Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

QUESTIONABLE BILLING FOR 

BRAND-NAME INHALATION 

DRUGS IN SOUTH FLORIDA 

 

Daniel R. Levinson 

Inspector General 

December 2010 

OEI-03-09-00530 
 

 

 EXECUTIVE SUMMARY 

OBJECTIVES

1. To identify changes in billing among South Florida durable medical 

equipment (DME) suppliers for budesonide and arformoterol after 

payment controls were put in place to detect and deny excessive 

budesonide claims. 

2. To determine whether the amount of arformoterol billed by 

South Florida DME suppliers and paid under Medicare Part B exceeded 

the amount of the drug distributed for sale in the area between 

January 2008 and June 2009. 

BACKGROUND 

Medicare Part B covers inhalation drugs when they are used in 

conjunction with DME. Beneficiaries typically obtain DME items, 

including inhalation drugs, through suppliers, which then submit 

claims to Medicare on behalf of the beneficiaries. The Centers for 

Medicare & Medicaid Services (CMS) contracts with four geographically 

defined DME Medicare Administrative Contractors to process and pay 

DME claims. CMS also contracts with Program Safeguard Contractors 

to administer benefit integrity functions and conduct medical reviews. 

CMS may establish national coverage determinations for DME items. 

National coverage determinations specify whether certain medical 

items, services, treatment procedures, or technologies are eligible for 

Medicare payment. When a national coverage determination does not 

exist or when there is need for further definition, a local coverage 

determination (LCD) may be established by a CMS contractor. An LCD 

for nebulizers and related inhalation drugs (L5007), originally effective 

on April 1, 1997, establishes coverage limitations, such as the maximum 

milligrams per month of a drug that may reasonably be billed for a 

beneficiary. Through this LCD, a utilization edit to detect and deny 

claims that exceed utilization guidelines was implemented for the 

inhalation drug budesonide in September 2008. 

In 2008, Medicare was billed $426 million for the inhalation drug 

budesonide (brand name Pulmicort Respules) and $75 million for the 

inhalation drug arformoterol (brand name Brovana). During that year, 

Medicare spent $297 million for budesonide and $47 million for 

arformoterol. Both brand-name-only drugs have relatively high 

Medicare payment amounts when compared to the payment amounts 

for inhalation drugs with generic versions. Billing and spending on 

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EXECUTIVE SUMMARY 

budesonide and arformoterol for beneficiaries in South Florida 

(Miami-Dade, Broward, and Palm Beach Counties) were much greater 

when compared to billing and spending for beneficiaries in the rest of 

the country. 

We used the Medicare National Claims History File to identify all 

budesonide and arformoterol claims in 2008 and the first half of 2009. 

We also obtained sales data from arformoterol’s manufacturer, 

Sepracor, for the same period. Sepracor provided sales data for any 

direct sales and sales by the three largest wholesalers (approximately 

70 percent to 75 percent of sales). 

For budesonide and arformoterol, we analyzed the claim files to identify 

billing differences by South Florida suppliers before and after the 

utilization edit was implemented on September 19, 2008. We calculated 

the number of South Florida suppliers that (1) billed Medicare for units 

provided before the edit but did not bill after the edit, (2) did not bill for 

units before the edit but began billing after the edit, and (3) billed for 

units provided both before and after the edit. Using the arformoterol 

sales data provided by Sepracor, we compared the total number of 

arformoterol units sold to South Florida suppliers by the manufacturer 

and the three largest wholesalers to the number of units paid based on 

the Medicare claims files. We also compared the dollar amount 

submitted by South Florida suppliers to the amount distributed for sale 

in the region. 

FINDINGS 

After a utilization edit was implemented for budesonide, Medicare 

payments for the drug to South Florida suppliers were reduced by 

almost half. In the 6 months after the edit was implemented, there was a 

46-percent decrease in Medicare payments for budesonide to South Florida 

suppliers ($13 million less than in the 6 months before the edit). In fact, 

39 high-dollar South Florida suppliers either completely stopped or 

reduced billing for budesonide after the edit was put in place. 

Medicare payments for arformoterol to South Florida suppliers more 

than doubled after a utilization edit for budesonide was implemented. 

In the 6 months after the budesonide edit was put in place, arformoterol 

billings by South Florida suppliers increased by 53 percent and Medicare 

payments for the drug to South Florida suppliers increased by 138 percent 

compared to billings and payments from 6 months prior. After the 

September 2008 budesonide edit, decreases in Medicare expenditures for 

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EXECUTIVE SUMMARY 

budesonide were offset by increases in expenditures for arformoterol. In 

fact, 169 South Florida suppliers either started billing or had billing 

increases for arformoterol within the 6 months after the edit was 

implemented. 

We estimate that in 2008 and the first half of 2009, Medicare paid 

South Florida suppliers for up to 10 times more units of 

arformoterol than were distributed for sale in the area. In 2008 and 

the first half of 2009, Medicare paid for 7 million units of arformoterol, 

but the manufacturer and the 3 largest wholesalers sold only 

750,000 units to suppliers in the area. As a result, Medicare paid South 

Florida suppliers for nearly 10 times more units of arformoterol than 

the drug’s manufacturer and the 3 largest wholesalers sold to South 

Florida suppliers. Even when factoring in the 25 percent to 30 percent 

of missing sales data (i.e., sales from sources other than the 

manufacturer and the three largest wholesalers), it is highly unlikely 

that South Florida suppliers provided beneficiaries with this volume of 

arformoterol. 

Based on data for the manufacturer and the 3 largest wholesalers, 

Florida suppliers billed Medicare for up to 17 times more than the 

amount that could have legitimately been billed. Had all South Florida 

sales reported by Sepracor and the three largest wholesalers gone to 

beneficiaries, the program would have spent $3.7 million on 

arformoterol in the area in 2008 and the first half of 2009. Instead, 

South Florida suppliers billed Medicare for $62 million, of which the 

program paid $34 million. 

The majority (65 percent) of the Miami-Dade County suppliers billing 

for arformoterol in 2008 and the first half of 2009 never purchased 

arformoterol from the drug’s manufacturer or the three largest 

wholesalers in this period. In fact, three-fourths of the suppliers with 

the most arformoterol billings in Miami-Dade County did not purchase 

a unit of the drug from arformoterol’s manufacturer and the three 

largest wholesalers. 

RECOMMENDATIONS 

South Florida is known for its susceptibility to Medicare fraud, 

particularly by DME suppliers. A previous Office of Inspector General 

(OIG) report identified potential fraud related to billings for budesonide 

by South Florida suppliers. In September 2008, a CMS contractor 

implemented an automated edit to detect and deny claims that exceed 

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EXECUTIVE SUMMARY 

the maximum milligrams that a physician can safely prescribe to a 

beneficiary for budesonide. Our findings indicate that this edit did in 

fact decrease budesonide billings by and Medicare payments to 

South Florida DME suppliers. However, South Florida suppliers 

instead began billing for another brand-name inhalation drug, 

arformoterol. The substantial difference between the sales data 

provided by arformoterol’s manufacturer and the claims data for 

South Florida suppliers suggests that these suppliers were billing for 

drugs that may not have been actually purchased. Therefore, we 

recommend that CMS: 

Require DME contractors to implement utilization edits in high-fraud 

areas as soon as Medicare begins paying for a brand-name drug. 

Monitor utilization changes among brand-name inhalation drugs. 

Strengthen initial claim review processes to focus on prevention of 

improper payments. 

Perform site visits and request documentation from South Florida 

suppliers to support budesonide and arformoterol billings. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with all four of our recommendations (one of the 

concurrences included a caveat) and described steps that the agency has 

taken to resolve problematic billings for brand-name inhalation drugs 

by DME suppliers in South Florida and in certain other areas of the 

country. CMS generally concurred with our recommendation about 

utilization edits for brand-name inhalation drugs, but included the 

caveat that certain procedures, such as developing and issuing an LCD, 

would need to be followed before implementing these edits. OIG 

acknowledges the importance of CMS’s requirements; however, 

budesonide and arformoterol had utilization guidelines in an LCD years 

before prepayment edits were implemented. CMS agreed with our 

recommendations to monitor utilization changes and strengthen initial 

claim review processes. CMS stated that to address the latter it would 

recommend that its contractors include late-billing suppliers as an 

additional risk indicator. Finally, CMS concurred with our 

recommendation to review problematic suppliers and provided details 

about its planned actions. 
EXECUTIVE SUMMARY .....................................i

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

After a utilization edit was implemented for budesonide, 

Medicare payments for the drug to South Florida suppliers 

were reduced by almost half . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

Medicare payments for arformoterol to South Florida suppliers 

more than doubled after a utilization edit for budesonide was 

implemented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 

We estimate that in 2008 and the first half of 2009, Medicare 

paid South Florida suppliers for up to 10 times more units of 

arformoterol than were distributed for sale in the area . . . . . . . . 19 

 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 

Agency Comments and Office of Inspector General Response . . . 25 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 

A: Medicare Process for Enrolling Durable Medical Equipment 

Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 

B: Related Office of Inspector General Work . . . . . . . . . . . . . . . . 28 

C: Criteria Used To Identify and Refer Potentially Fraudulent 

South Florida Durable Medical Equipment Suppliers . . . . . . 31 

D: Monthly Claims Submitted by South Florida Suppliers for 

Arformoterol Services Provided in 2008. . . . . . . . . . . . . . . . . . 32 

E: Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 

 

 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

 TABLE OF CONTENTS 
 

 

 INTRODUCTION 

OBJECTIVES 

1. To identify changes in billing among South Florida durable medical 

equipment (DME) suppliers for budesonide and arformoterol after 

payment controls were put in place to detect and deny excessive 

budesonide claims. 

2. To determine whether the amount of arformoterol billed by 

South Florida DME suppliers and paid under Medicare Part B exceeded 

the amount of the drug distributed for sale in the area between 

January 2008 and June 2009. 

BACKGROUND 

Medicare payments for DME have consistently been vulnerable to fraud 

and abuse. In particular, the South Florida region has been identified 

by the Office of Inspector General (OIG), the Centers for Medicare & 

Medicaid Services (CMS), and other agencies as a high-risk area for 

fraudulent billings to Medicare by DME suppliers. 

A 2009 OIG report found that brand-name inhalation drugs appear to 

be especially prone to aberrant billings by South Florida DME 

suppliers, which could lead to improper Medicare payments.1 For 

example, in the second half of 2007, 75 percent of South Florida 

beneficiaries who received the brand-name drug budesonide had paid 

claims that exceeded the drugs’ utilization guideline for a 90-day period. 

A CMS contractor implemented an edit in September 2008 to detect and 

deny budesonide claims that exceed the utilization guideline. 

Another previous OIG report2 has shown that pricing and payment 

concerns may affect which inhalation drug a supplier will provide. This 

current report will determine how the edit affected billing and payment 

for budesonide and whether utilization shifted to the newer brand-name 

inhalation drug arformoterol. Although both drugs are prescribed to 

treat conditions affecting the lungs, large shifts from budesonide to 

arformoterol should not be expected because the drugs are not 

interchangeable in terms of approved use or classification. 

 

1 OIG, Aberrant Claim Patterns for Inhalation Drugs in South Florida 

(OEI-03-08-00290), April 2009. 

2 OIG, Beneficiary Utilization of Albuterol and Levalbuterol Under Medicare Part B

(OEI-03-07-00440), August 2009. 

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INTRODUCTION 

Medicare Part B Coverage of Inhalation Drugs 

Although Medicare Part D covers most outpatient prescription drugs, 

CMS continues to cover a limited number of prescription drugs and 

biologicals (hereinafter referred to as drugs) under its Part B benefit. 

These drugs generally fall into three categories: injectable drugs 

administered by a physician, drugs explicitly covered by statute, and 

drugs administered through DME.3 Inhalation drugs, a class of DME 

drugs requiring a nebulizer, are prescribed to treat and prevent 

symptoms brought on by lung diseases, such as asthma and chronic 

obstructive pulmonary disorder. 

Beneficiaries typically obtain inhalation drugs through DME suppliers, 

which purchase the drugs either directly from the manufacturer or from 

a distributor/wholesaler (hereinafter referred to as wholesalers).4 DME 

suppliers that purchase large quantities of a drug likely receive volume 

discounts from the manufacturer and/or wholesaler.5 Three wholesalers 

account for around 90 percent of the prescription drug market.6 

DME suppliers typically submit claims for DME items to Medicare on 

behalf of the beneficiaries. In general, DME claims should be submitted 

within 12 months of the service dates.7 For an inhalation drug to be 

eligible for Medicare reimbursement, the DME supplier must have a 

signed prescription from the treating physician and the submitted claim 

form must list the physician’s identification number. 

Once Medicare receives the claim, it has up to 30 calendar days to pay 

or deny it.8 Generally, Medicare will pay 80 percent of the authorized 

reimbursement amount to the DME supplier providing the inhalation 

drug; the beneficiary is responsible for the remaining 20 percent in the 

form of coinsurance. CMS has implemented several initiatives that 

2 

3 68 Fed. Reg. 50428, 50429 (Aug. 20, 2003). 

4 See Appendix A for a description of the DME supplier enrollment process. 

5 OIG, Excessive Medicare Reimbursement for Albuterol (OEI-03-01-00410) 

March 2002; Excessive Medicare Reimbursement for Ipratropium Bromide 

(OEI-03-01-00411), March 2002. 

6 Market Watch, Growing Share of ‘Big Three’ Gets Federal Attention. Accessed at 

http://www.marketwatch.com on July 23, 2009. The three wholesalers are Cardinal Health, 

Inc., McKesson, and AmerisourceBergen. 

7 Social Security Act, § 1848(g)(4), 42 U.S.C. § 1395w-4. 

8 Claims submitted by certain problem suppliers may be placed on a prepayment review 

and are subject to a medical review before the claims are paid. Payment in these cases may 

exceed the 30 calendar days allotted to pay or deny the claims. 

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INTRODUCTION 

enable contractors to conduct prepayment or postpayment reviews of 

certain submitted claims.9

3 

orm 

sdictions. 

CMS contracts with four geographically defined DME Medicare 

Administrative Contractors (MAC) to process and pay for DME 

claims.10 CMS also contracts with Program Safeguard Contractors 

(PSC)11 and Zone Program Integrity Contractors (ZPIC)12, 13 to perf

benefit integrity14 and medical review functions for each of the four 

DME MAC juri

DME Coverage Determinations 

CMS may establish national coverage determinations for DME items 

(including inhalation drugs).15 National coverage determinations 

specify whether certain medical items, services, procedures, or 

technologies are eligible for Medicare payment. DME MACs and PSCs 

are required to follow national coverage determinations when they exist. 

However, when a national coverage determination does not exist or 

when there is need for further definition, DME MACs may establish or 

revise a local coverage determination (LCD).16 The LCD defines 

coverage criteria, coding rules, and documentation requirements that 

will be applied to DME claims processed by DME MACs. Because many 

DME suppliers operate nationally, CMS requires that LCDs involving 

DME items (including inhalation drugs) be identical among all four 

9 For example, the National Correct Coding Initiatives Edits, Medically Unlikely Edits, 

and the Medical Review Program can be used to review claims prior to paying; the 

Comprehensive Error Rate Testing Program, Recovery Audit Contractors, and the Medical 

Review Program can be used for reviewing claims after payment. 

10 The four DME MAC contractors are National Heritage Insurance Company for 

Jurisdiction A; AdminaStar Federal, Inc., for Jurisdiction B; CIGNA Government Services, 

LLC, for Jurisdiction C; and Noridian Administrative Services for Jurisdiction D. 

11 Social Security Act, § 1893. 

12 CMS, CMS Enhances Program Integrity Efforts to Fight Fraud, Waste and Abuse in 

Medicare. Accessed at http://www.cms.hhs.gov on July 23, 2009. 

13 CMS is transitioning PSC work to ZPICs. There are seven ZPIC jurisdictions. Two 

ZPICs became operational in February 2009, and CMS expects that by the end of 2010, all 

PSC work will be transitioned to ZPICs. Until the transition is complete, PSCs and ZPICs 

will both be responsible for the benefit integrity of DME claims (as well as all Parts A and B 

claims). 

14 Benefit integrity refers to functions that prevent, detect, and deter Medicare fraud. 

15 Social Security Act, § 1862(a)(1). 

16 Since March 1, 2008, DME MACs have had full responsibility for developing and 

revising LCDs. However, before that date, PSCs developed the LCDs and submitted them 

to DME MACs (or its predecessors, the DME regional carriers) for approval. 

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INTRODUCTION 

DME MACs. Therefore, coverage determinations for DME items are the 

same in all four DME MAC jurisdictions. 

An LCD (L5007) was established for nebulizers and related inhalation 

drugs effective April 1997.17 One function of this LCD was to set 

guidelines for the maximum milligrams per month that may reasonably 

be billed for certain inhalation drugs.18 This LCD states that claims 

exceeding these guidelines will be denied as not medically necessary. 

As required by CMS, the LCD is effective nationally, meaning that it 

applies to inhalation drug claims in all four DME MAC jurisdictions. To 

enforce the LCD for certain drugs, CMS has implemented computerized 

edits to automatically detect and deny claims that exceed the utilization 

guidelines. 

Brand-Name Inhalation Drugs: Budesonide and Arformoterol 

Budesonide. Budesonide (brand name Pulmicort Respules) is an 

inhaled corticosteroid used in conjunction with a nebulizer. The Food 

and Drug Administration (FDA) approved budesonide on 

August 8, 2000, for the “maintenance treatment of asthma and as 

prophylactic therapy in children 12 months to 8 years of age.”19 

Physicians may legally prescribe this drug to older patients to treat 

respiratory disorders; however, such prescriptions would be considered 

an off-label use of the drug.20

Over time, the Medicare payment amount for a unit (i.e., one vial of up 

to 0.5 milligram) of budesonide has gradually increased.21 In the first 

quarter of 2008, Medicare paid $5.09 per unit, but paid $5.39 in the 

fourth quarter of 2008 (and paid $6.42 in the second quarter of 2010). 

In 2008, DME suppliers billed Medicare $426 million for budesonide 

inhalation solution, of which the program paid $297 million. The 

amount billed and paid for beneficiaries in South Florida was 

17 CMS, LCD for Nebulizers. Accessed at http://www.cms.gov on January 14, 2010. 

18 As of its most recent update on January 1, 2010, the LCD has maximum milligram 

billing guidelines for 14 inhalation drugs and solutions. 

19 FDA, label for Pulmicort Respules (budesonide inhalation solution). Accessed at 

http://www.accessdata.fda.gov on October 27, 2009. 

20 Off-label use refers to the practice of prescribing medications approved by FDA for a 

purpose outside the scope of the drugs’ approved label. 

21 The Medicare payment amount for most Part B drugs, including inhalation drugs, is 

equal to 106 percent of the volume-weighted average sales price (ASP). Section 1847A(c) of 

the Social Security Act defines an ASP as a manufacturer’s sales of a drug to all purchasers 

in the United States in a calendar quarter divided by the total number of units of the drug 

sold by the manufacturer in that same quarter, net of any price concessions. 

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INTRODUCTION 

substantially higher than the amount billed and paid for beneficiaries 

in counties not located in South Florida (see Table 1). 

Table 1: Medicare Amounts Billed and Paid for 

Budesonide in 2008 

Beneficiary 

Location 

 Total 

 Billed 

Total 

Paid 

Three South Florida Counties 

 Miami-Dade 

 Broward 

 Palm Beach 

$93.9 mil 

$5.1 mil 

$2.0 mil 

$48.9 mil 

$2.9 mil 

$1.4 mil 

Top Three Billing Counties Not in South Florida 

 Cook, IL 

 Sedgwick, KS 

 Dallas, TX 

$2.7 mil 

$1.9 mil 

$1.8 mil 

$1.8 mil 

$1.4 mil 

$1.4 mil 

Source: OIG analysis of 2008 DME claims file, August 2009.

South Florida suppliers billed for 97 percent of the budesonide claims 

associated with area beneficiaries. These suppliers accounted for a 

quarter of the total amount billed to Medicare nationwide for 

budesonide and 18 percent of total payments for the drug. Suppliers in 

this region also billed over $900 more per beneficiary for budesonide 

annually, on average, when compared to the amounts billed by 

suppliers in the rest of the country. 

Utilization guidelines that define the maximum monthly dose of 

budesonide were added to the LCD for nebulizers and related 

inhalation drugs on July 1, 2007. According to staff from a CMS 

contractor, on September 19, 2008, an automated edit was implemented 

by the DME MAC and PSC covering Jurisdiction C (the region 

including South Florida) to detect and deny budesonide claims that 

exceed the guidelines. 

Arformoterol. Arformoterol (brand name Brovana) functions as a 

long-acting bronchodilator and is approved to treat chronic obstructive 

pulmonary disorder (but not asthma) in adults. FDA issued a black box 

warning22 for arformoterol and many other long-acting bronchodilators 

22 A black box warning is designed to warn of serious adverse reactions that may lead to 

death or serious injury. See 21 CFR § 201.57(a)(4). 

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INTRODUCTION 

because data indicated an increased incidence in asthma-related deaths 

in patients receiving salmeterol, the active ingredient in this class of 

drug.23 FDA approved arformoterol in October 2006, and its 

manufacturer, Sepracor, began marketing the drug in April 2007. 

On January 1, 2008, CMS established a payment amount and billing 

code for arformoterol.24 During that quarter, the Medicare payment 

amount for one vial was $4.72. This amount had increased to $5.23 by 

the second quarter of 2010. 

In 2008, DME suppliers billed Medicare $75 million for arformoterol, of 

which the program paid $47 million. Even though only 2 percent of 

Medicare beneficiaries lived in South Florida, these beneficiaries 

accounted for 43 percent of the amount billed nationwide and 31 percent 

of the amount paid by Medicare for arformoterol.25 The majority 

(98 percent) of the claims for South Florida beneficiaries were billed by 

suppliers located in South Florida (see Table 2). 

Table 2: Medicare Amounts Billed and Paid for 

Arformoterol in 2008 

Beneficiary 

Location 

 Total 

 Billed 

 Total 

 Paid 

Three South Florida Counties 

 Miami-Dade 

 Broward 

 Palm Beach 

$29.1 mil 

$2.5 mil 

$554,000 

$13.0 mil 

$1.0 mil 

$395,000 

Top Three Billing Counties Not in South Florida 

 Harris, TX 

 Cook, IL 

 Los Angeles, CA 

$571,000 

$371,000 

$351,000 

$183,000 

$267,000 

$238,000 

Source: OIG analysis of 2008 DME claims file, August 2009. 

23 Label for Brovana (arformoterol tartrate) Solution. Accessed at 

http://www.accessdata.fda.gov on July 17, 2009. 

24 Prior to 2008, suppliers would bill using a “Not Otherwise Classified Nebulizer Drug 

Code” and indicate on the claim form that the drug was arformoterol. 

25 CMS, Medicare Enrollment Reports. Accessed at 

http://www4.cms.gov/MedicareEnrpts/ on June 3, 2010. The most recent enrollment report 

available was last updated on July 1, 2007. 

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INTRODUCTION 

Utilization guidelines for arformoterol were added to the LCD on 

July 1, 2007. As of March 2010, an automated edit for arformoterol had 

not been put in place. 

Medicare Fraud in South Florida 

OIG’s numerous reports, criminal indictments, and convictions 

involving providers in South Florida have identified vulnerabilities that 

have put the Medicare program at risk for fraud and/or abuse. OIG 

studies have involved unannounced site visits to verify that DME 

suppliers meet certain supplier standards and analysis of claim 

patterns related to infusion therapy providers and DME suppliers. 

In March 2007, a Medicare Strike Force of Federal, State, and local 

investigators began operating in high-fraud areas (including 

South Florida) to detect, prosecute, and prevent Medicare fraud by DME 

suppliers. As of May 31, 2010, the Strike Force’s efforts have resulted 

in charges against over 550 defendants; over 300 convictions; the 

sentencing of over 250 defendants; and over $260 million in 

court-ordered restitutions, fines, and penalties.26 

The Medicare Strike Force found that one method used to defraud 

Medicare involved South Florida DME suppliers’ paying physicians to 

write fraudulent inhalation drug prescriptions and paying Medicare 

beneficiaries to accept the unnecessary medications or to help create the 

appearance that the drugs were delivered. Beneficiaries could receive 

up to $150 per month or $300 per falsified visit for use of their Medicare 

identification numbers. In many cases, beneficiaries have testified that 

they threw away the inhalation drugs upon receipt or that the DME 

supplier instructed them to sign fake delivery receipts even though they 

had not received any equipment or medication.27 Physicians have also 

testified that they had falsely diagnosed beneficiaries and prescribed 

unnecessary inhalation drugs for these fictitious diagnoses.28 In 

7 

26Hearing on Reducing Fraud, Waste and Abuse in Medicare, Hearing Before the 

U.S. House Committee on Ways and Means, Subcommittees on Health and Oversight, 

111th Cong. (2010) (Testimony of Lewis Morris, Chief Counsel to the Inspector General, 

Department of Health & Human Services). 

27 Department of Justice (DOJ) Press Release, June 28, 2007, Medicare Fraud Strike 

Force Convicts Owner of Miami Durable Medical Equipment Company of Defrauding 

Medicare. Accessed at http://www.usdoj.gov on December 18, 2007. DOJ Press Release, 

March 7, 2008, Miami Jury Convicts Physician and Three Business Owners of Medicare 

Fraud. Accessed at http://miami.fbi.gov on April 15, 2008. 

28 DOJ Press Release, July 11, 2008, Miami Doctor Sentenced to 41 Months in Prison for 

Medicare Fraud. Accessed at http://www.miami.fbi.gov on January 22, 2010. 

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INTRODUCTION 

multiple cases, medical personnel allegedly conspired with a South 

Florida DME supplier to create the appearance that the beneficiary 

qualified for and received services and/or drugs that were not medically 

necessary and/or were not provided. 

However, beneficiaries and physicians are not always aware that 

DME suppliers are using their Medicare identification numbers for 

fraudulent activities. For example, a Miami DME owner pleaded guilty 

in August 2009 to billing Medicare $123 million in fraudulent DME 

claims that had not been prescribed or ordered by a physician or 

delivered to a beneficiary. In cases such as this, a DME supplier 

fraudulently obtains beneficiary identification information and uses a 

physician’s identification number without the physician’s consent or 

knowledge.29, 30 

In May 2009, efforts to fight and reduce Medicare fraud were renewed 

through the Health Care Fraud Prevention and Enforcement Action 

Team (HEAT) initiative. See Appendix B for a full description of related 

OIG reports and governmental efforts to reduce Medicare fraud in 

South Florida. 

METHODOLOGY 

Data Sources and Collection 

Medicare claims data. We used the Medicare National Claims History 

(NCH) file to identify all Part B claims for budesonide and 

arformoterol in 2008 and the first half of 2009.31 To identify where 

the supplier submitting each claim was located, we cross-referenced 

the supplier identification number listed in the claims file to the 

supplier identification number listed in the 2008 or the 2009 National 

Supplier Clearinghouse (NSC) file. We then selected all claims 

submitted by suppliers located in South Florida (i.e., Miami-Dade, 

Broward, or Palm Beach Counties). In 2008 and the first half of 2009, 

609 South Florida suppliers submitted 204,603 claims for budesonide 

29 DOJ Press Release, April 1, 2008, Miami-Dade DME and Clinic Owners Indicted for 

Using Stolen Patient Information in Multi-million Dollar Medicare Fraud Scheme. 

Accessed at http://www.usdoj.gov on October 1, 2008. 30 DOJ Press Release, August 14, 2009, Miami Man Pleads Guilty to $123 Million 

Medicare Fraud Scheme. Accessed at http://miami.fbi.gov on August 31, 2009. 

31 For arformoterol, we obtained an updated 2009 claims data file after our initial data 

request. We used this file to summarize supplier billing and payment information for all 

arformoterol claims in the entire year. 

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INTRODUCTION 

and 305 South Florida suppliers submitted 79,878 claims for 

arformoterol. See Table 3 for the total number of suppliers billing for 

budesonide and arformoterol in each South Florida county for the 

entire period. 

Table 3: Number of South Florida DME Suppliers Billing 

for Budesonide and Arformoterol in 2008 and the First 

Half of 2009 

County 

Number of Suppliers 

in 2008 and First 

Half of 2009 Billing 

for Budesonide 

Number of Suppliers 

in 2008 and First 

Half of 2009 Billing 

for Arformoterol 

Broward 77 27 

Miami-Dade 453 242 

Palm Beach 79 36 

 Total 609 305 

Source: OIG analysis of DME claims files, 2010. 

Manufacturer sales data. We contacted arformoterol’s manufacturer, 

Sepracor, and asked that it provide us with the total number of vials 

of arformoterol sold in 2008 and 2009 to DME suppliers located in 

South Florida (whether directly or through a wholesaler). We also 

asked for information to identify the suppliers to which arformoterol 

was sold (e.g., suppliers’ names, any other known business names, 

and addresses).32

In November 2009, Sepracor provided the requested sales data for all of 

2008 and the first three quarters of 2009. Sepracor provided sales data 

for any direct sales activity (i.e., the manufacturer sells directly to the 

end user) and sales data for the three largest wholesalers.33 Sepracor 

estimated that these three wholesalers accounted for approximately 

70 percent to 75 percent of all arformoterol sales to wholesalers. These 

32 We had also contacted budesonide’s manufacturer, AstraZeneca, and requested similar 

sales data for budesonide. AstraZeneca provided data in May 2010; however, the data 

provided were not at the level of detail necessary for an analysis of sales to South Florida 

suppliers. 

33 Sepracor’s only direct sales were to two Broward County suppliers. The exact number 

of suppliers with purchases from the three largest wholesalers could not be determined for 

confidentiality reasons. At a minimum, data pertaining to the 3 largest wholesalers 

included 123 Miami-Dade County suppliers, 55 Broward County suppliers, and 29 Palm 

Beach County suppliers. 

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INTRODUCTION 

data included, in addition to the number of arformoterol units sold, the 

transaction date, business name, and address for each sale to every 

South Florida supplier that purchased the drug either directly or 

through one of the three largest wholesalers. 

Because of contractual commitments between the three largest 

wholesalers and certain suppliers, Sepracor was unable to provide 

identification information for all suppliers. Sepracor commented that 

the unidentified suppliers were typically large, retail, chain pharmacies. 

Sepracor provided only the suppliers’ ZIP Codes and counties associated 

with these transactions. 

10 

ries).

In addition, we accessed CMS’s ASP background files to obtain the total 

arformoterol units sold nationwide from the first quarter of 2008 

through the second quarter of 2009.34 The ASP background files 

contain manufacturer-reported sales of the drug to all purchasers in the 

United States (not just to Medicare beneficia

Supplier data. We spoke with our Office of Investigations (OI) about 

certain suppliers that we identified as having questionable billing 

patterns. OI provided us with information regarding indictments and 

investigations related to the suppliers in question. In addition, staff 

from DOJ provided us with details of a recent NSC site visit to a 

South Florida supplier. 

Data Analysis 

Billing shifts in budesonide and arformoterol. To identify billing changes 

after the budesonide edit was implemented on September 19, 2008, we 

analyzed claims by both the dates of service and the dates the claims 

were received for processing. 

We subset the drug’s claims for services occurring up to 180 days before 

the edit’s implementation (March 23 to September 18, 2008) and up to 

180 days after the edit’s implementation (September 19, 2008, to 

March 17, 2009). We calculated the percentage difference in billing and 

payments for budesonide before and after the edit. We performed this 

same calculation for arformoterol. 

For both drugs, we used the subset files described in the above 

paragraph to determine the number of Florida suppliers that (1) billed 

Medicare for units provided before the edit but did not bill after the edit, 

34 Each quarter, certain manufacturers must report to CMS the ASPs of their Part-B 

covered drugs as well as the number of units sold in the quarter. 

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INTRODUCTION 

(2) did not bill for units before the edit but began billing after the edit, 

and (3) billed for units provided both before and after the edit. For 

suppliers in each group, we determined the extent of changes in billing 

and payment amounts for budesonide and arformoterol. 

For arformoterol, we also used the date that the supplier actually 

submitted the claim for processing to analyze billing shifts. To do so, we 

determined the amount billed in each month in 2008 and the percentage 

of total 2008 dollars that were submitted after the edit using the receipt 

date listed on the claim (i.e., the date the DME MAC receives the claim 

from the supplier). 

Arformoterol sales data and Medicare claims data. We first compared the 

number of units and total dollars paid for by Medicare in South Florida 

to the number of units sold in the area by the manufacturer and the 

three largest wholesalers. Using claims data in the NCH file for 2008 

and the first half of 2009, we determined the number of arformoterol 

units paid per South Florida supplier by dividing the amount paid on 

each claim by the Medicare payment amount for the quarter when the 

service was provided (the Medicare payment amount represents one 

unit of the drug).35 We summed the total number of arformoterol units 

paid by Medicare to suppliers in South Florida. Using the sales data 

Sepracor provided, we then calculated the total number of arformoterol 

units sold by Sepracor and the three largest wholesalers to 

South Florida suppliers in 2008 and the first half of 2009 (one vial is 

equal to one unit). We compared the total number of units sold to 

South Florida suppliers to the total number of units that were paid by 

Medicare. 

We then compared the amount billed (i.e., submitted charges) to 

Medicare by South Florida suppliers to the amount sold by the 

manufacturer and the three largest wholesalers. Because Medicare 

claims data do not have a variable for units “billed,” we could do this 

comparison only by the total dollar amount billed. To estimate the 

dollar amount of arformoterol that could have been billed by area 

suppliers, we multiplied the number of units sold to South Florida 

suppliers (according to Sepracor’s data) by the Medicare payment 

amount for each quarter. We summed the quarterly figures and 

35 These claims data contained a total service variable; although our estimate is similar 

to the total services in the claims file, our method used to calculate units paid was a more 

conservative estimate. 

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INTRODUCTION 

compared this total figure to the total amount actually billed by 

South Florida suppliers and paid by Medicare during this time. 

Accounting for arformoterol units not sold by the manufacturer or the three 

largest wholesalers. We used CMS’s quarterly ASP background files to 

obtain the total number of arformoterol units Sepracor sold in 2008 and 

the first half of 2009. This figure represents total sales in the entire 

country and includes non-Medicare beneficiaries. To account for the 

25 percent to 30 percent of sales data we were unable to obtain from 

Sepracor, we multiplied the total number of units sold during each 

quarter by 30 percent. This provided us with an estimate of the 

maximum number of total possible units South Florida suppliers could 

have purchased from an entity other than the manufacturer or the three 

largest wholesalers. We added this figure to the number of units sold to 

South Florida suppliers from Sepracor’s data to get the total possible 

units that could have been sold to South Florida suppliers. We 

compared the “total possible units” figure to the number of units paid by 

Medicare. 

Arformoterol sales data for individual DME suppliers in Miami-Dade County. 

We focused a portion of our sales analysis on individual suppliers in 

Miami-Dade County. As shown in Table 3, the 242 Miami-Dade County 

suppliers represented the majority (79 percent) of South Florida 

suppliers billing for arformoterol between January 2008 and June 2009. 

We linked the arformoterol units in the claims data to the units in 

Sepracor’s sales data using the name and address for each Miami-Dade 

County supplier. We determined the number of suppliers billing 

Medicare for arformoterol that were not listed in the South Florida sales 

data provided by Sepracor. As previously mentioned, Sepracor was 

unable to provide us with the specific sales data for certain large retail 

pharmacies. We identified 42 large retail pharmacies with claims data 

that did not have sales data. The large retail pharmacies accounted for 

less than 1 percent of Medicare billings by all Miami-Dade suppliers 

and we removed them from this analysis. By doing so, we were left with 

200 Miami-Dade County suppliers for which we calculated unit 

differences between paid Medicare claims and the total sales data for 

Sepracor and the three largest wholesalers. We summed the total dollar 

amount billed to and paid by Medicare for Miami-Dade suppliers that 

did not appear in Sepracor’s sales data (again, excluding large retail 

pharmacies). 

We also identified the top 20 billing suppliers in South Florida by 

arraying the claims data for 2008 and the first half of 2009 by the total 

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INTRODUCTION 

amount each South Florida supplier billed for arformoterol. All of the 

top 20 billing suppliers were located in Miami-Dade County. We 

compared the total number of units paid in the claims data to the 

number of units sold to the suppliers by Sepracor and the three largest 

wholesalers. 

Limitations 

Sepracor was able to provide information pertaining to direct sales and 

sales by the three largest wholesalers. Because direct sales were to two 

suppliers, the sales most likely accounted for a small percentage of total 

sales. However, Sepracor did not estimate the direct sales’ percentage 

of total sales. Sepracor noted that the three largest wholesalers account 

for approximately 70 percent to 75 percent of arformoterol sales. 

Sepracor was unable to provide sales information for wholesalers other 

than the three largest wholesalers, meaning that we may be missing as 

much as 30 percent of the sales data for arformoterol. In addition, 

Sepracor’s data account for all sales of the drug (e.g., Medicare, 

Medicaid, private payers). In other words, the data provided by 

Sepracor are not limited to the product that was used by Medicare 

beneficiaries. 

Our comparisons between the sales data provided by Sepracor and the 

Medicare claims data do not account for units of arformoterol that were 

sold to a South Florida DME supplier in 2007 and then provided by the 

DME supplier to Medicare beneficiaries in 2008. Conversely, our 

comparisons also do not account for the likelihood that some of the units 

included in Sepracor’s data that were sold to a South Florida DME 

supplier in the first half of 2009 would not have been provided to a 

Medicare beneficiary until later that year (i.e., after the period covered 

by our analysis). 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspections approved by the Council of the Inspectors General on 

Integrity and Efficiency. 

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14 

 FINDINGS 

After a utilization edit was implemented for In September 2008, a 

CMS contractor covering budesonide, Medicare payments for the drug to 

South Florida implemented South Florida suppliers were reduced by an automated edit to detect almost half and deny budesonide claims 

that exceeded the drugs’ utilization guideline listed in the LCD for 

nebulizers and related inhalation drugs.36 In the 6 months after the 

edit’s implementation, Medicare paid $13 million less to South Florida 

suppliers for budesonide (for a 46-percent decrease) and these suppliers 

billed $24 million less for budesonide (for a 44-percent decrease) when 

compared to the 6 months before the edit.37 Figure 1 illustrates the 

changes in payment and billing behavior of South Florida suppliers 

before and after the edit was implemented. 

Figure 1: Before and After the Budesonide Edit—Amount Billed and 

Paid to South Florida Suppliers for Budesonide 

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$54,039,588

$30,056,515 $28,934,163

$15,577,307

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

Total in 6 Months 

Before 

Budesonide Edit

Total in 6 Months 

After 

Budesonide Edit

Amount 

Billed 

Amount 

Paid

Amount 

Billed 

 Amount 

 Paid

Source: OIG analysis of 2008 and 2009 DME claims data, 2010.

36 See OEI-03-08-00290 for more detail on budesonide claim patterns in South Florida. 

This report found that during a 90-day period in 2007, approximately 75 percent of South 

Florida beneficiaries with budesonide claims exceeded this utilization guideline before the 

edit was implemented. 

37 Six months refers to the 180 days before the edit was implemented on 

September 19, 2008, and the 180 days after the edit was implemented. For the remainder 

of this finding, comparisons before the edit to after the edit refer to this period. 
 

 

FINDINGS 

After the budesonide edit took effect, 39 of 41 high-dollar South Florida 

suppliers either completely stopped or reduced billing for the drug 

Thirteen high-dollar suppliers stopped billing after the edit. Nearly 

30 percent (119 of 414) of the South Florida suppliers that had billed 

Medicare for budesonide in the 6 months before the edit completely 

stopped billing for budesonide in the 6 months after the edit. Most of 

these suppliers had billed only small amounts before the edit. However, 

13 high-dollar suppliers that submitted $12 million in budesonide 

claims to Medicare in the 6 months before the edit stopped billing 

completely.38 If the nearly 12,000 claims submitted by the 

13 high-dollar suppliers during the prior 6 months were accurate, this 

would mean that these suppliers stopped providing budesonide to all 

3,628 beneficiaries that had received the drug before the edit. 

In the 6-month period before the edit took effect, 2 of the 13 suppliers 

were indicted for alleged Medicare fraud. These suppliers were believed 

to be billing for services not rendered. In each case, the physicians did 

not know and did not prescribe the medications for the beneficiary listed 

on the claim.39 

Twenty-six high-dollar suppliers significantly reduced billing after the edit. 

Seventy-one percent of South Florida suppliers (295 of 414) that billed 

for budesonide in the 6 months before the edit continued to bill for the 

drug in the 6 months after the edit. Slightly more than half of these 

had decreases in their amounts billed. The decreases were greatest 

among suppliers that were the top billing suppliers in the 6 months 

before the edit. All but 2 of 28 high-dollar suppliers that continued 

billing for budesonide had billing decreases, some significant, in the 

6 months after the edit.40 For example, one supplier billed over 

$800,000 in the 6 months before the edit, but less than $1,000 in the 

6 months after the edit. Combined, the 28 high-dollar suppliers billed 

$13 million less in the 6 months after the edit (53-percent decrease). 

38 High-dollar suppliers were identified as suppliers that billed more than $500,000 each 

for budesonide in the 6 months before the edit. Forty-one South Florida suppliers met this 

criterion. 

39 We referred the 11 remaining suppliers to OI for further investigation. See 

Appendix C for the criteria we used when referring all suppliers identified as potentially 

fraudulent in this report, and for further information from OI about the status of these 

referrals. 

40 We referred the 26 high-dollar suppliers with decreases in budesonide billings in the 

6 months after the edit to OI for further investigation. See Appendix C for the criteria we 

used when referring all suppliers identified as potentially fraudulent in this report, and for 

further information from OI about the status of these referrals. 

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FINDINGS 

 Although a utilization edit 

reduced Medicare 

payments for budesonide 

in the 6 months following 

its implementation, 

South Florida suppliers instead began billing in substantial amounts for 

the similarly expensive brand-name inhalation drug arformoterol 

(which was not subject to an edit).41 In the 6 months after the 

budesonide edit took effect, arformoterol billings by South Florida 

suppliers increased by 53 percent and Medicare payments for the drug 

to South Florida suppliers rose 138 percent compared to 6 months prior 

(see Figure 2).42

Medicare payments for arformoterol to South 

Florida suppliers more than doubled after a 

utilization edit for budesonide was implemented 

Figure 2: Before and After the Budesonide Edit—Amount Billed and 

Paid to South Florida Suppliers for Arformoterol 

 

 

 

 $17,744,239

 $27,071,544

$6,879,485

$16,404,441

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Total in 6 Months 

Before 

Budesonide Edit

Total in 6 Months 

After 

Budesonide Edit

Amount 

Billed 

 Amount 

Paid

Amount 

Paid

Amount 

Billed 

 

 

 

16 

 

 Source: OIG analysis of 2008 and 2009 DME claims data, 2010. 

41 Although both drugs treat lung diseases, large shifts from budesonide to arformoterol 

would not be expected. These drugs are not interchangeable in terms of approved use or 

classification. 

42 Six months refers to the 180 days before the edit was implemented on 

September 19, 2008, and the 180 days after the edit was implemented. In the remainder of 

this finding, comparisons before the edit to after the edit refer to this period. 

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FINDINGS 

In 2008, South Florida suppliers accounted for 44 percent of the total 

amount billed to Medicare for arformoterol ($33 million of the 

$75 million billed nationally). Furthermore, Medicare was billed more 

for beneficiaries in South Florida than for beneficiaries in the rest of 

Florida and the 18 next-highest-billing States combined. In 2009, 

South Florida suppliers accounted for 40 percent of arformoterol billings 

to Medicare ($39 million of the $97 million billed nationally). 

In 2008, Medicare paid over $14 million to South Florida suppliers for 

arformoterol; 45 percent of these payments were for services provided in 

the last quarter of 2008 (i.e., the quarter after the budesonide edit was 

implemented). Medicare payments for arformoterol increased in 2009. 

In fact, within the first 4 months of that year, Medicare payments to 

South Florida suppliers had already exceeded the 2008 total. By the 

end of 2009, Medicare payments to South Florida suppliers for 

arformoterol were more than double payments in the previous year. 

One hundred sixty-nine suppliers increased or began billing for arformoterol 

after the edit. Nearly half of the South Florida suppliers that submitted 

arformoterol claims in the 6 months before the budesonide edit had 

billing increases in the 6 months after the edit (85 of 177 suppliers).43 

These 85 suppliers billed an average of nearly 5 times more for a total 

billing increase of $13 million ($3 million billed before the edit; 

$16 million billed after).44 Overall, 67 of the 85 South Florida suppliers 

billed amounts that were at least double the amounts billed before the 

budesonide edit. In an extreme case, a supplier billed nearly 

3,000 times more for arformoterol than the amount billed before the 

edit. In total, Medicare payments to these 85 suppliers increased by 

$8 million (341 percent increase). 

In addition, in the 6 months after the edit, 84 South Florida suppliers 

began billing for arformoterol. For example, one supplier never billed 

for arformoterol in the 6 months before the edit, but billed $1.6 million 

43 Among the 177 South Florida suppliers that billed for arformoterol before the edit, 

53 suppliers did not bill for the drug in the 6 months after the edit and 39 suppliers billed 

the same amounts or had billing decreases. 

44 Thirteen of these suppliers billed more than $500,000 each in the 6 months after the 

edit. We referred these 13 suppliers to OI for further investigation. See Appendix C for the 

criteria we used when referring all suppliers identified as potentially fraudulent in this 

report, and for further information from OI about the status of these referrals. 

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FINDINGS 

for the drug in the 6 months after the edit (Medicare paid 90 percent).45 

In total, these 84 suppliers billed Medicare $5 million for arformoterol 

after the edit and were paid $4 million. 

South Florida suppliers submitted two-thirds of their arformoterol billings 

for 2008 to Medicare after the budesonide edit was put in place in 

September 2008 

In the month after the budesonide edit was implemented 

(i.e., October 2008), South Florida suppliers billed Medicare for a 

quarter of the $33 million submitted for arformoterol in 2008. This was 

more than double the amount South Florida suppliers billed in any 

other month before the edit (and significantly more than the total 

amount billed in any month for suppliers in the rest of the country). In 

total, 66 percent of arformoterol billings for 2008 services were 

submitted by South Florida suppliers after the edit was implemented. 

See Appendix D for a monthly breakdown of when South Florida 

suppliers submitted arformoterol claims. 

In 2008, the top-billing South Florida supplier submitted $8.4 million to 

Medicare for arformoterol. Based on claims data, the drug was 

supposedly provided to beneficiaries throughout the year, starting on 

January 31. However, this supplier submitted all but 1 of its more than 

2,300 arformoterol claims beginning 2 days after the September 2008 

edit was implemented. In other words, after claims for budesonide were 

subject to an edit, this supplier began submitting a large volume of 

claims for arformoterol that had supposedly been provided during the 

previous 8 months. 

After the September 2008 budesonide edit, decreases to Medicare 

expenditures for budesonide were offset by increases in expenditures for 

arformoterol 

Although the edit reduced Medicare expenditures for budesonide, 

because South Florida suppliers increased billing for arformoterol, 

Medicare actually paid more per month for both drugs combined soon 

after the edit took effect. For example, Medicare paid $6.5 million for 

both drugs in August 2008 ($1.7 million for arformoterol and 

$4.8 million for budesonide). However, Medicare paid $7 million for 

both drugs in March 2009 ($4 million for arformoterol and $3 million for 

18 

45 We referred this supplier and an additional high-dollar supplier that began billing for 

arformoterol after the edit to OI for further investigation. See Appendix C for the criteria 

we used when referring all suppliers identified as potentially fraudulent in this report, and 

for further information from OI about the status of these referrals. 

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FINDINGS 

budesonide). See Figure 3 for a monthly breakdown of combined 

Medicare payments for budesonide and arformoterol. 

For example, budesonide billings for one Miami-Dade supplier 

decreased by more than 50 percent after the edit ($654,000 billed in the 

6 months before the edit; $306,000 billed in the 6 months after the edit). 

Medicare denied the majority of the budesonide claims submitted by 

this supplier both before and after the edit. However, this supplier’s 

billing for arformoterol increased from just $300 before the edit to 

$856,000 after the edit. Even though Medicare had been denying the 

majority of this supplier’s budesonide claims, Medicare paid for 

55 percent of the amount submitted for arformoterol after the edit, or 

$474,000. 

Figure 3: Medicare Payments to South Florida Suppliers for Budesonide and 

Arformoterol in the 6 Months Before and After the Budesonide Edit 

19 

Edit $8,000,000 Implemented 

$7,000,000

$6,000,000

$5,000,000

$4,000,000

$3,000,000

$2,000,000

$1,000,000

$0

Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

Arformoterol Paid Amount Budesonide Paid Amount

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 Source: OIG analysis of the 2008 and 2009 DME claims data, 2010. 

Although Medicare paid 

South Florida suppliers 

$34 million for arformoterol 

between January 2008 and 

June 2009, it does not appear 

that these suppliers purchased enough of the drug to justify these 

payments. During this time, Medicare paid for 7 million units of 

arformoterol, whereas the manufacturer and the 3 largest wholesalers 

sold only 750,000 units to suppliers in the area (approximately 

We estimate that in 2008 and the first half of 

2009, Medicare paid South Florida suppliers for 

up to 10 times more units of arformoterol than 

were distributed for sale in the area 
 

 

FINDINGS 

3 percent of total Sepracor sales of the drug). As a result, Medicare paid 

South Florida suppliers for nearly 10 times more units of arformoterol 

(6.2 million units) than the drug’s manufacturer and the 3 largest 

wholesalers sold to South Florida suppliers. See Figure 4 for a 

quarterly comparison of the number of units sold by the manufacturer 

and the three largest wholesalers to the number of units paid for by 

Medicare. 

 Figure 4: Comparison of Manufacturer’s Units Sold to Claims Data in South 

 Florida (2008 and first half of 2009)

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Qtr 1 2008 Qtr 2 2008 Qtr 3 2008 Qtr 4 2008 Qtr 1 2009 Qtr 2 2009

Arformoterol Units

Claims Data -

Units Paid

Manufacturer

Data - Units

Sold

 Source: OIG analysis of the 2008 and 2009 DME claims data and manufacturer data, 2010.

Even when factoring in the 25 percent to 30 percent of missing sales 

data, it is highly unlikely that South Florida suppliers purchased this 

quantity of the drug. According to our analysis of CMS’s ASP data, 

other wholesalers would have sold approximately 6.6 million units of 

arformoterol for all Medicare and non-Medicare arformoterol use in the 

entire country. To account for the amount paid by Medicare, 

South Florida suppliers would have needed to purchase nearly all of 

those 6.6 million units (94 percent) and provided them to Medicare 

beneficiaries only. Aside from the rampant fraud in South Florida, as 

well as the aberrant billing patterns for the drug, the fact that only 

3 percent of the manufacturer’s and the three largest wholesalers’ sales 

went to South Florida suppliers makes this possibility seem highly 

unlikely. In addition, this addresses only the number of units paid and 

not the amount South Florida suppliers billed to Medicare. 

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FINDINGS 

Records from a February 2009 NSC site visit provide evidence that 

South Florida suppliers are billing and receiving payments for 

inhalation drugs that were not actually purchased and provided to 

Medicare beneficiaries. Staff from NSC visited a Miami-Dade supplier 

that had billed Medicare $600,000 and was paid $33,000 for 

arformoterol in 2008 and the first half of 2009. During the site visit, 

NSC staff noted a limited inventory of DME items, including nebulizers 

and inhalation drugs. In addition, this supplier could not fulfill NSC’s 

request to provide invoices or credit agreements showing that it actually 

purchased the inhalation drugs and DME items. It was recommended 

that this supplier’s billing privileges be revoked. 

Based on data from the manufacturer and the 3 largest wholesalers, 

South Florida suppliers billed Medicare for up to 17 times more than the 

amount that was distributed for sale in the region 

Had all South Florida sales reported by Sepracor and the three largest 

wholesalers gone to beneficiaries, the program would have spent 

$3.7 million on arformoterol in the area in 2008 and the first half of 

2009. Instead, South Florida suppliers billed Medicare for $62 million, 

or 17 times more than the amount the manufacturer and the 3 largest 

wholesalers could have sold in the region. Medicare actually paid 

$34 million to South Florida suppliers for arformoterol. 

Furthermore, South Florida suppliers billed Medicare for such an 

exceedingly large volume of arformoterol that this amount could not be 

accounted for in the 25 percent to 30 percent of sales by other 

wholesalers. Based on our analysis of CMS’s ASP data, had every unit 

sold by an entity other than the manufacturer and the three largest 

wholesalers been purchased by a South Florida supplier for Medicare 

beneficiaries, Medicare would have spent $36 million in this region. 

Therefore, the $62 million billed by South Florida suppliers far exceeds 

total possible sales by the manufacturer, the three largest wholesalers, 

and any other wholesaler that could have provided arformoterol. 

The majority of Miami-Dade County suppliers never purchased 

arformoterol from the drug’s manufacturer or the three largest 

wholesalers in 2008 and the first half of 2009 

Among South Florida suppliers, the majority billing for arformoterol in 

2008 and the first half of 2009 were located in Miami-Dade County 

(79 percent). Sixty-five percent of Miami-Dade County suppliers that 

billed Medicare for arformoterol between January 2008 and June 2009 

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FINDINGS 

did not purchase a unit of the drug from the drug’s manufacturer or the 

three largest wholesalers during this period.46 These suppliers billed 

Medicare for $44 million, of which Medicare paid $23 million 

(these figures represent 71 percent of total billings and 68 percent of 

total payments to Miami-Dade County suppliers). 

Arformoterol’s manufacturer and 3 largest wholesalers sold the drug to 

only 5 of the 20 Miami-Dade suppliers with the most arformoterol 

billings in South Florida. This means that 15 of these top-billing 

suppliers would have had to purchase arformoterol from another source. 

The 15 suppliers billed Medicare for $29 million in 2008 and the first 

half of 2009; Medicare paid $13 million of this.47 Medicare paid these 

15 suppliers for 2.6 million units of arformoterol that could not be 

accounted for in the sales data of the manufacturer and the 3 largest 

wholesalers. Because these suppliers were among the biggest providers 

of arformoterol in the country, they most likely would have had 

purchasing contracts with the drug’s manufacturer or the largest 

wholesalers to obtain purchasing discounts. 

Even the suppliers that did buy arformoterol from the manufacturer or 

the three largest wholesalers did not purchase enough to account for 

their high level of billings. For the five suppliers with sales data, 

Medicare paid an average of nine times more units than what was 

actually sold by the manufacturer and the three largest wholesalers. 

22 

46 Again, these suppliers may have purchased arformoterol from another source. 

However, given the substantial purchasing and distribution of the drug from certain 

suppliers, these suppliers would have most likely purchased the drug directly from the 

manufacturer or one of the three largest wholesalers. 

47 Among the 15 suppliers, we referred to OI the 13 suppliers that billed Medicare over 

$1 million for arformoterol during 2008 and the first half of 2009. See Appendix C for the 

criteria we used when referring all suppliers identified as potentially fraudulent in this 

report, and for further information from OI about the status of these referrals. 

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 RECOMMENDATIONS 

South Florida is known for its susceptibility to Medicare fraud, 

particularly by DME suppliers. Fraudulent billings jeopardize the 

financial integrity of Medicare and may endanger a beneficiary’s 

well-being when drugs are overprescribed. Recent efforts, such as the 

HEAT initiative, have focused on reducing Medicare fraud, waste, and 

abuse in areas such as South Florida. 

A previous OIG report identified potential fraud related to billings for 

budesonide by South Florida suppliers. In September 2008, a CMS 

contractor implemented an automated edit to detect and deny claims 

that exceed the maximum milligrams that a physician can safely 

prescribe to a beneficiary for budesonide. Our findings indicate that 

this edit did in fact decrease budesonide billings by and Medicare 

payments to South Florida DME suppliers. However, South Florida 

suppliers instead began billing for another brand-name inhalation drug, 

arformoterol. The substantial difference between the sales data 

provided by arformoterol’s manufacturer and the claims data for 

South Florida suppliers suggest that these suppliers were billing for 

drugs that may not have been actually purchased. Therefore, we 

recommend that CMS: 

Require DME contractors to implement utilization edits in 

high-fraud areas as soon as Medicare begins paying for a 

brand-name drug 

The substantial drop in beneficiary utilization of budesonide after the 

edit brings into question the validity of many of the budesonide claims 

submitted by South Florida suppliers prior to the edit. The fact that 

such a large number of suppliers stopped providing this drug further 

illustrates this point. 

Even though the edit resulted in lowering budesonide payments, 

Medicare could not realize the savings because South Florida suppliers 

instead began to bill for a new high-dollar, brand-name inhalation drug. 

Within a few months after the edit, Medicare decreases in expenditures 

for budesonide were offset by increases in expenditures for arformoterol. 

Medicare should require DME MACs and PSCs (or their successor, the 

ZPICs) to implement payment edits as soon as the drug is issued a 

payment code, particularly in areas known for Medicare fraud, such as 

South Florida. Medicare had been paying for budesonide for at least 

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RECOMM ENDATIONS 

3 years and the LCD’s coverage guideline had been in place for over 

1 year before the edit was implemented. As of March 2010, contractors 

had yet to place an edit (despite an LCD that has utilization guidelines) 

on arformoterol claims, and CMS should enforce its implementation as 

soon as possible. In the case of arformoterol and budesonide, 

implementing an edit as soon as the drug was issued a payment code 

could have saved the program hundreds of millions of dollars 

Monitor utilization changes among brand-name inhalation drugs 

CMS and its contractors should vigilantly monitor utilization changes to 

detect instances in which utilization of a drug is disproportionate to 

utilization in the rest of the country and/or suppliers exhibit billing 

spikes for a new drug or a drug for which it had never previously billed. 

This is especially important following implementation of a utilization 

edit, such as that for budesonide. Because of payment restrictions for 

budesonide, many South Florida suppliers sought a new drug to bill for 

in its place and did so in extraordinary amounts. Sales data for 

arformoterol indicate that many South Florida suppliers were most 

likely billing for drugs that were never even provided to the 

beneficiaries. If CMS and its contractors had detected aberrations in 

arformoterol billings, South Florida suppliers with questionable billings 

could have been investigated and potentially had their billing privileges 

revoked. 

Strengthen initial claim review processes to focus on prevention of 

improper payments 

Medicare generally has 30 days to pay a supplier for the claim and is able 

to review only approximately 3 percent of all Medicare claims prior to 

payment. DME suppliers have a much longer time to bill Medicare and 

can submit claims up to a year after the services are provided. Because 

the majority of the claims billed by South Florida suppliers for 

arformoterol were submitted soon after the budesonide edit, CMS would 

have received an influx of claims for this drug in a short timespan. If 

these claims had been reviewed, the time constraints to pay the claim 

would most likely have made a thorough review difficult. However, 

increasing the number of arformoterol claims reviewed would probably 

have resulted in more denials, thereby significantly reducing payments. 

For that reason, to strengthen the initial claim review process, we 

recommend: 

 working with Congress (if necessary) to increase the time 

Medicare has to review claims in areas known for fraudulent 

activities, such as South Florida; and 

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RECOMMENDATIONS 

 performing prepayment reviews on suppliers in high-fraud areas 

that submit the majority of their claims well after the dates of 

service. 

Perform site visits and request documentation from South Florida 

suppliers to support budesonide and arformoterol billings 

As discussed in the findings, we have provided a list to OI of high-dollar 

suppliers we believed warranted investigation for criminal wrongdoing. 

After consulting with OI, we also forwarded information on certain of 

these suppliers to CMS. See Appendix C for a summary of the criteria 

used to identify these suppliers. CMS should perform unannounced site 

visits to the problematic high-dollar suppliers we refer to the agency. 

These visits would determine whether these suppliers are stocked with 

the drugs; have appropriate storage facilities for the drugs; have stored 

the drugs properly (e.g., refrigeration for arformoterol); and meet 

Medicare supplier standards. CMS should also request that the 

suppliers provide documentation to justify the amounts billed for 

budesonide and arformoterol. Documentation should include items such 

as purchasing receipts, invoices, credit agreements, and proof of 

delivery to the beneficiary. Where appropriate, CMS should take steps 

to revoke billing privileges for any suppliers with fraudulent claims. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with all four of our recommendations (one of the 

concurrences included a caveat). CMS also described a number of steps 

that the agency has taken to resolve problematic billings for 

brand-name inhalation drugs by DME suppliers in South Florida and in 

certain other areas of the country. Effective July 16, 2010, a CMS 

contractor implemented three new edits covering multiple States 

(including Florida) for budesonide; arformoterol; and a third inhalation 

drug, formoterol. To prevent suppliers from switching to related 

products to evade these new edits, this contractor is also developing 

utilization edits for an additional nine inhalation drugs. CMS also 

described its efforts to closely track shifts in utilization from budesonide 

to arformoterol and formoterol under its DME Stop Gap Initiative, as 

well as supplier-specific measures under the ZPICs. 

In response to our first recommendation about utilization edits, CMS 

generally concurred, but included the caveat that the requirements 

listed in the Medicare manual be met first. CMS stated that before 

implementing automated prepayment edits for brand-name inhalation 

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RECOMMENDATIONS 

drugs, a “clear policy,” such as developing and issuing an LCD, would 

need to be finalized so that unintended adverse consequences would be 

avoided. OIG acknowledges the importance of CMS’s requirements and 

agrees with the agency about the need to avoid adverse consequences. 

However, in the case of budesonide and arformoterol, utilization 

guidelines were listed in the LCD years before the edits took effect. 

Once utilization guidelines for brand-name inhalation drugs are 

established and listed in an LCD, CMS should ensure that edits to 

enforce them are put in place, particularly in high-fraud areas. 

CMS agreed with our recommendation to monitor utilization changes 

among brand-name inhalation drugs, as well as with our 

recommendation to strengthen initial claim review processes. The 

agency stated that to strengthen these processes, it would recommend 

to DME PSCs and ZPICs that the identification of late-billing suppliers 

be used as an additional risk indicator for initiating prepayment 

reviews and that it would request the Pricing and Data Analysis 

Contractor to add this parameter to its DME Stop Gap Supplier 

Reporting Templates. CMS also stated that it would forward our 

suggestion that the agency work with Congress to increase the time 

Medicare has to review claims to its Office of Legislation. Finally, CMS 

concurred with our recommendation to review specific problematic 

suppliers and provided details regarding its planned actions. 

We did not make any changes to the report based on CMS’s comments. 

For the full text of CMS’s comments, see Appendix E. 

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 APPENDIX ~ A

Medicare Process for Enrolling Durable Medical Equipment Suppliers 

Before a durable medical equipment (DME) supplier may bill Medicare, 

it must obtain a National Provider Identifier (NPI), which is a unique 

identifier for health care providers that is assigned by the National Plan 

and Provider Enumeration System. Recently, the Centers for Medicare 

& Medicaid Services (CMS) added two additional requirements that 

suppliers must meet to obtain Medicare billing privileges. First, as of 

May 2009, DME suppliers seeking to enroll or change their ownership 

must also submit a $50,000 surety bond for each NPI with Medicare 

billing privileges (suppliers enrolled prior to this date were required to 

submit the surety bond by October 2, 2009). Second, all DME suppliers 

must meet quality standards and submit evidence of accreditation as of 

October 1, 2009.48, 49 

After meeting these requirements, the DME applicant must submit a 

completed application form (Form CMS-855S) and supporting 

documents to CMS. By signing and submitting the application form, 

the applicant agrees to follow all Medicare laws, regulations, and 

program instructions. The applicant must also meet certain Medicare 

supplier standards.50 

CMS contracts with the National Supplier Clearinghouse (NSC) to 

manage the enrollment of suppliers. To ensure that an applicant is 

meeting the Medicare supplier standards, NSC must conduct an 

unannounced site visit while the application is being processed. 

Generally, if the supplier is not in compliance, NSC will deny the 

application. Suppliers are required to reenroll in Medicare every 

3 years to continue receiving payment.51 The reenrollment process 

requires a resubmission of the CMS-855S application form and the 

required documentation. NSC will conduct an unannounced 

reenrollment site visit to ensure that the supplier continues to meet 

Medicare standards. 

27 

48 Medicare Improvements for Patients and Providers Act of 2008, P.L. 110-275 

§ 154(b)(1) (July 15, 2008). Certain professionals and persons did not have to meet this 

deadline. Pharmacies supplying DME did not have to meet the accreditation requirements 

until December 31, 2009. 

49 The new health care reform statute recently enhanced CMS’s authority related to 

supplier enrollment by implementing measures to improve the oversight and screening of 

suppliers. For example, as part of these changes, enrolling suppliers will now be required to 

have a compliance program and disclose certain affiliations with excluded entities. Patient 

Protection and Affordable Care Act of 2010, P.L. 111-148 § 6401 (Mar. 23, 2010). 

50 42 CFR § 424.57(c). 

51 42 CFR § 424.57(e). 

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 APPENDIX ~ B 

Related Office of Inspector General Work 

Unannounced site visits. In March 2007, the Office of Inspector General 

(OIG) issued a report entitled South Florida Suppliers’ Compliance With 

Medicare Standards: Results From Unannounced Visits 

(OEI-03-07-00150). In that study, OIG made 1,581 unannounced site 

visits in late 2006 to durable medical equipment (DME) suppliers in 

South Florida. We found that 491 suppliers (31 percent) visited did not 

maintain a physical facility or were not open and staffed during 

business hours. At the time that we conducted the visits, these 

491 suppliers had billed Medicare for almost $237 million in 2006. We 

referred these suppliers to the Centers for Medicare & Medicaid 

Services (CMS) so that the agency could consider revocation. We 

recommended that CMS strengthen the supplier enrollment process and 

ensure that suppliers meet Medicare supplier standards. CMS stated 

that it would take several steps to strengthen supplier standards and 

revoked the billing privileges for the 491 suppliers OIG referred. 

OIG issued a followup report in October 2008 entitled South Florida 

Durable Medical Equipment Suppliers: Results of Appeals 

(OEI-03-07-00540), that determined the number of revoked suppliers 

identified in the aforementioned study that appealed their revocations 

and were reinstated into the Medicare program. Nearly half of the 

491 revoked South Florida suppliers appealed their revocations and 

received hearings; among these, 91 percent were reinstated by the 

hearing officers based on a variety of evidence. After being reinstated, 

two-thirds of these suppliers had their billing privileges revoked again 

or inactivated. We recommended that CMS strengthen the supplier 

appeal process by developing criteria for reinstatements. In response, 

CMS stated that it had been taking aggressive steps to prevent 

Medicare fraud and agreed that reinstatement guidelines should be 

developed. 

Aberrant billing patterns. In September 2007, OIG issued a report 

entitled Aberrant Billing in South Florida for Beneficiaries With 

HIV/AIDS (OEI-09-07-00030). This study analyzed claim patterns 

associated with HIV/AIDS infusion therapy providers in South Florida 

and the oversight mechanisms CMS had in place to control 

inappropriate payments to these providers. In the last half of 2006, 

South Florida accounted for 79 percent of the amount of drug products 

billed nationally for Medicare beneficiaries with HIV/AIDS, even though 

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APPENDIX ~ B 

only about 10 percent of Medicare beneficiaries with HIV/AIDS lived 

there. Based on our review of CMS materials and claims data, we found 

that CMS and its contractors had used multiple approaches in 

South Florida to control aberrant billing for beneficiaries with 

HIV/AIDS, but none had proven effective as of the time we conducted 

our review. We recommended that CMS implement a number of 

controls that could reduce aberrant billing by infusion clinics. CMS 

generally concurred with our recommendations. 

The April 2009 OIG report entitled Aberrant Claim Patterns for 

Inhalation Drugs in South Florida (OEI-03-08-00290), found that 

South Florida accounted for 17 percent of Medicare spending on 

inhalation drugs in 2007, even though only 2 percent of all Medicare 

beneficiaries lived there. In particular, per-beneficiary spending on 

budesonide was much greater in South Florida than in the rest of the 

country ($4,429 per beneficiary compared to $1,567 per beneficiary 

in the rest of the country). We also found that 75 percent of 

South Florida beneficiaries who received budesonide had 

Medicare-reimbursed budesonide claims that exceeded the utilization 

guidelines for this drug, compared to 14 percent in the rest of the 

country. We recommended that CMS ensure that all Program 

Safeguard Contractors are enforcing the guidelines (especially for 

budesonide), eliminate Medicare’s vulnerability to potentially 

fraudulent claims, and review the cases in which the supplier appears 

to be fraudulently billing Medicare. CMS concurred with all of our 

recommendations and described its recent efforts to address the 

issues cited in our report, including the implementation of an 

automated edit for budesonide in September 2008. 

Medicare Fraud Strike Force and the Health Care Fraud Prevention and 

Enforcement Action Team 

On March 1, 2007, a strike force of Federal, State, and local 

investigators began operating in South Florida to detect, prosecute, and 

prevent Medicare fraud by area DME suppliers. The Strike Force’s 

efforts have resulted in more than $220 million in court-ordered 

restitutions to the Medicare program in cases involving 159 defendants 

charged with criminal health care fraud offenses. In March 2008, a 

second phase of the strike force began operating in Los Angeles. 

In May 2009, the Health Care Fraud Prevention and Enforcement 

Action Team (HEAT) initiative was launched to renew efforts to reduce 

Medicare fraud. This initiative is a collaboration of officials from the 

Department of Health & Human Services and the Department of 

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APPENDIX ~ B

Justice that builds upon existing programs that combat fraud and 

identifies new methods to prevent fraud. HEAT is intended to increase 

Medicare compliance training for providers, improve data sharing 

between CMS and law enforcement, and strengthen program integrity 

monitoring. The HEAT initiative also strengthened and expanded the 

Medicare Strike Force to Detroit, Houston, Brooklyn, Tampa, and Baton 

Rouge. 

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 APPENDIX ~ C

Criteria Used To Identify and Refer Potentially Fraudulent 

South Florida Durable Medical Equipment Suppliers 

In total, we identified 49 high-dollar durable medical equipment 

suppliers in South Florida as especially problematic and worthy of 

further review.52 Suppliers were identified using the three criteria 

below. Because suppliers may meet more than 1 of the criteria, the 

number of suppliers listed does not add up to the 49 unique suppliers 

we believed warranted investigation. 

Our criteria used to identify the potentially fraudulent suppliers 

include: 

 billing over $500,000 for budesonide before the utilization edit was 

implemented, but then having a significant drop or completely 

stopping billing in the 6 months after the edit (37 suppliers); 

 beginning to bill or significantly increasing billing for arformoterol 

in the 6 months after the edit and billing for over $500,000 during 

this period (15 suppliers); and 

 billing over $1 million in 2008 and the first half of 2009 for 

arformoterol, but not purchasing a unit of the drug from the 

manufacturer or the 3 largest wholesalers (13 suppliers). 

We have referred these 49 suppliers to OI. Of the 49, OI and the 

Federal Bureau of Investigation had more than half under 

investigation. Some of the providers have already had prosecutorial 

actions taken against them. After consulting with OI, we have 

forwarded information for certain of the 49 suppliers, as deemed 

appropriate, to the Centers for Medicare & Medicaid Services for 

possible revocation. 

31 

52 We initially identified 51 suppliers as being especially problematic; however, at the 

time of our data analysis, 2 of those suppliers had already been indicted for alleged 

Medicare fraud and we therefore did not refer them to the Office of Investigations (OI). 

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 APPENDIX ~ D 

Table D-1: Monthly Claims Submitted by South Florida Suppliers 

for Arformoterol Services Provided in 2008

Month Claim Was 

Submitted 

Amount 

Submitted per 

Month 

Monthly 

Percentage of 

Total 

Submitted 

Cumulative 

Amount 

Submitted 

Cumulative 

Percentage 

Jan–08 $4,687 0% $4,687 0% 

Feb–08 $127,056 0% $131,743 0% 

Mar–08 $261,453 1% $393,196 1% 

Apr–08 $469,923 1% $863,119 3% 

May–08 $786,074 2% $1,649,193 5% 

Jun–08 $1,786,228 5% $3,435,421 10% 

Jul–08 $3,769,246 11% $7,204,667 22% 

Aug–08 $1,572,232 5% $8,776,900 27% 

Sep–08 $2,540,261 8% $11,317,161 34% 

Budesonide edit implemented at the end of the September

Oct–08 $8,161,763 25% $19,478,924 59% 

Nov–08 $4,580,203 14% $24,059,127 73% 

Dec–08 $6,187,195 19% $30,246,323 92% 

Jan–09 $2,124,999 6% $32,371,322 98% 

Feb–09 $361,259 1% $32,732,581 99% 

Mar–09 $323,095 1% $33,055,676 100% 

Source: Office of Inspector General analysis of the 2008 claims data, 2010. 

Note: Amounts submitted per month are based on the dates that the suppliers actually submitted the claims for processing. 

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A P PEN 0 x E 

Agency Comments 

/"fPYfcw.., 

\. DEPARJ'MENT OF REALrn & HUMAN SERVICES Centers lor Medicare & Medicaid Services Sz'- Administra tor 

Washington, DC 20201 

DATE: 	 OCT 1 2 2010 

TO: 	 Daniel R. Levinson 


Inspector General 


FROM: 	 Donald M. Berwick, M.D. 


Administrator 


SUBJECT: 	 Office ofInspector General (OIG) Draft Report: "Questionable Billing for 

Brand-Name Inhalation Drugs in South Florida" (OEI-03-09-00530) 

Thank you for the opportunity to review and comment on the subject OIG draft report. The 

Centers for Medicare & Medicaid Services (CMS) has been aware ofa problem with billings for 

brand-name inhalation drugs by durable medical equipment (DME) suppliers in South Florida, 

and in certain other areas of the country. Therefore, cMs has already taken a number of steps to 

address this problem. 

Although, as OIG reports, edits were not in place for arformeterol as of March 2010, Clinically 

Unlikely Edits (CUEs) have since been placed by CMS' Zone 7 Zone Program Integrity 

Contractor (ZPIC), SafeGuard Services (SGS), on arformeterol. CUEs have also been developed 

and placed on an additional inhalation drug, formeterol. 

In addition, although the budesonide edit savings for the South Florida tri-county area for the 

period September 9,2008, through March 31, 2010, exceeded $9 million, SGS modified the edit 

to expand its scope and geographic location to increase its effectiveness. Specifically, SGS has 

tightened the utilization parameters for the budesonide edit and has expanded the geographic 

area from the original three South Florida counties. On July 16,2010, these three new edits for 

budesonide, arformeterol, and formeterol were input into the system by SGS. 

In order to maximize (he impact of these edits and in recognition of the fact that billing shifts 

within and beyond high-fraud areas, at the request of the Zone 7 ZPIC, these three edits have 

been placed jurisdiction-wide for Durable Medical Equipment Medicare Administrative 

Contractor (DME MAC) Jurisdiction C. Following are the 14 states and 2 territories, by ZPIC 

jurisdiction, in which these edits are in effect: 

• 	 ZPIC Zone 4, Health Integrity: Texas, Oklahoma, Colorado, and New Mexico; 

• 	 ZPIC Zone 5, AdvanceMed: West Virginia, Virginia, North Carolina, Georgia, 

Alabama. Mississippi, Tennessee. Arkansas, and Louisiana; 

• 	 ZPIC Zone 7, SGS: Florida, Puerto Rico, and the U.S. Virgin Islands. 

OEI·03·09·00530 QUESTIONABLE BILLING FOR BRAND· NAME INHALATION DRUGS IN SOUTH FLORIDA 33 
 

 

APPENDIX ~ E 

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APPENDIX ~ E 

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APPENDIX ~ E 

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 ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, Regional 

Inspector General for Evaluation and Inspections in the Philadelphia 

regional office, and David E. Tawes, Director of the Medicare and 

Medicaid Prescription Drug Unit. 

Stephanie Yeager served as the team leader for this study. Central 

office staff who contributed include Natasha Franklin and Scott Manley. 

 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities. 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

Office of Investigations 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Evaluation and Inspections 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Audit Services 

Office of Inspector General 

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: