Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

NOVEMBER 1998 

OEI-03-97-00350 

Fiscal Intermediary Fraud Units 
OFFICE OF INSPECTOR GENERAL 

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

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Philadelphia Regional Office prepared this report under the direction of Robert A. Vito, 

Regional Inspector General, and Linda M. Ragone, Deputy Regional Inspector General. Principal 

OEI staff included: 

REGION HEADQUARTERS 

Isabelle Buonocore, Project Leader Wynethea N. Walker, Program Specialist

Tara J. Schmerling, Lead Analyst Lisa A. Foley, Program Specialist

Cynthia R. Hansford, Program Assistant

Erika Quitiquit Lang, Program Analyst

David Tawes, Program Analyst

To obtain copies of this report, please call the Philadelphia Regional Office at (215) 861-4551. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
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 EXECUTIVE SUMMARY

PURPOSE 

The purpose of this report is to provide national information on fiscal intermediary fraud units. 

BACKGROUND 

Fiscal intermediaries are companies under contract with the Health Care Financing Administration 

(HCFA) to administer a major part of the Medicare program. Individual fiscal intermediaries vary 

in many ways including the amount of claims and payments they process. Likewise, their fraud 

units differ from one another. But, all must meet requirements outlined in the Medicare 

Intermediary Manual. Fiscal intermediaries were responsible for $130 billion, or 75 percent, of 

total Medicare payments in 1996. The other 25 percent was handled by companies called carriers. 

The HCFA requires that fiscal intermediaries and carriers have distinct units to detect and deter 

fraud and abuse. These units are part of HCFA’s overall Medicare integrity program and are 

monitored by HCFA regional offices. The HCFA is currently planning to separate future antifraud functions from other intermediary and carrier operations. These activities will become the 

purview of a few contractors to be known as program safeguard contractors. 

For this report, we surveyed all 41 fiscal intermediary fraud units that were under contract with 

HCFA in 1996 and still under contract in 1998. We collected fraud unit data for fiscal year 1996. 

FINDINGS 

Fraud units differed substantially in the number of complaints and cases handled. Some 

units produced few, if any, significant results. 

While one would expect units of different size and resources to handle different size workloads, 

we found units of similar size and resources handling substantially different workloads. 

< Fraud units handled between 3 and 1,892 complaints per unit. 

< The number of cases handled by each fraud unit ranged from 0 to 625. 

< Fraud units referred between 0 and 102 cases to the Office of Inspector General. 

Despite HCFA’s expectation that fraud units proactively identify fraud, half of the fraud units 

did not open any cases proactively. 

More than one-third of fraud units did not identify program vulnerabilities. 

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Key words and terms related to fraud unit work vary in meaning. This hinders HCFA’s 

ability to interpret fraud unit data and measure fraud unit performance. 

RECOMMENDATIONS 

The HCFA and fiscal intermediary fraud units have significant responsibilities in identifying and 

deterring fraud in a part of the Medicare program where $130 billion is at risk. The variation in 

fraud detection, especially among units with similar resources, raises concern about possible poor 

performance by some fraud units. 

Although HCFA currently conducts performance evaluations of fraud units, we believe there is a 

need to strengthen the monitoring and oversight of contractors’ efforts to identify fraud and 

abuse. In recent years, HCFA has focused on continuous improvement as a method of evaluating 

contractor performance. In light of the disparity in fraud detection among contractors, the agency 

may need to refocus its evaluation efforts to include some type of return on investment analysis. 

In order that HCFA may have a better understanding of fraud unit performance, which in turn will 

lead to making better decisions about fraud unit funding, selecting future contractors, and 

working collaboratively with other anti-fraud entities, we recommend that HCFA: 

< Improve the contractor performance evaluation system so that it not only encourages 

continuous improvement, but also holds contractors accountable for meeting specific 

objectives. 

< Require that all contractor performance evaluations list HCFA’s national and regional 

objectives and address whether or not the fraud unit is meeting those objectives. 

< Establish a standard set of data that can be used to measure fraud units’ performance in 

meeting established objectives. Require that all contractor performance evaluation reports 

contain this data. 

< Establish clear definitions of key words and terms (e.g., complaint, case, program 

vulnerability, and overpayment). Disseminate definitions and require that HCFA program 

integrity staff and fraud unit staff use the same definitions. In a future update of the 

Medicare Intermediary Manual, revise sections so that these words are consistently used 

to mean the same thing. 

< Provide opportunities for fraud units to exchange ideas, compare methods, and highlight 

best practices relating to fraud and abuse detection. 

COMMENTS 

The draft of this report was reviewed by HCFA, and they concurred with our recommendations. 

In concurring with the recommendations, HCFA stated that (1) they plan to develop specific 

national objectives, (2) they are designing a new program integrity management information 

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system, (3) they identified and distributed a list of the most significant data metrics for regional 

office use in the fiscal year 1998 contractor evaluation process, (4) they will review definitions of 

key words in the Medicare Intermediary Manual and make appropriate revisions, and (5) they 

convened a national conference in March 1998 to identify best practices in fighting waste, fraud, 

and abuse. 

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TABLE OF CONTENTS

PAGE

EXECUTIVE SUMMARY ................................................... i

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

FINDINGS ................................................................ 5

Complaints and Cases ...................................................... 5

Proactive Cases .......................................................... 8

Program Vulnerabilities .................................................... 9

Key Words and Terms ..................................................... 9

RECOMMENDATIONS ................................................... 11 

ENDNOTES ............................................................. 13 

APPENDICES

Fraud Unit Tables ...................................................... A - 1 

Comments from the Health Care Financing Administration ....................... B - 1 
INTRODUCTION

PURPOSE

The purpose of this report is to provide national information on fiscal intermediary fraud units. 

BACKGROUND

Fiscal Intermediaries 

Fiscal intermediaries are companies under contract with the Health Care Financing Administration 

(HCFA) to administer a major part of the Medicare program. As a group, fiscal intermediaries 

have responsibility for processing 75 percent of Medicare payments. Other contractors called 

carriers process the remaining 25 percent. In 1996, fiscal intermediaries processed $130 billion in 

Medicare payments.1 Intermediaries pay for inpatient services under Medicare Part A, and certain 

types of outpatient claims under Medicare Part B. The types of providers billing intermediaries 

are: hospitals, skilled nursing facilities, home health agencies, rural health clinics, renal dialysis 

centers, federally qualified health centers, rehabilitation facilities, community mental health 

centers, and hospices. Individual fiscal intermediaries vary in the amount of Medicare claims and 

payments they process. 

Fraud Units 

Fraud units are part of HCFA’s overall Medicare integrity program. As of 1993, HCFA required

all fiscal intermediaries and carriers to have distinct units to detect and deter Medicare fraud. In

1996, HCFA budgeted 20 percent of its program integrity dollars to fiscal intermediary fraud units

and 80 percent to carrier fraud units. From 1993 through 1997, funding was based mainly on the

contractors’ claim volume. However, in fiscal year 1998, HCFA changed the funding

methodology to take into account the contractors’ workload, risk, and performance.2

Fraud units differ in human and financial resources as well as workload. However, regardless of

differences, they all must meet requirements outlined in the Medicare Intermediary Manual. 

According to the Manual (Section 3950ff), fraud units are expected to:

! identify program vulnerabilities; 

! proactively identify fraud within their service area and take appropriate action; 

! determine factual basis of complaints of fraud made by beneficiaries, providers, HCFA,

Office of Inspector General (OIG), and other sources; 

! explore fraud leads in their jurisdiction; 

! initiate action to deny or suspend payments where there is reliable evidence of fraud; 

! develop cases and refer them to the OIG for consideration of civil and criminal 

prosecution and/or application of administrative sanctions; and 

! provide outreach to providers and beneficiaries. 

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The HCFA also has other expectations of the fraud unit. For example, all fraud units must enter 

their fraud cases in the national Fraud Investigation Database. The database was created by 

HCFA and implemented in May 1996. It tracks contractors’ cases of fraud and abuse. It is meant 

to be an information sharing tool for Medicare, Medicaid, and law enforcement agencies, 

including the OIG, Federal Bureau of Investigations, and Department of Justice. Also, HCFA has 

stressed that fraud units should develop fraud cases through proactive data analysis, and not use 

complaints as the sole driver of case development. 

Oversight of Fraud Units 

The HCFA regional offices have oversight authority for the contractor fraud units in their regions. 

They stay in touch with fraud unit staff, oversee the Fraud Investigation Database, and collect 

various mandatory reports (e.g., quarterly workload reports) from the fraud units. The regional 

HCFA staff conduct annual or biennial performance evaluations of each fraud unit. They give the 

fraud unit a written evaluation report, pointing out areas where the unit has improved from the 

previous evaluation and where the unit has weaknesses. Emphasis is on continuous improvement. 

Copies of evaluation reports are sent to HCFA Central Office. 

New Program Safeguard Contractors 

The HCFA is currently planning to separate future anti-fraud activities from other carrier and 

fiscal intermediary operations. These activities will become the purview of new contractors to be 

known as program safeguard contractors.3 

National Study of Fiscal Intermediary Fraud Units and Related OIG Studies 

This study is the first national evaluation of fiscal intermediary fraud units since their creation in 

fiscal year 1993. Our national study of carrier fraud units was issued in November 1996 (Carrier 

Fraud Units, OEI-05-94-00470). In August 1995, we issued a study of HCFA’s new approach to 

monitoring contractors’ program integrity efforts (Monitoring Medicare Contractor 

Performance: A New Approach, OEI-01-93-00160). 

SCOPE AND METHODOLOGY

We surveyed all 41 fiscal intermediaries that were under contract in 1996 and still under contract 

in 1998. We selected fiscal year 1996 as the period for our study because it was the most recent 

year for which a complete year of fraud unit workload data were available. In the text and tables 

of this report, complaint and case workload data represents fiscal year 1996. These workload 

data include complaints and cases that were open during any part of fiscal year 1996. 

Fraud Unit Information 

Our primary data collection instrument was a self-administered questionnaire. It was mailed to all 

fraud unit managers, and all fraud units responded. We also telephoned the fraud units to answer 

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any questions they might have about the intent of the questionnaire and the definition of terms 

used. When incomplete questionnaires were returned to us, we contacted the fraud units for 

clarification. We did not, however, independently verify the responses. 

The questionnaire was developed with assistance from HCFA staff in Central Office and Region 

III as well as a fiscal intermediary fraud unit manager. These individuals provided insight as to the 

variety of fraud unit operations and the kind of data that should be available from all units. They 

also provided advice on question wording, layout, and definition of terms. The program integrity 

staff in HCFA Central Office gave us the definitions for the terms “complaint” and “case,” and we 

used their definitions with minor paraphrasing. A complaint is an allegation of fraud or abuse 

committed by a provider, beneficiary, or other individual or entity against the Medicare program. 

A case is expanded data collection and analysis performed on (1) substantiated complaints, or (2) 

proactively identified fraud or abuse. 

While most fraud units handle complaints as well as cases, and while complaints may lead to the 

collection of overpayments, our questionnaire contained few questions about complaints. 

Complaints frequently turn out to be misunderstandings or billing errors, not fraud or abuse. 

Therefore, we limited complaint questions to the issue of complaint volume in the fraud unit 

workload. 

In addition to collecting data from the fraud units, we collected data from HCFA regarding 

Medicare payment amounts, claim volume, and fraud unit funding. In order to compare fraud 

units of similar size, we arrayed the 41 intermediaries by the amount of their 1996 Medicare 

payments. We did not use claim volume as a size indicator because HCFA’s database did not 

contain claim volume for two of the 1996 intermediaries. In any case, Medicare payments and 

claim volume were generally correlated. We then grouped the intermediaries into large, medium, 

and small categories, as shown in the table below. 

We calculated the totals and medians for key variables within the large, medium, and small 

categories including: fiscal intermediary Medicare payments, fraud unit budget, full-timeequivalent (FTE) staff, complaint volume, case volume, number of fraud unit cases opened 

proactively, number of cases referred to the OIG, and number of program vulnerabilities 

identified. Hereinafter, when we refer to large, medium, and small fraud units, we are referring to 

the units in the intermediary size categories shown in the table below. 

SIZE CATEGORY # OF INTERMEDIARIES RANGE OF 1996 MEDICARE PAYMENTS 

LARGE 11 Over $4 billion 

MEDIUM 18 Between $1 and $4 billion 

SMALL 12 Less than $1 billion 

Review of Contractor Performance Evaluations 

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In addition to the fraud unit questionnaire, we collected contractor performance evaluations for 

1995, 1996, and 1997. Between 1995 and 1997, HCFA conducted at least one evaluation for 40 

of the 41 fraud units in our study. Most of the evaluation reports were sent to us by the fraud 

units. The remainder came from HCFA. 

We reviewed one evaluation report for each fraud unit evaluated between fiscal years 1995 and 

1997. Since all fraud units are not evaluated annually, we reviewed as many as possible (22) for 

our study year. We then sought evaluations from 1997 (5) and then from 1995 (13) for a total of 

40 evaluations. We examined the following variables in each evaluation report: cases, complaints, 

proactive data analysis, and identification of program vulnerabilities. 

_____________ 

This study was conducted in accordance with the Quality Standards for Inspections issued by the 

President’s Council on Integrity and Efficiency. 

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FINDINGS

FRAUD UNITS DIFFERED SUBSTANTIALLY IN THE NUMBER OF COMPLAINTS 

AND CASES HANDLED. SOME FRAUD UNITS PRODUCED FEW, IF ANY, 

SIGNIFICANT RESULTS. 

While one would expect fraud units of different size and resources to handle different size 

workloads, we found units of similar size and resources handling substantially different 

workloads. We also found some small fraud units that had greater workloads than larger units 

with more resources. In addition, some fraud units did not develop any cases or send any case 

referrals to the OIG. 

Fraud units handled between 3 and 1,892 complaints per unit. 

A total of 17,796 complaints were handled by 39 fraud units. Two of the 41 fraud units reported 

that they did not handle complaints. In those two instances, the fiscal intermediary had other staff 

screening complaints, and the fraud unit handled only cases. 

As shown in the table below, the range of complaints handled by fraud units of similar size is quite 

broad. Among large fraud units, the unit with the highest complaint workload handled eight times 

more complaints than the unit with the smallest workload. Among medium and small units, the 

largest workload of complaints was 20 and 100 times greater than the smallest workload. 

Range of Complaints Handled by Fraud Units of Similar Size 

Size 

Category 

Number of 

Fraud Units 

Highest # of 

Complaints Handled 

Lowest # of 

Complaints Handled 

Median # of 

Complaints Handled 

Large 11 1,892 223 795 

Medium 18 1,508 74* 311* 

Small 12 357 3 63 

*Does not include the two fraud units that did not handle complaints. 

Not only were there significant differences among fraud units within the same size category but 

unexpected differences were also found between categories. In the aggregate, as evidenced by 

the median number of complaints (see table above), larger units tended to handle more complaints 

than smaller units. However, one small fraud unit had more complaints than three of the large 

fraud units and twelve of the medium-sized units. The table on the next page lists each unit by 

size, and provides data regarding intermediary Medicare payments and fraud unit resources, 

complaint workload, and case workload. 

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 Variability in Large, Medium, and Small Fraud Units 

Large 

Medium 

Small 

ID# Medicare 

Payments 

Fraud Unit 

Budget 

Fraud Unit 

FTEs 

Fraud Unit 

Complaints 

Fraud Unit 

Cases 

1 $10,013,524,077 $428,100 6.25 1696 168 

2 $9,574,962,625 $612,300 6 1892 12 

3 $8,156,383,788 $359,000 2.5 802* 45* 

4 $6,125,735,620 $353,452 3.75 795 564* 

5 $5,860,334,858 $374,128 7.25 1750 259 

6 $5,698,345,959 $486,534 5 371 365* 

7 $5,138,463,636 $360,200 3 223 128 

8 $4,695,746,722 $363,000 7 1277 18 

9 $4,266,043,734 $518,300 6 307 236 

10 $4,205,559,254 $402,000 3.5 250 78 

11 $4,164,323,154 $512,680 8.25 385 192 

12 $3,946,244,913 $45,760 1.75 88 0 

13 $3,528,029,526 $231,800 3.5 699 50 

14 $3,046,336,774 $217,600 3 240 3 

15 $3,033,310,183 $249,400 2.75 559 15 

16 $2,825,729,802 $125,640 2 74 6 

17 $2,714,180,846 $155,809 3 646 31* 

18 $2,687,677,846 $145,800 3 250 25 

19 $2,413,141,222 $111,508 3 935 625 

20 $2,409,518,487 $142,100 1.5 158 11 

21 $2,049,178,456 $100,000 2.5 402 79 

22 $1,619,800,963 $87,993 1.75 0 285 

23 $1,600,681,825 $156,470 1.75 320 22 

24 $1,544,764,282 $107,900 1.25 0 65 

25 $1,246,209,143 $74,248 1.5 307* 190* 

26 $1,132,721,108 $109,600 2 157 2 

27 $1,093,918,076 $81,600 1 1508 83 

28 $1,066,891,562 $50,953 1.5 314 246* 

29 $1,063,221,043 $103,700 1 193 0 

30 $993,720,360 $74,100 2.25 357 46 

31 $986,682,696 $55,000 1.5 116 40 

32 $940,136,850 $97,035 2.5 242 35 

33 $573,157,206 $62,600 2 158 1 

34 $501,923,887 $45,800 2 123 7 

35 $461,651,557 $58,200 1 9 51 

36 $418,758,568 $79,300 1.5 24 13 

37 $318,344,371 $34,218 1.25 97 1 

38 $300,584,905 $7,841 1.25 3 9 

39 $287,546,633 $4,400 0.5 28 1 

40 $258,659,723 $40,400 0.5 27 1 

41 $109,546,573 $15,400 0.25 14 0 

TOTAL $113,071,692,814 $7,641,869 112.75 17,796 4,008 

* Workloads estimated by fraud units. 

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6 
The number of cases handled by each fraud unit ranged from 0 to 625. 

Nationally, fraud units handled a total of 4,008 cases. Of the 41 fraud units, 3 did not have any 

cases. As shown in the table below, the difference between the fraud units with the highest and 

lowest cases handled in each category is extreme. 

Range of Cases Handled by Fraud Units of Similar Size 

Size 

Category 

Number of 

Fraud Units 

Highest # of 

Cases Handled 

Lowest # of 

Cases Handled 

Median # of 

Cases Handled 

Large 11 564 12 168 

Medium 18 625 0 28 

Small 12 51 0 8 

Variation among individual fraud units could not always be explained by size or resources (see 

table on page 6). For example, of the three fraud units with zero cases, two were medium fraud 

units and one was small. In addition, the fraud unit with the largest caseload (625) was a medium 

unit. This unit had one-third the fraud budget of any large fraud unit and less staff than most large 

units. Another example is that 60 percent of the medium units and 25 percent of the large units 

handled fewer cases than one of the small fraud units. Moreover, the large fraud unit with the 

least number of cases (12) had the highest budget and 6 FTEs. In contrast to this, the large fraud 

unit with the highest caseload (564) had the smallest budget and fewer staff. 

Fraud units referred between 0 and 102 cases to the OIG. 

Fraud units are required to develop cases and refer them to the OIG for consideration of civil and 

criminal prosecution and/or the application of administrative sanctions. The fraud units referred a 

total of 346 cases to the OIG in 1996 (9 percent of the national case workload). 

Ten fraud units (5 medium and 5 small units) made no referrals to the OIG. Out of 41 fraud units, 

27 (or 66 percent) referred three or fewer cases. Nearly half of fraud units referred less than 5 

percent of their cases to the OIG. Table 1 in Appendix A provides a list of all fraud units in large, 

medium, and small categories, and shows the number and percent of each unit’s case workload 

that was referred to the OIG. 

As with complaint and case workloads, the number of case referrals to the OIG differed among 

fraud units of similar size. For example, although 79 percent of cases referred to the OIG (273 of 

346) were from large fraud units, there was a wide disparity among individual units in this 

category. One large unit was responsible for nearly 30 percent of all cases referred to the OIG 

(102 of 346). This was twice as many as the unit with second highest number of referrals (51 of 

346). In contrast, four large units referred seven or fewer cases each. 

Between size categories, several smaller fraud units referred more cases than larger units. For 

instance, one medium unit referred more cases than over half (7 of 11) of the large units. Another 

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7 
example is that one small unit referred more cases than three-quarters of the medium units and 

one-quarter of the large units. 

Overall, 56 percent of the 346 referred cases were accepted by the OIG. Another 16 percent 

were referred by the OIG to other law enforcement agencies. Nine percent of the cases were 

returned to the fraud units for administrative closure, and 1 percent were returned for further 

development. The fraud units could not provide the status of the remaining 18 percent of referred 

cases. Individual fraud units had OIG acceptance rates ranging from 0 to 100 percent of cases. 

Table 2 in Appendix A provides the number and status of cases fraud units referred to the OIG. 

DESPITE HCFA’S EXPECTATION THAT FRAUD UNITS PROACTIVELY IDENTIFY 

FRAUD, HALF OF THE UNITS DID NOT OPEN ANY CASES PROACTIVELY. 

Overall, fraud units developed few cases proactively. Even though HCFA emphasizes the 

importance of doing proactive work, most cases were developed in reaction to complaints. Of 

the 4,008 fraud unit cases, only 5 percent (184) were opened as a result of proactive case 

development. Fifty-one percent of fraud units (21 of 41) did not open any cases proactively. 

Furthermore, the fraud unit opening the largest number of proactive cases (97) was responsible 

for more than half the national total. The unit with the second highest number of proactive cases 

had 24, and the unit with the third highest number had 10. These three units alone opened 71 

percent of the proactive cases. Rarely did the size of the fiscal intermediary, or the resources of 

the fraud unit correlate to the number of cases opened proactively. For example, half the large, 

medium, and small fraud units had no such cases, and one small fraud unit had seven (see 

Appendix A, Table 3). 

Ninety percent of fraud units (37 of 41) said they used proactive methods in their attempt to 

uncover fraud and abuse. Yet, only half of these units (20 of 37) opened any cases proactively. 

Seventeen units that said they used proactive methods did not open cases as a result of their 

proactive work. 

The most commonly used proactive method was data analysis. Used by 80 percent of fraud units, 

proactive data analysis was used to open 72 percent of proactive cases (133 of 184). Proactive 

data analysis is defined as using data to identify fraud leads by looking for patterns, trends, or 

aberrancies versus using data solely to expand the scope of an investigation. The second most 

common method of proactively identifying fraud was networking with other intermediary units 

and with external entities. Used by 56 percent of fraud units, networking was used to open 21 

percent of proactive cases (38 of 184). Table 4 in Appendix A lists the proactive methods used 

by fraud units, the number and percent of units that used each method, and the number of times 

the method was used to open cases. 

In our review of the units’ contractor performance evaluations, we found that 80 percent of the 

evaluation reports (32 of 40) addressed the subject of using proactive methods to identify fraud. 

In addition, 65 percent (26 of 40) specifically noted whether or not the unit had conducted any 

proactive data analysis. However, only 50 percent (20 of 40) reminded the fraud units that they 

are expected to conduct proactive data analysis to identify potential fraud cases. 

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MORE THAN ONE-THIRD OF FRAUD UNITS DID NOT IDENTIFY PROGRAM 

VULNERABILITIES. 

The identification of program vulnerabilities heads the list of fraud unit responsibilities in the 

Medicare Intermediary Manual. Yet 39 percent of fraud units (16 of 41) did not identify any. In 

addition, fraud units are not required to keep track of identified program vulnerabilities.4 At least 

one fraud unit that identified vulnerabilities had to rely on memory to describe them. 

In our review of the contractor performance evaluations, we found that few HCFA reviewers 

addressed the importance of identifying program vulnerabilities. Only 10 percent of evaluation 

reports (4 of 40) stated whether or not the fraud unit identified any program vulnerabilities, and 

only 18 percent (7 of 40) reminded the fraud unit they are expected to identify them. 

Sixty-one percent of fraud units (25 of 41) identified a total of 61 program vulnerabilities. The 

number of vulnerabilities identified by these units ranged from 1 to 5 (see Appendix A, Table 3). 

Based on fraud unit descriptions of the vulnerabilities, 52 percent (32 of 61) seemed to be 

systematic problems that make the Medicare program vulnerable to abuse, such as, loose 

guidelines that promote inappropriate billing for a service. Another 41 percent (25 of 61) were 

described as instances of wrongdoing, such as, billing a non-covered service as a covered service. 

The remaining 7 percent (4 of 61) were simply described as types of providers, such as, an 

assisted living facility or a community mental health center. 

KEY WORDS AND TERMS RELATED TO FRAUD UNIT WORK VARY IN 

MEANING. THIS HINDERS HCFA’S ABILITY TO INTERPRET FRAUD UNIT DATA 

AND MEASURE FRAUD UNIT PERFORMANCE. 

The HCFA and fraud unit staffs have work-related terms which help them communicate about 

program integrity operations and performance outcomes. This specialized language is necessary 

in order to quickly convey meaning about complex subjects. Many of the words and terms do not 

sound like specialized terms because they are also used in common speech, e.g., “complaint,” 

“case,” “program vulnerability” and “overpayment.” However, for Medicare fraud control, these 

words have special meanings. For example, a “complaint” is not simply an expression of 

discontent, it is an allegation of fraud or abuse. In addition, among fraud unit and HCFA staff, 

meanings of key words can vary depending on who is using them and the context in which they 

are used. 

The variety of meanings for key terms is a problem in the Medicare integrity program because it 

hinders HCFA’s ability to interpret the data it receives from fraud units and its regional oversight 

staff. In addition, there are potential problems when HCFA and fraud units share data with one 

another or collaborate with other fraud control entities. Furthermore, differences in the use of key 

terms in contractor performance evaluations make performance measurement with this tool 

difficult if not impossible. These shortcomings are likely to hamper HCFA’s effectiveness in 

making funding decisions or selecting future program safeguard contractors. 

Below we discuss a few key terms that vary in meaning and, consequently, can hinder HCFA in its 

ability to interpret data and measure performance. 

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Complaints and cases 

Complaints and cases represent two very different types of workload, yet the terms are often used 

interchangeably and sometimes are tracked as one type of workload. In our fraud unit 

questionnaire, we required fraud units to (1) distinguish complaints from cases when they 

quantified their workload, and (2) use the definitions for case and complaint given in the 

questionnaire. The purpose of these requirements was to ensure data integrity. However, this 

posed a problem for several fraud units. For example, it was necessary for some fraud units to 

estimate their workload numbers because they had one computer tracking system that did not 

distinguish cases from complaints. 

In addition, the terms case and complaint were also confused in contractor performance 

evaluations. In 43 percent of the evaluation reports (17 of 40), the words case and complaint 

were used interchangeably. Moreover, we found inconsistencies in the way the words case and 

complaint were used in the Medicare Intermediary Manual (section 3966), and in certain HCFA 

guidelines for reporting fraud unit activities. 

Program vulnerabilities 

The Medicare Manual (section 3953) directs fraud units to “identify Medicare and intermediary 

policies and procedures that may make Medicare vulnerable to fraud and abuse.” A shorter way 

of saying this is that fraud units should identify program vulnerabilities. However, the term 

“program vulnerability” is another key term that has more than one interpretation. As we 

mentioned previously, fraud units identified 61 program vulnerabilities. Yet, all the vulnerabilities 

fraud units described were not systematic problems which make Medicare vulnerable to fraud and 

abuse. Forty-one percent of them (25 of 61) were described as instances of wrongdoing by a 

provider, and 7 percent (4 of 61) were described as types of providers. 

Overpayments 

Responses to our fraud unit questionnaire suggest that the word overpayment may have various 

meanings in the context of contractor operations and fraud unit cases. In general, overpayments 

are Medicare funds that providers receive in excess of amounts owed to them, but we did not 

provide this definition in our questionnaire. We asked the fraud units to list their cases where 

overpayments were identified (not recovered) in fiscal year 1996. Our analysis found that fraud 

units identified overpayments in only 15 percent of the national case workload (610 of 4,008) and 

in 36 percent of cases referred to the OIG (124 of 346) even though the Manual (section 3968) 

states that identifying overpayments is part of the case development process. 

It is conceivable that fraud units were defining the term overpayment in one of two ways when 

answering our question: (1) as the actual amount of money they requested back from providers, 

or (2) the amount of money at risk associated with a fraud case. If some fraud units used the first 

definition, it is possible that they would not have listed an overpayment amount for this question. 

However, it is also possible that the fraud units were unable to determine or track the risk 

associated with fraud cases. 

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RECOMMENDATIONS

The Health Care Financing Administration (HCFA) and fiscal intermediary fraud units have 

significant responsibilities in identifying and deterring fraud in a part of the Medicare program 

where $130 billion is at risk. The variation in fraud detection, especially among units with similar 

resources, raises concern about possible poor performance by some fraud units. 

Although HCFA currently conducts performance evaluations of fraud units, we believe there is a 

need to strengthen the monitoring and oversight of contractors’ efforts to identify fraud and 

abuse. In recent years, HCFA has focused on continuous improvement as a method of evaluating 

contractor performance. In light of the disparity in fraud detection among contractors, the agency 

may need to refocus its evaluation efforts to include some type of return on investment analysis. 

In order that HCFA may have a better understanding of fraud unit performance, which in turn will 

lead to making better decisions about fraud unit funding, selecting future contractors, and 

working collaboratively with other anti-fraud entities, we recommend that HCFA: 

< Improve the contractor performance evaluation system so that it not only encourages 

continuous improvement, but also holds contractors accountable for meeting specific 

objectives. 

< Require that all contractor performance evaluations list HCFA’s national and regional 

objectives and address whether or not the fraud unit is meeting those objectives. 

< Establish a standard set of data that can be used to measure fraud units’ performance in 

meeting established objectives. Require that all contractor performance evaluation reports 

contain this data. 

< Establish clear definitions of key words and terms (e.g., complaint, case, program 

vulnerability, and overpayment). Disseminate definitions and require that HCFA program 

integrity staff and fraud unit staff use the same definitions. In a future update of the 

Medicare Intermediary Manual, revise sections so that these words are consistently used 

to mean the same thing. 

< Provide opportunities for fraud units to exchange ideas, compare methods, and highlight 

best practices relating to fraud and abuse detection. 

COMMENTS 

The draft of this report was reviewed by HCFA, and they concurred with our recommendations. 

In concurring with the recommendations, HCFA stated that (1) they plan to develop specific 

national objectives, (2) they are designing a new program integrity management information 

system, (3) they identified and distributed a list of the most significant data metrics for regional 

office use in the fiscal year 1998 contractor evaluation process, (4) they will review definitions of 

key words in the Medicare Intermediary Manual and make appropriate revisions, and (5) they 

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convened a national conference in March 1998 to identify best practices in fighting waste, fraud, 

and abuse. The full text of HCFA’s comments is in Appendix B. 

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ENDNOTES

1. The 41 fiscal intermediaries in our study processed $113 billion in Medicare payments in 1996. 

2. The Health Care Financing Administration’s funding of all Medicare fraud control activities 

since the passage of the Health Insurance Portability and Accountability Act of 1996, is discussed 

in the U.S. General Accounting Office’s report, Medicare: HCFA’s Use of Anti-Fraud-andAbuse Funding and Authorities (GAO/HEHS-98-160), issued June 1998. 

3. In September 1998, the Health Care Financing Administration made available a Scope of Work 

regarding Program Safeguard Contractors. 

4. Nowhere in section 3950ff of the Medicare Intermediary Manual is there a requirement to 

track the number or kind of program vulnerabilities that fraud units identify. 

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APPENDIX A 

Table 1: Fraud Unit Cases Referred to the OIG in FY 1996 

Large 

Medium 

Small 

ID# Total Cases 

FY 1996 

Number of Cases 

Referred to the OIG 

Cases Referred as a 

Percent of Total Cases 

1 168 3 2% 

2 12 3 25% 

3 45* 21 47% 

4 564* 17 3% 

5 259 51 20% 

6 365* 16 4% 

7 128 102 80% 

8 18 7 39% 

9 236 15 6% 

10 78 3 4% 

11 192 35 18% 

12 0 0 -

13 50 0 0% 

14 3 3 100% 

15 15 0 0% 

16 6 3 50% 

17 31* 4 13% 

18 25 3 12% 

19 625 5 1% 

20 11 3 27% 

21 79 3 4% 

22 285 0 0% 

23 22 3 14% 

24 65 2 3% 

25 190* 20 11% 

26 2 2 100% 

27 83 1 1% 

28 246* 5 2% 

29 0 0 -

30 46 4 9% 

31 40 1 3% 

32 35 5 14% 

33 1 1 100% 

34 7 0 0% 

35 51 3 6% 

36 13 1 8% 

37 1 1 100% 

38 9 0 0% 

39 1 0 0% 

40 1 0 0% 

41 0 0 -

TOTAL 4,008 346 9% 

* Workloads estimated by fraud units. 

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 Table 2: Disposition of Fraud Unit Cases Referred to the OIG in FY 1996 

Large 

Medium 

Small 

ID # Referred to 

Cases 

the OIG 

Accepted by 

Cases 

the OIG 

Cases Referred 

by OIG to 

Other Law 

Enforcement 

Cases Returned 

to Fraud Unit 

for Further 

Development 

Cases Returned 

to Fraud Unit for 

Administrative 

Handling 

Status was 

Cases Where 

Unknown 

1 3 2 0 0 1 0 

2 3 0 1 0 2 0 

3 21 15 0 0 0 6 

4 17 16 0 0 1 0 

5 51 11 2 0 1 37 

6 16 6 3 0 3 4 

7 102 98 0 0 2 2 

8 7 0 5 0 0 2 

9 15 5 0 1 6 3 

10 3 0 2 0 0 1 

11 35 13 18 0 3 1 

12 0 - - - - -

13 0 - - - - -

14 3 0 3 0 0 0 

15 0 - - - - -

16 3 1 2 0 0 0 

17 4 0 3 1 0 0 

18 3 1 0 0 0 2 

19 5 1 1 0 3 0 

20 3 2 1 0 0 0 

21 3 2 1 0 0 0 

22 0 - - - - -

23 3 0 1 1 1 0 

24 2 2 0 0 0 0 

25 20 9 2 0 6 3 

26 2 2 0 0 0 0 

27 1 1 0 0 0 0 

28 5 0 4 0 1 0 

29 0 - - - - -

30 4 4 0 0 0 0 

31 1 1 0 0 0 0 

32 5 1 3 0 0 1 

33 1 0 0 1 0 0 

34 0 - - - - -

35 3 1 1 0 1 0 

36 1 1 0 0 0 0 

37 1 0 1 0 0 0 

38 0 - - - - -

39 0 - - - - -

40 0 - - - - -

41 0 - - - - -

TOTAL 346 195 54 4 31 62 

% OF 

CASES 

REFERRED 

100% 56% 16% 1% 9% 18% 

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 Table 3: Proactive Cases Opened and Program Vulnerabilities Identified 

Large 

Medium 

Small 

* Workloads estimated by fraud units. 

** Proactive cases are a subset of total fraud unit cases. 

ID# Medicare 

Payments 

Fraud Unit 

Budget 

Fraud Unit 

FTEs 

Total Fraud 

Unit Cases 

Proactive 

Cases** 

Program 

Vulnerabilities 

1 $10,013,524,077 $428,100 6.25 168 4 3 

2 $9,574,962,625 $612,300 6 12 1 0 

3 $8,156,383,788 $359,000 2.5 45* 0 3 

4 $6,125,735,620 $353,452 3.75 564* 0 5 

5 $5,860,334,858 $374,128 7.25 259 4 0 

6 $5,698,345,959 $486,534 5 365* 10 4 

7 $5,138,463,636 $360,200 3 128 97 3 

8 $4,695,746,722 $363,000 7 18 0 1 

9 $4,266,043,734 $518,300 6 236 0 2 

10 $4,205,559,254 $402,000 3.5 78 6 2 

11 $4,164,323,154 $512,680 8.25 192 0 2 

12 $3,946,244,913 $45,760 1.75 0 0 0 

13 $3,528,029,526 $231,800 3.5 50 6 1 

14 $3,046,336,774 $217,600 3 3 0 0 

15 $3,033,310,183 $249,400 2.75 15 0 2 

16 $2,825,729,802 $125,640 2 6 3 0 

17 $2,714,180,846 $155,809 3 31* 3 3 

18 $2,687,677,846 $145,800 3 25 0 1 

19 $2,413,141,222 $111,508 3 625 0 0 

20 $2,409,518,487 $142,100 1.5 11 3 1 

21 $2,049,178,456 $100,000 2.5 79 0 0 

22 $1,619,800,963 $87,993 1.75 285 24 1 

23 $1,600,681,825 $156,470 1.75 22 0 2 

24 $1,544,764,282 $107,900 1.25 65 0 0 

25 $1,246,209,143 $74,248 1.5 190* 2 5 

26 $1,132,721,108 $109,600 2 2 0 0 

27 $1,093,918,076 $81,600 1 83 2 0 

28 $1,066,891,562 $50,953 1.5 246* 5 4 

29 $1,063,221,043 $103,700 1 0 0 0 

30 $993,720,360 $74,100 2.25 46 2 0 

31 $986,682,696 $55,000 1.5 40 7 1 

32 $940,136,850 $97,035 2.5 35 0 2 

33 $573,157,206 $62,600 2 1 0 0 

34 $501,923,887 $45,800 2 7 0 0 

35 $461,651,557 $58,200 1 51 1 3 

36 $418,758,568 $79,300 1.5 13 1 2 

37 $318,344,371 $34,218 1.25 1 0 0 

38 $300,584,905 $7,841 1.25 9 2 2 

39 $287,546,633 $4,400 0.5 1 1 4 

40 $258,659,723 $40,400 0.5 1 0 0 

41 $109,546,573 $15,400 0.25 0 0 2 

TOTAL $113,071,692,814 $7,641,869 112.75 4,008 184 61 

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Table 4: Fraud Unit Use of Proactive Methods to Identify Fraud and Abuse 

PROACTIVE METHOD 1 Units Using 

Number of Fraud 

Method N=41 

Fraud Units 

Percent of 

Using Method 

Proactive Method was 

Number of Times 

Used to Open Cases 2 

Data Analysis 33 80% 133 

Internal and External 

Networking 23 56% 38 

Look for Patterns and 

Trends (Not Data Analysis) 10 24% 11 

Conduct Research and 

Analysis on Fraud Alerts 8 20% 1 

Conduct Medical Review 7 17% 10 

Conduct and Receive 

Training 5 12% 0 

Expand Case 5 12% 5 

Monitor (e.g.,Edits and 

Audits) 5 12% 1 

Conduct Education or 

Outreach 4 10% 0 

Review News Media 4 10% 1 

Survey Providers 4 10% 2 

1. Except for “Data Analysis,” all other proactive methods were identified by the fraud units themselves. 

2. The total for this column (202) differs from the total number of cases opened proactively (184) because more than one 

proactive method could have been used to open each case. 

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APPENDIX B

COMMENTS FROM THE HEALTH CARE FINANCING ADMINISTRATION 

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