA to file false cost
reports to Medicare.  They confessed to defrauding Medicare of $10,000.
They were sentenced to 12 months probation, and ordered to pay restitution
of $500 and perform 50 hours of community service.
 The  former  owner  of  a  Texas  HHA  was  sentenced  to  27  months
incarceration after pleading guilty to presenting a false claim to Medicare.
26 The lengthy sentence was partially due to her previous State conviction for
embezzlement.  She was indicted in the current case for billing for visits her
company did not make.  Her lawyer asked for a downward departure from
sentencing guidelines because she had given birth 3 months earlier, but the
judge ruled she should get help from family and others to care for the child.
The owner was in business for only 6 months and submitted false Medicare
claims for $49,000.  She agreed to waive rights to $190,380 reflected in her
1994 Medicare cost report.  No fines or restitutions were assessed because
of her financial condition.
 The co-owner of a Washington, D.C. HHA was sentenced to 27 months in
prison and ordered to pay full restitution of $100,000 defrauded from the
Medicare  and  Medicaid  programs.    The  HHA  billed  for  1,450  skilled
nursing visits for which there are neither time slips nor nurses notes.  It also
billed  for  home  nurse  visits  when  patients  were  actually  hospitalized.
Another co-owner was also convicted but has been in "escape status" since
leaving his detention center assignment.
 In Texas, one man, his Texas HHA and his brother/employee agreed to pay
$30,000 to resolve civil liability for submitting fraudulent Medicare cost
reports.  The two men conspired to include phoney expenses for medical
supplies,  office  supplies  and  automobile  leases  on  the  claims.    The
brother/employee was president of a medical supply company that sold to
the HHA at a 100 percent markup.  He also altered invoices for supplies not
purchased and fabricated automobile lease contracts from vendors who did
not lease automobiles.  He was convicted and fined $25,000.  The owner
was placed on a pre-trial diversion and had to pay restitution of $25,000.
Hospice Eligibility  
The  OIG  is  conducting  reviews  to  assess  the  accuracy  of  beneficiary  eligibility
determinations and resultant reimbursements at selected hospices.  Medicare regulations
state that an individual must initially be certified by a physician as terminally ill with a life
expectancy of 6 months or less in order to be eligible for hospice benefits.  Election to the
palliative care offered by this program requires beneficiaries to voluntarily relinquish their
right to curative care for their terminal condition under the Medicare program.
During this semiannual period the following hospice reviews were completed:
A. Florida
The OIG found that Medicare paid a Florida hospice provider $4 million for care to 71
ineligible beneficiaries and another $2.5 million for 45 beneficiaries whose eligibility could
27 not be determined based on the medical evidence in their files.  The OIG review, which
included reviews by physicians of the hospices eligibility determinations, covered 147
beneficiaries who had been in hospice care for more than 210 days.  Of the 147 cases, 93
were active in hospice at the time of the review and represented 36 percent of the total active
Medicare hospice beneficiaries as of April 30, 1995.
The OIG believes that these problems occurred because hospice physicians made inaccurate
prognoses of life expectancy based on the medical evidence in the patients files or because
the evidence was insufficient to determine whether the beneficiaries were terminally ill.
In addition to financial adjustments, OIG recommended that the Medicare intermediary
coordinate  with  HCFA  in  providing  training  to  hospice  providers  and  physicians  on
eligibility requirements for beneficiaries, and conduct periodic reviews of hospice claims to
ensure that the hospice is obtaining sufficient medical information to make valid eligibility
determinations.  The intermediary generally concurred with OIGs recommendations relating
to strengthening procedures to ensure proper payment of hospice claims.  The OIG will
continue to work with HCFA and the intermediary concerning recovery of any improper
payments.  (CIN:  A-04-95-02110)
B. Texas
This final report resulted from OIGs audit of Medicare hospice beneficiary eligibility
determinations at a Texas hospice.  The audit included medical evaluations, by physicians,
of the records of 77 Medicare beneficiaries who had been in hospice care for more than 210
days.  The OIG found that 25 beneficiaries (32 percent of the 77 reviewed) were not eligible
for  hospice  coverage  because  hospice  physicians  made  inaccurate  prognoses  of  life
expectancy  based  on  the  medical  evidence  in  the  beneficiaries  files.    The  OIG
recommended a financial adjustment for the improper Medicare payments totaling more
than $1.2 million which the hospice had received for the 25 ineligible beneficiaries.  The
OIG will continue to work with HCFA and the intermediary concerning recovery of any
improper payments.  (CIN:  A-06-96-00027)
C. Texas 
This final report resulted from OIGs audit of Medicare hospice beneficiary eligibility
determinations at a second Texas hospice.  The audit included a medical evaluation, by
physicians, of the records of 60 beneficiaries who had been in hospice care for more than
210 days.  The review disclosed that 20 beneficiaries (33 percent of the 60 reviewed) were
not eligible for hospice coverage because hospice physicians made inaccurate prognoses of
life  expectancy  based  on  the  medical  evidence  in  the  beneficiaries  files.    The  OIG
recommended a financial adjustment for the improper Medicare payments totaling nearly $1
million which the hospice had received for the 20 ineligible beneficiaries.  The OIG will
continue to work with HCFA and the intermediary concerning recovery of any improper
payments.  (CIN:  A-06-95-00095)
28 D. Puerto Rico
The OIGs series of reviews of hospice eligibility were a product of its 1994 work on
Medicare hospice eligibility in Puerto Rico that had been requested by HCFA.  This audit,
which disclosed a large number of beneficiaries in hospice care who were not terminally ill
and therefore not eligible for benefits, resulted in corrective action on a number of fronts --
and in a significant drop in hospice expenditures in Puerto Rico.  Puerto Rico expenditures
dropped from almost $50 million in 1993 (expenditures totaled about $42 million for the
first 6 months of FY 1994) to $19 million in 1996.  Corrective actions included HCFAs
decertifying a substantial number of hospices (at least 15 hospices by March 1995), the
launching of investigations by the FBI, OIGs development of a model for identifying
aberrant providers and the collaborative Operation Restore Trust work in the continental
United States. 
Nursing Home Fraud
Nursing facilities and their residents have become common targets for fraudulent schemes.
The OIG has become aware of a number of fraudulent arrangements by which health care
providers, medical professionals, and nursing facility management and staff inappropriately
bill Medicare and Medicaid for the provision of unnecessary services and services which are
not provided to residents.  The following cases are some of the examples of fraudulent
schemes related to health care services to residents of nursing facilities:
 A health care corporation paid $4.6 million in New Mexico to resolve civil
liability for false claims.  Earlier, the company had repaid $1.2 million when
it learned about the OIG investigation.  In 1994, the company acquired a
chain of 19 rehabilitation facilities, which had not billed for certain ancillary
medical supplies.  Believing it had found an unclaimed income source, the
company billed Medicare, Medicaid and other insurers for these supplies;
however, the billings were improper.  For example, since tracheostomy care
is usually given 3 times a day, the company billed for 90 trach tubes, 90
trach care kits and other related items, per beneficiary, for each 30-day
period.  Intermediary personnel indicated that one trach tube a year was
normal.  The company billed Medicare $3.4 million from July to December
1994, and was paid $1.2 million.  Treble damages were assessed because of
a blatant disregard of proper billing requirements.  However, the company
cooperated  fully  in  the  investigation  and  is  implementing  specific
compliance measures.
 A New Jersey company which employed psychologists to provide services
to  nursing  home  residents  entered  a  civil  settlement  agreeing  to  pay
$700,000  to  settle  allegations  it  submitted false Medicare claims.   The
company billed for 45 to 50 minutes of psychotherapy to nursing home
residents when only 20- to 30-minute sessions were held.  Some of the
29 companys psychologists billed for more than 14 hours of therapy a day --
one billed for the equivalent of more than 24 hours a day.  The company
will also implement a corporate compliance program.
 A  California  psychiatrist  signed  an  agreement  to  pay  the  Government
$300,000  to  settle  allegations  related  to  Medicare  fraud.    He  provided
psychiatric care to Medicare beneficiaries in nursing homes in California,
Rhode Island, Florida, Texas, New York, Washington and Oregon.  His
scheme involved duplicate billing through two separate entities, both of
which he owned.  During the investigation, his various companies were
found  to  have  24  different  mailing  addresses,  23  different  telephone
numbers and at least 12 different provider numbers.  In preparation for his
defense,  however,  the  psychiatrist  got  a  statement  from  the  American
Medical Association that a physician who performed both a psychiatric and
a  physical  examination  concurrently  could  claim  for  both  --  which  he
claimed was done, only through two different companies.
 In  1992,  two  sister  co-owners  of  a  third-party  billing  agency  were
convicted, through the efforts of OIG, of falsely billing Medicare and were
imprisoned.    Their  company  had  contracted  with  a  number  of  nursing
homes in several States to retrieve so-called "lost charges" -- items for
which the homes had not  billed  Medicare.   The company received 50
percent  of  whatever  the  homes  were  reimbursed.    The  company  used
incorrect diagnostic codes for items not covered by Medicare -- or billed for
items never provided -- to obtain $7 million in Medicare payments.  During
this reporting period, seven nursing homes in three States signed agreements
to settle allegations that they caused the submission of the false Medicare
claims, bringing to 12 the number settling, for a total of more than $3.6
million.   Included in the settlements were agreements to conduct periodic
internal audits and to educate employees on their commitment to ensure
accurate billing and reporting.
 An Illinois ambulance company owner and one of his employees were
sentenced after pleading guilty to Medicare and Medicaid fraud.  They had
been  planning  to go  to  trial  when  an  OIG  agent reviewing  documents
suspected the papers had been prepared to support their position.  The agent
found the printer who printed the forms and discovered they were printed
long after the dates appearing on them.  When told that the U.S. Attorney
was considering  charging  the  subjects with obstruction of justice, they
decided to plead to the pending charges.  The two had filed false and
inflated claims for same-day round-trip transfers of nursing home patients as
bed-confined, or for other higher levels of service than that performed.  The
30 company owner was sentenced to 5 months incarceration and 5 months
home confinement, and was ordered to sell his business by November 23,
1996.  He was fined $10,000 and must make restitution of $15,810 to
Medicare and Medicaid.  Earlier he agreed to a $367,000 civil settlement.
The employee was given 2 years probation and fined $500.
Laboratory Fraud
The OIG, in coordination with DOJ and other law enforcement agencies, is concluding 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.  The laboratory and its president pled guilty to
criminal charges relating to the laboratorys billing practices.
During the course of this audit/investigation, OIG found numerous problems in the ways
that most independent clinical laboratories were charging Medicare for clinical tests.  For
example, laboratories engaged in abusive marketing practices which caused doctors to order
medically unnecessary tests.  After determining which tests were profitable to perform, the
laboratories created "profiles" containing these tests and the tests commonly ordered by
physicians.  Physicians were encouraged to order the new profile and strongly discouraged
from ordering only those individual components of the profile needed for the care of the
patient.  Physicians often were told that the superfluous tests cost nothing or only a nominal
additional amount.  Unknown to the doctor, the laboratories unbundled these profiles and
billed Medicare, Medicaid and other health care programs the full price for the unnecessary
tests as if each test had been ordered and performed separately by the laboratory.  In addition
to marketing schemes, the laboratories also billed for services that had not been ordered.
For example, Medicare was routinely billed for calculations and test indices performed
simultaneously by the laboratories automated equipment but not requested by the ordering
physician.
In response to these industry-wide abuses, several of the agencies involved in the original
investigation volunteered to form a task force to promote interagency cooperation and
proactive  investigations, unconstrained by geographic or agency  boundaries.   Such an
approach would enable the Government to pursue criminal, civil and administrative actions
on a national level, as well as recover millions of dollars.
When the task force began its investigation in 1993, the Inspector General subpoenaed
documents  from  seven  national  independent  laboratories.    During  the  course  of  the
investigations, through a series of mergers and acquisitions the seven combined to form
three major independent laboratories in the country.  Within the current reporting period, the
following settlements have been made with these three:
31  One laboratory agreed to pay $325 million, one of the highest financial
settlements involving health care fraud in the history of the False Claims
Act.  It also entered a corporate integrity agreement to ensure stringent
compliance in its billing practices.
 A second major clinical laboratory corporation agreed to pay $187 million
to resolve its civil liabilities, and enhanced its existing corporate compliance
program  with  comprehensive  training,  monitoring  and  reporting
requirements imposed by OIG.  One of its constituent laboratories pled
guilty to fraud, paid a $5 million criminal fine, and was excluded from
participation in Federal and State health care programs.
 The third major independent laboratory had "successor liability" for the
conduct of laboratory companies which it purchased as part of its growth
strategy in the early 1990s.  During the current period, two settlements were
made for civil liability in the amount of $130 million, bringing the total
amount settled thus far to $185 million.
The laboratory industrys awareness of the Governments task force spawned a series of qui
tam lawsuits.  Under the qui tam provisions of the Civil 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.
As with the task force subjects, 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.   For
example, one laboratory case -- settled for $10 million during the present reporting period --
suggests that laboratory services provided to end stage renal disease (ESRD) patients are
also vulnerable to fraud and abuse.  The laboratory submitted Medicare Part B claims for
tests for which Medicare Part A had already paid the dialysis centers under the ESRD
composite rate.  The investigation also uncovered a number of schemes to obtain payment
for medically unnecessary laboratory tests, including:  devising a test-ordering system which
encouraged physicians to order identical batteries of tests for all current and future patients,
regardless  of  medical  necessity;  paying  sales  commissions  on  the  basis  of  Medicare
revenues generated by the sales staff; and other marketing techniques and inducements
which encouraged the ordering of medically unnecessary lab tests.  In addition to the $10
million settlement agreement, the laboratory agreed to institute a comprehensive corporate
32 integrity program which, among other things, requires implementation of a new system for
ordering ESRD-related tests.
Separately Billable End Stage Renal Disease Laboratory Tests
The HCFA utilizes a prospective payment method for dialysis services by reimbursing end
stage renal disease (ESRD) facilities through a composite rate per maintenance dialysis
treatment.  This composite rate is a comprehensive payment for dialysis related services
provided to the patient and includes, among other services, payment for selected laboratory
tests.  
The OIG found that a significant control weakness exists in the Medicare payment system
that  allowed  hospitals  and  independent  laboratories  to  be  reimbursed  separately  for
laboratory tests even though payment for these tests was already included in each facilitys
composite rate.  Based on a statistical sample, OIG estimates that $6.3 million out of $12.8
million was improperly paid to hospitals and independent laboratories for separately billed
laboratory tests performed for ESRD beneficiaries during Calendar Year (CY) 1994.
The  OIG  recommended  an  education  program  for  ESRD  providers  and  independent
laboratories explaining proper ESRD billing practices, monitoring of providers billing for
laboratory tests outside the composite rate for possible post-payment reviews and recovery
of the estimated overpayments.  In response to the draft report, HCFA concurred with the
OIG  recommendations  and  proposed  or  implemented  corrective  actions.    (CIN:
A-01-96-00513)
Durable Medical Equipment Regional Carrier Overpayments
The OIG audited Palmetto Government Benefits Administrators, a DME regional carrier
(RC), to determine whether it was identifying and collecting overpayments from Medicare
DME  providers  in  a  timely  manner.    The  OIG  found  problems  with  the  DMERCs
overpayment collection process.  As of June 30, 1996, $112.6 million in overpayments and
interest  had  not  been  collected  from  Medicare  DME  providers.    A  sample  of  90
overpayments over $5,000 each (representing $97.5 million of the $112.6 million) showed
that this occurred primarily because the DMERC did not adhere to HCFAs and its own
collection  procedures.  The  OIG  recommended  that  the  DMERC  follow  the  collection
procedures required by HCFA and use more aggressive collection efforts, especially during
the first few months after an overpayment is identified.  The HCFA reported that, since
OIGs review, the $97.5 million had been reduced to $45.7 million through collection or
referral by the DMERC to HCFA for appropriate action.  (CIN:  A-04-96-01144)
33 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.  More than 2 years
ago,  HCFA  published  new  regulations  addressing  reimbursement  problems  that  have
recurred over the years, especially those created by telemarketing and carrier shopping.  It is
hoped that consolidation of claims processing into four regional jurisdictions, as specified in
the regulations, will resolve many of these problems.  In the meantime, OIG continues to
obtain settlements and convictions of unscrupulous suppliers for other schemes, as shown in
the following examples:
 One  of  the  highest-reimbursed  Medicare  suppliers  of  incontinent  care
products in the United States agreed to plead guilty in Florida to conspiracy
to defraud Medicare of $70.8 million.  It also agreed to forfeit $32 million
seized in bank accounts.  It distributed adult diapers to nursing homes but
billed  Medicare  for  female  urinary  collection  pouches.    It  also  billed
throughout the country for components of incontinence kits that were not
medically necessary.  The owner pled guilty earlier to mail fraud in a similar
case in Kansas and agreed to pay $5 million in restitution of overpayments
resulting from false claims to Medicare, Medicaid and private insurers.  The
two cases have been consolidated, and the owner was sentenced in Kansas
to 10 years imprisonment.  He has agreed to cooperate fully and testify in
ongoing investigations and future prosecutions.
 A New York judge sentenced a physician in absentia to 78 months in prison
for Medicare fraud.  The physician fled to the Dominican Republic after he
was convicted of falsely signing CMNs for DME from a medical supply
company.  He was ordered to pay restitution of well over $3.5 million, but
he cannot be extradited at this time.  In the same case, the individual who
prepared the false CMNs signed by this and other doctors became the 18th
person to plead guilty or be convicted.  The individual had been a fugitive in
Sierra Leone but waived extradition to return to the United States.
 Also in New York, one of three owners of a former medical supply company
agreed to pay the Government $2 million in settlement of false Medicare
claims.  The company submitted the claims between 1984 and 1987 for
transcutaneous  electrical  nerve  stimulator  units  and  accessory  kits.
Negotiations with the other two owners are continuing.  All three were
previously prosecuted criminally.
34  A California man was sentenced to 11 years and 3 months in Federal prison
for defrauding Medicare and Medi-Cal of approximately $14 million and
laundering the stolen money through overseas bank accounts.  The man had
been in prison for 6 years on unrelated charges and was due to be released 2
weeks after the sentencing in the current case.  He was also ordered to repay
Medicare $300,000 plus interest of $140,750, and Medi-Cal $12.7 million
plus $7 million in interest.  The man billed Medicare for transcutaneous
electrical nerve stimulator units, the vast majority of which were either not
medically necessary or not delivered, and billed Medi-Cal for diapers he
never delivered.  He was the leader of a group that all together defrauded
Medicare and Medi-Cal of about $40 million.  His sister served 33 months
in jail for mail fraud, his wife is serving a 12-month sentence in a halfway
house and his friend is serving a 46-month sentence.  A fourth defendant
remains a fugitive in Spain.  
 In New York, a DME company was ordered to pay a criminal fine of
$300,000.  It had created a subsidiary to submit claims in Pennsylvania for
equipment sold in Western New York in order to obtain higher Medicare
reimbursement.  The subsidiary pled guilty earlier and agreed to make full
restitution of $1.1 million and to pay a civil penalty of $2.5 million.  As part
of  the  settlement  agreement,  the  parent  company  entered  a  corporate
compliance plan.
 A DME company based in New Jersey agreed to repay the Government
$300,000 plus investigation costs ($30,000) for submitting false Medicare
and Medicaid claims.  The company billed for custom-fitted spinal body
jackets that were actually comfort seats supplied to nursing home residents
in New York and New Jersey.
 The owner of a Pennsylvania corporation that marketed a billing program
for ostomy products entered a guilty plea for the corporation and was fined
$100,000  for  its  actions.    The  corporation  entered  into  contractual
agreements with hundreds of pharmacies to use their accounts receivable to
bill the Pennsylvania carrier for ostomy products they supplied Medicare
beneficiaries.  The corporation paid the pharmacies 100 percent of the retail
price of the supplies, then billed Medicare for the separate parts of each
ostomy product supplied.  Also pleading guilty on behalf of his corporation
was an individual who had agreed to let the Pennsylvania corporation owner
use his sales force and extensive customer base to dramatically expand the
billing program.  He was fined $50,000.  They will pay $202,000 and
$50,000, respectively, to settle their civil suit obligations.
35  A Florida DME company agreed to pay $200,000 to settle civil and criminal
liabilities for submitting false Medicare claims.  They were suspected of
altering dates and qualifying data on CMNs for oxygen equipment, supplies
and services.
 A  Pennsylvania  DME  supply  company  entered  an  agreement  to  pay
$110,000 to settle criminal and civil liabilities.  The company submitted
claims to Medicare for higher-quality body jackets marketed to long-term
care facilities than those actually distributed.  As part of the settlement, the
company and its president agreed to be barred for life from participation in
any departmental programs.
 A Florida physician who signed prescriptions for DME and vascular tests,
and  the  man  who  acted  as  broker  and  sold  the  prescriptions  to  other
companies, were sentenced after pleading guilty to one count related to
Medicare fraud.  The physician was sentenced to 3 years probation, and
ordered to pay $22,000 in restitution and perform 500 hours of community
service.  The broker was sentenced to 9 months in prison and 3 years
supervised release, and ordered to pay restitution of $75,000 and perform
500 hours of community service.  The two were discovered through analysis
of records of a doctor sentenced earlier for signing false prescriptions.
Lymphedema Pumps
One area of DME that has suffered significant abuse has been the purchase of lymphedema
pumps.  These pneumatic compression devices are used to treat swelling of tissues resulting
from accumulation of fluid from lymphatic blockages.  The blockages can result from
malignancies, diseases, surgery or radiation.  The pumps range in sophistication and can cost
from $600 to $6,000.
In the early 1990s the only manufacturer of the expensive pumps complained that it was
losing sales because DME suppliers were providing less expensive pumps but were billing
for the most expensive.  In the meantime, Medicare payments had soared from $6.3 million
in 1990 to $118 million in 1995.  The manufacturers complaint prompted OIG to begin a
series of investigations that showed that the practice of upcoding appeared widespread in the
industry.  Medicare required supporting CMNs in order to pay for the pumps, but some
suppliers simply forged them to reflect the need for the expensive items or upgraded the
billing code -- while supplying lower-cost pumps.  In addition to criminal prosecutions, OIG
joined DOJ in pursuing civilly suppliers that overbilled.
To counter the fraudulent practices, HCFA revised  its  coverage of the pumps only as
treatment of last resort.  Less intensive treatments had to be tried for a minimum of 6
months.  Medicare then paid for pumps only if extensive documentation showed they were
36 absolutely necessary, and even then it reimbursed only for an inexpensive pump.  Even more
extensive documentation and review was to be used on claims for the most expensive
pumps.  
Predictably, Medicare payments for lymphedema pumps dropped dramatically, from $118
million in 1995 to less than $14 million in the first 9 months of 1996.  The successful
interaction of OIG, HCFA, the DMERCs, DOJ and the industry clearly contributed to this
result.
The OIG is undertaking a study to assess whether Medicare allowances for lymphedema
pumps  are  excessive,  if  attending  physicians  have  prepared  required  treatment  plans
governing their patients use of the pumps, whether physicians and suppliers are providing
required oversight and monitoring services for beneficiaries using these devices, and how
physicians determine whether a patient gets the most or least expensive pump.  
The following cases involving lymphedema pumps were concluded during this reporting
period:
 In New Jersey, the former owner of the States largest Medicare supplier of
lymphedema pumps was sentenced for Medicare fraud and obstruction of
justice.  In a scheme involving beneficiaries in Florida and New Jersey, she
billed Medicare for more expensive pumps reimbursable  at  $4,000 per
pump, when in fact, much less expensive pumps were provided.  Many of
the pumps were not medically necessary.  The total overpayment was more
than $200,000.  She was sentenced to 35 months incarceration and 3 years
supervised release, fined $7,500 and ordered to pay a total of $220,100 in
restitution.  She was also barred from participating in the sale of DME
during her 3-year release period.
 The  former  owner/operator  of  a  Washington  State  DME  company  was
sentenced to 12 months and a day in prison and 3 years supervised release
on charges related to Medicare fraud.  He was ordered to pay $294,860 in
restitution, fines and penalties.  He billed Medicare and private insurance
companies for lymphedema pumps at $4,500 each, but he delivered pumps
that would have been reimbursed at $600 and pocketed the difference.  The
case was prosecuted in Washington, where the company was headquartered,
but much of the sales were in California.
Incontinence Supplies
The findings from several OIG inspections conducted 2 years ago indicated that suppliers
were engaged in questionable marketing practices and that beneficiaries were receiving
37 unnecessary  or  noncovered  incontinence  supplies.    (Those  dealing  with  Medicare
reimbursement were OEI-03-94-00770 and OEI-03-94-00772.)  Since those reports were
issued, a joint OIG/HCFA effort to address the problem resulted in the initiation of an OIG
audit review of this area and a national investigation that examined potentially fraudulent
practices by specific suppliers.  The OIG supported ongoing activity in HCFA and the
DMERCs to develop more specific coverage guidelines and educate providers about proper
billing.  
Since the targeted initiative began that put the abusive suppliers on notice, the combined
efforts of OIG, HCFA and the DMERCs have put a stop to the abusive practices.  Recent
follow-up work indicates that Medicare payments for incontinence supplies dropped by
$110 million in 1 year, as illustrated in the following chart.
MEDICARE REIMBURSEMENT FOR
INCONTINENCE SUPPLIES
Dollars in millions
$300
$260
$250
$229
$200
$150
$150
$118
$107
$100 $87
$50
$0
1990 1991 1992 1993 1994 1995
Year
Of this $110 million drop in 1995, savings of $104 million are directly attributable to a halt
in the abusive practices identified by OIG.  
Medicaid Special Status Classifications Submitted by Health
Maintenance Organizations
Risk-based HMOs receive fixed monthly payments for each enrolled Medicare beneficiary.
The payment rate is increased for certain categories of beneficiaries designated as high cost.
38 Medicare beneficiaries  who are also  eligible for  Medicaid  are  one of these  high cost
categories and are referred to as Medicaid special status beneficiaries.  An HMO can receive
several hundred dollars per month as an enhanced payment for each beneficiary designated
as Medicaid eligible.
The OIG found that significant overpayments were made as a result of submissions of
incorrect Medicaid special status by HMOs.  Ninety percent of the HMO submissions
reviewed were inappropriate because the beneficiaries were not eligible for Medicaid.  The
OIG estimates that approximately $15 million in overpayments occurred between October 1,
1990 and July 31, 1995 due to HMO submissions of erroneous Medicaid special status.
The  OIG recommended that HCFA identify and recover the overpayments; implement
policy and systems changes to prohibit HMOs from submitting Medicaid special status on
behalf of beneficiaries who reside in States which automatically furnish Medicaid eligibility
information  to  HCFA; develop policies to require HMOs  in  the  other States to verify
Medicaid eligibility with applicable State agencies prior to submitting Medicaid special
status; and enforce current manual instructions which require HMOs to monitor the special
status reports and report any changes in a beneficiarys Medicaid status.  In response to the
draft report, HCFA concurred with OIGs recommendations.  (CIN:  A-04-96-01119)
Pharmacy Acquisition Costs for Drugs Reimbursed under
Medicaid  
These reviews were conducted as part of a nationwide audit of pharmacy prescription drug
acquisition  costs  undertaken at HCFAs  request. Most States reimburse pharmacies for
Medicaid prescription drug costs using a formula which generally discounts the average
wholesale price (AWP) by 10.5 percent.  The OIG review focused on developing an estimate
of the difference between AWP and the actual acquisition cost of drugs by pharmacies for
both brand name and generic drugs.  The OIG estimates excluded results from nontraditional
pharmacies,  such  as  nursing  homes  or  hospital  pharmacies,  which  would  have
inappropriately inflated percentages.
Through use of statistical sampling, OIG obtained pricing information from 315 pharmacies
in 10 States (California, Delaware, Florida, Maryland, Missouri, Montana, Nebraska, New
Jersey, North Carolina and Virginia) and the District of Columbia.  The overall estimates of
the extent to which AWP exceeded invoice prices were 18.3 percent for brand name drugs
and 42.5 percent for generic drugs.  The OIG recommended that States consider these results
as a factor in any future changes to pharmacy reimbursement for Medicaid drugs.  (CIN:
A-06-95-00063; CIN:  A-06-95-00064; CIN:  A-06-95-00066; CIN:  A-06-95-00067; CIN:
A-06-95-00069; CIN:  A-06-95-00070; CIN:  A-06-95-00072)
39 Medicaid Reimbursement for Clinical Laboratory Tests 
During this semiannual period, OIG issued several reports in connection with its nationwide
review of States procedures and controls over Medicaid payments for clinical laboratory
services.  The first presents the consolidated results of OIG audits in 14 States.  The others
present the results of audits in two of eight additional States to which the review was
expanded.
A. Payments in 14 States
In its review in 14 States, OIG concluded that the States did not have adequate controls to
detect and prevent inappropriate payments for laboratory tests.  Contrary to applicable laws
and  guidelines,  the  States paid medical providers  more for  clinical laboratory services
processed by physicians offices, independent laboratories or hospital laboratories for their
outpatients than the amounts Medicare recognizes for the same services.  As a result, the 14
States potentially overpaid laboratory providers an estimated $27.4 million ($15.7 million
Federal share) for chemistry, hematology and urinalysis tests during the 2-year audit period.
Correction of the problem would result in projected savings of an estimated $13.8 million
($7.9 million Federal share) annually.
The OIG recommended that the States install system edits and controls to detect and prevent
the types of errors disclosed, recover the Medicaid overpayments identified and reimburse
the Federal Government for its share of any recoveries made.  Four States agreed with
reported findings and recommendations, three partially agreed and three disagreed.  The
final four States did not provide specific written comments.
The OIG also recommended that HCFA reemphasize the Medicaid requirement that State
payments for such services not exceed the amounts recognized by Medicare for the same
services, consider having the States update their provider billing instructions to reflect
Medicare bundling procedures and follow up on the estimated $27.4 million ($15.7 million
Federal share) in potential overpayments identified.  The HCFA generally agreed with OIGs
recommendations.  (CIN:  A-01-95-00003)
B. Virginia
The OIG determined that Virginia lacked adequate procedures and controls to ensure that
chemistry and urinalysis tests were reimbursed in accordance with guidelines.  In its review
of 100 sample claims in Virginia, OIG found that 99 were overpaid.  The OIG estimated that
the State overpaid providers more than $1.4 million (Federal share over $700,000) during
1993 and 1994.  The OIG recommended that the State implement a policy change to clearly
define and mandate the use of bundled services for chemistry and urinalysis tests; install
edits  to  detect  and  prevent  payment  for  unbundled  services  and  billings  that  contain
duplicative tests; recover overpayments identified in this report; and make adjustments for
the  Federal  share  of  the  amounts  recovered  by  the  State  on  its  quarterly  report  of
40 expenditures to HCFA.  The State disagreed, contending that it was inappropriate to apply
Medicare reimbursement guidelines to Medicaid claims.  (CIN:  A-03-96-00202)
C. Illinois
The OIG determined that the Illinois Medicaid program did not have adequate controls in
place to detect and prevent inappropriate payments for certain laboratory tests that exceeded
amounts recognized by Medicare for the same tests.  As a result, OIG estimated that the
State overpaid providers $2.2 million (Federal share $1.1 million) during CY 1993 and
1994.  In addition to financial adjustments, OIG recommended that the State ensure that its
edits detect and prevent payments for unbundled and duplicative tests, and update and
clarify its policies and instructions to providers to include additional procedures which are
subject to edits for unbundled and duplicate tests.  (CIN:  A-05-95-00062)  
Federal and State Partnership: Joint Audits of Medicaid
Two  years  ago,  OIG  began  an  initiative  to  work  more  closely  with  State  auditors  in
reviewing the Medicaid program.  The Partnership Plan was created as an effort to provide
broader coverage of the Medicaid program by partnering with State auditors to conduct joint
reviews.  The OIG believed that this partnership approach would be a more effective use of
scarce audit resources by both the Federal and State audit sectors.
Active partnerships have been developed with 17 State auditors, 11 State Medicaid agencies
and 2 State internal audit groups.  Sixteen State auditor partnership reports have been issued
with a financial impact of over $109 million affecting both Federal and State Government
funds.  The following partnership reports were issued during this semiannual period and
several more reports are in process:
A. Montana:  Drug Delivery System
The Montana Legislative Auditor determined that the State had adequate procedures in place
in its Medicaid pharmacy program to contain costs in the acquisition and delivery of drugs.
The State averted approximately $980,000 in annual program expenses at annual costs of
approximately $590,000.  In addition, the State collected over $5 million in manufacturers
rebates in FYs 1994 and 1995.  The Montana Legislative Auditor also found that another
type of drug delivery system did not appear to be more cost effective than the current
system.  (CIN:  A-06-96-00072)
B. Montana:  Transportation Services 
Montanas Legislative Auditor reviewed the States controls for ensuring that Medicaid
payments for transportation to and from medical services were necessary and reasonable.  A
private contractor operates the States Medicaid transportation management system.  The
Legislative  Auditor  found  that  while  controls,  such  as  appointment  verification  and
formalized  payment  ceilings,  provided  needed  assurance,  these  controls  could  be
41 strengthened.  The Auditors recommendations included specifying in the contract the level
of program monitoring required and developing a reimbursement method that complies with
Federal requirements.  The State concurred.  (CIN:  A-06-96-00073)
C. Utah
The Utah State auditor found that the State did not have adequate controls to ensure that
Medicaid reimbursements for clinical laboratory tests did not exceed amounts recognized by
Medicare for the same tests.  The OIG estimated that the State reimbursed providers for
potential overpayments totaling more than $300,000 (Federal share over $200,000) in CYs
1993 and 1994.  
The Utah State auditor recommended that the State give providers information regarding
bundling procedures; implement edit checks to allow for only properly bundled tests to be
paid; determine if physicians ordered hematology indices; consider adopting policies and
procedures to prevent payment of unnecessary indices charges; establish controls to prevent
laboratory payments from exceeding Medicare rates; and recover overpayments and make
adjustments  for  the  Federal  share  of  amounts  recovered  on  the  quarterly  report  of
expenditures to HCFA.  (CIN:  A-06-95-00100)
Wisconsins Medicaid Managed Care Program Financial
Safeguards
The OIG determined that during the 3-year period ending December 31, 1994, Wisconsins
largest HMOs profit from the Medicaid managed care program was understated on its
financial statements by $8.9 million.  The understatement was due to inflated costs of related
party transactions.  The inflated costs related primarily to excessive management fees paid
by the HMO to its parent company and excessive reinsurance payments to another affiliate.
The OIG estimated that if the State had utilized this information in its determination of
capitation rates, it could have realized about $4 million ($2.4 million Federal share) in
Medicaid cost savings with regard to this HMO over the 3-year period.   
The OIG recommended that the State establish policies and procedures to closely monitor
the  financial  status  of  Medicaid  managed  care  HMOs,  and  review  and  use  financial
information, specifically data relative to profit margin, when setting or adjusting HMO
capitation payment rates.  The State was already concerned about the cost effectiveness of
their HMO initiative and intends to implement an action plan that will address many of
OIGs concerns.  (CIN:  A-05-95-00060)
Effectiveness of Medicare and Medicaid Fraud Units
Based on the two reviews described below, OIG concluded that a concerted effort is called
for to address concerns involving both the Medicare and Medicaid fraud units.  Among its
recommendations, OIG proposed that HCFA, in consultation with OIG, convene a Medicare
42 and Medicaid fraud and abuse task force to plan and implement improvements in fraud unit
operations.  This would include clarifying goals and objectives for program integrity efforts;
establishing  guidelines  for  developing  suspected  fraud  cases;  developing  a  universal
protocol for appropriately referring fraud and abuse cases; coordinating data systems to
ensure reliable and consistent data across all entities in the fraud and abuse fighting network;
and developing a training program designed to educate program integrity personnel on
procedures, case referrals and best practices.
A. Surveillance and Utilization Review Subsystem Referrals
As part of the Medicaid Management Information System, the Surveillance and Utilization
Review Subsystem (S/URS) applies postpayment screens to Medicaid claims adjudication to
identify aberrant billing patterns which may indicate fraud or provider abuse.  Where a
preliminary review of systems output substantiates a pattern of fraud, the matter is supposed
to be referred to the States fraud control unit for investigation.
Based on its review, OIG determined that the number and percentage of suspected fraud
referrals from S/URS declined significantly in the past 10 years.  Officials at the State fraud
control  units  were  divided  in  their  opinions  as  to  the  extent  and  quality  of  S/URS
development of suspected fraud cases, and S/URS staff cited insufficient training in the
identification and development of fraud allegations and edits.  Moreover, OIG found that
HCFA does not routinely monitor S/URS development to establish whether potential fraud
issues are being appropriately and consistently analyzed and referred.  (OEI-07-95-00030)
B. Carrier Fraud Units
In 1994, Medicare carriers processed over 165 million claims.  That same year, carriers
received about 118,000 complaints alleging fraud or abuse.  Based on information obtained
from 37 carrier fraud units, OIG compared carrier performance using the following criteria:
accuracy of complaint disposition; case documentation; assessment of financial damage;
internal proactive safeguards; and external proactive safeguards.  The OIG determined that
very few carriers were successful in meeting all five outcome criteria.  The most effective
program integrity efforts were found in corporations that accorded a high priority and
adequate management attention to the fraud units.  (OEI-05-94-00470)
Medicaid Fraud
In FY 1995, payments by both the Federal and State Governments to Medicaid health care
providers were approximately $155 billion.  The Medicaid fraud control units (MFCUs) are
responsible for investigating fraud in more than 98 percent of all Medicaid health care
provider payments.  Forty-seven States now have units 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
43 investigations, and bring to prosecution persons charged with defrauding the Medicaid
program or with patient abuse and neglect.
During FY 1996, OIG administered approximately $74.8 million in grants to the MFCUs.
The  MFCUs  reported  389  convictions  and  $16.5  million  in  fines,  restitutions  and
overpayments collected for the period July 1, 1996 through December 31, 1996.
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 institutional pharmacy provider that operates in more than 30 States paid
Nevada  $325,000  to  resolve  potential  liability  to  the  State  Medicaid
program.  At issue were the handling and crediting of returned medications,
billing of dispensing fees and billing arrangements with certain nursing
facilities.  The provider agreed to assist in the investigation of company
employees who may have been involved in wrongdoing.
 In Illinois, a man was sentenced to 3 years probation, 6 months of which are
to  be  home  detention,  as  a  result  of  a  national  project  that  identified
pharmacies suspected of submitting false Medicaid claims.  He and his
brother were found to be purchasing illegally obtained drug samples and
prescription drugs from Medicaid recipients and selling them to a "non-con"
(an individual who does not deal in controlled substances and is usually not
concerned about refrigeration or sanitary storage of drugs).  The non-con
resold the drugs to pharmacies, causing Medicaid to pay for the same drugs
multiple times.  The mans brother was sentenced earlier to 6 months in
prison for his involvement in the scheme.  
 As a result of a joint operation by agents from OIG, the Federal Bureau of
Investigation, California Bureau of Medi-Cal Fraud and Defense Criminal
Investigation Service, three of five owners/operators of laboratories who
were arrested either pled guilty or no contest to paying kickbacks.  Each was
sentenced to 3 years probation, with one of them to serve 21 days in jail and
pay $1,925 in restitution.  All three must perform 200 to 300 hours of
community  service,  and  pay  fines  ranging  from  $200  to  $500.    The
remaining two defendants are scheduled for trial later this year.
44 Public Health Service
Operating Divisions Chapter III
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.  The
OIG continues to examine policies and procedures throughout the agencies to determine
whether proper controls are in place to guard against fraud, waste and abuse.  These
activities  include  preaward  and  recipient  capability  audits.    This  oversight  work  has
provided valuable recommendations to program managers for strengthening the integrity of
agency policies and procedures.
45 Indian Health Services Tribal Management Grants
Program
At IHSs request, OIG reviewed the tribal management grants program intended to assist
American Indian and Alaska Native tribes in assessing whether they want to provide health
care services under contracts with IHS.  Based on its findings, OIG concluded that there was
no assurance that the most qualified projects were selected for funding or that the funded
projects received sufficient program support to succeed.
The OIG recommended that IHS revise its application review process to ensure that all
applications  are  reviewed  consistently;  emphasize to  project  officers  the importance  of
providing needed support to the tribes and delineate relevant task in their performance plans;
develop  program  performance  criteria;  implement  a  system  to  measure  program
accomplishments;  and clearly  define  and communicate  to  tribes, reviewers  and project
officers  the  purpose  of  the  program.    The  IHS  agreed  with  OIGs  findings  and
recommendations.  (CIN:  A-06-94-00049) 
Medical Personnel Credentialing and Privileging
A system for credentialing and privileging is a fundamental element of ensuring high quality
patient  care.    Credentialing  consists  of  verifying  education,  training  and  licensure
documents, and contacting recent employers and professional associates to determine an
applicants current competence and skills.  Privileging consists of determining whether a
health care provider is qualified to perform specific medical functions and procedures which
are supported by a particular facility.
In a review of policies and procedures, OIG found that credentialing and privileging policies
used  by  facilities  operated  directly  by  IHS  and  NIH  were  adequate,  while  Federal
credentialing and privileging requirements for nonfederally operated IHS and HRSA funded
community-based programs needed to be strengthened.  
The OIG recommended that:  IHS advocate programs for quality and risk management,
specifically  those  related  to  credentialing  and  privileging  of  medical  personnel  in
self-determination  tribal  health  care  programs;  HRSA  disseminate  information  on  the
operation of a comprehensive credentialing and privileging program to community, migrant,
homeless  and  public  housing  health  center  grantees;  IHS  and  HRSA  modify  their
employment credentialing policies and practices to require a search of OIGs Medicare and
Medicaid exclusion list; and the PHS Interagency Advisory Council on Quality Assurance
and Risk Management revise its credentialing policy to require a search of OIGs Medicare
and Medicaid exclusion list.  In response to the draft report, IHS, NIH and HRSA agreed
with OIGs findings and recommendations.  (CIN:  A-15-94-00006)
46 National Marrow Donor Program
The National Marrow Donor Program is a nonprofit organization that finds matching donors
for patients seeking transplants and operates the congressionally authorized marrow donor
registry  under  contract  with  HRSA.    These  four  OIG  inspection  reports  dealt  with
recruitment of bone marrow donors from minority groups; overall donor retention rates;
geographic overlap of centers service areas; and financing of donor centers.  
In general, OIG found that progress had been made in recruitment of minority donors, but
that more needs to be done to improve both recruitment and retention of minority donors.
Overall,  the  retention  rate  has  remained  stable,  but  it  has  declined  for  second  level
confirmatory testing; while the decline is small, loss of donors at this stage can be costly to
patients awaiting transplant.  The OIG also determined that there is substantial geographic
overlap among donor centers, but this overlap has little impact on center performance.
Moreover, although per unit payments to contract centers are higher than payments to
fee-for-service centers, the performance of contract centers is lower on most indicators.  The
OIG recommended using performance measures for minority recruitment, specifications of
retention rates in future contracts with donor centers and a reexamination of financing
methods.  (OEI-01-95-00120; OEI-01-95-00121; OEI-01-95-00122; OEI-01-95-00123)
Ryan White Comprehensive AIDS Resource
Emergency Act:  New York Eligible Metropolitan Area
The OIG conducted a study to determine whether the New York Eligible Metropolitan Area
(EMA) and its Ryan White Comprehensive AIDS Resource Emergency Act (CARE Act)
service providers ensured that all CARE Act clients were individuals with the human
immunodeficiency virus (HIV) disease or family members of such individuals.  The study
included visits to seven contractors receiving $1.7 million, of the $4.7 million the EMA
awarded to 35 contractors during Fiscal Year (FY) 1995.  
The OIG found that the contractors it visited provided services predominantly to persons
whose HIV status was unknown.  The HRSA, which administers the CARE Act, agreed to:
advise EMAs that outreach programs must have a high probability of identifying persons
with  HIV  infection  so  that  they  can  be  enrolled  in  care;  establish  eligibility  and
documentation  requirements  for  outreach  services;  and  develop  procedures  for  local
grantees to evaluate the effectiveness of outreach and recovery/readiness risk reduction
programs.  (CIN:  A-02-96-02502) 
Exclusions for Health Education Assistance Loan Defaults
Through the Health Education Assistance Loan (HEAL) program, HRSA provides money to
students seeking an education in a health-related field of study.  Repayment of these loans is
deferred  until  they  have  graduated  and  begun  to  earn  some  money.    Although  the
47 Departments Program Support Center (PSC) makes every effort to secure repayment, some
loan recipients ignore their indebtedness.
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
semiannual period, 557 individuals were excluded as a result of PSC referral of their cases
to OIG.
Individuals who 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 these health professionals, upon being
notified of their exclusion, immediately  repay their HEAL debt.
At the conclusion of this reporting period, 707 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  $43  million.    The  following  are  examples  of  some  of  these
settlements:
 Shortly after being notified he was being excluded because of failure to
repay his HEAL, a California dentist entered into a settlement agreement to
repay his debt of over $264,000.
 A  Massachusetts  podiatrist  signed  a  settlement  agreement  to  repay  his
HEAL debt of almost $181,000 a few months after his exclusion became
effective.
 In order to stay his exclusion, a California chiropractor signed a settlement
agreement to repay his HEAL debt of almost $145,000.
 The exclusion of an Illinois podiatrist was stayed after she entered into a
settlement agreement to repay her HEAL debt of almost $142,000.
Grantee Fraud
Occasionally employees of agencies that receive PHS grants are found to be embezzling
funds, as indicated in the following examples from this reporting period: 
 The man who for 8 years headed Philadelphias oldest AIDS service agency
pled no contest to charges of embezzling approximately $100,000 of agency
funds.  He pocketed cash from agency donation boxes, misused the agency
48 credit card, wrote checks to himself, diverted petty cash and put ghost
employees on the payroll.  He used the money for personal expenses,
including repairs on his home and boat.  He was sentenced to 48 months
probation and ordered to repay the agency $52,000.  The OIG worked the
case jointly with local police.
 An accountant, formerly with the Texas Association of Community Health
Centers, Inc., pled guilty to theft of Federal program funds.  She admitted
embezzling more than $20,800 from the agency, which is a PHS grantee.
She made full restitution to the association and voluntarily forfeited her
license.  The court sentenced her to 10 months in jail.
 The former business manager of the psychiatry department at the University
of Pennsylvania pled guilty to embezzling NIH research funds.  An internal
university audit revealed that $176,600 had been misappropriated, of which
$151,831 was Federal grant funds.  Investigation showed that the business
manager prepared false invoices for a fictitious consultant, resulting in
checks totaling $49,000 that were traced to her personal bank account.  She
also embezzled money from the petty cash fund and submitted fictitious
vouchers to obtain personal furniture and computers, among other items.
She was sentenced to 6 months home confinement and 4 years probation,
and ordered to pay $12,000 in restitution.  The hospital reimbursed NIH the
full amount embezzled.
 The  former  bookkeeper  of  a  community  center  located  on  an  Indian
reservation  in  Wisconsin,  which  is  funded  by  a  grant  from  IHS,  was
sentenced  for  embezzlement.    The  accountant  was  ordered  to  serve  6
months  imprisonment  and  to  pay  $22,415  in  restitution.    During  the
investigation, she admitted to being addicted to gambling and confessed to
falsifying travel vouchers and checks, and to failing to make cash deposits
to  five  accounts.    The  judge  recommended  alcohol  and  mental  health
counseling.
Superfund Financial Activities of the National Institute of
Environmental Health Sciences
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as
amended, requires the Inspector General from each Federal organization with Superfund
activities to conduct audits of payments, obligations, reimbursements and other uses of the
Superfund monies.
49 In FY 1995, the National Institute of Environmental Health Sciences (NIEHS) obligated
$58.7 million in Superfund resources, and disbursed $56.2 million obligated during and
prior to that year.  The OIG found that NIEHS generally administered the fund according to
Superfund legislation.  The NIEHS agreed with an OIG recommendation to better ensure the
accuracy of billings to the Superfund.  (CIN:  A-04-96-04576)
50 Administration 
for Children
and Families,
and Administration 
on Aging Chapter IV
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 Fiscal Year (FY) 1997 and created the Temporary Assistance for
Needy Families (TANF) block grant, and 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 is reduced, 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. 
51 The OIG has reported opportunities for program improvements to target the neediest for
services; expand available financial resources; upgrade data collection and reporting; and
enhance program oversight.
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.
The FBI fugitive squads continue to place a high priority on child support enforcement
cases, and OIG works constantly to coordinate efforts.  Since the cases can be pursued in
either the place where the nonpaying parent or the custodial parent resides, the agencies
involved have agreed that venue will be decided on a case-by-case basis.
The following child support cases were resolved during this reporting period: 
 In Virginia, a man was sentenced after pleading guilty to failure to pay child
support.  His arrearages totaled more than $14,680.  He resides in Florida,
but failed to pay $275 in monthly support for one child in Virginia.  In
addition, he owed $8,705 in past arrearages for two children who no longer
require custodial care.  He was sentenced to 3 years of supervised probation
and ordered to pay a fine of $1,000 during the probationary period.  As part
of his guilty plea, he agreed to pay $23,755 in restitution for past arrearages.
 A man was sentenced in Florida to pay more than $4 million for failure to
abide by his divorce decree, including child support payments.  With a net
worth of more than $8 million, the man was ordered in a December 1992
divorce decree to pay his wife $3.9 million.  He was also ordered to pay
$2,500 a month for child support.  He moved frequently from State to State
to avoid making payments.  During the current sentencing, he also was
sentenced  to  time  served  (some  5  1/2  months  from  apprehension  to
52 conviction).  He remains incarcerated on State charges related to contempt
of court that arose in the original divorce decree.
Unpaid Child Support and Income Tax Deductions
In  a  joint  review  with  the  Internal  Revenue  Service  (IRS),  OIG  found  that  an
administratively simple and coordinated approach between the Office of Child Support
Enforcement (OCSE) and IRS could help identify noncustodial parents misrepresenting their
childrens living arrangements on their tax returns.  The OIG projected that this type of
coordinated approach would have resulted in additional tax liabilities of $212 million in
1993.  Based on this study and other information independently developed by IRS, OIG
believes that there could be total annual tax losses of $1.4 billion or more as a result of
noncustodial parents inappropriately claiming custody of children on Federal income tax
returns.  
The OIG recommended that OCSE and the States work with IRS to identify data available
from State welfare agencies and child support record systems which would assist in the
identification of inappropriate tax benefits claimed by noncustodial parents.  In response,
OCSE suggested delaying systems changes until the need for legislation to exchange this
data is clarified.  However, OIG feels that OCSEs and the States capacity to exchange this
data under current authorities should be explored at this time.  (OIG-05-95-00070)
Head Start Grantees
A. Florida
The OIG found that a Florida Head Start grantee had not developed and implemented an
adequate  internal  control  system  for  the  proper  management  of  cash  receipts,  cash
disbursements, procurement and accountability for property.  As a result, there was no
assurance that HHS funds were or could be expected to be expended and accounted for in
accordance with grant terms and conditions.  The internal control system was inadequate
because the agency management had not implemented recommendations made by ACF,
other funding sources and its independent auditors over a period of at least 15 years.  
The OIG recommended that ACF take appropriate actions to address problems at this
grantee, including consideration of suspension or termination of all ACF funding.  The ACF
agreed  with  OIGs  findings and  recommendation  and  is  determining  the feasibility  of
terminating the grantees funding.  (CIN:  A-04-96-00099)
B. Colorado
In response to the Head Start Bureaus concerns with several grantees, OIG provided
contracted audit services under a streamlined cost competitive procurement mechanism it
developed  with  the  Assistant  Secretary  for  Management  and  Budget.    These
53 agreed-upon-procedure reviews serve to assist ACFs efforts to strengthen the financial
management and program compliance capabilities of these grantees, which in turn help
ensure the fiscal integrity of the Head Start program and proper stewardship over Federal
funds.
In one such instance, OIG found that a Colorado grantee for FYs 1995 and 1996 did not
comply  with  Head  Start  grant  conditions  and  budget  provisions.    These  instances  of
noncompliance resulted in questioned costs of almost $800,000, including an unauthorized
payment of $47,000 as part of a settlement package given to its former executive director.
Other  findings  included  the  improper  allocation  of  administrative  and  shared  costs,
unauthorized equipment purchases, undocumented costs reported, matching shortages and
bidding process violations. Recommendations called for a refund of almost $800,000 and
procedural changes relating to allocation of administrative and other shared costs.  (CIN:
A-08-96-01024)
Welfare Fraud
Welfare assistance traditionally consisted of the AFDC, Medicaid, Food Stamp and general
assistance programs, which were based on State determinations of eligibility.  As a result,
welfare  fraud  was  usually  perpetrated  by  providing  false  information  about  ones
circumstances, such as claiming a nonexistent dependent child or concealing income which
would render the applicant ineligible.  Although the AFDC program was eliminated in Fiscal
Year 1997, as described earlier, a few States and counties asked OIG for assistance in
pursuing prior instances of AFDC fraud.  The following cases are examples of some of these
cases.
 In Ohio, four people were sentenced as a result of an ongoing investigation
of welfare fraud.  They were charged with defrauding the ACF.  One couple
fraudulently  concealed  the  husbands  employment  to  collect  welfare
benefits.  The second couple submitted false claims to collect workmans
compensation and welfare benefits.  They were ordered to pay a total of
more  than  $53,750  in  fines  and  restitution,  and  all  but  one  received
suspended sentences.  The husband who had falsely collected workmans
compensation was sent to jail for 18 months.
 In South Dakota, nine people were sentenced also for welfare fraud and
ordered to pay a total of over $60,000 in fines and restitution.  The cases,
which were on Indian  reservations,  were  referred to OIG by  the  State
because its enforcement officials are forbidden to follow up on reservations.
The  subjects  failed  to  report  employment  or  changes  in  household
composition in applications and recertifications for AFDC, Food Stamps
and Medicaid.
54 General Oversight Chapter V
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
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 staff division 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 the 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.  In
addition, 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.
The  OIGs  Fiscal  Year  (FY)  1997  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.
Nonfederal Audits
The OMB Circulars A-128 and A-133 establish the audit requirements for State and local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
55 awards.    Under  the  two  circulars,  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
1997, OIGs National External Audit Review Center (located in Kansas City) reviewed
almost 2,000 reports that covered over $564 billion in audited costs.  Federal dollars covered
by these audits totaled $127 billion, about $53 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
and Aid to Families with Dependent Children 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 provided: 
 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.
 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.    During  the  past  6  months,  370
56 individuals were provided with technical assistance through OIGs toll free
number.    In  addition,  formal  training  was  provided  to  certified  public
accountant societies and State auditor staff on issues related to Circulars
A-128 and 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
In order to rely on the work of the 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 1,983 nonfederal audit reports.  The following table
summarizes those results:
Reports issued without changes or with minor changes 1,733
Reports issued with major changes 10
Reports with significant inadequacies   240
Total audit reports processed 1,983
 The 1,983 audit reports discussed above included recommendations for HHS program
officials  to  take  action  on  cost  recoveries  totaling  $8.2  million  as  well  as  3,516
recommendations for improving management operations.  In addition, these audit reports
provided information for 54 special memoranda which identified concerns for increased
monitoring by departmental management.  
57 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.
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 335 $189,602,000 $48,667,000
B.Which were issued during
the reporting period2 137 $72,939,000  $2,523,000
Subtotals (A + B) 472 $262,541,000 $51,190,000
Less:
C.For which a management
decision was made during 
the reporting period3: 166 $72,366,000 $26,946,000
(i) dollar value of
disallowed costs $62,754,000 $18,887,000
(ii)dollar value of
costs not disallowed $9,612,000 $8,059,000
D.For which no management 
decision had been made by the 
end of the reporting period 306 $190,175,000 $24,244,000
E. For which no
management decision was
made within 6 months
of issuance4 178 $138,416,000 $26,400,000
See Appendix D for footnotes.
58 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 39 $33,364,000
B.Which were issued during
the reporting period 15 $261,607,000
Subtotals (A + B) 54 $294,971,000
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 29 $154,304,000
(b)  based on proposed
       legislative action   0 $0
Subtotals (a+b) 29 $154,304,000
  (ii)dollar value of
recommendations that
were not agreed to
by management2      $49,000
Subtotals (i + ii) 29 $154,353,000
D.For which no management 
decision had been made by
the end of the reporting 
period3 25 $140,618,000
See Appendix D for footnotes.
59 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.
During  this  reporting  period,  OIG  reviewed  50  of  the Departments  regulations  under
development and 172 departmental legislative proposals.  
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. Legislative and Regulatory Development Functions
The  OIG  is  responsible for  developing a  variety  of legislative  proposals  and sanction
regulations for civil monetary penalty (CMP) and program exclusion authorities that are
administered by the Inspector General.
Among the regulatory initiatives promulgated during this reporting period were three OIG
final regulations, two of which were a direct result of new or revised statutory authorities
resulting from Public Law 104-191, the Health Insurance Portability and Accountability Act
(HIPAA) of 1996.
OIG Final Rule:  Civil Money Penalty Inflation Adjustments 
On October 7, 1996, OIG became the first Federal agency to publish final regulations (61
FR 52299) incorporating penalty inflation adjustments for certain CMPs for health care
fraud and abuse.  Specifically, in accordance with the Federal Civil Money Penalty Inflation
Adjustment Act of 1990, as amended by the Debt Collection Adjustment Act of 1996, this
final rule set forth the necessary inflation adjustment calculations for CMPs authorized by
sections 421(c) and 427(b) of the Health Care Quality Improvement Act, and sections 6103
and 6104 of the Program Fraud Civil Remedies Act.  The inflation adjustment calculations
are not applicable to OIGs CMP authorities set forth in the Social Security Act, which are
specifically exempt from this adjustment.
OIG Interim Final Rule:  Issuance of Advisory Opinions by OIG 
On February 19, 1997, OIG published an interim final rulemaking (62 FR 7350) establishing
a new 42 CFR part 1008 to address the OIG advisory opinion process.  In accordance with
section 205 of HIPAA, these final regulations set forth the specific procedural aspects under
which OIG receives and responds to advisory opinion requests from outside parties and, in
60 consultation with the Department of Justice (DOJ), will issue advisory opinions to outside
parties  regarding  the  interpretation  and  applicability  of  certain  statutes  relating  to  the
Medicare and State health care programs.
OIG Notices
In addition to these final rules, OIG also developed and published three Federal Register
notices, one of which was mandated by HIPAA.  On November 15, 1996, OIG published a
Federal Register notice (61 FR 58568) republishing its Medicare Beneficiary Advisory
Bulletin that served to identify potential fraud and abuse issues relating to the enrollment,
the  provision  of  services  and  the  disenrollment  of  Medicare  beneficiaries  in  health
maintenance organizations (HMOs).  While this material was released in booklet form to
beneficiaries and advocacy groups in October, this Federal Register notice ensured wider
dissemination and a greater public awareness of these issues regarding HMO participation
and service.
Also, in accordance with section 205 of HIPAA, OIG published a Federal Register notice on
December 31, 1996 (61 FR 69060) that served to solicit proposals and recommendations for
developing new and modifying existing safe harbor provisions under the Medicare and State
health care programs anti-kickback statute, as well as developing new OIG special fraud
alerts.  The notice specifically requested public input into this process, and set forth the
specific criteria to be used in addressing the development of these items.
A  third  notice,  issued  jointly  by  OIG  and  DOJ  on  March  26,  1997  (62  FR  14443),
announced the availability of $3.5 million in funds to support proposals from Federal, State
and local agencies for projects or activities that promote the objectives of the Fraud and
Abuse Control Program established under section 201 of HIPAA.  Decisions on award of
funds will be made by the Secretary and the Attorney General by the end of May 1997.
C. Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process.  For
example, OIG testified at six hearings during this 6-month period, principally on health care
fraud  and  abuse  issues.    On  several  occasions,  the  testimony  concerned  OIG
recommendations which, if implemented, could produce billions of dollars in 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.
61 Proposed Changes to Office of Management and Budget Circular
A-21 Regarding Financial Management of Recharge Centers
The OIG worked in partnership with 15 universities to assess controls over the financial
management of their recharge centers. A recharge center operates as an in-house enterprise
that provides goods and services to individual users and other operating units on a cost
reimbursement basis.  The universities performed the preliminary survey work, while OIG
evaluated the policies and internal control procedures of recharge centers for compliance
with OMB Circulars A-21 and A-133.  
The  OIG  found  that  inadequate  policies  and  controls  over  recharge  centers  at  the  15
universities visited resulted in $1.9 million in overcharges to the Federal Government.
Specifically, recharge centers:  accumulated surplus fund balances and deficits which were
not  used  in  the  computation  of  subsequent  billing  rates;  overstated  billing  rates  by
transferring funds from center accounts or including unallowable costs in rate calculations;
billed users inequitably; and used recharge center fund balances inappropriately to calculate
facilities and administrative cost rates.
The OIG believes the starting point for improving university oversight of their recharge
centers is the creation of criteria for developing and reviewing billing rates, and accounting
for and applying surplus and deficit balances.  Generally, OIG recommended policies that
are patterned after those used by State and local governments.  The Deputy Assistant
Secretary for Grants and Acquisition Management concurred with the OIG recommendation
to request OMB to clarify the criteria in OMB Circular A-21.  (CIN: A-09-96-04003)
Compliance with the Prompt Payment Act 
The OIG reviewed compliance with the Prompt Payment Act by PSC.  The OIG determined
that PSC generally met the OMB Circular A-125 "Prompt Payment" standard for paying
bills on time and remitting interest penalties when payments were made late.  However, OIG
found  that  the  PSC  lost  opportunities  for  taking  discounts  and  submitted  the  Prompt
Payment Status Report for FY 1994 to OMB with material inaccuracies.  Further, OIG
determined that quality assurance assessments of the reliability of the PSC payment process
are insufficient and the follow-up process for confirming that goods and services paid for are
received could be improved for invoices of $2,500 or less that are processed at headquarters.
The  PSC  generally  agreed  with  OIG  recommendations  for  corrective  action.    (CIN:
A-15-96-40001)
Review of Cost Transfers
As requested by the Departments Division of Cost Allocation (DCA), OIG reviewed cost
transfers processed by the New York State Department of Social Services for the 2-year
period ending March 31, 1994.  The DCA noted internal control and other accounting
weaknesses cited in the States single audit reports for FYs 1993 and 1994.  
62 The OIGs examination of $15.9 million of the $43.3 million transferred during the review
period  found  that,  in  general,  the  transfers  were  adequately  documented  and  proper.
However, the review found posting errors which resulted in overcharges of $159,000 to
Federal programs plus another $5,000 of unallowable interest costs.  The OIG proposed
appropriate refund as well as procedural recommendations.  (CIN:  A-02-95-02004)
Ohio Pension Costs
The OIG reviewed pension costs charged to grants and contracts by the State of Ohio to
determine compliance with Federal regulations, generally accepted accounting principles
and actuarial standards.  The OIG found that the States practices resulted in excessive
charges of pension costs to Federal programs.  The State should have used surplus pension
investment earnings to reduce its unfunded actuarial accrued liability.  Instead, contrary to
requirements, the State established a $200 million contingency reserve for future retirement
benefits and potential retirement liabilities, and transferred $374 million in excess retirement
fund earnings to a reserve to support future health care benefits.  The elimination of these
practices would reduce the pension costs allocable to Federal programs by approximately
$75 million in future years.  
The OIG recommended that the Departments Division of Cost Allocation consider these
issues in rate negotiations with the State agencies and other entities whose employees
participate in the States retirement system.  Future pension costs allocable to Federal
programs  should  be  reduced  by  the  actuarial  gains  inappropriately  transferred  to  the
contingency and health care reserves.  (CIN:  A-05-96-00071)
In another review, OIG found that additional cost savings could be achieved if delays in
forwarding  contributions  to  the  Public  Employees  Retirement  Systems  (PERS)  for
investment were eliminated.  The OIG estimated that by eliminating the delay in forwarding
the  pension  contributions  to  PERS,  the  increased  investment  earnings  could  result  in
potential annual savings of as much as $1.9 million (Federal share $380,000).  The Code of
Federal Regulations requires that States minimize the time elapsing between the transfer of
funds and recipients disbursements, and that States establish procedures to minimize the
time elapsing between the advance of Federal grant funds and their disbursement by the
recipient.  The State concurred with the findings and recommendations and will implement a
mechanism to reduce the delays.  (CIN:  A-05-95-00014)
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 113 successful
criminal actions.  Also during this period, 254 cases were presented for criminal prosecution
to DOJ and, in some instances, to State and local prosecutors.  Criminal charges were
brought by prosecutors against 131 individuals and entities.
63 In addition to terms of imprisonment and probation imposed in the judicial processes, over
$1.1 billion 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.
In keeping with its commitment to Operation Restore Trust, OIG has concentrated on the
five States where most of the Departments health care dollars are spent.
64 Appendices APPENDIX A
Implemented Office of Inspector General Recommendations to
 Put Funds to Better Use
October 1996 through March 1997
The following schedule is a quantification of actions taken in response to OIG recommendations 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  to  implement  OIG  recommendations,  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.  Total savings from these sources amount to $2,320.7 million for this period.
      OIG Recommendation Status  Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Personal Care Services:
Reinstate personal care services as a State Section 13601 of the Omnibus Budget $1,100
optional service.  (CIN:  A-02-93-01022) Reconciliation Act (OBRA) of 1993 repeals
the mandate for coverage of personal care
services and allows the States to cover
personal care services furnished outside the
home, effective October 1, 1994.
Reimbursement for Outpatient Facility
Services:
The Health Care Financing Administration Section 13522 of OBRA 1993 extended the 511
(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)
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.
Medicare Secondary Payer Period for End
Stage Renal Disease Beneficiaries:
Extend the Medicare secondary payer (MSP) Section 13561(c) of OBRA 1993 119
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)
A-1       OIG Recommendation Status  Savings
in Millions
Medicaid Estate Recoveries:
The HCFA should make stronger programmatic Section 13612 of OBRA 1993 required $78 
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)
Modifications to Medicaid Drug Rebate
Program:
Establish State-specific cost reduction targets Section 13602 of OBRA 1993 permitted 65
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 62
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 PROs Fourth Scope 54.8 
payments for unnecessary and poor quality of Work as an acceptable corrective action
gastrointestinal endoscopies. (OEI-09-88-01006) plan for HCFA to address OIGs
recommendation and reduce payments for
unnecessary and poor quality endoscopies.
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.
A-2       OIG Recommendation Status  Savings
in Millions
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 $108
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 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 No legislative proposal was included in the $4,100
(HCFA) should consult with the Congress on Presidents current budget.
modification of the Federal Medical Assistance
Percentage formula used to determine the
Federal share of costs for the Medicaid and
other programs which would result in
distributions of Federal funds that more closely
reflect per-capita income relationships.  (CIN:
A-06-89-00041)
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital Although a past budget of the President 1,559
insurance contributions for all State and local contained a proposal to include under
employees, including those hired prior to April Medicare all State and local government
1, 1986.  If this proposal is not enacted, seek employees hired before April 1, 1986, no
legislation making Medicare the secondary legislative proposal was included in the
payer for retirees of exempt State and local Presidents current budget.
government agencies.  (CIN:  A-09-88-00072)
Clinical Laboratory Tests:
Require laboratories to identify and bill profiles Although the Presidents past budget 1,130
(groups of related tests) at reduced rates included a proposal to reinstitute
whenever they are ordered, and study coinsurance for clinical laboratory services,
reinstating the beneficiary coinsurance and no legislative proposal was included in the
deductible provisions for laboratory services as Presidents current budget.  The Omnibus
a means of controlling utilization.  (CIN: Budget Reconciliation Act of 1993,
A-09-89-00031; CIN:  A-09-39-00056) however, reduced Medicare fees for clinical
laboratory tests to 76 percent of the
national average in 1996.  The HCFA is
profiling physicians ordering and referring
patterns as part of focused medical review
efforts.
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)
B-1       OIG Recommendation Status  Savings
in Millions
Indirect Medical Education:
Reduce the indirect medical education (IME) The Presidents Fiscal Year (FY) 1997 $900
adjustment factor to the level supported by budget reduces the IME adjustment factor
HCFAs empirical data.  Initiate further studies to 6 percent in FY 1999 and thereafter.
to determine whether any adjustment factor is
warranted for all teaching hospitals.  (CIN:
A-07-88-00111)
Reduce Hospital Capital Costs:
Seek legislative authority to continue mandated The HCFA is seeking public comment on 820
reductions in capital payments beyond FY 1995. reducing prospective capital rates.
The HCFA should determine the extent of the
capital reductions that are needed to fully
account for hospitals excess bed capacity and
report the percentage to the Congress.  (CIN:
A-09-91-00070; CIN:  A-14-93-00380)
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
restructure Medicaid reimbursement for both
ICF/MR and home and community-based
waiver service for developmentally disabled
people via global budgeting, block grants or
financial incentive programs.
(OEI-04-91-01010)
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The Presidents past budget contained a 503
provisions to include end stage renal disease proposal to extend the MSP provision for
(ESRD) beneficiaries without a time limitation. individuals with ESRD to 24 months.
(CIN:  A-10-86-62016) Notwithstanding this proposal, OIG
continues to advocate that when Medicare
eligibility is due solely to ESRD, the group
health plan should remain primary until
such time as the beneficiary becomes
entitled to Medicare for old age or
disability.  At that point, Medicare would
become the primary payer.
B-2       OIG Recommendation Status  Savings
in Millions
Home Health Agencies:
The HCFA should intensify efforts to scrutinize The HCFA concurred with the $500
claims submitted by high cost home health recommendations, and among other actions,
agencies, explore ways to prevent unscrupulous has advanced a legislative proposal as part
agencies from engaging in abusive practices and of the Presidents 1997 budget.
consider legislation to restructure the benefits to
prevent fraud, waste and abuse.  (CIN:
A-04-95-01103; CIN:  A-04-95-01104; CIN:
A-04-95-01103; OEI-04-93-00262;
OEI-04-93-00260; OEI-12-94-00180;
OEI-02-94-00170, CIN:  A-04-94-02087; CIN:
A-04-94-02078)
Modify Payment Policy for Medicare Bad
Debts:
Seek legislative authority to modify bad debt This proposal was not included in the 487.7
policy.  The OIG presented an analysis of four Presidents current budget.
options for HCFA to consider including the
elimination of a separate payment for bad debts,
the offset of Medicare bad debts against
beneficiary Social Security payments, the
limitation of bad debt payments to prospective
payment system (PPS) hospitals which are
profitable, and the inclusion of a bad debt factor
in the diagnosis related group (DRG) rates.
(CIN:  A-14-90-00339)
Flexible Benefit Plans:
The value of flexible benefit plans, as defined While HCFA agreed with the report 420
by section 125 of the Internal Revenue Code, findings related to revenue to the Hospital
should be included in the hospital insurance Insurance Trust Fund, a legislative proposal
portion of the Federal Insurance Contributions has not been included in the Presidents
Act taxable wage base.  (CIN: A-05-93-00066) budgets.
Terminate Medicare Disproportionate Share
Adjustments:
Terminate disproportionate share adjustment Although the Presidents past budgets 410
payments without redistribution of the funds to contained a proposal to phase down
PPS hospitals.  Payments under PPS adequately Medicare disproportionate share payments,
compensate hospitals for services provided to no legislative proposal was included in the
Medicare patients, including low-income Presidents current budget.
patients.  (CIN:  A-04-87-00111)
B-3       OIG Recommendation Status  Savings
in Millions
Prospective Payment Systems Capital Cost
Rates:
The HCFA should consider reducing payment The HCFA agreed with OIGs analysis that $249
rates by 7.5 percent to more accurately reflect the Federal capital rate reflects a known
costs of the base year used for the capital cost over-estimation of base year costs.  The
component of PPS, and continue to monitor the HCFA also stated that comments from
most current data and make any necessary individual hospitals and hospital
further adjustments to the base rate.  (CIN: associations were uniformly opposed to
A-07-95-01127) making any of the possible rate reductions
that were discussed in HCFAs proposed
rule. The Prospective Payment Assessment
Commission (ProPAC) acknowledged that
there are legitimate issues regarding the
appropriate level of the rates in light of the
current data.  The HCFA does not intend to
adopt any of the possible approaches at this
time, in anticipation of congressional action
to realize savings in this area.
Hospital Admissions:
Seek legislation to pay for covered services The OIGs follow-up report (CIN: 210
related to 1-day admissions without an A-05-92-00006) indicated that problems
overnight stay as outpatient services which are still exist with inappropriate admissions
paid on the basis of the lower of the actual costs and that the volume of 1-day admissions on
or the customary charges in a locality.  (CIN: a national basis have increased
A-05-89-00055; CIN:  A-05-92-00006) approximately 150 percent over 1985
levels.  The HCFA proposed to implement
OIGs recommendation through
administrative remedies that would
designate whether specific services are to
be covered and paid for as inpatient or
outpatient services.  No proposal was
included in the Presidents current budget.
Eliminate Separate Enteral Nutrient
Payments in Nursing Homes
The HCFA should eliminate separate payments The HCFA concurred with the 174
for enteral nutrients for beneficiaries in nursing recommendation and is considering
homes.  (OEI-06-92-00861) alternative payment mechanisms and
enhanced control of utilization to contain
costs while it examines a legislative remedy.
Graduate Medical Education:
Revise the regulations to remove from a The Presidents FY 1997 budget contains 157.3
hospitals allowable graduate medical education proposals to slow the growth in Medicare
(GME) base year costs any cost center with spending in GME.
little or no Medicare utilization.  Submit a
legislative proposal to compute Medicares
percentage of participation under the former
more comprehensive system.  (CIN:
A-06-92-00020)
B-4       OIG Recommendation Status  Savings
in Millions
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.  In
tests to include 10 chemistry tests identified by November 1995, HCFA updated its carrier
the OIG audit.  (CIN:  A-01-93-00521) manual adding three of the tests
recommended in the OIG report.  A
legislative proposal to add tests (including
those identified in OIGs review) was
included in the Presidents December 7,
1995 Medicare savings package.
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations.  However, with respect
Medicare claim filing and begin to plan now for to the policy options suggested, HCFA
the policy changes that will become necessary believes that mandating paperless claims is
to achieve an almost completely paperless impractical.
environment for processing Medicare claims.
(CIN:  A-05-94-00039; OEI-01-94-00230)
Medicaid Drug Rebate Program:
Best price calculation in the Medicaid drug The OIG is continuing its review of the 123
rebate program should be indexed in a manner Medicaid drug rebate program.
similar to the average wholesale price, which is
indexed to the consumer price index-urban.
(CIN:  A-06-94-00039)
Reduce Medicare Payments for Hospital
Outpatient Department Services:
Establish a legislative initiative to reduce the The HCFA sent a report to the Congress on 120
current payments for services in outpatient developing a PPS for outpatient
departments to bring them more in line with departments.  In addition, the Presidents
ambulatory service center (ASC) approval FY 1997 budget contains a proposal to
payments.  Pay outpatient departments the eliminate a formula-driven overpayment
ASC-approved rate or adjust hospital payments which allows Medicare to fully deduct
by a uniform percentage.  (CIN: beneficiary coinsurance payments received
A-14-89-00221; OEI-09-88-01003)   by the hospital before the program makes
its payments, and establish a budget-neutral
PPS for outpatient department services
starting in 2002.
