Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

Daniel R. Levinson 

Inspector General 

April 2009 

OEI-03-08-00290 

 

ABERRANT CLAIM PATTERNS 

FOR INHALATION DRUGS IN 

SOUTH FLORIDA 
 

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. 
 

 

Δ EXECUTIVE SUMMARY 

OBJECTIVES

1. To compare Medicare utilization and spending for inhalation 

drugs among beneficiaries in South Florida to utilization and 

spending among beneficiaries in the rest of the country. 

2. To compare Medicare supplier billings for inhalation drugs in 

South Florida to Medicare supplier billings in the rest of the 

country. 

3. To compare beneficiary utilization of inhalation drugs (in South 

Florida and the rest of the country) to utilization guidelines set by 

the Medicare program. 

4. To examine relationships between inhalation drug suppliers, 

prescribing physicians, and Medicare beneficiaries in South 

Florida. 

BACKGROUND 

Medicare Part B covers inhalation drugs when they are used in 

conjunction with durable medical equipment (DME). Beneficiaries 

typically obtain DME items, including inhalation drugs, through 

suppliers, which then submit claims to Medicare on behalf of the 

beneficiaries. The Centers for Medicare & Medicaid Services (CMS) 

contracts with four geographically defined DME Medicare 

Administrative Contractors to process and pay for DME claims. CMS 

also contracts with Program Safeguard Contractors (PSC) to administer 

benefit integrity functions and conduct medical review. 

CMS may establish national coverage determinations for DME items. 

National coverage determinations specify whether certain medical 

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

Medicare payment. When a national coverage determination does not 

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

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

for inhalation drugs (L5007), originally effective on April 1, 1997, and 

revised on July 1, 2007, establishes coverage limitations such as the 

maximum milligrams per month that may reasonably be billed for a 

beneficiary. 

We used the Medicare National Claims History file to identify all 

inhalation drug claims in 2007. We compared the average number of 

paid claims and the dollar amount paid for inhalation drug claims for 

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EXECUTIVE SUMMARY 

beneficiaries in South Florida (Miami-Dade, Broward, and Palm Beach 

Counties) to beneficiaries in the rest of the country. We compared the 

average amount submitted and paid per supplier for beneficiaries in 

South Florida to the average amount submitted and paid per supplier 

for beneficiaries in the rest of the country. We also compared the 

average Medicare spending per beneficiary for inhalation drugs in 

South Florida and the rest of the country to the amounts associated 

with the maximum milligrams listed in the LCD. Finally, we 

determined the percentage of paid South Florida inhalation drug claims 

in 2007 for which the beneficiary did not have any Medicare Part B 

service claims (e.g., a Medicare-billed office visit) occurring in 2005, 

2006, or 2007 with the physician who reportedly prescribed the drug. 

FINDINGS 

Although only 2 percent of Medicare beneficiaries live in South 

Florida, this area accounted for 17 percent of Medicare spending on 

inhalation drugs in 2007. Medicare paid almost $143 million for 

inhalation drugs in Miami-Dade County alone—an amount 20 times 

greater than the amount paid in Cook County, Illinois, the county 

(outside South Florida) with the next highest total payments. However, 

according to Medicare enrollment data, Cook County is home to almost 

twice as many Medicare beneficiaries as Miami-Dade County. 

In 2007, Medicare’s average per-beneficiary spending on inhalation 

drugs was five times higher in South Florida than in the rest of the 

country. Among beneficiaries with paid inhalation drug claims, 

Medicare spent approximately $4,400 per South Florida beneficiary on 

inhalation drugs, compared to just $815 per beneficiary on inhalation 

drugs in the rest of the country. 

For individual inhalation drugs, Medicare per-beneficiary spending on 

brand name products (budesonide and levalbuterol) was much greater 

in South Florida than in the rest of the country, while spending on 

generic products (albuterol and ipratropium bromide) was similar to the 

rest of the country. Among beneficiaries with paid budesonide claims in 

2007, the average Medicare spending on the drug in South Florida was 

$4,429 per beneficiary compared to $1,567 per beneficiary in the rest of 

the country. In the first half of 2007 (before a coding change took effect 

on July 1), Medicare’s spending on levalbuterol per beneficiary in South 

Florida was $2,312 as compared to $1,035 per beneficiary in the rest of 

the country. In 2007, 56 percent of South Florida beneficiaries who 

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EXECUTIVE SUMMARY 

received inhalation drugs had claims paid for budesonide, compared to 

14 percent of beneficiaries in the rest of the country. 

Supplier billing patterns for inhalation drugs differed substantially 

between South Florida and the rest of the country. Beneficiaries in 

South Florida were more likely to have multiple suppliers. Thirty-one 

percent of South Florida beneficiaries had more than one supplier 

providing inhalation drugs during 2007, as compared to 12 percent of 

beneficiaries in the rest of the country. Beneficiaries with claims for 

budesonide were particularly likely to have more than one supplier of 

the drug. In 2007, an average of 27 percent of beneficiaries with 

budesonide claims in South Florida had multiple suppliers in the first 

half of the year, as compared to 9 percent of beneficiaries in the rest of 

the country. 

Overall, suppliers billed Medicare an average of $1,176 in inhalation 

drug claims for each of their South Florida beneficiaries in 2007; on 

average, they were paid $585 for each beneficiary that year. In the rest 

of the country, suppliers billed Medicare an average of $661 per 

beneficiary for inhalation drugs in 2007 and were paid $307. 

Medicare paid for inhalation drug claims that did not comply with 

LCD guidelines. The average Medicare payment for a 90-day supply of 

budesonide in South Florida was more than double the payment amount 

for the maximum milligrams listed in the LCD. Seventy-five percent of 

South Florida beneficiaries who received budesonide had 

Medicare-reimbursed budesonide claims that exceeded the utilization 

guidelines, compared to 14 percent in the rest of the country. Although 

the average payment for the other inhalation drugs fell within the 

guidelines set by the LCD, several individual South Florida 

beneficiaries still exceeded the maximum payment amount for a 90-day 

supply of the other drugs. 

For 62 percent of inhalation drug claims in South Florida, the 

beneficiary did not have a Part B service visit during the last 3 years 

with the physician who reportedly prescribed the drug. According to 

Medicare data, for 62 percent of South Florida inhalation drug claims, 

the beneficiaries on these claims did not have a Medicare-billed office 

visit or other service in 2005, 2006, or 2007 with the physician who 

reportedly prescribed the drug. Medicare paid $114 million (71 percent 

of total South Florida payments) for these inhalation drug claims in 

2007. For 16 percent of suppliers, not a single South Florida beneficiary 

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EXECUTIVE SUMMARY 

to whom they provided inhalation drugs had a billed claim with the 

physician listed on the claim form. 

Certain ordering physicians in South Florida were associated with 

a large volume of inhalation drug claims. In 2007, 10 South Florida 

physicians were each listed as the ordering physician on more than 

$3.3 million in submitted inhalation drug claims. Each of the 

10 physicians reportedly ordered inhalation drugs for an average of 

745 South Florida beneficiaries in 2007. These physicians had 

Medicare-paid office visits in 2005 through 2007 with between 

1 percent and 53 percent of the beneficiaries for whom they reportedly 

ordered inhalation drugs for in 2007. Medicare paid a total of 

$28 million for inhalation drugs reportedly ordered by these 

10 physicians during the year. 

RECOMMENDATIONS 

South Florida has been identified by the Office of Inspector General 

(OIG), CMS, and other agencies as a high-risk area for fraudulent 

billings to Medicare by DME suppliers. Fraudulent billings jeopardize 

the financial integrity of Medicare and may endanger Medicare 

beneficiaries when the drugs are overprescribed. 

Our findings demonstrate that even though CMS has made efforts to 

reduce DME fraud in South Florida, a problem may persist among DME 

suppliers billing for inhalation drugs. Medicare spent substantially 

more on inhalation drugs per beneficiary in South Florida during 2007 

than it did among beneficiaries in the rest of the country. The greatest 

spending discrepancies occurred among the brand name drugs 

budesonide and levalbuterol. In particular, spending and utilization for 

budesonide were much higher not only in comparison to averages in the 

rest of the country but also in relation to coverage guidelines. 

Furthermore, many of the South Florida beneficiaries did not have a 

Medicare service claim during the last 3 years with the physician who 

reportedly prescribed the inhalation drugs. Therefore, we recommend 

that CMS: 

Ensure That All PSCs, Particularly the PSC Covering Florida, Are 

Enforcing the Guidelines for Maximum Milligrams per Month for All 

Inhalation Drugs, Especially Budesonide. 

Eliminate Medicare’s Vulnerability to Potentially Fraudulent or 

Excessive Claims for Beneficiaries Prescribed Inhalation Drugs in 

South Florida. 

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EXECUTIVE SUMMARY 

Review Cases in Which the DME Supplier Appears To Be Fraudulently 

Billing Medicare for Inhalation Drugs and Take Appropriate Action 

Based on the Review’s Results. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with all three of our recommendations. CMS stated 

that through its Program Integrity Miami field office and the DME Stop 

Gap Plan, it has already identified and begun to address many of the 

same issues cited in our report. In addition, CMS noted that OIG’s 

findings reinforce the validity of the agency’s efforts. 

In response to our recommendations, CMS stated that, as of September 

2008, the DME PSC for South Florida and the DME MAC had 

implemented a “medically unlikely” edit for budesonide. According to 

CMS, there was an immediate and significant 50-percent decrease in 

both allowed and billed amounts for the drug in Miami-Dade and 

Broward counties. In addition, CMS described the efforts by its Miami 

and Los Angeles field offices to identify suppliers whose beneficiaries 

had no clinical relationship with the physicians listed on DME claims, 

and revoke the Medicare billing numbers for suppliers not meeting 

supplier standards. Finally, CMS expressed its commitment to 

continually reviewing and refining the process to improve the Medicare 

program and will review any additional information provided by OIG. 

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

comments. 
 

Δ TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

 Spending on South Florida beneficiaries was disproportionate . . 11 

 Supplier billing patterns differed . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

 Medicare paid for claims that did not comply with the LCD. . . . . 14 

 Beneficiaries did not have Part B service claims. . . . . . . . . . . . . . 16 

 Certain physicians were associated with large volumes of 

 inhalation drug claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 

 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 

 Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 

 A: Calculation for Local Coverage Determination Guideline 

 Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 

 B: Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 

 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 
 

 

OBJECTIVES 

1. To compare Medicare utilization and spending for inhalation 

drugs among beneficiaries in South Florida to utilization and 

spending among beneficiaries in the rest of the country. 

2. To compare Medicare supplier billings for inhalation drugs in 

South Florida to Medicare supplier billings in the rest of the 

country. 

3. To compare beneficiary utilization of inhalation drugs (in South 

Florida and the rest of the country) to utilization guidelines set by 

the Medicare program. 

4. To examine relationships between inhalation drug suppliers, 

prescribing physicians, and Medicare beneficiaries in South 

Florida. 

BACKGROUND 

Medicare Part B Coverage of Inhalation Drugs 

Although Medicare Part D covers most outpatient prescription drugs, 

the Centers for Medicare & Medicaid Services (CMS) continues to cover 

a limited number of prescription drugs and biologicals (hereinafter 

referred to as drugs) under its Part B benefit. These drugs generally 

fall into three categories: drugs furnished incident to a physician’s 

service, drugs explicitly covered by statute, and drugs administered 

through durable medical equipment (DME).1 

Inhalation drugs administered via a nebulizer, a class of DME drug, are 

provided to Medicare beneficiaries by DME suppliers. Physicians 

typically prescribe these drugs to treat and prevent symptoms 

associated with lung diseases, such as asthma and chronic obstructive 

pulmonary disorder. Long term use is usually required because 

inhalation drugs are often used to treat incurable and lifelong diseases. 

In 2007, four products (albuterol, levalbuterol, budesonide, and 

ipratropium bromide) accounted for 72 percent of the $946 million 

Medicare spent on inhalation drugs nationally and 95 percent of the 

$160 million spent in South Florida. 

Δ INTRODUCTION 

1 68 Fed. Reg. 50428, 50429 (Aug. 20, 2003). 

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INTRODUCTION 

CMS contracts with four geographically defined DME Medicare 

Administrative Contractors (MAC) to process and pay for DME claims, 

including those for inhalation drugs.2 For an inhalation drug claim to 

be eligible for Medicare reimbursement, the DME supplier must have a 

signed prescription from the treating physician and the physician’s 

identification number must be listed on the submitted claim form. 

Generally, Medicare will pay 80 percent of the authorized 

reimbursement amount to the DME supplier providing the inhalation 

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

form of coinsurance. 

CMS contracts with Program Safeguard Contractors (PSC)3 to perform 

benefit integrity and medical review functions for each of the four DME 

MAC jurisdictions.4 Benefit integrity functions include fraud 

investigations; data analysis; and prepay and postpay medical reviews 

of claims involving potential fraud, waste, and abuse. Before 

March 1, 2008, the PSCs also conducted medical reviews for purposes 

other than benefit integrity, such as performing comprehensive error 

rate testing, educating suppliers, and making coverage determinations. 

However, effective March 1, 2008, CMS transferred the responsibility 

for these types of medical reviews from the PSCs to the DME MACs. 

DME Coverage Determinations 

CMS may establish national coverage determinations for DME items 

(including inhalation drugs) and has typically based those 

determinations on statutory guidelines found in section 1862(a)(1) of the 

Social Security Act. National coverage determinations specify whether 

certain medical items, services, treatment procedures, or technologies 

are eligible for Medicare payment. The DME MACs and PSCs are 

required to follow national coverage determinations when they exist. 

2 

2 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires 

CMS to implement competitive procedures to replace DME regional carriers with DME 

MACs. In 2006, CMS competitively selected four DME MACs and began to transition 

claims administration activities from DME regional carriers to DME MACs. As of 

June 1, 2007, the four DME MACs awarded contracts were the National Heritage Insurance 

Company for Jurisdiction A; AdminaStar Federal, Inc., for Jurisdiction B; CIGNA 

Government Service, LLC, for Jurisdiction C (Florida is 1 of 15 States and 2 U.S. territories 

included in Jurisdiction C); and Noridian Administrative Services for Jurisdiction D. 

3 Social Security Act § 1893(a), 42 U.S.C. § 1395ddd. 

4 Each DME MAC is responsible for coordinating with the PSC that conducts program 

integrity reviews in the DME MAC’s jurisdiction. The PSC for Jurisdictions A and B is 

TriCenturion; the PSC for Jurisdiction C is TrustSolutions, LLC; and the PSC for 

Jurisdiction D is Electronic Data Systems. 

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INTRODUCTION 

However, when a national coverage determination does not exist or 

when there is a need for further definition, Medicare contactors may 

establish a local coverage determination (LCD). An LCD defines 

coverage criteria, payment rules, and documentation requirements that 

will be applied to claims processed by the individual Medicare 

contractors. Because many DME suppliers operate nationally, CMS 

requires that LCDs involving DME items (including inhalation drugs) 

be identical among all four DME MACs. 

Effective March 1, 2008, DME MACs have full responsibility for 

developing and revising LCDs. Before that date, the PSCs developed 

the LCDs and submitted them to the DME MACs (or their predecessors, 

the DME regional carriers) for approval. The DME MACs reviewed the 

recommended LCDs and determined whether they would be adopted or 

rejected. 

One PSC established an LCD (L5007), effective April 1997, that set 

guidelines for the maximum milligrams per month that may reasonably 

be billed for certain inhalation drugs. The LCD states that a claim will 

be denied if it does not follow these guidelines unless there is 

documentation in the patient’s medical records to support medical 

necessity. As required by CMS, the LCD is effective nationally, 

meaning that it applies to inhalation drug claims in all four DME MAC 

jurisdictions. Numerous revisions have been made to the LCD since its 

establishment. For example, as part of the July 1, 2007, revision, a 

maximum milligrams guideline for budesonide was included in the 

LCD.5 

The maximum milligrams listed in this LCD are typically much higher 

than the normally prescribed dose. For example, the LCD lists the 

maximum milligrams for levalbuterol as up to 232.5 milligrams per 

month. However, the package insert for levalbuterol states that 

patients receiving the highest dosage (112.5 milligrams per month) 

should be monitored closely for adverse side effects (e.g., seizures, 

tachycardia, cardiac arrest).6

3 

5 The maximum milligrams per month listed in the LCD for the four inhalation drugs 

that account for the majority of Medicare inhalation drug payments are: up to 

465 milligrams for albuterol, up to 232.5 milligrams for levalbuterol, up to 93 milligrams for 

ipratropium bromide, and up to 31 milligrams for budesonide (effective July 1, 2007). 

6 Levalbuterol package insert. Available online at http://www.xopenex.com. Accessed on 

September 2, 2008. 

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INTRODUCTION 

According to staff at the DME MAC that includes Florida, automated 

edits have been implemented for most of the inhalation drugs covered 

by the LCD. These edits detect whether the beneficiary’s utilization of 

an 83-day supply of the drug exceeds the LCD’s maximum milligrams 

parameters for a 3-month period and, if so, suspends payment until the 

claim can be reviewed manually.7 Although budesonide was included in 

the LCD as of July 1, 2007, as of August 18, 2008, the PSC for 

Jurisdiction C (the region including Florida) has yet to establish edits 

that will enable the DME MAC to monitor this drug’s utilization. 

Medicare Enrollment of DME Suppliers 

Before a DME supplier may bill Medicare, it must obtain a National 

Provider Identifier (NPI), which is a unique identifier for health care 

providers that is assigned by the National Plan and Provider 

Enumeration System. After obtaining the NPI, the DME applicant 

must submit a completed application form (Form CMS-855S) and 

supporting documents to CMS. The forms contain information about 

the applicant (e.g., adverse legal actions and convictions); the supplier’s 

practice location; the names of organizations or individuals having 

ownership or managing control of the business; and the billing agent for 

the supplier, if one exists. By signing and submitting the application 

forms, the DME applicant agrees to follow all Medicare laws, 

regulations, and program instructions. Additionally, the DME 

applicant must meet certain Medicare supplier standards.8 

CMS contracts with the National Supplier Clearinghouse (NSC), 

operated by Palmetto Government Benefit Administrators, to manage 

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

Medicare supplier standards, NSC must conduct an unannounced site 

visit while the application is being processed. Generally, if the supplier 

is not in compliance, NSC will deny the application. 

DME suppliers are required to reenroll in the Medicare program every 

3 years to continue receiving Medicare payment.9 The reenrollment 

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

the required documentation. NSC conducts an unannounced 

4 

7 The edit is based on an 83-day period (7-day grace period for delivery) because a 

supplier may bill for up to a 90-day supply of the drug. 

8 42 CFR § 424.57(c). 

9 42 CFR § 424.57(e). 

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INTRODUCTION 

reenrollment site visit to ensure that the supplier continues to meet 

Medicare standards. 

Medicare DME Fraud in South Florida 

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

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

prevent Medicare fraud by area DME suppliers. Medicare beneficiaries 

and physicians often play a key role in the suppliers’ efforts to bill 

Medicare for unnecessary items. The task force found that one method 

used to defraud Medicare involved DME suppliers paying physicians for 

writing fraudulent inhalation drug prescriptions and paying Medicare 

beneficiaries for accepting the unnecessary medication. In these cases, 

beneficiaries typically received around $100 to $150 per month for use 

of their Medicare cards. In multiple cases, beneficiaries testified that 

they did not use, but instead threw away, the inhalation drugs they 

received.10 DME suppliers have testified that the medication billed to 

Medicare was illegally manufactured in shell pharmacies that did not 

stock real medications and did not have customers.11 

However, beneficiaries and physicians are not always aware that the 

DME suppliers are using their identification numbers for fraudulent 

activities. Sometimes, DME suppliers fraudulently obtain beneficiary 

identification information to submit DME claims for Medicare 

beneficiaries who did not see the ordering physician and never received 

the item submitted on the claim.12 DME suppliers have also used a 

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

5 

10 Department of Justice Press Release. “Medicare Fraud Strike Force Convicts Owner 

of Miami Durable Medical Equipment Company of Defrauding Medicare.” Available online 

at http://www.usdoj.gov/opa/pr/2007/June/07_crm_472.html. Accessed on 

December 18, 2007. Department of Justice Press Release. “Miami Jury Convicts Physician 

and Three Business Owners of Medicare Fraud.” Available online at 

http://miami.fbi.gov/dojpressrel/pressrel08/medfraud030708.htm. Accessed on 

April 15, 2008. 

11 Ibid. Illegally manufactured drugs included inhalation drugs compounded by 

untrained individuals without pharmacy licenses. Compounding is the process in which a 

pharmacist mixes medications such as albuterol and ipratropium bromide in the pharmacy, 

instead of purchasing the premixed form directly from a manufacturer or wholesaler. 

12 Department of Justice Press Release. “Miami-Dade DME and Clinic Owners Indicted 

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

Available online at http://miami.fbi.gov/dojpressrel/pressrel08/mm20080401.htm. Accessed 

on October 1, 2008.

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INTRODUCTION 

6 

s 

ly 

knowledge.13 According to CMS staff, a project began in November 

2006 to minimize the improper use of physician identification number

on claims for all DME items. This project identifies potential

compromised physician identification numbers and allows physicians to 

request that claims for either specific DME items or a category of DME 

be denied. 

Medicare Demonstration Project in South Florida 

Section 402(a)(1)(J) of the Social Security Amendments of 1967 permits 

the Secretary of the Department of Health and Human Services to 

develop or demonstrate improved methods for the investigation and 

prosecution of fraud in the provision of care or services under the health 

programs established by the Social Security Act.14 Pursuant to this 

authority, on November 1, 2007, CMS implemented a 2-year 

demonstration project, targeting the South Florida and Los Angeles 

metropolitan areas, to improve its ability to detect potentially 

fraudulent behavior among DME suppliers at both the preenrollment 

and postenrollment stages. This demonstration project consists of three 

components: (1) suppliers submit a CMS-855S Medicare enrollment 

application; (2) CMS revokes billing privileges if the supplier meets 

certain criteria (e.g., if the DME supplier fails to submit a CMS-855S 

within 30 days); and (3) CMS performs enhanced reviews of DME 

suppliers that were not revoked based on components one or two. 

Related Work 

A January 2007 Government Accountability Office (GAO) report 

examined the PSCs’ efforts to prevent and minimize improper DME 

payments, as well as CMS’s oversight of the PSCs’ program integrity 

activities.15 GAO found that PSCs did not have automated prepayment 

controls to identify claims associated with atypical billing patterns and 

claims that were medically improbable. GAO recommended that CMS 

require PSCs to develop thresholds for unexplained increases in billing 

and use them to develop automated prepayment controls and to share 

these with other PSCs. CMS agreed with the report’s findings and 

13 Department of Justice Press Release. “DME Operators Charged in Health Care Fraud 

and Identity Theft Conspiracy.” Available online at 

http://www.usdoj.gov/usao/fls/PressReleases/071205-01.html. Accessed on October 2, 2008. 

14 42 U.S.C. § 1395b-1(a)(1)(J). 

15 GAO Report. “Medicare: Improvements Needed to Address Improper Payments for 

Medical Equipment and Supplies,” GAO-07-59 (January 31, 2007). 

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INTRODUCTION 

responded that it had begun further automating its claims payment 

systems to prevent improper payments. 

In March 2007, the Office of Inspector General (OIG) issued the report 

“South Florida Suppliers’ Compliance With Medicare Standards: 

Results From Unannounced Visits” (OEI-03-07-00150). OIG made 

1,581 unannounced site visits in late 2006 to DME suppliers in South 

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

physical facilities or were not open and staffed during business hours. 

At the time we conducted the visits, these 491 suppliers had billed 

Medicare for almost $237 million in 2006. We recommended that CMS 

strengthen the supplier enrollment process and ensure that suppliers 

meet Medicare supplier standards. In response, CMS stated that it 

would take several steps to strengthen supplier standards. 

In September 2007, OIG issued a report entitled “Aberrant Billing in 

South Florida for Beneficiaries With HIV/AIDS” (OEI-09-07-00030). 

This study analyzed claim patterns associated with HIV/AIDS infusion 

therapy providers in South Florida and the oversight mechanisms CMS 

has in place to control inappropriate payments to these providers. In 

the last half of 2006, South Florida accounted for 79 percent of the 

amount of drugs billed nationally for Medicare beneficiaries with 

HIV/AIDS, even though only about 10 percent of Medicare beneficiaries 

with HIV/AIDS lived there. Based on our review of CMS materials and 

claims data, we found that CMS and its contractors have used multiple 

approaches in South Florida to control aberrant billing for beneficiaries 

with HIV/AIDS, but none has proven effective thus far. 

In February 2008, OIG issued a report entitled “Los Angeles County 

Suppliers’ Compliance With Medicare Standards: Results From 

Unannounced Visits” (OEI-09-07-00550). OIG conducted unannounced 

site visits to 905 DME suppliers in the Los Angeles metropolitan area to 

determine their compliance with certain Medicare standards and to 

identify atypical billing characteristics. Thirteen percent of the 

suppliers did not maintain physical facilities or were not open during 

the time of the site visits. Fourteen percent of suppliers met a Medicare 

standard but had atypical billing patterns, such as billing for a 

beneficiary that did not receive other Medicare services (e.g., office 

visits) from the ordering physician within a 6-month period preceding 

the DME claim. We recommended that CMS strengthen the DME 

supplier enrollment process and ensure that these suppliers meet the 

Medicare standards. In response, CMS stated that it has already 

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INTRODUCTION 

addressed the majority of our recommendations but would consider 

increasing prepayment reviews of suppliers’ claims and may establish 

more frequent enrollment requirements for suppliers. 

METHODOLOGY 

Scope and Data Source 

We used the Medicare National Claims History File (NCH) to identify 

all inhalation drug claims in 2007. Using county codes, we separated 

the claims into two groups: one with beneficiaries in South Florida 

(defined as Miami-Dade, Broward, and Palm Beach Counties) and one 

with beneficiaries in the rest of the country. We also used the NCH to 

identify all claims for Part B physician services provided between 

January 1, 2005, and December 31, 2007, for South Florida 

beneficiaries who received inhalation drugs under Medicare. 

Data Analysis 

Beneficiary comparison. We calculated the average number of paid 

claims and amounts allowed16 for all inhalation drugs per beneficiary 

in South Florida in 2007 and compared these to average values for the 

rest of the country. We also performed this comparison for the four 

individual products (albuterol, levalbuterol, ipratropium bromide, and 

budesonide) that accounted for most (95 percent) of Medicare 

spending on inhalation drugs in South Florida.17 Among these four 

products, budesonide and levalbuterol are brand name products 

marketed by a single manufacturer; albuterol and ipratropium 

bromide have generic versions available from numerous 

manufacturers. 

Supplier comparison. We compared the average amount submitted and 

paid per supplier for beneficiaries in South Florida to the average 

amount submitted and paid per supplier for beneficiaries in the rest 

of the country. