Department of Health and Human Servces


OFFICE OF


INSPECTOR GENERA


USE OF MEDICARE OFFSET 

AGREEMENTS AND EXCLUSIONS FOR 

NATIONAL HEALTH SERVICE CORPS 

AND HEALTH EDUCATION ASSISTANCE 

LOAN DEFAULTERS


.. SERVICE +t-" 

Richard P. Kusserow 

INSPECfOR GENERAL '0 

1t""dla OEI-0-91-O550 
, .

EXE TIVE SUMMAR 


PUROSE 

The purpse of this review is to examine the use of the Medicae offset agreements and exclusions on debt collection activities of the National Heath Service Corps scholarship, Physician Shortge Area scholarship and Heath Education Assistace 

Loan programs. 

BACKGROUN 

Medicare offset and exclusion procedures are not being employed against defaulters in 

the Deparment of Health and Human Services ' scholarship and loan programs for students in the heath professions. To date, the Public Heath Service (PHS), which is responsible for debt management activities , has not yet implemented the offset procedure, and has initiated the exclusion option against only one National Heath 

Service Corps (NHSC) scholarship defaulter. 

The Medicare offset and exclusion provisions pertn to three PHS scholarship and loan programs for students in the heath professions: the NHSC scholarship, the

Physician Shortge Area (PSA) scholarship, and the Heath Education Assistace 

Loan (HEAL) programs. While most borrowers or scholarship recipients repay their 

debt or service obligation , some do not. In 1987 Congress enacted two legislative authorities (discussed below) authorizing Medicae offset agreements to recover some of the financial loss and requiring exclusion from Medicae when defaulters refuse to 

enter into offset agreements or when they subsequently breach the offset agreements. 

In order to determine the effectiveness of these provisions we examined legislation collected program data , obtaned Offce of Genera Counsel legal opinions , and held 

discussions with offcials in the PHS and the Heath Care Financing Administration (HCFA). This information was collected in April 1991. 

FIINGS 

The PHS has not entered into any offset agreements with 

scholarship or loan defaulters. 

No further regulations are required in order to implement offset 

procedures. 

The PHS has failed to implement procedures to initiate exclusion. 

The PHS need not await a prior judgment against a defaulter in Federal 

court before excluding that defaulter from Medicare. 
Preliminary data suggests a considerable number of NHSC and HEAL 

defaulters are Medicare providers. 

Moneys collected through Medicare offsets from NHSC and HEAL 

defaulters are not returned to the programs, but must be deposited into 

the general fund of the Treasury. 

RECOMMNDATIONS 

Authori to Retu Recovered Mones to th Prm 

The PHS should seek legislative authority to enable the Secretary to return money 

recovered from NHSC and PSA scholarship defaulters to the program rather than to 

the general fund of the Treasury. Additionally, the PHS should seek legislative 

authority to enable the Secretary to return money recovered from HEAL defaulters 

through Medicare offsets to the SLIF fund rather than the general fund of the 

Treasury. This would provide continuing support for program goals and objectives. 

Medare Offet Ageeme 

The PHS should immediately offer offset agreements to loan and scholarship 

defaulters and refer successfully negotiated agreements to HCF A for implementation. 

The HCF A should take immediate action to implement offset procedures as 

authoried in Section 1892 of the Social Security Act. 

Mediare Exluns 

The PHS should refer to the ala for exclusion those cases where an offset agree:ment 

cannot be negotiated within 90 days of the initial offer or is subsequently breached 

concurrently with referring the case to the Department of Justice for initiation of a 

collection action.


COMMNT 

The HCFA and ASPE concurred with our recommendations. PHS agreed in prindrl 

but believes that it does not need new legislation to return recovered funds to the: 

programs and prefers to delay referrals to ala until the Department of Justice ct.s 

on them. We continue to believe that legislation is needed and that concurrent 

referrals should be made. 
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...................................... . . . . . . . ................ . . . . . . . . . . . . . . ... ......... 

TABLE OF CONTENTS 

EXCU SUMY 

INODUCTON 

Backgound 

FIINGS 

RECOMMATIONS 

MPENIX A . 
, 




INTRODUCTION


PUROSE 

The purpose of this review is to examine the use of the Medicare offset agreements and exclusions on debt collection activities of the National Heath Service Corps scholarship, Physician Shortge Area scholarship and Heath Education Assistace 

Loan programs. 

BACKGROUN 

Medicare offset and exclusion procedures ar not being employed against defaulters in 

the Deparment of Heath and Human Services ' scholarship and loan programs for students in the heath professions. The Public Heath Service (PHS), which is responsible for debt management activities, has not yet implemented the offset 

procedure, and has initiated the exclusion option against only one National Heath 

Service Corps (NHSC) scholarship defaulter. 

The Medicare offset and exclusion provisions pertn to three PHS scholarship and loan programs for students in the health professions: the NHSC scholarship, the

Physician Shortge Area (PSA) scholarship, and the Heath Education Assistace 

Loan (HEAL) programs. While most borrowers or scholarship recipients repay their 

debt or serVice obligation , some do not. In 1987 Congress enacted two legislative 

authorities (discussed below) authorizing Medicare offset agreements to recover some 

of the financial loss and requiring exclusion from Medicare when defaulters refuse to 

enter into offset agreements or when they subsequently breach the offset agreements. 

The Offce of Inspector General (OIG) released a report in 1985 entitled Medicare 

or Medicaid Reimbursements to Doctors and Dentists Who Breached Their Contracts 

with the National Health Service Corps Scholarship Program " (ACN: 12-53225). This

report found that many NHSC defaulters received substatial amounts of 

reimbursement from Medicare and Medicaid. The limited test showed that the 

Deparment could have recovered about $2. 3 millon of the $9 millon in overdue 

principal owed by these individuals through the offset. The OIG has consistently 

supported the use of Medicare offsets to repay the defaulter s obligation. 

In order to determine the use of these provisions we examined legislation , collected 

program data, obtained Offce of General Counsel legal opinions , and held discussions 

with offcials in the PHS and the Health Care Financing Administration (HCFA). 

Legislatve AUlhorities


The Medicare and Medicaid Patient and Program Protection Act of 1987 added 

section 1128(b)(l4) of the Social Security Act (42 V. C. S I 320a-7(b)(14), which 
authorizes the: Secretary to exclude an individual from participation in Medicare 

Medicaid, the Maternal and Child Health, and Social Servces block grant programs if 

he/she has defaulted on a health education scholarship or loan secured by the 

Department, provided the Secretary "has taken all reasonable steps available" to 

secure repayment. The individual is excluded from these programs until the loan is 

repaid. 

The Omnibus Budget Reconcilation Act of 1987 added section 1892 (42 e. 

1395ccc) to the Social Security Act, which requires the Secretary to enter into a 

Medicare offset agreement with defaulters. Under the terms of an offset agreement 

the individual agrees to accept assignment for all Medicare servces and have 

deductions made to repay the obligation, according to a formula agreed to by the 

Secretary. Should defaulters refuse to enter into such an agreement, or if the 

defaulter later breaches the offset agreement, the Secretary is required to 

immediately exclude" the individual and to "immediately" refer the matter to the 

Department of Justice, which must "imediately" commence a collection action. 

If the individual entering into an offset agreement is employed by a Health 

Maintenance Organition (HMO), Comprehensive Medical Plan (CMP), or group 

practice, the Secretary will deduct amounts due from Medicare payments to the Hlvl0 

CMP or group practice. These entities then have the right to collect the deducted 

amouijt from the individual. 

The exclusion authorities in the sections described above have been delegated by the 

Secretary to the OIG. 

NHSC Scholahip Prm 

The NHSC scholarship program offers a servce-connected scholarship which includes 

a student s tuition and fees, a monthly stipend and a lump-sum payment to cover all 

other reasonable educational expenses. It is in exchange for professional service in In 

area of physician shortage after completion of medical training. A scholarship 

recipient must serve 1 year for each year of support received, with a minimum of 2 

years of servce and a maxmum of 4 years of service. 

Each individual who has entered the scholarship program is required to provide€

servce in the full time clinical practice of the individual's profession as a member of€

the NHSC for the period of time specified in the individual's contract. Should the€

recipient breach the contract, that individual is to repay one to three time:s the€

scholarship amount plus interest and late charges, depending upon the: time the 

individual defaults. 

When a NHSC scholarship recipient defaults, the PHS attempts to collect the loan 

amount, penalties and interest. The individual is first notified of the obligation to pay 

within 1 year, is sent a reminder notice at 6 months, and finally is sent a demand 

letter. If the individual does not respond, the PHS notifies the: credit bureau network. 

generally notifies the Internal Revenue Service to offset any ta.x refunds, and rt:fers the 
delinquent account to commercial collection agency. If the collection agency is 

unsuccessful after 6 months, the account is returned to the PHS. At that time the 

PHS prepares the necessary justification and refers the account for collection to the 

Department of Justice. 

Since the program began in 1972, the NHSC has provided over $469 milion in 

scholarships to 13 825 recipients. For the 1990- 1991 school year, there are 71 

participants who will receive almost $5 milion in scholarships. Funding for the 

program was cut sharply beginning in 1984, when only $6.3 milion was available for 

scholarships. In subsequent years funding ranged between about $2 milion and $4 

millon. It was not until the 1991- 1992 school year that funding significantly increased 

to about $20 millon. 

As of April 1, 1991, 2738 NHSC scholarships were currently outstanding. Slightly 

more than half of these, 1506 or 55 percent, are in good standing: 

131 scholarship recipients were stil in school. 