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The fiscal intermediaries should recover The HCFA agreed to recover the improper 83.5
improper payments made to hospitals for billings and to refund the beneficiaries
nonphysician outpatient services (such as coinsurance and deductible.  Collection of
diagnostic tests and laboratory tests) rendered the overpayment is being handled by
within 72 hours of the day of an inpatient settlement agreements with the hospitals
admission, and refund the beneficiaries through the Department of Justice working
coinsurance and deductible related to these with HCFA and OIG.  The HCFA did not
payments.  The HCFA should propose concur with the recommendation to further
legislation to expand the DRG payment window expand the payment window.  No
to at least 7 days immediately prior to the day legislative proposal was included in the
of admission.  (CIN:  A-01-92-00521) Presidents current budget.
B-5       OIG Recommendation Status  Savings
in Millions
Preclude Improper End Stage Renal Disease
Payments to Health Maintenance
Organizations:
The HCFA should advise all risk-based health The HCFA agreed with OIGs findings and $50.7
maintenance organizations (HMOs) and recommendations.  The systems changes
comprehensive medical plans that ESRD were implemented in August 1996.  The
capitation rates are only effective for HCFA continues to recoup improper
beneficiaries who currently are diagnosed as payments.
having ESRD; identify and recover all
payments to HMOs and comprehensive medical
plans for beneficiaries misclassified as having
ESRD; and make systemic and procedural
changes to prevent future overpayments.  (CIN:
A-04-94-01090)
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 190-day lifetime
psychiatric services.  Apply a 60-day annual limit for psychiatric hospitals be extended
and a 190-day lifetime limit to all psychiatric to general hospitals; however, such a
care regardless of the place of service.  (CIN: proposal was not included as part of the
A-06-86-62045) Presidents current budget.
Generic Drugs:
The HCFA should identify and alert States to The HCFA has provided a copy of the OIG 46
methods which would encourage the use of report to States and encouraged them to use
lower priced generic drug products in the lower priced generic products.  On
Medicaid program.  The HCFA should also take February 2, 1996, States were requested to
a more active role to encourage States to use provide a description of any policies
generic drugs; provide stronger incentives for adopted that encourage use of equivalent
States to adopt policies that encourage use of generic drugs.  This information will be
generic drugs; monitor the States efforts to included in the 1995 State Drug Utilization
encourage the use of lower priced drugs; and Review Annual Report due to regional
formally assess those activities.  (CIN: offices by June 30, 1996.
A-06-93-00008)
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)
Establish Medicaid Credit Balances
Reporting :
The HCFA should establish and monitor a The HCFA agreed to establish a national 25
national Medicaid credit balance reporting reporting system; however a follow-up
mechanism similar to the Medicare Part A credit audit indicates that Medicaid credit
balance reporting procedures.  (CIN: balances continue to exist.
A-05-93-00107; CIN:  A-04-92-01023)
B-6       OIG Recommendation Status  Savings
in Millions
Reduce End Stage Renal Disease Rates:
The HCFA should reduce the payment rates for The HCFA agreed that ESRD facilities have $22*
outpatient dialysis treatments to reflect current become more efficient in their operations
efficiencies and economies in the marketplace. and that the composite payment rate should
(CIN:  A-14-90-00215) reflect the costs of outpatient maintenance
dialysis treatment in an efficiently operated
facility.  While the Omnibus Budget
Reconciliation Act of 1990 prohibited
HCFA from changing the ESRD composite
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatments.
The study undertaken by ProPAC was
presented to the Congress in March 1996
and recommended an increase to the current
rates.
Medicaid Cost Sharing:
The HCFA should promote the development of The HCFA provided States with program 19.8
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
and 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)
Minimize Incorrect Payments for Durable
Medical Equipment Billed During Skilled
Nursing Facility Stays
The HCFA should minimize the opportunity for HCFA concurred with the recommendations 19 
incorrect durable medical equipment (DME) and is currently developing a corrective
payments by:  improving the place of service action plan.
coding system; improving the supplier
knowledge of beneficiary location; reviewing
the DME regional carriers processes; and
improving processes for identifying skilled
nursing facilities for DME reimbursement
purposes.  (OEI-06-92-00860;
OEI-06-92-00862; OEI-06-92-00865)
Reduce Medicare Part B Payment for
Enteral Nutrition at Home
Reduce payments through competitive A plan for a DME competitive bid 15  
acquisition strategies for patients receiving demonstration that includes enteral
enteral nutrition at home.  (OEI-03-94-00021) nutrition is underway.  Payment changes
are likely to be implemented at the same
time changes are made in Part B coverage
for enteral nutrients for nursing home
patients.
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-7       OIG Recommendation Status  Savings
in Millions
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 which contain duplicate tests, recover
overpayments and make adjustments for the
Federal share of the amounts recovered.  (CIN:
A-01-95-00005; CIN:  A-05-96-00031; CIN:
A-01-96-00001; CIN:  A-06-95-00078; CIN:
A-04-95-01108; 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)
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to The HCFA prepared a draft regulation in 12.8
allow payment for nonemergency advanced life late 1995 that would shift the policy focus
support ambulance service only when that level away from the type of vehicle used and
of service is medically necessary; instruct towards the medical condition of the
carriers to institute controls to ensure that beneficiary.  No final regulation has been
payment is based on the medical need of the issued to date.
beneficiary; and closely monitor carrier
compliance.  (CIN:  A-01-91-00513; CIN:
A-01-94-00528)
Medicare Payments for Orthotic Body
Jackets:
The HCFA should require the DME regional The HCFA concurred and has instituted 10.4
carriers (DMERCs) to closely monitor claims several methods to detect payment trends
for body jackets, including:  analysis of and identify suppliers who have exhibited
payment trends, provision of an early warning abusive practices.  However, payments
of abusive practices and monitoring of suppliers continue at high levels.  The OIG plans to
who have engaged in abusive practices. revisit this issue as part of an ongoing study
(OEI-04-92-01080) on orthotics.
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.
Limit Reimbursement for Hospital Beds:
The HCFA should develop a new approach for Although a past budget of the President 6.2
reimbursing suppliers for hospital beds used by contained a proposal that authorized
Medicare beneficiaries at home.  A new competitive bidding for DME, no
reimbursement methodology should reflect a legislative proposal was included in the
hospital beds useful life and the number of Presidents current budget.  The HCFA
times a bed can customarily be rented over that awarded a demonstration project on this
period.  (CIN:  A-06-91-00080) subject in 1996.  The project is expected to
run in at least 3 sites for 2 cycles of 2 years
each beginning in January 1997.
B-8       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.
Hospital General 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 administrative of the cost categories identified in OIGs
and fringe benefit costs.  (CIN: report.  The HCFA has not yet clarified the
A-03-92-00017)   remaining cost categories noted in OIGs
report.  
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 44.4
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.  
Billings and Collections to Private Health
Companies:
The Indian Health Service (IHS) should The IHS fully concurred with OIGs 28
establish the necessary internal controls, assign recommendations.  The IHS is in the
adequate resources to its business offices, and process of, or has plans for:  implementing
provide additional training to business offices to an automated system to achieve the
ensure that underbillings to private insurance necessary internal controls; allocating
companies are properly filed and collected. resources to improve methods for billings
(CIN:  A-06-93-00080) and collections; meeting the training needs
of business office staff; implementing fee
schedules on a timely basis; ensuring
adequate accounting and medical records
are maintained for each patient; providing
adequate resources to carry out claims
follow-up; and improving policies and
procedures for follow-up of unpaid claims.
Medical Malpractice Coverage:
The Health Resources and Services The HRSA has drafted a legislative 10 
Administration (HRSA) should consider proposal to amend the Federal Tort Claims
seeking a legislative proposal to limit Act to include the $1 million limitation.
malpractice settlements or judgments involving
community and migrant health centers to $1
million.  (CIN:  A-04-95-05018)
B-9       OIG Recommendation Status  Savings
in Millions
Limit Graduate Student Compensation:
The Assistant Secretary for Management and The ASMB endorsed the OIG $5.7
Budget (ASMB) should work with the Office of recommendation, concluding that a prudent
Management and Budget (OMB) to revise person would not provide greater
Circular A-21 to stipulate a reasonableness compensation to individuals who are less
standard for graduate student compensation qualified by education and practical
charged to federally sponsored research based experience than others performing similar
on assigned responsibilities and not to exceed work.  The National Institutes of Health
compensation paid to other individuals of (NIH) issued a notice in its Guide for
similar experience for similar work.  (CIN: Grants and Contracts on compensation of
A-01-94-04002) graduate students (NIH Guide, volume 25,
number 8, March 15, 1996).  The guidelines
reiterate the requirements of OMB Circular
A-21 that costs applicable to Federal
agreements be allowable, allocable,
reasonable, necessary and treated
consistently, and provide guidance for
assessing reasonableness.  
Recharge Center Costs:
Universities should:  improve their oversight of The ASMB concurred with the 3.2
recharge centers; develop and implement recommendations and has recommended to
policies and procedures for the operation of OMB that Circular A-21 be revised to
recharge centers that are consistent with OMB provide more definitive guidance on the
Circular A-21; establish and maintain adequate financial operations of recharge centers.
accounting and recordkeeping procedures for
recharge centers; and analyze and adjust billing
rates to eliminate deficit and surplus funds.
(CIN:  A-09-92-04020)
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.
following actions:  limit future increases in
administrative costs to no more than 10 percent
per year; fund administrative activities via a
single block grant with future increases based
on the consumer price index; limit
administrative costs to a percentage of
maintenance payments; or restrict, through
legislation, the filing period for retroactive
claims, namely 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)
B-10       OIG Recommendation Status  Savings
in Millions
Unpaid Child Support and Income Tax
Deductions:
The Office of Child Support Enforcement and The Administration for Children and $212
States should work with the Internal Revenue Families favors delaying system changes
Service to identify data available from State pending a possible need for legislation to
welfare agencies and child support record permit the data exchange proposed in the
systems which would assist in the identification report.
of inappropriate tax benefits claimed by
noncustodial parents.  (OIG-05-95-00070)
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 predetermined numbers address the bulk of administrative/indirect
of years.  (CIN:  A-12-92-00014) costs charged to the Federal Government.
B-11 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 HCFA should enhance the testing used to evaluate The HCFA agreed and has established a work group
the contractors claims processing internal controls. comprised of OIG and HCFA staff members to address
(CIN:  A-14-93-03026) Medicare contractors controls.  The work group is
developing an internal control review protocol to review
contractors controls.
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)
Physical Therapy in Physicians Offices:
The HCFA should take appropriate steps to prevent The HCFA concurred with options one and two, and have
inappropriate payments for physical therapy in distributed copies of the report to the carriers to determine
physicians offices.  Some options are:  conduct focused if the issues identified are problems in their service areas.
medical review; provide physician education activities; The HCFA formed a work group that represents physicians
apply existing physical therapy coverage guidelines for who provide physical therapy services in their offices to
other settings to physicians offices.  (OEI-02-90-00590) focus on the clinical appropriateness of services provided,
including monitoring of these services.  The HCFA is
currently drafting model guidelines for reviewing claims
for patient and related services billed by the physicians
under the physician "incident to" benefit.
C-1       OIG Recommendation Status
Medicare Trust Funds Accounts Receivable
Internal Controls:
The HCFA needs to improve its internal controls and the The HCFA concurred with the intent of most of the
controls of its fiscal intermediaries (FIs) and carriers recommendations and is taking corrective actions.
related to the recording and reporting of accounts However, HCFA has still been unable to resolve all the
receivables.  Additionally, HCFA needs to properly critical problems.  The HCFA and OIG will continue to
estimate the allowance for uncollectible receivables and work together to develop corrective action plans to resolve
determine the amounts to be written off as uncollectible. these deficiencies.  The HCFA has established a work
In a review conducted in accordance with the Chief group to review Medicare contractor operations and
Financial Officers Act, OIG continued to find weaknesses systems, analyze contractor controls and identify internal
in contractors controls.  (CIN:  A-01-92-00516; CIN: control weaknesses.  The work group has contracted with a
A-14-93-03027; CIN:  A-01-94-00520; CIN: Medicare contractor and a certified public accounting firm
A-17-94-03032; CIN:  A-17-95-00051) to develop an approach to evaluate internal controls at
Medicare contractors.  The HCFA has also requested a
clarification of the reporting of Medicaid financial
information from the Federal Accounting Standards
Advisory Board.
Review Medicare Trust Funds Accounts
Payable Internal Controls:
The HCFA should improve its internal controls and the The HCFA concurred with the recommendations.
controls of its FIs and carriers related to the recording and Regarding recommendations to perform FMFIA section 2
reporting of accounts payable.  The HCFA should also and 4 reviews at contractors, HCFA has contracted with a
perform Federal Managers Financial Integrity Act Medicare contractor and a certified public accounting firm
(FMFIA) sections 2 and 4 reviews on all carrier accounts to evaluate internal controls at Medicare contractors.
payable internal controls and financial management
systems.  (CIN:  A-04-92-02054; CIN:  A-05-92-00106)
Improve Financial Management Systems to
Enhance Financial Reporting:
The HCFA should develop and implement financial The HCFA agreed that reasonable data should be included
management systems and related accounting and in the reporting of Medicare liabilities.  However, HCFA
administrative internal controls to ensure that all asserts that the process for developing a reasonable
Medicare liabilities are reported to the HCFA general estimate of a liability for provider reports would be too
ledger at fiscal year end.  (CIN:  A-14-92-03015) cumbersome.  The HCFA is currently developing the
Medicare Transaction System that will include an
integrated accounting subsystem to estimate the amount of
appealed cost reports.
Clarify the Allowability of General and
Administrative Costs at Medicare Hospitals:
The HCFA should revise the Provider Review Manual The HCFA has published changes to the PRM to clarify the
(PRM) to further clarify the allowability of specific types allowability of several of the cost categories identified in
of general and administrative and fringe benefit costs. OIGs report.  The HCFA has not yet clarified the
(CIN:  A-03-92-00017) remaining cost categories noted in OIGs report. 
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.
C-2       OIG Recommendation Status
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 PROs should extend their review to surgery The HCFA continues to work with the PROs to refine a
performed in physicians offices.  (OEI-07-91-00680) methodology for review of quality of care for ambulatory
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.
Patient Advance Directives - Early
Implementation Experience:
The HCFA should develop and issue specific regulatory The HCFA did not concur with the recommendation, but is
guidelines clarifying acceptable documentation methods willing to provide assistance to States by issuing
to assist providers in meeting the requirements of the interpretive guidelines for survey and certification
Federal statute.  The statute requires providers to inform containing examples of what would constitute acceptable
individuals of any rights they have under State law documentation of whether a patient has an advance
regarding self-determination.  (OEI-06-91-01130) directive.  
Implementing the New Medicare Transaction
System:
The HCFA should take steps early to ensure that the new The HCFA concurred with OIGs recommendations and is
nationwide Medicare claims processing system, the working with the systems design contractor to address
Medicare Transaction System, is designed to assure issues raised by OIG.
flexibility and adaptability to meeting future program
requirements.  (CIN:  A-14-93-02543)
Review Determinations of Graduate Medical
Education Costs:
The HCFA should take steps to ensure that FIs audit The HCFA concurred with the recommendation but noted
teaching hospitals full-time equivalent resident counts that currently Medicare GME payments are not tied to
for the base year used in determining graduate medical reported costs, which may affect the accuracy of such costs.
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; OEI-07-90-00763)
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)
C-3       OIG Recommendation Status
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Improve Blood Establishments Errors and
Accidents Reporting:
The FDA should work to ensure that error and accident The FDA agreed to take corrective actions, including
reports are submitted timely by blood establishments developing and implementing revisions to regulations to
currently required to submit such reports, and should take require unlicensed blood establishments to submit error
regulatory action to require that unlicensed blood and accident reports.  
establishments submit error and accident reports.  (CIN:
A-03-93-00352; CIN:  A-03-95-00350)
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING
Undistributed Child Support Payments:
The Administration for Children and Families (ACF) The ACF agreed to participate in a joint effort with OIG to
should remind States to:  monitor and expedite the determine the extent of these problems, but disagreed with
distribution of collected child support payments; place the need to remind States of ACFs policies and procedures
undistributed payments in interest bearing accounts; and for undistributed collections.  The ACF expected
report escheated payments and interest as State income. considerable alleviation of the undistributed collections as
(CIN:  A-09-93-00030) States complete their automated systems.  The ACF is in
the process of reviewing 12 selected States undistributed
collection balances in order to address the wide disparity in
the level of balances reported by the States, as well as
problems cited in the OIG report.  When all 12 reviews are
complete, a national report will be issued to outline
problems encountered and suggested solutions for the
handling and reporting of undistributed collections.
Strengthen Head Start Grantees Financial
Management Systems:
The ACF should intensify efforts to assure that Head Start The ACF generally agreed with OIGs recommendations.
grantees have adequate systems of internal controls;
maintain proper accounting records; have systems for
assuring program requirements are met; and obtain
acceptable independent audits and submit reports in
accordance with Federal requirements.  The ACF should
also take appropriate action when grantees do not meet
these requirements.  (CIN:  A-17-93-00001)
Measure Head Start Grantees Performance:
The ACF should establish and implement performance The ACF agreed with the importance of strengthening
measures and procedures for determining Head Start performance measurement criteria but disagreed with
grantees compliance with program requirements, and as OIGs conclusions relative to high-risk conditions.  The
a basis for establishing uniform ratings and identifying ACF is now completing a major initiative to develop Head
management practices that create high-risk conditions. Start performance measures designed to assess the quality
(CIN:  A-04-90-00009) and effectiveness of the program nationally through stating
outcomes for children and families and through program
indicators.
C-4       OIG Recommendation Status
Ensure that Head Start Program Attendance
Goals and Matching Requirements are Met:
The ACF should establish and implement procedures to The ACF noted that it is obtaining information from its
ensure that center-based Head Start grantees attain the grantees to improve internal reporting procedures.  As far
expected attendance goal of 85 percent of funded as average daily attendance, ACF states that an average
enrollment.  The ACF should also seek a legislative daily attendance of 85 percent is a service goal, not a
change to require that funding levels be based on current program requirement of Head Start grantees.  The ACF is
conditions (not historic funding levels) and require also reviewing Head Start procedures to grant waivers.
current information to support requests for waivers of
nonfederal matching requirements.  (CIN:
A-04-90-00010)
Health and Safety Standards at Child Care
Facilities:
The ACF should work with States to improve the health The ACF generally concurred with OIGs findings and
and safety practices of child care facilities.  In addition to recommendations, and is taking actions to enhance the
actions ACF is already taking, OIG recommended that health and safety standards of child care facilities.
ACF provide State agencies with identified best practices
including:  parental involvement, provider self-appraisals
and private/public partnerships.  (CIN:  A-04-94-00071;
CIN:  A-07-93-00718; CIN:  A-12-92-00044)
Improve the Federal Foster Care Program:
The OIG provided options for ACF to consider in its The ACF concurred on the issues raised in OIGs report.
efforts to improve its partnership with State and local The ACF convened two teams whose task was to redesign
governments in administering the Federal Foster Care the titles IV-B and IV-E child welfare reviews.  The
program.  The options included streamlining the process; objectives of the teams are consistent with issues and
determining whether legislative change is needed; and options described in OIGs report.  A draft notice of
determining if certain program requirements could be proposed rulemaking is currently in preliminary clearance.
changed to facilitate compliance.  (CIN:  A-12-93-00022)
Improve Oversight of Audits of Office of
Community Service Grantees:
The ACF should track Office of Community Services The ACF agreed and will take steps to implement the
grantees implementation of recommendations made as a recommendations within the limitation of current staffing
result of single audits, and follow up with grantees to resources.
ensure actions taken were effective.  (CIN:
A-12-92-00043)
Strengthen State Practices Relating to Wage
Withholding for Child Support Collections:
The ACF, in consultation with State agencies, should The ACF is in the process of implementing OIGs
work to strengthen and standardize State practices to recommendation.
effectively implement wage withholding for child support
collections.  (CIN:  A-09-12-91-00016)
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)
C-5       OIG Recommendation Status
Improve Financial Practices of Head Start
Grantees:
The ACF should strengthen procedures to monitor The ACF is implementing OIGs recommendations.
grantee accountability over program funds, and to ensure
that all grantees use interest bearing accounts and
properly refund interest income.  (CIN:  A-07-91-00425)
Colocating Intergenerational Programs:
The Administration on Aging (AoA) and ACF should The AoA and ACF generally agreed with OIGs
examine whether demonstrated successes in colocating recommendations.
programs and facilities in the private and public sector
can be more broadly applied to departmental programs on
a voluntary basis.  (CIN:  A-05-94-00009)
Improving Administration on Agings Nutrition
Program for the Elderly:
The AoA and the Department of Agriculture (USDA) The AoA and USDA generally agreed to address these
should remove barriers to increase States use of issues through joint efforts.
commodities by fostering better communications and
working relationships with State distribution agencies
which handle USDA commodities; assuring a better
variety of commodities; and improving dependability,
quality and packaging of commodities.  (CIN:
A-01-93-02510)
Coordination of Specialized Transportation
Services:
The AoA needs to actively promote transportation The AoA concurred with the OIG recommended actions to
consortiums, and provide the assistance needed by State increase implementation of coordinated transportation
agencies and local providers to promote improvements in services nationwide.  The AoA will work with the Joint
coordinated transit systems.  It should continue its work Department of Transportation/HHS Coordinating Council
with other Department of Health and Human Services to develop a strategic plan for improving transportation
(HHS) agencies and Federal Departments to promote services.
further development of coordinated transportation
systems for the elderly, persons with disabilities and
others in need of services. (CIN:  A-05-95-00023)
GENERAL OVERSIGHT
Coping With Twin Disasters - Department of
Health and Human Services Response to
Hurricane Hugo and the Loma Prieta
Earthquake:
The Office of the Secretary (OS) and the Office of the The OS and OASH have consolidated into one unit.  The
Assistant Secretary for Health (OASH) should clarify OASH had taken the lead in this area and has met with
HHSs disaster recovery roles and responsibilities by headquarters operating division emergency preparedness
defining precisely how they will implement the January officials.  It is in the process of clarifying roles and
1990 transfer of primary disaster authority from OS to the responsibilities and plans to publish this information in the
Public Health Service, and clarifying the disaster relief Federal Register once it is approved. 
and recovery responsibilities of all operating divisions
and the regions.  (OEI-09-90-01040)
C-6       OIG Recommendation Status
Coping With Twin Disasters - Department of
Health and Human Services Response to
Hurricane Hugo and the Loma Prieta
Earthquake:
The OASH should issue guidelines to improve disaster The OASH has undertaken the revision, updating and
planning.  The plans of each operating and staff division simplification of emergency planning and response
should spell out lines of communication with each other, guidance.  The OASH will also coordinate the development
and should specify headquarters and regional lines of of HHS Disaster Response Guides which will outline the
communication with the Federal Emergency Management types of emergency assistance provided by the Department.
Agency.  (OEI-09-90-01040) The OASH and OS have consolidated.
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 in the development of guidelines
random moment time studies.  (CIN:  A-07-93-00645) related to the determination of administrative costs,
including standards for the use of random moment time
studies.
C-7 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 $4.4 million.
2 Included in the reports issued during the period are management decisions to disallow $9,326 in costs attributable to the audits
performed by the Defense Contract Audit Agency under a reimbursement agreement.
3 During the period, revisions to previously reported management decisions totaled $995,825.
4 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-05-94-00064  Michigan Blue Cross/Blue Shield, Audit of Administrative Costs, June 1996,
$15,609,718
CIN:  A-07-95-01009  Review of AFDC Emergency Assistance-Selected States, February 1996,
$10,114,980
CIN:  A-03-91-00552  Independent Living Program, March 1993, $6,529,545 (Related recommendation
outstanding on Table II for $10,161,742)
CIN:  A-07-92-00578  BC/BS of Texas Inc.-Unfunded Pension Costs, October 1992, $6,244,637
CIN:  A-03-89-00046  Maryland Blue Cross/Blue Shield Administrative Costs, September 1991,
$5,996,278
CIN:  A-05-96-00013  IL DCFS IV-E Training Cost Allocation, August 1996, $5,812,360
CIN:  A-07-95-01010  Review of MO Title IV-E Retro Claim, February 1996, $4,246,295
CIN:  A-05-94-00080  Associated Insurance-Medicare Administrative Costs, July 1996, $3,954,632
CIN:  A-09-95-00056  Review of Training Activities-CA Dept. of Social Services, August 1996,
$3,934,717
CIN:  A-05-93-00054  IL-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-05-93-00013  Michigan BC/BS Contract-Medicare Audit, April 1993, $3,010,916
CIN:  A-07-92-00585  Pension Segmentation BC/BS of California, January 1994, $2,973,504
CIN:  A-01-95-00504  Medicare Parts A&B Administrative Cost-AETNA, January 1996, $2,938,223
CIN:  A-01-96-00508  Medicare Administrative Cost Parts A&B and RRB-Travelers, March 1996,
$2,803,269
CIN:  A-07-92-00579  BC/BS of Michigan Unfunded Pension Costs, October 1992, $2,535,698
CIN:  A-05-92-00026  Associated Insurance Co. Medicare Administrative, February 1992, $2,530,409
D-1 CIN:  A-02-91-01006  Blue Shield of Western NY Medicare Adm CTS Porter, September 1991,
$2,379,239
CIN:  A-03-90-02003  BC of Western PA Administrative Cost-FY86-89, August 1993 $2,218,528
CIN:  A-02-93-02001  Manpower Demonstration Res Corp., October 1994, $2,024,444
CIN:  A-02-94-01029  Hospice Eligibility RVW Puerto Rico-San German-ORT, June 1995, $1,598,837
CIN:  A-03-92-19733  State of Maryland, August 1992, $1,505,462
CIN:  A-06-96-00008  Arkansas BC/BS Administrative Cost, September 1996, $1,442,193
CIN:  A-03-90-00051  Maryland Blue Cross/Blue Shield Administrative Cost Audit, Part A-FY85-88,
August 1991, $1,438,414
CIN:  A-09-93-00083  Child Support Intercept Programs-California, August 1995, $1,429,837
CIN:  A-02-96-42454  City of New York City HRA Agency for Child Development, May 1996,
$1,410,441
CIN:  A-05-93-00057  Michigan BC/BS Contract Audit, July 1993, $1,409,954
CIN:  A-10-91-00011  WPS-Keystone Computer Acquisition, October 1992, $1,346,681
CIN:  A-05-95-00042  BC/BS Administrative Costs-Contract Audit, December 1995, $1,333,598
CIN:  A-07-93-00700  BC/BS of Mass-Unfunded Pension Cost Audit, May 1994, $1,290,740
CIN:  A-07-93-00679  AETNA-Unfunded Pension Cost Audit, May 1994, $1,290,740
CIN:  A-01-96-00508  State of Kentucky, April 1996, $1,271,907
CIN:  A-07-94-00762  Health Care Service Corp-Unfunded Pension Cost, July 1994, $1,233,337
CIN:  A-07-93-00665  Travelers Insurance Co-Unfunded Pension Cost Audit, October 1993, $1,218,963
CIN:  A-07-94-00763  Health Care Service Corp-Pension Segmentation, August 1994, $1,055,458
CIN:  A-05-94-00047  Nationwide Ins., Medicare Part B Administrative Cost, September 1995, $1,049,309
CIN:  A-07-93-00634  Pension Segmentation-Travelers Insurance Co., October 1993, $1,026,460
CIN:  A-06-95-00035  Fees Retained by Child Placing Agencies, February 1996, $988,680
CIN:  A-09-94-01010  Contract Close-out-Stratagene, March 1994, $983,208
CIN:  A-05-92-00060  Contractor Audit-BC/BS Administrative, February 1993, $879,609
CIN:  A-04-95-02096  Review of FY92 Unsupported G&A Costs-ABC Co., July 1995, $857,684
CIN:  A-04-94-01078  Monitoring Administrative Cost Audit Medicare BC/BS of South Carolina, July
1994, $839,740
CIN:  A-07-96-01193  Pro Closeout-Mcbride CPA, August 1996, $751,789
CIN:  A-07-95-01175  Mutual of Omaha-Administrative Cost, August 1996, $13,564
CIN:  A-05-91-00136  Community Mutual Ins. Co. Administrative Costs, August 1992, $720,668
CIN:  A-07-93-00699  BC/BS of Mass-Pension Segmentation Audit, April 1994, $658,471
CIN:  A-03-93-00353  D.C. Dept.of Human Services-Block Grants Drugs, April 1995, $657,048
CIN:  A-06-96-39974  Albuquerque-Bernalillo County Economic Opportunity, February 1996, $648,700
D-2 CIN:  A-07-95-01121  BC/BS of LA-Pensions-Contract Termination, February 1996, $647,127
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 BC/BS of South Carolina, July
1994, $594,092
CIN:  A-04-93-01069  Monitoring Administrative Cost-Audit Medicare Part B BC/BS South Carolina,
July 1994, $590,844
CIN:  A-07-93-00679  AETNA-Unfunded Pension Cost Audit, May 1994, $590,207
CIN:  A-02-91-03508  Audit of NJ Child Care and Supportive Services, June 1993, $506,710
CIN:  A-09-94-00058  Tranamerica Occidental Medicare Administrative Cost, March 1995, $491,479
CIN:  A-06-92-00017  IHS Creek Contract Close-Out, May 1992, $468,217
CIN:  A-06-93-00042  BC/BS of Texas Administrative Costs-Medicare Parts A&B, January 1993,
$434,134
CIN:  A-03-95-00451  Escheated Warrants-District of Columbia, August 1995, $420,607
CIN:  A-05-95-00034  BC/BS-Medicare Part A Administrative Costs, February 1996, $416,524
CIN:  A-05-92-00126  Wisconsin Westcap Head Start ACF/RO Request, March 1993, $347,576
CIN:  A-05-93-25697  West Central Wisconsin Community Action Agency Inc., August 1993, $324,759
CIN:  A-09-94-30178  State of Arizona, June 1994, $267,021
CIN:  A-07-95-01151  Oregon BC/BS Unfunded Pension Costs, October 1995, $260,335
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  BC/BS of Connecticut-Unfunded Pension Cost Audit, March 1994, $237,392
CIN:  A-04-96-40781  State of Alabama, May 1996, $230,724
CIN:  A-15-95-50003  Review of Indirect Costs at CTS, June 1996, $221,626
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-07-95-01141  BC/BS of LA-Pension Contract Termination Part B, February 1996, $194,177
CIN:  A-07-95-01150  Oregon BC/BS Pension Segmentation, October 1995, $191,312
CIN:  A-05-94-29229  West Central Wisconsin Community Action Agency, March 1994, $167,977
CIN:  A-05-96-00031  Wipro Equipment Depreciation, August 1996, $167,033
CIN:  A-03-94-26611  State of Delaware, December 1993, $163,100
CIN:  A-09-92-06850  Santa Ysabel Band Mission Indians, September 1992, $151,081
CIN:  A-05-92-00048  Wisconsin Physicians Svcs., Pension-Medicare vs. Erisa, October 1992, $130,577
(Related recommendation outstanding on Table II for $2,068,964)
CIN:  A-06-96-41681  Texas Migrant Council Inc., March 1996, $129,886
CIN:  A-07-93-00709  BC/BS of Connecticut-Pension Segmentation Audit, April 1994, $119,472
D-3 CIN:  A-01-96-38370  State of Rhode Island & Providence Plantations, May 1996, $105,049
CIN:  A-04-93-20785  State of Florida, June 1993, $103,486
CIN:  A-07-95-01159  NE BC/BS Pension Segmentation, January 1996, $96,955
CIN:  A-06-96-00063  Community Action Committee of Victoria, August 1996, $94,950
CIN:  A-06-96-43195  Pueblo of Isleta, June 1996, $92,969
CIN:  A-07-95-01164  Medicare Administrative Costs-General American, December 1995, $89,929
(Related recommendations outstanding on Table II for $16,632)
CIN:  A-03-94-27083  Pennsylvania State Univ., March 1994, $86,479
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-04-93-00059  Refugee Social Services and Targeted Assistance-Fl, September 1994, $84,676
CIN:  A-04-96-38655  State of North Carolina, April 1996, $83,237
CIN:  A-07-95-01166  Unfunded Pension Costs Nebraska BC/BS, January 1996, $73,509
CIN:  A-02-93-02518  Beiderman Kelly & Shafer, Feb.1994, $72,883
CIN:  A-08-96-42696  Blackfoot Tribe of the Blackfeet Indian Reservation, July 1996, $71,988
CIN:  A-01-94-00521  Audit of Non PPS And Capital Costs of N.E Rehabilitation, January 1995, $69,161
CIN:  A-09-96-43765  Arizona Affiliated Tribes Inc., Sept.1996, $66,526
CIN:  A-02-95-34275  Puerto Rico Dept.of Health, June 1995, $64,841
CIN:  A-04-96-43179  Community Medicine Foundation Inc., June 1996, $64,468
CIN:  A-05-95-37615  Illinois Dept. of Children & Family Services, July 1995, $64,000
CIN:  A-05-96-42077  City of Rockford Ill., March 1996, $59,283
CIN:  A-01-94-00521  Audit of Non PPS A/G and Capital Cost, January 1995, $59,161
CIN:  A-06-92-19887  Central Tribes of the Shawnee Area Inc., July 1992, $57,944
CIN:  A-03-96-41385  National Assoc. for Equal Opportunity, March 1996, $51,654
CIN:  A-09-96-41388  Fresno County Economic Opportunities Commission, February 1996, $50,040
CIN:  A-09-95-00095  Health Services Advisory Group,Inc (HSAG), December 1995, $49,585 (Related
recommendation outstanding on Table II for $1,389,723) 
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-02-95-34276  Puerto Rico Dept. of Health, June 1995, $46,842
CIN:  A-09-94-01022  Intelligenetics, October 1994, $44,590
CIN:  A-05-96-40815  Two Rivers Head Start, February 1996, $44,349
CIN:  A-09-96-42584  East Los Angeles Alcoholism Council, June 1996, $43,880
CIN:  A-09-96-39877  Amity Inc., November 1995, $42,725
D-4 CIN:  A-01-93-20875  State of Maine, May 1993, $40,540
CIN:  A-03-95-33937  Koba Institute Inc., August 1995, $32,575
CIN:  A-01-94-27881  State of Maine, June 1994, $32,460
CIN:  A-03-95-35319  Porter/Novelli, February 1995, $31,332
CIN:  A-03-93-24682  Medlantic Research Institute, June 1993, $31,038
CIN:  A-09-93-00106  Review of RSS and TAP Grants-CDSS, February 1995, $31,001
CIN:  A-09-96-42547  Maricopa County Arizona, April 1996, $30,766
CIN:  A-05-95-35498   Independent School District-Duluth Minn., April 1995, $30,000
CIN:  A-03-95-03313  Quality Resource Systems Inc., March 1995, $28,387
CIN:  A-10-96-41391  Klamath Family Head Start, April 1996, $26,530
CIN:  A-09-94-27868  Inyou Mono Advocates for Community Action, November 1993, $22,875
CIN:  A-04-96-38361  Mid-South Foundation for Medical Care, Inc., November 1995, $22,208
CIN:  A-05-96-39685  Michigan Family Resources, December 1995, $20,799
CIN:  A-05-96-43041  Hoosier Valley Economic Opportunity Corp., June 1996, $20,438
CIN:  A-05-93-21928  Wright State Univ., July 1993, $18,308
CIN:  A-06-96-42704  Eight Northern Indian Pueblos Council Inc., July 1996, $18,165
CIN:  A-05-95-34584  Wood County Head Start Inc., December 1994, $14,896
CIN:  A-01-95-39748  Indian Township Tribal Government Passamaquoddy, April 1996, $14,597
CIN:  A-10-92-20781  Tulalip Tribes of Washington, September 1992, $14,525
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-09-95-00091  Walter R. McDonald and Associates-Direct Cost, September 1995, $11,812
CIN:  A-03-93-21579  State of West Virginia, April 1993, $11,380
CIN:  A-09-92-06864  San Juan Southern Paiute Tribe, September 1992, $10,433
CIN:  A-01-95-36087  State of Maine, May 1995, $10,250
CIN:  A-05-96-42758  Cooperative Educational Service Agency, May 1996, $10,030
CIN:  A-09-96-42238  San Pasqual Band of Mission Indians, May 1996, $9,531
CIN:  A-09-96-40115  Marianas Assoc. for Retarded Citizens, November 1995, $8,870
CIN:  A-02-95-34277  Puerto Rico Dept. of Health, June 1995, $8,486
CIN:  A-09-95-33652  Hawaii Dept.of Health, December 1994, $7,613
CIN:  A-03-91-02004  West Virginia BC/BS Administrative Cost-FY85/90 and Termination Cost,
November 1992, $7,556
CIN:  A-10-93-22136  Confederated Tribes of the Grand Ronde Community, December 1992, $7,384
D-5 CIN:  A-03-96-38803  Skyline Government Services Corp., November 1995, $7,285
CIN:  A-08-96-43199  American Indian Health Care Assoc.,Inc., July 1996, $6,863
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-09-96-43526  Nevada Disability Advocacy & Law Center,.Inc., August 1996, $6,230
CIN:  A-04-95-38272  State of Florida, August 1995, $6,101
CIN:  A-07-95-01167  Pension Costs Claimed Nebraska BC/BS, January 1996, $6,075
CIN:  A-04-96-43156  State of South Carolina, June 1996, $5,996
CIN:  A-07-96-38172  State of Iowa, May 1996, $5,762
CIN:  A-01-96-38016   Univ. of Maine System, January 1996, $5,500
CIN:  A-02-96-39964  State of New Jersey, April 1996, $5,497
CIN:  A-06-91-00034  Audit of Collection & Credit Activities of TDHS, January 1992, $5,081
CIN:  A-09-96-40114  Marianas Assoc.for Retarded Citizens, November 1995, $5,040
CIN:  A-05-96-42799  National Reparative Medicine Foundation, June 1996, $4,726
CIN:  A-01-95-32620  State of Connecticut, January 1995, $4,070
CIN:  A-07-95-01123  Review of CPA Administrative Cost-BCBS of Kansas City, May 1995, $4,045
CIN:  A-02-93-26106  Second Street Youth Center Foundation Inc., July 1993, $3,989
CIN:  A-05-96-38947  American Assoc. of Cardiovascular and Pulmonary, December 1995, $3,827
CIN:  A-09-95-39056  Hawaii Dept. of Health, September 1995, $3,601
CIN:  A-07-94-25955  State of Kansas, December 1993, $2,783
CIN:  A-02-96-42965  Seneca Nation of Indians, June 1996, $2,720
CIN:  A-03-95-34716  West Virginia Medical Institute Inc., March 1995, $2,688
CIN:  A-05-96-38861  Menominee Indian Tribe of Wisconsin, February 1996, $2,636
CIN:  A-03-94-30398  Medlantic Research Institute, June 1994, $2,306
CIN:  A-08-96-43556  State of Utah, September 1996, $2,134
CIN:  A-03-96-44076  St. Pauls College, August 1996, $2,029
B. Reports in litigation:
CIN:  A-09-91-00155  Blackburn Care Home, November 1991, $1,772,944 (Related recommendation
outstanding on Table II $662,370)
CIN:  A-03-92-16229  State of Pennsylvania, March 1992, $496,876
CIN:  A-09-93-00091  Walter McDonald-Indirect Cost Rate Audit, June 1994, $68,663
CIN:  A-05-95-35315  Lake County Economic Opportunity Council, January 1995, $2,650
C. Reports that have subsequently been resolved:
CIN:  A-04-95-05022  Mt. Sinai Medical Center, September 1996, $441,413
D-6 CIN:  A-04-96-42796  Univ. of Louisville, June 1996, $50,000
CIN:  A-03-92-00033  BC/BS of West Virginia Termination, November 1992, $25,200
CIN:  A-09-96-38647  Univ. of California, October 1995, $12,150
CIN:  A-01-96-43461  State of Connecticut, August 1996, $3,011
Table II
1 The opening balance was adjusted to reflect an downward revaluation of recommendations in the amount of $36.3 million.
2 The amount shown represents a partial nonconcurrence of the recommendation estimate.  The report is included in the amount
shown on line C(i)(a).
3 Management decisions have not been made within 6 months of issuance on 6 reports.   
Discussions with management are ongoing and it is expected that the following reports will be resolved during the next
semiannual reporting period:
CIN:  A-01-95-00508  Medicare Payments for Nonphysician Overpayments PPS, May 1996, $27,000,000
CIN:  A-01-96-43461  State of Connecticut, August 1996, $2,000,000
CIN:  A-06-91-00089  Audit of CN B Accounts to Determine Status of the IHS Cash On-Hand, April
1992, $445,890
CIN:  A-05-96-43154  Muskegon-Oceana Community Action Against Poverty, June 1996, $130,993
CIN:  A-02-95-34946  City of Caguas Puerto Rico, March 1995, $64,206
CIN:  A-06-96-43307  Nueces County Community Action Agency, June 1996, $22,667
D-7 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 60
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 63
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 58
costs
Section 5(a)(9) Statistical table II - reports with 59
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, 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
Hospital Closure:  1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Medicare Beneficiary Interest in Health Maintenance Organizations in
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Medicare Health Maintenance Organization Appeal and Grievance
Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Medicare Beneficiary Satisfaction:  1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Medicare Beneficiary Satisfaction with 1996 Medicare Handbook  . . . . . . . . . . . . . . 12
Medicare Beneficiary Satisfaction with Supplemental Health Insurance . . . . . . . . . . 12
"Know Your Number" Brochure for Dialysis Patients  . . . . . . . . . . . . . . . . . . . . . . . . 12
Medicare Payments to Excluded and Unlicensed Health Care Providers . . . . . . . . . . 20
Indian Health Services Tribal Management Grants Program . . . . . . . . . . . . . . . . . . . 46
Medical Personnel Credentialing and Privileging . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
National Marrow Donor Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Ryan White Comprehensive AIDS Resource Emergency Act:  New York
Eligible Metropolitan Area  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
F-1 APPENDIX G
Audits, Inspections and Investigations Related to Operation Restore Trust
The following audits, inspections and investigations finalized during this semiannual period relate to Operation Restore Trust,
discussed in Chapter I.  These report and case summaries are labeled with the symbolin the text.  A multidisciplinary
Federal and State approach to preventing and detecting fraud in home health agencies, nursing homes and durable medical
equipment suppliers, Operation Restore Trust has targeted the five States with the greatest proportion of Medicare and
Medicaid beneficiaries:  New York, Florida, Illinois, Texas and California. 
Page
Kickbacks, second example  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
 Fraud and Abuse Sanctions
A. Program Exclusions, fourth example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Home Health Care Costs
A. Florida  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
B. Florida  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Low-Cost Home Health Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Home Health Agency Fraud, fourth and sixth examples . . . . . . . . . . . . . . . . . . . . .26,27
Hospice Eligibility
A. Florida  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
B. Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
C. Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Nursing Home Fraud, third and fifth examples . . . . . . . . . . . . . . . . . . . . . . . . . . . .29,30
Durable Medical Equipment Regional Carrier Overpayments . . . . . . . . . . . . . . . . . . 33
Fraud Involving Durable Medical Equipment Suppliers, first, second,
fourth, fifth, sixth, eighth, and tenth examples  . . . . . . . . . . . . . . . . . . . . . . . . . . . .34-36
Lymphedema Pumps, first and second examples  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Incontinence Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
G-1 ACRONYMS
ACF Administration for Children and Families
AFDC Aid to Families with Dependent Children
AHCPR Agency for Health Care Policy and Research
AoA Administration on Aging
ASC ambulatory surgical center
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
CMN certificate of medical necessity
CMP civil monetary penalty
CSE child support enforcement
CY calendar year
DME durable medical equipment
DOJ Department of Justice
DRG diagnosis-related group
EA Emergency Assistance
EGHP employer group health policy
ESRD end stage renal disease
FDA Food and Drug Administration
FI fiscal intermediary
FMFIA Federal Managers Financial Integrity Act
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
HMO health maintenance organization
HRSA Health Resources and Services Administration
IHS Indian Health Service
IME indirect medical education
IOL intraocular lens
MFCU Medicaid fraud control unit
MSP Medicare secondary payer
NIH National Institutes of Health
OBRA Omnibus Budget and Reconciliation Act
OMB Office of Management and Budget
OPD outpatient department
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 to Needy Families 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
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25  User Charges
A-  50 Audit Follow-up  
A-  70  Policies and Guidelines for Federal Credit Programs
A-  73 Audit of Federal Operations and Programs
A-  76 Performance of Commercial Activities
A-  87  Cost Principles for State and Local Governments
A-102  Uniform Administrative Requirements for Assistance to 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  Internal Controls
A-127  Financial Management Systems
A-128  Audits of State and Local Governments  
A-129  Managing Federal Credit Programs
A-133  Audits  of Institutions of Higher Education and Other Nonprofit Institutions
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 and 1320b-10, 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 Civil False Claims Act and 3801 et seq., the Program Fraud
Civil Remedies Act
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320c-5, 1395l, 1395m, 1395u, 1395dd and 1396b  HOSPITAL CLOSURE
Number of Closures in U.S.
100
88
80 76
69
60 56 57
50
42
40 37
20 16
0
1987 1988 1989 1990 1991 1992 1993 1994 1995
Year BENEFICIARIES UNDERSTAND
THE MEDICARE PROGRAM
Percent
90
80%
79% 79%
80 75%
73%
70
60
50
40
30
20
10
0
1989 1991 1993 1994 1995
Year MEDICARE REIMBURSEMENT FOR
INCONTINENCE SUPPLIES
Dollars in millions
$300
$260
$250
$229
$200
$150
$150
$118
$107
$100 $87
$50
$0
1990 1991 1992 1993 1994 1995
Year