Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

MEDICARE DRUG INTEGRITY 

CONTRACTORS’ IDENTIFICATION 

OF POTENTIAL PART D FRAUD 

AND ABUSE 

 

Daniel R. Levinson 

Inspector General 

October 2009 

OEI-03-08-00420 
 

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: 

Office of Audit Services 

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 Evaluation and Inspections 

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 Investigations 

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 

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. 
 

 

ΔINTRODUCTION EXECUTIVE S UMMARY 

OBJECTIVE 

(1) To determine the extent to which Medicare Drug Integrity 

Contractors (MEDIC) identified and investigated potential Part D fraud 

and abuse incidents and whether these incidents were identified 

through external sources or proactive methods. 

(2) To describe any issues or barriers MEDICs encountered in 

identifying or investigating potential fraud and abuse incidents. 

BACKGROUND 

The Medicare Prescription Drug, Improvement, and Modernization Act 

of 2003 established Medicare Part D to provide prescription drug 

benefits under the Medicare program beginning January 1, 2006. As of 

February 2009, 27 million beneficiaries were enrolled in Part D plans. 

Total expenditures for Part D benefits were $49.5 billion in 2007. 

Prior to implementing the Part D benefit, the Centers for Medicare & 

Medicaid Services (CMS) developed a strategy to help combat Part D 

fraud and abuse. One of the key aspects of this strategy was MEDICs’ 

use of innovative techniques for data analysis. Beginning in fiscal year 

(FY) 2007, CMS awarded contracts to three regional MEDICs to address 

potential fraud and abuse related to the Part D benefit. 

According to the MEDICs’ Statement of Work and their individual task 

orders, MEDICs’ responsibilities include, but are not limited to, 

identifying potential Part D fraud and abuse through external sources 

and proactive methods; fulfilling requests for information from law 

enforcement agencies; investigating potential Part D fraud and abuse; 

referring cases and making immediate advisements regarding potential 

Part D fraud or abuse to the Office of Inspector General (OIG); 

recommending appropriate administrative actions to CMS; identifying 

program vulnerabilities; and auditing the fraud, waste, and abuse 

programs that are part of plan sponsors’ compliance plans. We 

reviewed MEDIC data covering FY 2008, the second year of MEDICs’ 

operations. 

FINDINGS 

MEDICs identified 4,194 incidents of potential fraud and abuse and 

investigated 1,320 incidents; most incidents were identified through 

external sources rather than proactive methods. MEDICs identified 

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EXECUTIVE SUMMARY 

4,194 incidents of potential fraud and abuse in FY 2008. CMS’s 

strategy for combating Part D fraud and abuse emphasized the 

importance of using new and innovative data analysis techniques. 

However, MEDICs identified 87 percent (3,641) of potential fraud and 

abuse incidents through external sources, primarily complaints, in 

FY 2008. The remaining 13 percent (553) of potential fraud and abuse 

incidents were identified through proactive methods, such as data 

analysis. 

MEDICs conducted 1,320 investigations in FY 2008. Ninety-six percent 

of these investigations involved incidents of potential fraud and abuse 

identified through external sources. In addition, MEDICs made 

65 referrals and 34 immediate advisements to OIG, made 257 referrals 

to State insurance commissioners, and made 39 referrals to CMS for 

administrative action in FY 2008. 

Problems with accessing and using data hindered MEDICs’ ability to 

identify and investigate potential fraud and abuse incidents. 

MEDICs reported that they need both Part D prescription drug event 

(PDE) data and data regarding Medicare Part B to effectively identify 

and investigate instances of potential Part D fraud and abuse. 

However, MEDICs did not receive access to PDE data until August 

2007, nearly a year after their contracts began. In addition, two 

MEDICs were not given access to Part B data until the fall of 2008, 

2 years after their contracts began. The third MEDIC did not receive 

access to Part B data before its contract ended. Once they received 

access to PDE data, MEDICs reported that important variables were 

not part of the PDE data, making effective data analysis difficult. 

MEDICs also indicated that when they accessed PDE data, different 

types of prescriber identifiers were not stored in the correct fields, which 

affected the results of their data analysis. 

MEDICs’ lack of authority to directly obtain information from 

pharmacies, pharmacy benefit managers, and physicians hindered 

their ability to investigate potential fraud and abuse incidents. 

MEDICs did not have the authority to directly obtain prescriptions and 

medical records from entities, such as pharmacies, pharmacy benefit 

managers, and physicians, in FY 2008. MEDICs reported that because 

CMS contracts with plan sponsors, MEDICs had the authority to 

request information only from the plan sponsors. MEDICs indicated 

that these restrictions hindered their ability to investigate incidents of 

potential fraud and abuse. 

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EXECUTIVE SUMMARY 

MEDICs may not have been aware of some potential fraud and 

abuse incidents because plan sponsors are not required to refer 

them. Plan sponsors are encouraged to refer potential fraud and abuse 

incidents to MEDICs but are not required to do so. One MEDIC stated 

it received relatively few referrals compared to the number of plan 

sponsors in its jurisdiction. The other two MEDICs indicated that while 

some plans referred incidents of potential fraud and abuse, other plans 

had never referred any such incidents. 

CMS did not give MEDICs approval to conduct audits of plan 

sponsors’ compliance plans in FY 2008. As outlined in the Statement 

of Work and their individual task orders, MEDICs are responsible for 

conducting audits of plan sponsors’ compliance plans. However, none of 

these audits were conducted in FY 2008. All three MEDICs indicated 

that they were prepared to conduct compliance plan audits in FY 2008 

but were not given approval by CMS to do so. Between October and 

December 2008, 2 years after MEDICs’ regional contracts began, the 

two remaining MEDICs did receive approval from CMS to begin 

10 audits of plan sponsors’ compliance plans. 

RECOMMENDATIONS 

In 2005, prior to the start of the Part D program, CMS outlined a 

strategy in which innovative data analysis, conducted primarily by 

MEDICs, was one of the keys to combating Part D fraud and abuse. 

The Part D program is now in its fourth year, and while CMS has 

reprioritized its oversight activities since 2005 because of budget 

shortfalls, proactive data analysis remains an important tool in its 

efforts to fight Part D fraud and abuse. 

Combating Part D fraud and abuse involves a number of key 

participants, including CMS, plan sponsors, and MEDICs. Previous 

OIG reviews have focused on plan sponsors’ identification of fraud and 

abuse as well as CMS’s oversight of the Part D program. All of these 

reviews identified vulnerabilities in the efforts to combat Part D fraud 

and abuse. For example, one OIG review found that a quarter of plan 

sponsors did not identify any incidents of potential fraud and abuse. 

Another OIG review found that CMS had not conducted any significant 

data analysis for fraud detection purposes and had relied largely on 

complaints to identify potential fraud and abuse. 

Our current review found that during their second year of operations, 

MEDICs identified most incidents of potential fraud and abuse through 

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EXECUTIVE SUMMARY 

external sources, such as complaints, rather than proactive methods. In 

addition, various problems have hindered MEDICs’ ability to identify 

and investigate potential fraud and abuse incidents. Also, CMS did not 

give MEDICs approval to conduct compliance plan audits in FY 2008. 

CMS’s strategy was intended to combat fraud and abuse, partially 

through data analysis. However, MEDICs reported that barriers 

hindered their ability to consistently conduct comprehensive data 

analysis to detect and prevent potential fraud and abuse. 

Therefore, we recommend that CMS: 

Ensure MEDICs have access to accurate and comprehensive data to 

assist them in identifying and investigating potential fraud and 

abuse and conducting proactive data analysis. 

Authorize MEDICs to directly obtain information that they need to 

identify and investigate potential fraud and abuse from entities, 

such as pharmacies, pharmacy benefit managers, and physicians. 

We recognize that implementing this recommendation may require 

statutory or regulatory change. 

Require plan sponsors to report all potential fraud and abuse 

incidents that are referred to law enforcement agencies to MEDICs 

as well. If plan sponsors refer potential fraud and abuse to law 

enforcement agencies, they should also share this information with 

MEDICs to help MEDICs identify fraud and abuse trends and target 

problem providers. 

Ensure MEDICs have approval to conduct compliance plan audits 

that they are responsible for under their task orders and Statement 

of Work. While MEDICs did not have CMS’s approval to conduct 

compliance plan audits in FY 2008, they did receive approval to conduct 

10 of these audits in early FY 2009. CMS should make approval of 

additional compliance plan audits a priority in the future. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with three of our four recommendations. CMS stated 

that it is committed to ensuring that its contractors have access to the 

information they need to identify, prevent, and fight Part D fraud. 

CMS concurred with our first recommendation regarding MEDICs’ 

access to data; however, it did not provide a timeframe for 

implementation. CMS did not indicate whether it concurred with our 

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EXECUTIVE SUMMARY 

second recommendation. Instead, CMS stated that it recognizes the 

value of the recommendation but that its statutory authority to collect 

information directly from downstream entities is limited. We 

acknowledge in our recommendation that statutory or regulatory 

change may be needed and we encourage CMS to seek these changes. 

CMS concurred with our third recommendation; however, CMS stated 

that it currently does not have the regulatory basis to require that plan 

sponsors report these incidents. We disagree and believe current 

regulations give CMS the ability to require that MEDICs be provided 

with such reports. CMS concurred with our fourth recommendation; 

however, it did not provide details on the number of compliance plan 

audits it would conduct. 

We ask that CMS, in its final management decision, more clearly 

indicate whether it concurs with our second recommendation and what 

steps, if any, it will take to implement both our second and third 

recommendations. In addition, we ask that CMS provide more detail 

regarding its implementation of our first and fourth recommendations. 
 

Δ TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 

MEDICs identified 4,194 incidents of potential fraud and abuse 

and investigated 1,320 incidents; most incidents were identified 

through external sources rather than proactive methods . . . . . . . . 8 

Problems with accessing and using data hindered MEDICs’ ability 

to identify and investigate potential fraud and abuse incidents . . 11 

MEDICs’ lack of authority to directly obtain information from 

pharmacies, pharmacy benefit managers, and physicians hindered 

their ability to investigate potential fraud and abuse incidents . . 13 

MEDICs may not have been aware of some potential fraud 

and abuse incidents because plan sponsors are not required to 

refer them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

CMS did not give MEDICs approval to conduct audits of plan 

sponsors’ compliance plans in FY 2008 . . . . . . . . . . . . . . . . . . . . . 15 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 

 Agency Comments and Office of Inspector General Response . . . 17 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

A: Top Five Types of Potential Fraud and Abuse Investigated 

and Referred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

 B: Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
 

 

Δ INTRODUCTION 

OBJECTIVE 

(1) To determine the extent to which Medicare Drug Integrity 

Contractors (MEDIC) identified and investigated potential Part D fraud 

and abuse incidents and whether these incidents were identified 

through external sources or proactive methods. 

(2) To describe any issues or barriers MEDICs encountered in 

identifying or investigating potential fraud and abuse incidents. 

BACKGROUND 

The Medicare Prescription Drug, Improvement, and Modernization Act 

of 2003 established Medicare Part D to provide prescription drug 

benefits under the Medicare program beginning January 1, 2006.1 As of 

February 2009, 27 million beneficiaries were enrolled in Part D plans.2 

Total expenditures for Part D benefits were $49.5 billion in 2007.3

Medicare Drug Integrity Contractors 

Prior to implementing the Part D benefit, CMS developed a strategy to 

help combat Part D fraud and abuse. One of the key aspects of this 

strategy was MEDICs’ use of innovative techniques for data analysis. 

Beginning in fiscal year (FY) 2007, CMS awarded contracts to three 

regional MEDICs to address potential fraud and abuse related to the 

Part D benefit.4 

MEDICs received $11.6 million in FY 2008 to carry out their contracted 

responsibilities. The three regional MEDICs and their contract 

payments for FY 2008 were: 

• MEDIC West–Science Applications International Corporation, 

$4.1 million; 

1 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

P.L. No. 108-173, Social Security Act, § 1860D-1(a)(2), 42 U.S.C. § 1395w-101(a)(2). 

2 Centers for Medicare & Medicaid Services (CMS), “Monthly Contract Summary 

Report,” February 2009. Available online at 

http://www.cms.hhs.gov/MCRAdvPartDEnrolData/MCESR/list.asp#TopOfPage. Accessed 

on February 27, 2009. 

3 The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary 

Medical Insurance Trust Funds, “2008 Annual Report,” March 2008, page 111. Available 

online at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2008.pdf. Accessed on 

April 22, 2008. 

4 In FY 2006, MEDIC Southeast was awarded a national contract to monitor fraud and 

abuse related to Part D enrollment and eligibility issues. In FY 2007, MEDIC Southeast 

became a regional MEDIC. 

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INTRODUCTION 

• MEDIC North–SafeGuard Services, $3.8 million; and 

• MEDIC Southeast–Health Integrity, $3.7 million. 

As of September 2008, MEDIC West’s jurisdiction covered 21 States and 

9.6 million beneficiaries,5 MEDIC North covered 27 States and 

11.7 million beneficiaries, and MEDIC Southeast covered 8 States and 

5.9 million beneficiaries. MEDIC West’s contract was not renewed 

when it ended in September 2008. CMS transitioned the responsibility 

for the States and beneficiaries in MEDIC West’s jurisdiction to the two 

remaining MEDICs during October and November 2008. 

MEDICs’ responsibilities are detailed in the “MEDIC Statement of 

Work” and individual task orders issued to each MEDIC. 6 According to 

the Statement of Work, MEDICs’ responsibilities include, but are not 

limited to: 

• identifying potential Part D fraud and abuse through external 

sources and proactive methods; 

• fulfilling requests for information from law enforcement agencies; 

• investigating potential Part D fraud and abuse; 

• referring cases and making immediate advisements regarding 

potential Part D fraud or abuse to the Department of Health and 

Human Services Office of Inspector General (OIG); 

• recommending appropriate administrative actions to CMS; 

• identifying program vulnerabilities; and 

• auditing the fraud, waste, and abuse programs that are part of plan 

sponsors’ compliance plans. 

Individual task orders include these responsibilities as part of the 

activities each MEDIC is required to perform. 

Types of Fraud and Abuse 

According to the Statement of Work, fraud is the intentional deception 

or misrepresentation that an individual makes, knowing it to be false, 

that could result in some unauthorized benefit to himself/herself or 

5 MEDIC jurisdictions include all 50 States, U.S. territories, and the District of Columbia 

(hereinafter referred to as States). 

6 CMS, “MEDIC Statement of Work,” §§ 3.2 and 6.1.2, Rev. 2, September 28, 2007. 

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 INTRODUCTION 

some other person.7 Types of Part D fraud include, but are not limited 

to, billing for drugs or services not provided, altering prescriptions to 

obtain a higher payment amount, using another person’s Medicare card 

to obtain prescriptions, and billing for brand-name drugs when generics 

are dispensed. Abuse involves behavior that an individual should have 

known to be false that could result in some unauthorized benefit. 

Examples of abuse include billing Medicare for services that are not 

covered or coding services incorrectly. 

Fraud and Abuse Identification 

MEDICs are required to identify potential fraud and abuse through 

both external sources and proactive methods. 

External sources and proactive methods. Complaints are a primary 

external source of fraud leads. Fraud complaints may come directly to 

the MEDICs through the MEDICs’ toll-free number, mail, and fax. 

MEDICs may receive complaints from Medicare beneficiaries, relatives, 

or other Medicare contractors. In addition, MEDICs may receive leads 

about potential fraud and abuse from other external sources, such as 

law enforcement agencies, Part D plan sponsors, or CMS. 

Proactive techniques for identifying fraud can include analyzing claims 

data, conducting Internet searches to identify leads, and analyzing 

complaint data for trends. According to the Statement of Work, the 

MEDICs’ ability to use innovative analytical methodologies is critical to 

the success of a benefit integrity program.8 In addition, since the 

beginning of the Part D program, CMS has issued press releases 

emphasizing the importance of using new and innovative data analysis 

techniques to combat Part D fraud and abuse.9 Proactive data analysis 

can enable MEDICs to identify indicators of potential fraud, such as 

duplicate billing or billing for drugs without an associated doctor visit. 

Data sources. To identify potential fraud and abuse occurring in the 

Part D program, MEDICs are required to access and analyze different 

7 Ibid., § 2.1. 

8 Ibid., § 6.2. 

9 CMS, “The New Medicare Prescription Drug Program: Attacking Fraud and Abuse,” 

October 7, 2005. Available online at 

http://www.cms.hhs.gov/apps/media/press/factsheet.asp?Counter=1693. Accessed on 

March 18, 2009; CMS, “Medicare Finds Billions in Savings to Taxpayers,” October 11, 2006. 

Available online at http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=2030. 

Accessed on March 31, 2009. 

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INTRODUCTION 

kinds of data.10 Specifically, MEDICs must access Part D prescription 

drug event (PDE) data. When beneficiaries fill prescriptions covered 

under Part D, their prescription drug plans must submit electronic 

summary records called PDE records to CMS. The PDE records contain 

Part D prescription drug cost and payment data. The PDE data are 

stored in a CMS database called the Integrated Data Repository. 

MEDICs are able to access this database using SAS programming 

software or through a software application called Cognos. 

Medicare Part B claims are another important source of data for 

analysis. Part B claims include claims for physician services that 

provide information on a beneficiary’s doctor visit and a beneficiary’s 

diagnosis. This information can be used to determine whether a 

prescription has a corresponding office visit and whether a drug was 

prescribed appropriately. 

According to the Statement of Work, MEDICs will have access to 

Medicare Part B, Part D, and other data, such as Medicaid and 

Medicare Part A, through an integrated system.11 However, the full 

transition to this system is not expected to be complete until 2011. 

Until then, MEDICs must access data through individual systems. 

Fraud and Abuse Investigation and Referral 

MEDICs are required to investigate potential fraud and abuse and, 

when appropriate, refer potential fraud and abuse cases to OIG.12 

Cases referred to OIG may be accepted for investigation, returned to the 

MEDIC for further development, declined and referred to another law 

enforcement agency for investigation, or declined and referred back to 

the MEDIC for possible CMS administrative action. 

Investigations. MEDICs are required to conduct investigations when 

they receive allegations of fraud from external sources or proactively 

identify potentially fraudulent situations. An investigation is the 

analysis performed to determine the facts and the magnitude of 

potential fraud. An investigation may include a review of a sample of 

PDE claims, beneficiary interviews, or a review of original 

prescriptions. MEDICs are required to consult with OIG to 

determine whether or not the investigation should be further developed 

for possible case referral to OIG. 

10 CMS, “MEDIC Statement of Work,” § 6.2, Rev. 2, September 28, 2007. 

11 Ibid., § 6.2. 

12 Ibid., § 6.1.2, § 6.5.1. 

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INTRODUCTION 

If an investigation does not result in a case referral or the case is not 

accepted by OIG, the MEDICs may refer the incident to CMS for 

administrative action. Administrative actions can include recovery of 

overpayments, suspension of payments, or imposition of civil monetary 

penalties. In addition, investigations involving insurance sales agents 

may result in referrals to State insurance commissioners who are 

responsible for licensing these agents. 

Case referrals and immediate advisements. MEDIC investigations result 

in case referrals when the MEDIC has documented allegations that a 

provider, beneficiary, pharmacy, pharmacy benefit manager, or Part D 

plan has: (1) engaged in a pattern of improper prescription writing or 

billing, (2) submitted improper claims with actual knowledge of their 

falsity, or (3) submitted improper claims with reckless disregard or 

deliberate ignorance of their truth or falsity.13

Certain allegations are referred directly to OIG without a MEDIC 

investigation. These are called immediate advisements and include 

complaints by current or former employees of a suspected provider, 

Part D plan sponsor, or subcontractor; or involve entities that are the 

subject of ongoing OIG fraud investigations. 

Medicare Drug Integrity Contractor Reporting Requirements 

According to the Statement of Work, MEDICs are required to submit 

certain reports to CMS. One of these is a monthly referral log. MEDICs 

report their new case referrals and immediate advisements sent to OIG 

in this log as well as update the status of their previous referrals. The 

referral log also contains referrals MEDICs sent to State insurance 

commissioners. 

In addition, MEDICs must submit quarterly reports to CMS on 

vulnerabilities identified within the Part D program during the previous 

quarter and possible ways to address them. 

Previous Office of Inspector General Work 

OIG has issued several reports regarding oversight of the Part D 

program. In October 2007, OIG issued a report that examined CMS’s 

early implementation of safeguards against Part D fraud and abuse.14 

The report found that some safeguards were in place but that others, 

13 Ibid., § 6.5. 

14 OIG, “CMS’s Implementation of Safeguards During Fiscal Year 2006 To Prevent and 

Detect Fraud and Abuse in Medicare Prescription Drug Plans,” OEI-06-06-00280, 

October 2007. 

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INTRODUCTION 

such as data analysis to detect and prevent fraud and abuse, had not yet 

begun. The report also found that CMS relied largely on complaints to 

identify fraud and abuse and had not begun financial or compliance 

audits. 

An October 2008 OIG report examined the extent to which Medicare 

Part D plan sponsors identified and took steps to address potential 

fraud and abuse in the first 6 months of 2007.15 The report found that 

over a quarter of plan sponsors did not identify any incidents of fraud 

and abuse. The report also found that a few plan sponsors identified 

most incidents of potential fraud and abuse. Even those sponsors that 

identified potential fraud and abuse incidents did not always conduct 

inquiries or take corrective actions. Just two plan sponsors made 

89 percent of all referrals of incidents to MEDICs. 

Two OIG reports focused on plan sponsors’ compliance plans. The first 

report, issued in December 2006, examined plan sponsors’ compliance 

plans at the start of the Part D program.16 The report found that few 

sponsors’ plans met all of CMS’s requirements or addressed all of the 

recommendations for the prevention, detection, and correction of fraud, 

waste, and abuse. The second report, issued in October 2008, examined 

CMS’s oversight of plan sponsors’ compliance plans.17 OIG found that 

CMS conducted limited followup on the deficiencies that OIG had 

identified in its 2006 report, such as plan sponsors’ lack of documented 

procedures for internal monitoring and auditing. CMS also did not 

conduct the routine compliance plan audits it originally had planned. 

METHODOLOGY 

Data Collection and Analysis 

We collected data from each of the three MEDICs regarding FY 2008, 

the regional MEDICs’ second year of operations. 18 We asked MEDICs 

15 OIG, “Medicare Drug Plan Sponsors’ Identification of Potential Fraud and Abuse,” 

OEI-03-07-00380, October 2008. 

16 OIG, “Prescription Drug Plan Sponsors’ Compliance Plans,” OEI-03-06-00100, 

December 2006. 

17 OIG, “Oversight of Prescription Drug Plan Sponsors’ Compliance Plans,” 

OEI-03-08-00230, October 2008. 

18 In September 2008, MEDIC West’s contract with CMS was not renewed. CMS 

transitioned the responsibility for the States in MEDIC West’s region to the remaining two 

MEDICs during October and November 2008. We completed collecting data from MEDIC 

West before this transition was finalized. 

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INTRODUCTION 

for the number of incidents of fraud and abuse identified, investigations 

conducted, cases referred and immediate advisements made to OIG, 

referrals to State insurance commissioners, and administrative actions 

referred to CMS.19 We also requested that MEDICs identify the 

external sources and proactive methods they used to identify potential 

fraud and abuse. In addition, we asked MEDICs to identify the types of 

potential fraud and abuse investigated and referred as cases or 

immediate advisements to OIG. We asked MEDICs to describe any 

issues or barriers they encountered in identifying or addressing 

potential fraud and abuse incidents. We reviewed this information to 

determine the extent to which MEDICs both identified potential fraud 

and abuse incidents and took action regarding such incidents. 

From CMS, we obtained reports submitted by each of the MEDICs for 

FY 2008, including vulnerability reports and logs of case referrals, 

immediate advisements, and State insurance commissioner referrals. 

We reviewed this information to determine whether it corresponded 

with the information provided by the MEDICs as part of our data 

request. We also reviewed the vulnerability reports to determine 

whether the MEDICs identified any limitations in addressing 

Part D fraud and abuse. 

After we reviewed the data from the MEDICs and the reports from 

CMS, we conducted onsite visits to each MEDIC to clarify and gain a 

better understanding of the information we received. We asked 

MEDICs for further information on their processes for identifying and 

addressing incidents of potential fraud and abuse. We also asked 

MEDICs to elaborate on any issues or barriers to identifying or 

addressing the potential fraud and abuse incidents described in their 

response to our data request. We compared this information with the 

vulnerability reports provided by CMS to identify any additional 

information on limitations in addressing Part D fraud and abuse. 

Data collection was conducted between September 30 and 

December 18, 2008. 

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. 

19 We included follow-up education as an administrative action. 

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Δ FINDINGS 

MEDICs identified 4,194 incidents of 

potential fraud and abuse and investigated 

1,320 incidents; most incidents were 

identified through external sources rather than 

proactive methods 

 MEDICs identified 4,194 incidents of 

potential fraud and abuse in FY 2008. 

This represents 15 incidents of 

potential fraud and abuse for every 

100,000 beneficiaries enrolled in 

Part D plans. Since the beginning of 

the Part D program, CMS has issued press releases emphasizing the 

importance of using new and innovative data analysis techniques to 

combat Part D fraud and abuse. However, in FY 2008, MEDICs 

identified most incidents of potential fraud and abuse through external 

sources rather than proactive methods. 

Identification of potential fraud and abuse incidents. Eighty-seven percent 

(3,641) of the potential fraud and abuse incidents MEDICs identified in 

FY 2008 were identified through external sources. Complaints were the 

primary external source of potential fraud and abuse incidents MEDICs 

identified. Examples of other types of external sources included leads 

from plan sponsors, law enforcement, and CMS. 

MEDICs reported that they identified the remaining 13 percent (553) of 

potential fraud and abuse incidents through proactive methods. Of the 

553 potential fraud and abuse incidents identified through proactive 

methods, MEDICs identified 93 percent through data analysis. 

Examples of proactive analysis that MEDICs conducted included 

identifying high prescribers of certain drugs and identifying pharmacies 

with the highest Part D payments for prescription drugs. Other types of 

proactive methods included conducting Internet searches and reviewing 

media articles to identify leads. 

MEDICs addressed incidents of potential fraud and abuse by conducting 

investigations, sending immediate advisements and case referrals to 

OIG, making referrals to State insurance commissioners, and making 

referrals to CMS for administrative action. 

Table 1 shows the number and percentage of incidents identified and 

actions taken by the MEDICs and indicates whether the incidents 

involved were identified through external sources or proactive methods. 

 

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 FINDINGS 

Table 1. Number and Percentage of Externally and Proactively Identified Incidents and Actions Taken 

by MEDICs in FY 2008 

External Proactive Incidents 

Identified and 

Actions Taken Number Percentage Number Percentage 

Total 

Incidents 

Identified 3,641 87% 553 13% 4,194 

Incidents 

Investigated1 1,270 96% 50 4% 1,320 

Cases Referred 

to OIG1 52 80% 13 20% 65 

Immediate 

Advisements to 

OIG 

33 97% 1 3% 34 

Referrals to 

State Insurance 

Commissioners2 257 

Referrals to 

CMS for 

Administrative 

Action 

39 100% 0 0% 39 

Source: OIG analysis of MEDICs’ responses to data request. 

1 Investigations and case referrals to OIG may have involved incidents identified prior to our FY 2008 timeframe. 2 We did not ask MEDICs to indicate whether incidents referred to State insurance commissioners were identified through external 

sources or proactive methods.

Investigations. MEDICs conducted a total of 1,320 investigations of 

incidents of potential fraud and abuse in FY 2008. This represents 

five MEDIC investigations for every 100,000 Part D beneficiaries. The 

top three types of potential fraud and abuse investigated by MEDICs 

were marketing schemes (40 percent), drug diversion by beneficiaries 

(21 percent), and inappropriate prescribing (17 percent). Other types 

included theft of beneficiary identity or money and inappropriate 

billing. Ninety-six percent (1,270) of MEDICs’ investigations involved 

incidents of potential fraud and abuse identified through external 

sources. Four percent (50) of investigations were based on incidents 

identified proactively. 

Case referrals and immediate advisements. MEDICs referred 65 cases of 

potential fraud and abuse to OIG in FY 2008. This represents one case 

referral for every 500,000 beneficiaries enrolled in Part D plans. 

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FINDINGS 

Eighty percent of cases (52) referred to OIG involved incidents of 

potential fraud and abuse identified through external sources. Twenty 

percent (13) of case referrals involved incidents of potential fraud and 

abuse identified through proactive methods. One MEDIC was 

responsible for two-thirds of the referrals identified through proactive 

methods. 

Case referrals involved different types of potential fraud and abuse. 

The three types referred most often were drug diversion by beneficiaries 

(29 percent), inappropriate prescribing (26 percent), and inappropriate 

billing (20 percent). Other types included theft of beneficiary identity or 

money and marketing schemes. Appendix A provides examples of the 

top five types of potential fraud and abuse investigated by MEDICs and 

referred to OIG in FY 2008. 

Of the 65 cases referred to OIG, 63 percent (41) of cases were accepted. 

Another 28 percent (18) of referrals were declined by OIG but referred 

to another law enforcement agency. The remaining 9 percent (6) of 

referrals were either declined and referred back to the MEDIC for 

possible CMS administrative action, were returned to the MEDIC for 

further development, or were pending an OIG determination. 

MEDICS made 34 immediate advisements to OIG in FY 2008. 

Sixty-two percent of these involved marketing schemes and another 

15 percent involved inappropriate billing. Ninety-seven percent (33) of 

immediate advisements made to OIG involved potential fraud and 

abuse incidents identified through external sources. One immediate 

advisement involved a potential fraud and abuse incident identified 

through proactive methods. 

State insurance commissioner referrals. MEDICs made a total of 

257 referrals to State insurance commissioners in FY 2008. These 

referrals involved issues with insurance sales agents or brokers, such as 

deceptive marketing. We did not ask MEDICs to break out whether 

State insurance commissioner referrals involved incidents identified 

through external sources or proactive methods. However, MEDICs 

indicated that these referrals were based on incidents identified through 

beneficiary complaints, an external source. 

Administrative actions. MEDICs made 39 referrals to CMS for 

administrative action in FY 2008. Eighty-five percent of these referrals 

involved education, such as education of plan sponsors, as the type of 

administrative action. MEDICs make referrals to CMS when a referral 

to law enforcement is not warranted. For example, a MEDIC received 

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FINDINGS 

numerous complaints about deceptive marketing practices by agents of 

a plan. In this instance, the MEDIC sent a referral to CMS to educate 

the plan sponsor on its responsibility for overseeing agents’ marketing 

activities. All 39 referrals (100 percent) made to CMS for 

administrative action were based on incidents of potential fraud and 

abuse identified through external sources. 

MEDICs reported that they 

need both PDE data and data 

regarding Medicare Part B 

services to effectively identify 

and investigate instances of potential Part D fraud and abuse. 

However, all MEDICs reported problems with accessing and learning 

how to use PDE data and accessing Part B data. 

Problems with accessing and using data 

hindered MEDICs’ ability to identify and 

investigate potential fraud and abuse incidents 

Access to PDE data. The PDE data include information that identifies 

the beneficiary, pharmacy, prescriber, drug, and drug cost. MEDICs 

use PDE data to conduct proactive analysis to identify potential fraud 

and abuse, to investigate potential fraud and abuse incidents, and to 

fulfill requests for information from law enforcement agencies 

investigating cases. Issues with PDE data affected MEDICs ability to 

identify and investigate incidents of potential fraud and abuse. 

MEDICs did not receive access to PDE data until August 2007, nearly a 

year after their contracts began. MEDICs did have access to PDE data 

in FY 2008; however, all three reported that there were problems with 

accessing and learning how to use these data. The time spent learning 

how to access and use PDE data delayed MEDICs ability to fully use the 

data for analysis. 

Access to important variables. MEDICs also reported that either PDE 

data do not include, or they cannot efficiently access, certain 

information that is vital to identifying and investigating potential fraud 

and abuse and building case referrals. For example, the MEDICs 

reported that PDE data do not include beneficiary demographic 

information, such as name and address. Law enforcement agencies also 

often ask for beneficiary information when they request information 

from the MEDICs. One MEDIC stated that not having this information 

available directly in the PDE makes fulfilling requests from law 

enforcement challenging. In addition, one MEDIC also noted that the 

beneficiary ZIP Code could not be accessed through the interface it uses 

to mine PDE information. This MEDIC explained that when using PDE 

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FINDINGS 

data in a mainframe environment, it could not access the beneficiary 

ZIP Code. The beneficiary ZIP Code could be accessed when using PDE 

data through the desktop application MEDICs use called Cognos. 

However, the MEDIC indicated that Cognos does not support complex 

data mining. Two MEDICs reported developing methods to circumvent 

barriers to accessing beneficiary address and ZIP Code information. 

However, MEDICs reported that not having this information readily 

available in the PDE data made conducting proactive data analysis to 

identify or investigate potential fraud and abuse incidents difficult. 

Problems with prescriber identifiers in PDE data. MEDICs reported 

problems with using the PDE fields containing prescriber identifiers 

when accessing records through Cognos. MEDICs indicated that when 

they accessed PDE data using Cognos, different types of prescriber 

numbers were not stored in the correct fields, which affected the results 

of their data analysis. For example, one MEDIC reported that when 

using Cognos to query PDE data for records with a provider’s National 

Provider Identifier (NPI) number, it found that NPI numbers were 

being stored in the field for Drug Enforcement Agency (DEA) numbers. 

As a result, no PDE records were identified when queries were run 

through Cognos using a prescriber’s NPI number. The MEDIC 

addressed this issue by running queries with prescribers’ NPIs against 

the DEA field. However, by the time this issue was identified, a number 

of case referrals had been sent to OIG and requests for information from 

law enforcement agencies had been completed. Therefore, the original 

information sent may not have included all of the records for a 

particular prescriber or his/her ranking among other prescribers may 

have been inaccurate. 

Issues with tracking changes to PDE data. Two MEDICs also pointed out 

that PDE records may change over time and MEDICs cannot see the 

various iterations of a PDE record when they access PDE data. For 

example, if a plan sponsor identifies a pharmacy overpayment, it may 

correct the improper payment and adjust the PDE record. Once the 

adjustment is made, there is no record of the original payment amount 

in the PDE data that MEDICs access. This means that PDE data 

accessed at two different times may appear very different and there is 

no way to track the changes back to the original data without going to 

the plan sponsor for the claim. According to one MEDIC’s vulnerability 

report, this missing information is vital to determining trends across 

multiple plans and to quantifying the amount of potential fraud for a 

particular pharmacy. 

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FINDINGS 

Access to Part B data. MEDICs need Part B data to conduct proactive data 

analysis and investigate potential Part D fraud and abuse incidents. For 

example, Part B data include diagnosis information, which may indicate 

whether a prescribed drug is appropriate. However, two MEDICs were 

not given access to Part B data until the fall of 2008, 2 years after their 

contracts began. The third MEDIC did not receive access to Part B data 

before its contract ended. One MEDIC stated that PDE data allow it to 

see only what drug was dispensed at the pharmacy and how much was 

paid. Having Part B data showing that the beneficiary had a 

corresponding doctor’s visit would help MEDICs determine whether a 

prescription was appropriate. 

MEDICs’ lack of authority to directly obtain 

information from pharmacies, pharmacy benefit 

managers, and physicians hindered their ability 

to investigate potential fraud and abuse 

incidents 

The ability to access information, 

such as hard copies of 

prescriptions and medical records, 

is important for conducting 

investigations and developing 

cases. According to the MEDICs, 

in FY 2008 they did not have the authority to directly obtain 

prescriptions or medical records from pharmacies, pharmacy benefit 

managers, and physicians. Federal regulations, effective in 2008, 

required plan sponsors and their related entities, contractors, and 

subcontractors to provide the Department of Health and Human 

Services and its designees with access to the books and records relating 

to the transactions under the plan sponsors’ Part D contracts with 

CMS.20 However, MEDICs reported that because CMS contracts with 

plan sponsors, MEDICs had the authority to request information only 

from the plan sponsors, not directly from first tier, downstream, and 

related entities, such as pharmacies and pharmacy benefit managers.21 

In addition, MEDICs indicated that they could not obtain medical 

records directly from physicians. One of the MEDICs reported that 

ideally it would conduct an investigation by requesting medical records 

from the physician to compare the diagnosis with the beneficiary’s 

medication. The three MEDICs indicated that not being able to obtain 

20 42 CFR § 423.505(i)(2)(i)(2008). 

21 First-tier, downstream, and related entities are generally entities that contract with 

plan sponsors. These entities are further defined at 42 CFR § 423.4. These entities were 

referred to in previous regulations as related entities, contractors, and subcontractors. 

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FINDINGS 

information directly from these entities was a barrier in investigating 

incidents of potential fraud and abuse. 

New Part D regulations that took effect January 1, 2009, require that 

plan sponsors specify in their contracts with first tier, downstream, and 

related entities whether CMS or its agents (i.e., the MEDICs) may 

obtain information directly from these entities or whether the plan 

sponsor will provide the information.22 However, if plan sponsors’ 

contracts specify that information will be provided by them and not 

these entities, this will not address the MEDICs’ problem with 

obtaining information directly. Additionally, this provision does not 

address MEDICs’ authority to request medical records directly from 

physicians. 

MEDICs’ ability to identify 

potential fraud and abuse 

through external sources may 

have been hindered by a lack 

of referral requirements for Part D sponsors. Of the 3,641 incidents of 

potential fraud and abuse identified through external sources, 

15 percent were referred by plan sponsors. However, MEDICs indicated 

that they may not have been aware of all incidents of potential fraud 

and abuse because plan sponsors are not required to refer such 

incidents to MEDICs, although they are encouraged to do so.23 

MEDICs may not have been aware of some 

potential fraud and abuse incidents because 

plan sponsors are not required to refer them 

Previous OIG work in this area indicates that few plan sponsors 

referred incidents to MEDICs.

24 One MEDIC stated it received 

relatively few referrals of potential fraud and abuse incidents compared 

to the number of plan sponsors in its jurisdiction. The other two 

MEDICs indicated that while some plans referred incidents of potential 

fraud and abuse, other plans had never referred any such incidents. 

Plan sponsors may also report potential fraud or abuse to law 

enforcement agencies, such as OIG and the Department of Justice, 

without notifying the MEDICs. Therefore, MEDICs would not have 

22 42 CFR § 423.505(i)(3)(iv). 

23 CMS, “Prescription Drug Benefit Manual,” Pub. No. 100-18, ch. 9, § 50.2.8.2; 

42 CFR § 423.504(b)(4)(vi)(G)(3). 

24 OIG, “Medicare Drug Plan Sponsors’ Identification of Fraud and Abuse,” 

OEI-03-07-00380, October 2008. 

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FINDINGS 

been aware of these incidents and, as a result, could have missed trends 

indicating problem providers or evidence of fraud schemes. 

CMS did not give MEDICs approval to conduct 

audits of plan sponsors’ compliance 

plans in FY 2008 

 

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Plan sponsors must have 

compliance plans with measures 

to detect, correct, and prevent 

fraud, waste, and abuse. These 

compliance plans must include certain elements, such as procedures for 

effective internal monitoring and auditing and procedures for ensuring 

prompt responses to detected offenses. 

As outlined in the Statement of Work and their individual task orders, 

MEDICs are responsible for conducting audits of plan sponsors’ 

compliance plans. However, none of these audits were conducted in 

FY 2008. All three MEDICs indicated that they were prepared to 

conduct compliance plan audits in FY 2008 but were not given approval 

by CMS to do so. One MEDIC indicated that it had the funds to begin 

the compliance plan audits but that CMS had not given approval to 

start conducting them. 

Without compliance plan audits, there is no way to determine whether 

plan sponsors have these elements in place. Between October and 

December 2008, 2 years after MEDICs’ regional contracts began, the 

two remaining MEDICs did receive approval from CMS to begin 

10 audits of plan sponsors’ compliance plans. As of June 2009, six of 

these audits had been completed. 
 

 

Δ RECOMMENDATIONS 

In 2005, prior to the start of the Part D program, CMS outlined a 

strategy in which innovative data analysis, conducted primarily by 

MEDICs, was one of the keys to combating Part D fraud and abuse. 

The Part D program is now in its fourth year, and while CMS has 

reprioritized its oversight activities since 2005 because of budget 

shortfalls, proactive data analysis remains an important tool in its 

efforts to fight Part D fraud and abuse. 

Combating Part D fraud and abuse involves a number of key 

participants, including CMS, plan sponsors, and MEDICs. Previous 

OIG reviews have focused on plan sponsors’ identification of fraud and 

abuse as well as CMS’s oversight of the Part D program. All of these 

reviews have identified vulnerabilities in the efforts to combat Part D 

fraud and abuse. One study found that a few plan sponsors identified 

most of the potential fraud and abuse incidents and a quarter identified 

none. Another study found that most plan sponsors’ compliance plans 

did not meet all requirements. Two additional studies focused on CMS’s 

oversight of the Part D program. One of these studies found that CMS 

conducted limited followup on the deficiencies that OIG had identified 

regarding sponsors’ compliance plans. The other study found CMS had 

not conducted any significant data analysis for fraud detection purposes 

and had relied largely on complaints to identify potential fraud and 

abuse. 

Our current review found that during their second year of operations, 

MEDICs identified most incidents of potential fraud and abuse through 

external sources, such as complaints, rather than proactive methods. In 

addition, MEDICs’ ability to identify and investigate potential fraud 

and abuse incidents has been hindered by problems with accessing and 

using data, lack of authority to directly obtain information from certain 

entities, and limited referrals from plan sponsors. Also, CMS did not 

give MEDICs approval to conduct compliance plan audits in FY 2008 to 

determine whether plan sponsors’ compliance plans included required 

measures to detect, correct, and prevent fraud, waste, and abuse. 

CMS’s strategy was intended to combat fraud and abuse, partially 

through data analysis. However, MEDICs reported that barriers 

hindered their ability to consistently conduct comprehensive data 

analysis to detect and prevent potential fraud and abuse. 

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RECOMMENDATIONS 

Therefore we recommend that CMS: 

Ensure MEDICs have access to accurate and comprehensive data to assist 

them in identifying and investigating potential fraud and abuse and 

conducting proactive data analysis 

CMS should work with MEDICs to identify what specific changes to the 

content or structure of PDE, Part B, or other data are needed to allow 

MEDICs to more readily conduct proactive data analysis and respond to 

requests from law enforcement. 

Authorize MEDICs to directly obtain information that they need to identify 

and investigate potential fraud and abuse from entities, such as pharmacies, 

pharmacy benefit managers, and physicians 

While we recognize that implementing this recommendation may 

require statutory or regulatory change, allowing MEDICs direct access 

to these entities is vital to their ability to effectively identify and 

investigate potential fraud and abuse. 

Require plan sponsors to report all potential fraud and abuse incidents that 

are referred to law enforcement agencies to MEDICs as well 

If plan sponsors refer potential fraud and abuse to law enforcement 

agencies, they should also share this information with MEDICs to help 

MEDICs identify fraud and abuse trends and target problem providers. 

Ensure MEDICs have approval to conduct compliance plan audits that they 

are responsible for under their task orders and Statement of Work 

While MEDICs did not have CMS’s approval to conduct compliance plan 

audits in FY 2008, they did receive approval to conduct 10 of these 

audits in early FY 2009. CMS should make approval of additional 

compliance plan audits a priority in the future. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with three of our four recommendations. CMS stated 

that it is committed to ensuring that its contractors have access to the 

information they need to identify, prevent, and fight Part D fraud. 

CMS concurred with our first recommendation and stated that it is 

building One PI, a system containing data on Part D, Part A, and Part B 

claims that MEDICs will have access to. CMS is confident that One PI 

will address the data concerns outlined in this report and will also 

facilitate proactive fraud identification efforts. However, CMS did not 

state when it expects MEDICs to have access to this system. 

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RECOMMENDATIONS 

CMS did not indicate whether it concurred with our second 

recommendation. Instead, CMS stated that it recognizes the value of 

the recommendation but that its statutory authority to collect 

information directly from downstream entities is limited because of the 

structure of the Part D program. CMS stated that it will continue to 

search for alternatives to enhance its efforts in this area. We 

acknowledge in our recommendation that statutory or regulatory 

change may be needed and we encourage CMS to seek these changes. 

CMS concurred with our third recommendation; however, CMS stated 

that it currently does not have the regulatory basis to require that plan 

sponsors report these incidents. We disagree and note that our 

recommendation does not require imposing mandatory self-reporting 

requirements on PDP sponsors; we only recommend that, to the extent 

such disclosures are made, CMS require them to also be reported 

to the MEDICs. We believe current regulations at 42 CFR 

§ 423.504(b)(4)(vi)(G)(3), which provides that PDP sponsors should 

report fraud and abuse incidents “to CMS or its designee,” give CMS the 

ability to require that MEDICs be provided with such reports. 

CMS concurred with our fourth recommendation and acknowledged that 

there were delays in starting compliance plan audits. CMS stated that 

it has recently conducted a compliance plan audit of its largest Medicare 

Advantage and Part D contractor and that compliance plan audits will 

continue during FY 2009. However, CMS did not indicate how many 

compliance plan audits would be conducted in FY 2009 nor how many 

were planned for FY 2010. 

We ask that CMS, in its final management decision, more clearly 

indicate whether it concurs with our second recommendation and what 

steps, if any, it will take to implement both our second and third 

recommendations. In addition, we ask that CMS provide more detail 

regarding its implementation of our first and fourth recommendations. 

The full text of CMS’s comments is provided in Appendix B. 

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Δ APPENDIX~A

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Table A-1: Top Five Types of Potential Fraud and Abuse Investigated and Referred 

Top Five Types of Potential Fraud and Abuse Investigated by Medicare Drug Integrity Contractors and Referred to 

the Office of Inspector General in Fiscal Year 2008 

Type of Fraud 

 and Abuse Examples 

Drug Diversion 

by 

Beneficiaries 

•

•

•

•

Consulting a number of doctors to obtain multiple prescriptions. 

Giving or selling prescribed medication to someone else. 

Reselling drugs on the black market. 

Forging or altering a prescription. 

Inappropriate 

Billing 

•

•

•

•

•

Billing for drugs not provided. 

Billing for brand-name drugs when generics are dispensed. 

Billing for noncovered drugs as covered. 

Billing multiple payers for the same prescription, except as required for coordination of 

benefit transactions. 

 Splitting prescriptions to receive additional fees. 

Inappropriate 

Prescribing 

•

•

Writing prescriptions for drugs that are not medically necessary. 

Misrepresenting dates and descriptions of prescriptions provided or the identity 

individual who provided the prescriptions. 

of the 

Marketing 

Schemes 

•

•

•

•

Conducting unsolicited door-to-door marketing. 

Enrolling a beneficiary without his/her permission. 

Offering beneficiaries a cash payment to enroll in Part D. 

 Using unlicensed agents. 

Theft of 

Beneficiary 

Identity/Money 

•

•

•

Asking a beneficiary for banking information over the telephone. 

Individual or organization posing as a Medicare representative with intent to steal a 

beneficiary's identity or money. 

 Stealing beneficiary identification and using it to obtain drugs. 

Sources: Office of Inspector General analysis of Medicare Drug Integrity Contractors’ (MEDIC) response to data request and 

review of MEDICs’ documentation; Centers for Medicare & Medicaid Services (CMS), “MEDIC Statement of Work,” § 6.1.1, 

Rev. 2, September 28, 2007; and CMS, “Prescription Drug Benefit Manual,” Rev. 2, April 25, 2006, ch. 9, § 70. 
A P PEN D x B
 

Agency Comments 

/.,aYlc~.4t,

(" t#.~.. Center$ far Medicare & Medicaid Services 	 DEP~RTMENT OF HEALTH & HUMAN SERVICES 

'<S~ Admin/stra tor

Wasningtan, DC 20201 

DATE:	 ~AtJG J~ g 

TO:	 Daniel R. Levinson
 

Inspector General
 

FROM:	 ~arlerre Frizzera
 

Acting Administrator
 

SUBJECT:	 Officeoflnspector General (OIG) Draft: Report: "Medicare Drug 

Integrity Contractors' Identification olPotential Part D Fraud and Abuse" 

~OEI-03-08-00420)

Thank yoU for the opportunity to comment on the above-referenced DIG draft report. 

The Centers forMedkare & Medicaid Services (CMS)appteciatesthe OIG's efforts in 

reviewing the Medicate Drugintegtiiy Contractors (MEDICs) identification offraud, 

waste, and abuse among Part D sponsors.CMS is concerned about the risks that 

potential fraud poses to the Part D Program,and we have remedied some ofthe MEDlCs 

data access issues. We are committed to ensuring that Our ContractOrS have acCess to the 

information they need to help us identify, prevent, and fight Part D fraUd. 

(jIG Recommendation 

Ensure MEDICs have access to accurate and comprehensive data to assist them in 

identifying and investigating potential fraud and abuse and conducting proactive data 

analysis. 

CMS Response 

The eMS concurs with this recommendation. CMS is currently building One PI,which 

is a datasystem that wiHgive the MEDICs access to detailed data on all Part D claims, as 

well as Parts A and B Claims. Weare confident that One PI will address the.data 

concerns outlined in this report as well as faciiitate proactive fraud identification efforts. 

OIG Recommendation 

Authorize MEDICs to directly obtain inforrrtationthat they need to Identify and 

investigate potential fraud and abuse fiomentities, such as phannacles, pharmacy benefit 

managers, and physicians. 

OEI·03·08·00420 MEDICs' 10ENTIFICATION OF POTENTIAL PART D FRAUO ANO ABUSE 20 
 

 

APPENDIX ~ B 

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APPENDIX ~ B 
 

 

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Δ 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 Linda M. Ragone, Deputy Regional Inspector 

General. 

Tara J. Bernabe served as the team leader for this study. Other 

principal Office of Evaluation and Inspections staff from the 

Philadelphia regional office who contributed to the report include 

Nancy J. Molyneaux; central office staff who contributed include 

Rita Wurm.