Another 920 individuals were repaying their servce obligation by practicing 

in an area of physician shortage. 

In 455 cases, repayment of servce was temporarily deferred. 

However, 1232 NHSC scholarship recipients have breached their agreements and 

defaulted on obligations of approximately $188.9 milion. This amount consists of 

principal and penalties of $99.6 milion and accrued interest of $89.3 milion. This 

represents about nine percent of the individuals who have received scholarships since 

the program began in 1972. 

221, valued at $27.9 milion, while technically in default, are in statutory 

repayment or in a grace period. 

449 accounts, valued at $68.5 milion, remain at PHS in various stages of


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


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


Department of Justice.


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


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


Medicare offset procedures could be initiated against the 1011 ddaulters representing 

$161 milion whose loans are in different phases of the collection process. Of the 

accounts, 78 percent have been delinquent for over 3 years. If offset agreements are 

not obtained, exclusion procedures must be initiated for the:se ddaulters. 
PSA Scholarship Prm€

In existence for only 1 year, for those entering medical school in 1973, the PSA 

scholarship was offered in exchange for professional servce in an area of physician 

shortage upon completion of medical training. Each student received no more than 

$5000 in 1 year. The students determined before beginning school which physician 

shortage area they wanted to serve in after graduation. A scholarship recipient had to 

serve 1 year for each year of support. Only about 100 students ever received a PSA 

scholarship. 

The PSA scholarship defaulters are subject to the same debt collection activities 

NHSC defaulters.€

There are at present 66 default cases at the PHS, representing about $2. 

milion. 

About six of these cases have been referred to the Department of Justice.€

ledicare offset procedures could be initiated against the 66 defaulters representing 

$2.3 milion. If offset agreements are not obtained, exclusion procedures must be 

initiated for these defaulters. 

HEA Pram 

The HEAL program is an insured-loan program administered by the Department for 

students in the health professions. It insures loans made by nonfederal lending 

institutions and is intended to operate without using Federal funds. Insurance 

premiums deducted from the loan principal at the time of the award are deposited 

into the Student Loan Insurance Fund (SLIF), which reimburses the holder of the loan 

for the outstanding debt in the event of the borrower s default, death, disabilty or 

bankruptcy. The HEAL program has been experiencing financial problems due to an 

increasing default rate. 

When a HEAL borrower defaults, the lender must initiate litigation in the State court. 

If this collection effort is not successful, the SLIF reimburses the lender and the case 

is referred to PHS. The PHS then attempts to have the defaulter repay his/her lo 

obligation; if the individual does not respond, the same colkction activities PHS uses 

with NHSC defaulters are used with HEAL defaulters. 

Approximately $2.7 bilion in HEAL loans are currently outstanding: 

$1.3 billon represents the amount in loans presently held by students stil! in 

training. 

Approximately $1 billion, represente:d by 45 364 loans, is currently heing 

repaid or is in forhearance or deferment status. 
Approximately $110 milion, represented by 6800 loans, is in delinquent .status - that is repayment is up to 150 days late. Should the account 

remain unpaid past those 150 days, these caes wil become defaults. 

Approximately $268 millon, representing 7486 HEAL loans, are in default. The debt vares widely among defaulters, raging from severa thousad dollars to over $100 thousad. 

1266 loans, representing $38. 6 milion, while technically in default, are in 

statutory repayment or in a grace period. 

2583 cases, representing approximately $98 milion, are in litigation at the State level. 

2077 default caes, representing about $71.4 milion are at the PHS , which 

is seeking repayment. 

1560 default claims, representing $60 milion, have been referred to the 

Deparment of Justice. Forty percent of these defaulters have judgments 

against them.


Medicare offset procedures could potentially be initiated against the 6220 defaulters 

representing $229.4 milion. If offset agreements are not obtaned , exclusion

procedures must be initiated for these defaulters. 

MEODOLOGY 

In order to determine the effectiveness of these provisions we examined legislation collected program data, obtained Offce of Genera Counsel legal opinions, and held 

discussions with offcials in the PHS and the Heath Care Financing Administration (HCFA). This information was collected in April 1991. 
FINDINGS


Th PHS ha not ened in an offset agree wi sclahip or loan deaulters. 

The Congress enacted legislative authority in 1987 requirg the Department to offer 

NHSC and HE defaulters a Medicare offet agreement to recover some of the 

financial loss. However, the Department has not yet employed this option. Until 

recently, the PHS and HCF A offcials had said that regulations governing the offset 

process had to be published prior to offering the offet agreements. Therefore, the 

process has not yet been implemented. 

No fu retins are req in ord to imle offet predes. 

Based on advice from the Offce of the General Counsel, we believe that HCFA has 

the authority to implement offset procedures without further regulations. This 

conclusion is based on the followig factors: 

(1) 

(2) 

(3) 

The terms of an offet agreement are detailed with suffcient 

specificity in Section 1892, thus making further regulatory 

guidance unnecessary; 

Since an offset agreement by its very nature is agreed to by the 

defaulting individual, there are no due process concerns raised 

by proceeding in the absence of further regulations; and 

Under 42 CFR 401.607( d), HCF A has the regulatory authority 

to implement collections by offset. Section 1892 treats past-due 

scholarship and loan obligations as debts to HCF A for purposes 

of offset against Medicare payments, and then requires transfer 

of the amounts deducted from the Trust Fund to the General 

Treasury to be credited against the debtor s obligations. Exsting 

regulations are, therefore, broad enough to encompass the 

implementation of offsets under Section 1892. 

Although the HCF A published a proposed rule on November 6, 1990, designed to 

govern Medicare offset, HCFA's proposed regulatory provisions are solely procedural 

in nature. As HCF A's authority to offset does not derive from or depend upon these 

regulations, it does not need to await publication of final rules before implementing 

offset procedures. 
Th PHS. ha failed to implenJ procedes to initiate exlusion. 

The PHS has failed to implement procedures for referrng caes to the GIG for exclusion of heath cae professionals from the Medicare and Medicaid programs who 

have defaulted on a heath care education loan or scholarship obligation. 

The PHS has only used the exclusion option in one cae. An osteopath, who was an NHSC scholarship recipient, breached his service obligation in 1980 and was 

subsequently notified that he must repay the $14 641 borrowed from the program , plus interest. He refused all offers to repay his service or financial obligation and was referred to the OIG for exclusion. 

The PHS has taen the position that it must first refer the cae to the Deparment of Justice and obtan a judgement before it ca exercise the exclusion provision. In 

addition , the PHS has rased the issue of timing of the exclusions under these provisions. Specifically, whether it is legally advisable or permissible to delay exclusion

actions until after a judgement has been obtaned against the defaulter in court. Further, the PHS contends it cannot pursue exclusion without speific regulations that 

address implementation. (See PHS comments for their current position) 

Th PHS need not await a prior judgmenJ agains a defauer in Fedral cour before exluding tha defauter from Medicare. 

Based on advice from the Offce of the Genera Counsel , we believe Section 1892 


very clea about the PHS obligations: PHS must attempt to enter into a Medicare 

offset agreement with each defaulter in the HEAL NHSC or PSA programs. If the 

individual refuses to enter into such an agreement or later breaches the agreement,

the PHS must " immediately " refer the case to the Attorney Genera for a collection 

action and simultaeously forward the matter to OIG which must " immediately exclude " the individual from the Medicare program , until the entire past-due 

obligation is repaid. 

It is quite clea that the PHS may not await a court judgment of default before an exclusion can be imposed. The statutory mandate to exclude, concurrent with referral to the Deparment of Justice , makes it legally impermissible to delay exclusion until a 

judgment is obtaned. 

Preliminary daa suggests a considerable nur of NHSC an HEAL defauters are 

Medicare providers. 

An informal computer match with NHSC defaulters and Medicare data performed 

severa yeas ago revealed that approximately 70 percent of the defaulters were 

Medicare providers. However, there was no follow-up on this match , and no current

information is available on these defaulters. 
The HCFA recently completed a computer match of a random sample of 100 HEAL 

defaulters with Medicare data in order to determine how many are Medicare 

providers. The information provided to HCF A included the defaulter s name, health 

discipline, debt balance, date of birth, last school attended, social security number amI 

address. The match revealed that 38 are Medicare providers. However, the data 

could not show whether these 38 are actually biling Medicare. 

The computer match had two limitations: (1) it included specialties that do not 

usually bil Medicare, such as dentistry and pediatrics; and (2) it did not identify 

defaulters practicing as part of an HMO, CMP or group practice which is biling 

Medicare. Thus, 38 percent may be a conservative estimate of the number of 

defaulters being reimbursed by Medicare. Finally, the match did not identify those 

providers biling Medicaid.€

The PHS plans to contact individual carrers to determine the earnings of the 38 

providers and then contact the providers to offer them an opportunity to offset their 

Medicare reimbursement. Additionally, the PHS plans to implement a mechanism to 

systematically refer cases to HCF A fqr offset. However, the PHS has not established a 

time schedule to carr out these plans. 

Mones collcted though Medare offets from NHSC and HEA defaulers are not retu to th progrms, but mu be depo in th genl fu of the Treas. 

Under 31 U. e. 3302 and related Comptroller General opinions, agencies are 

ordinariy required to deposit all moneys they receive for the use of the United State:s 

in the general fund of the Treasury as miscellaneous receipts. The only two general1y 

recognized exceptions to this rule allow an agency to retain money it collects if it has 

specific statutory authority to do so if the moneys qualify as "refunds to 

appropriations. 

Under the Medicare offset provisions of 9 1892 of the Social Security Act, Congress 

specifically authorized, as a credit toward past-due obligations, the transfer of funds 

equal to the amount of the offset from the Trust Fund to the general fund in the 

Treasury, 9 1892( e). Thus, any moneys received through Medicare offset from those 

who have defaulted on their NHSC scholarship obligations or health education loans 

cannot be channelled back to those scholarship and loan programs, but must be 

deposited into the general fund of the Treasury. 

Moreover, any moneys recovered from NHSC defaulters, whe:ther through Medicare 

offset agreements or some other means, are returned to the general fund of the 

Treasury. In fiscal year 1990, NHSC defaulters made cash repayments in the amount 

of $9.5 milion, which could not be returned to the NHSC scholarship program. 

With respect to the HEAL program, however, there is an inconsistency worth noting. 

Title VII, Subpart I of the PHS Act, in establishing a program of federally-insured 

student loan assistance for health education, established a student loan insurance fund 
SLIF fund") into which the Secretary must deposit all amounts received 

connection with his/her operations under the loan program. By its terms, this would 

appear to encompass any and all proceeds from collection activities against defaulters 

including Medicare offsets authorized under S 1892. See S 734(a) of the PHS Act. 

However, S 733(t) of the PHS Act references the offset provisions of 1892 of the 

Social Security Act, stating that "(p )rocedures for reduction of payments under the 

Medicare program are provided under section 1892 of the Social Security Act." Thus 

the general statutory authority enacted in S 734 appears to be limited by the language 

of S 733 and thereby made inapplicable to moneys collected by offset. Unlike all 

other moneys, propert, or assets derived by the Secretary in connection with his 

operation of the HEAL program, which are deposited in the SLIF fund, moneys 

collected by offet would be deposited in the general fund of the Treasury as required 

by Section 1892 of the Social Security Act. 
RECOMMENDATIONS


Authorities to Return Recovered Moneys to the Program 

1. The PHS should seek legislative authority to enable the Secretary to return money 

recovered from NHSC and PSA scholarship defaulters to the program rather than 

to the general fund of the Treasury. Additionally, the PHS should seek legislative 

authority to enable the Secretary to return money recovered from HEAL 

defaulters through Medicare offsets to the SLIF fund rather than the general fund 

of the Treasury. This would provide continuing support for program goals and 

objectives. 

Medare Ofset Agreemts 

2. The PHS should immediately offer offset agreements to loan and scholarship 

defaulters and refer them to HCF A for implementation. 

3. The HCF A should take immediate action to implement offset procedures as 

authoried in Section 1892 of the Social Security Act. 

Medicare Exluns 

4. The PHS should refer to the OIG those cases where an offset agreement cannot 

be negotiated or is breached for exclusion concurrently with referrng the case to 

the Department of Justice for initiation of a collection action. 

Discun 

Medicare offset agreements could potentially be entered into with 7361 defaulters of 

the health education scholarship and loan programs, representing $392. 7 milion as 

shown below. 

Program 

Numbers of 

Defaulters 

Outstanding 

Balances 

NHSC 1011 $161 

PSA 

HEAL 6220 229.4 

TOTAL 7297 $392. 

Presently, it is difficult to estimate the total dollar amount that might actually 

recovered through offset agreements because of uncertainties concerning the degree of 

participation in the Medicare and Me:dicaid programs by ddaulters. However 
signifcant dollar amounts may be subject to such offsets in the NHSCscholarship 

program and could be available for future scholarship recipients. For example, the 

Federal povernment could collect as much as $7 milion dollars during the first year. 

The $7 milion approximation is based on a conservative estimate that 700 defaulters 

are Medicare providers (70 percent of the 1011 NHSC defaulters) with the Federal 

Government collecting $10,000 from each defaulter through Medicare offsets during 

the fist year. The PHS currently projects that scholarship recipients will need an 

average of 3 years support of approximately $82,500. Thus, if this money was 

returned to the scholarship program, funding would be available for 85 scholarship 

recipients. 

Additional benefits would accrue to the NHSC scholarship program and other health 

education assistance programs through the so called "sentinel effect" whereby 

implementation of offsets in some cases might discourage others from defaulting. This 

would have the effect of increasing the number of NHSC recipients who fulfill their 

obligations by servng in underserved areas.

FU ACTONS 

We wil in the coming months perform a match of loan and scholarship defaulters with 

provider reimbursement data from State Medicaid programs, HMO, CMP and group 

practices. 

COMM 

We received comments from PHS, HCFA and ASPE which concur, fully or in part 

with our recommendations. These comments are included in Appendix A. 

While PHS concurs with our recommendation that it should seek legislative authority 

to return monies recovered from Medicare offsets from HEAL defaulters to the 

HEAL program, it does not concur that it must do the same for the NHSC. The PHS 

cites Section 338F of the Public Health Service Act as authorizing the establishment of 

a NHSC Membership Replacement Fund, to which monies equal to the amounts 

collected from defaulters may be paid to sites needing a replacement health 

professional. However, Section 338F requires a Congressional appropriation before 

being implemented, and such an appropriation seems unlikely due to time and fiscal 

constraints. We therefore believe that PHS should seek additional legislative authority 

to return monies collected from NHSC defaulters directly to the scholarship program. 

The PHS advocates that, for certain practical reasons, referrals of NHSC and PSA 

scholarship cases for exclusion be prioritized, with judgement cases being rderred first. 

We understand that in the short run it is reasonable and prude:nt to prioritize: 

judgment cases. However, we would emphasize that PHS is legally required by statllt 

to exclude both pre-judgement and judgement defaulters. We feel there shaulL! he fair 

and consistent treatment of all categories of defaulters. Since the:re is already a 

substantial backlog of NHSC cases awaiting judgments, we feel any further da:lay for 
payment should be avoided. We recommend that PHS develop the capacity to 

simultaneously refer NHSC and PSA default cases to the OIG for Medicare 

offset/exclusion and to the DOJ for the initiation of a collection action. 
APPENDIX A 

COMMENTS 
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P'JCI:C HeJith SerJicc€

Memorandum€

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-t""...n €

Date€

From€

DEPART.\\ENT OF HEALTH &. HUl'1A'\ SER\'lCES 

'SEP 2 4 199'€

Assistant Secretdry for Healt€

Subjec 0 I G D aft R p 0 r t It Use 0 f d i car e 0 f f set A g r e e men: s a 

Exclusions for NH5C and HEAL Loan Defaulters, " OEI-02-91- 00550 

:1 d 

Inspector General, 


At t a c h e d are the PHS co mm e n t s on the sub j e c t d r aft r e p 0 r t . 

concur fully or in part with all recommendations. The actions 

t a ken 0 r p 1 ann e d to imp 1 e men t the s e re co mm end a t ion s are des rib e 

in detail in the attached document. 

o.h1€

Mason, M. , Dr.


Attachment€

IG €

DIG-AS €

DIG-EI €

DIG-€

AIG-MP €

OGC/IG €

EXSEC €

DATSE € I ..€
PUBLIC HEALTH SERVICE (PHS) COH!1ENTS ON THE OFFICE OF


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


OF MEDICARE OFFSET AGREE!1ENTS AND EXCLUSIONS. FOR NATIONJ...


HEALTH SERVICE CORPS (NHSC) AND HEALTH EDUCATION ASSISTANCE


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

General Comment


The Health Resources and Services Administration (HRSA) has 

reviewed the OIG' s estimates of the numer of defaulters and the 

amounts of outstanding scholarship or loan balances as set forth 

in the report and has found them to be accurate. The figures 

reported are in agreement with the data contained in HRSA' 

quarterly reports. 

OIG Recommendation 

PHS should seek legislative authority to enable the Secretary to 

return money recovered from NHSC and Physician Shortage Area 

(PSA) scholarship defaulters to the program rather than to the 

general fund of the Treasury. Addi tionally PHS should seek 

legislative authority to enable the Secretary to return money 

recovered from HEA defaulters through Medicare offsets to the


Student Loan Insurance Fund (SLIF) rather than the general fund

of the Treasury. This would provide continuing support for 

program goals and objectives.


PHS Comment


We do not concur with the recommendation that PHS should seek


legislative authority to recover and re-use money paid back by


NHSC and PSA scholarship defaulters. PHS already has legislative


authority which would achieve essentially the same goal.


Section 338F of the Public Health Service Act authorizes the 

establishment of the NHSC Member Replacement Fund, to which 

monies equal to the amounts collected from defaulters may be

appropriated. Amounts in the fund would be paid to si tes whic 

need a replacement health professional as the result of a scholar 

breaching his/her service commitment. The sites ' use of the 

funds is restricted to purposes set forth in the statute, i. e. 

recruiting and employment of a health professional to provide 

primary health services to patients of the entity or to enter


into a contract with such a professional to provide the services


to the patients. PHS will submit to the Office of Management a


Budget appropriation language for fiscal year 1993 to implemen:


Section 338F. 

We concur with the OIG recommendation that PHS should seek 

legislative authority to return monies recovered by Medicare 

of f sets from HEAL defaulters to the HEAL Program (i. , the 

SLIF). Other HE collections, Internal Revenue Service of f sets 
and debtor payments after return of the note to the government 

are presently returned directly to the HEA Program.

Furthe ore, such direct return would be consistent with 

treatment of refunds and collections afforded other HRSA


Programs. 

OIG Recommendation 

PHS should Lmediately offer offset agreements to loan and 

scholarship defaulters and refer successfully negotiated 

agreements to the Health Care Financing Administration (HCFA) for 

implementation. 

PHS Comment


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


received clarification that it can now offer Medicare offset


agreements to loan and scholarship defaulters. PHS will


expeditiously notify HCFA when agreements are negotiated with the 

defaul ters so that HCFA may take the necessary Lmediate actions 

to recover the appropriate amounts from the defaulters. 

It should be noted, however, that the OIG' s estimated impact of


Medicare offset on HEA defaulters could be misleading. The only HEA loans subject to offset are those on which we have paid a 

claim from the SLIF. Our current procedure, once a claim has 

been paid from the SLIF# is to notify the defaulter that the 

Government is the holder of the note and advise the debtor that a


repayment agreement must be negotiated within 30 days. If there


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


additional 60 days to enter into a Medicare offset agreement. 

Failing that, the debtor will then be referred to the Department

of Justice (DOJ) for enforced collection as appropriate. 

OIG Recommendation 

PHS should refer to OIG for exclusion of those cases where an 

offset agreement cannot be negotiated within 90 days of the 

ini tial offer or is subsequently breached concurrently with 

referring the case to the DOJ for initiation of a collection 

action. 

PHS Comment


We support the concept of Medicare offset/exclusion for 

scholarship defaulters. However to process the Medic3re 

offset/exclusion through the OIG and the default simultaneously 

through the DOJ does not appear in PSA and NHSC cases to be 

practical for the following reasons: 
We expect that exclusion of pre-judgment NHSC and PSA 

scholarship defaulters, where the individual' s liability 

has not yet been established by a court, will be 

laborious, as the defaulter will undoubtedly use the 

exclusion hearing as another opportunity to challenge 

his/her default status. Litigating each case twice 

(through the administrative exclusion hearing and the 

Federal court litigation) would double the workload of 

the Office of General Counsel (OGC) and the program, 

while not disposing of more cases. 

Nei ther OGC nor the Scholarship Program currently has 

sufficient personnel to assist both regional attorneys 

handling exclusion hearings and DOJ attorneys handling 

the Federal court litigation. In both areas, litigation 

support would involve answering numerous questions about 

program operation and policies, investigating factual 

allegations made by defaulters, coming up with 

appropriate witnesses for hearings and trials, and 

providing documents (e. g. , copies of scholarship files 

regulations, policies, and NHSC placement lists. 

Nei ther OGC nor the program has the funds available to 

significantly expand the OGC staff assigned to 

scholarship default cases. wo attorneys and a secretary 

in OGC are now funded by the agency just to handle the 

ongoing Federal court litigation involving scholarship

defaulters. 

With simultaneous administrative and judicial 

proceedings comes an increased risk of inconsistent 

outcomes. If the administrative hearings official were€

to rule against the Departent (i. e., overturn the€

default determination) the Governent' s position €

District Court could be severely compromised. We could€

also receive resistance from DOJ about prosecuting a case€

which the Department lost at the administrative level. 

We believe that it makes sense, in terms of resource management, 

to limit exclusions of scholarship defaulters to those defaulters 

against whom we have judgments. However, we are legally

required , under the statute, to exclude pre-judgment defaulters as well. Therefore, we advocate that referrals of NHSC and PSA 

scholarship cases be prioritized, with judgment cases referred

first. 

The PHS will simultaneously refer defaulted HEA cases for 

exclusion and collection to the OIG and DOJ respectively in those 

instances when an offset agreement cannot be negotiated wi thin 

90 days or when a negotiated offset agreement is subsequently 

breached. 
.. 

: ;:. :., . .

Ofce of the Se r.

. JJN I 9 199€

TO: Richard P. Kusserow


Inspector General


FROM: Assistant Secretary for


Planning and Evaluation


Washington. D.C. 20201


c- n 


C) rn
 r. 0 C' ::-n€ rn €

V/€ v .. F' . ..€

nus€

SUBJECT :€ Review of OIG Draft Management Advisory Report: 

of Medicare Offset Agreements and Exclusions for 

National Health Service Corps and Health Education

Assistance Loan Defaulters, " OEI-02-91-00550 

Thank you for giving me the opportunity to review your draft 

management advisory report on the use of Medicare offset 

agreements and exclusions for National Health Service corps 

(NHSC), Physician Shortage Area (PSA) SCholarship, and Health 

Education Assistance Lean (HE) defaul ters. 

This is a timely report in light of recent problems with


scholarship and loan program defaulters and the solvency of the
 Fud (SLIF). Your findings and
 student Loan Insurance 


recommendations point clearly to the need for the Department to


develop a more coherent and aggressive strategy for pursuing


offset agreements and exclusions. I understand that since the


draft report was completed the PHS has changed its position on


the need for regulations governing the offset process prior to


entering into offset agreements , and I assume that its current€

position will be reflected in the final version of the report.


We agree that PHS should develop and submi t legislative proposals


to enable the Secretary to return money recovered from NHSC and


PSA scholarship defaulters to the program and from HEAL


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


Treasury .€

245-1870.€

If you have any questions, please phone Elise Smith on 


Vi! €

In €

Pm €

Martin H. Gerry


mG.I €

AIG-MP€

OO/IG €

EXSEO€

DAT SE & :;9,

.. .., ,. !/ .. 

::.. ,/

- ..."'crr. 

0(  RECEiVEj?ea'th fic 

Care 

DEPARTMENT OF HEALTH & HUMAN SERVICES r.F tV'" "'. 11... -..' I L.QCing Administration rlc .fL' 

:::::1.1. A2 5 199 I" ' :1 .:;J orandum 

Date 

Gail R. Wilensky, Ph.
D.

From Administrator 

Subject OIG Dra Management Adviory Report - ' 'Use of Medicare Offset Ageements 

and Exclusions for National Health Servce Corps and Health Education Assistance 

Loan Defaulters," OEI-02-91-00550 

Inpector General


Ofce of the Secretary 

We have reviewed the subject draf management adviory report which 

the use of Medicare offset agreements and exclusions on debt collection 

actties of the National Health Servce Corps (NHSC) scholarhips, Physician 

exaes 

Shortge Area (PSA), and Health Education Asistace Loan (H) programs. 

The report found that Medicae offet and exclusion procedures are not being 

employed against defaulters in the Deparent of Health and Human Servces 

scholarship and loan programs for students in the health professions. To date, the 

Public Health Servce (PHS), which is responsible for debt management activties for 

the loan progrms, has not yet implemented the offet procedure and has intiated 

the exclusion option against only one NHSC and HE scholarship defaulter. 

OIG specifcally recommends that HCF A take imediate action to implement 

offet procedures as authoried in Section 1892 of the Social Securty Act (the Act). 

HCF A concurs with this recommendation. However, PHS has not yet forwded 

any requests for offet or any loan or scholarhip defaulters offet agreements to us. 

When PHS refers offset agreements to HCF A, we wi process the Medicare offets 

under the Agency s current authority granted in Section 1892 of the Act HCF A 

publihed a proposed rule, BPO-088P in the Federal Register on November 6, 199 

to specifcaly address the Medicare offet agreements as descnoed in Section 1892 

of the Act. The final rule has been drafted and is being circulated for comment 

within the Agency. 

Thank you for the opportunity to review and comment on this draft report. 

Please advise us whether you agree with our position on the report 

recommendation at your earliest convenience. 

PDIG 

DIGDIG-EI 

DIGAJ.M 

OGCIIG 

EX SEC

Department. of Health and Human Servces€

OFFICE OF€

INSPECTOR GENERAL€

USE OF MEDICARE OFFSET 

AGREEMENTS AND EXCLUSIONS FOR 

NATIONAL HEALTH SERVICE CORPS 

AND HEALTH EDUCATION ASSISTANCE 

LOAN DEFAULTERS€

" SERVICES


t-€

Richard P. Kusserow 

INSPECfOR GENERA 

DECEMBER 1991€ ~1t"dla€
OFFICE OF INSPECfOR GENRA 

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

amended, is to protect the integrity of the Department of Health and Human Servces' (HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carred out through a nationwide network of audits, investigations, and 

inspections conducted by three OIG operating components: the Offce of Audit Servces, the 

Offce of Investigations, and the Offce of Evaluation and Inspections. The OIG also informs 

the Secretary of HHS of program and management problems and recommends courses to 

correct them. 

OFFCE OF AUDIT SERVICE 

The OIG's Offce of Audit Servces (OAS) provides all auditing servces for HHS, either by 

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

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

carrng out their respective responsibilties and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and effciency throughout the Department. 

OFFCE OF INTIGATIONS 

The OIG's Offce of Investigations (01) conducts crinal, civl, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 

unjust enrichment by providers. The investigative effort of 01 lead to criminal convictions 

administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 

control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 

OFFICE OF EVALUATION AN INSPECIONS 

The OIG's Offce of Evaluation and Inspections (OEI) conducts short-term management and 

program evaluations (called inspections) that focus on issues of concern to the Department 

the Congress, and the public. The fmdings and recommendations contained in these inspection 

reports generate rapid, accurate, and up-to-date information on the effciency, vulnerability, 

and effectiveness of departmental programs. This report was prepared in the New York 

Regional Offce under the direction of Regional Inspector General Thomas F. Tully and 

Deputy Regional Inspector General Alan S. Meyer. Project staff included: 

REGION n HEUARTERS 

Dcmetra Arapakos 

Renee C. Schlesinger, Project Leader Maruta Zitans, Program Specialist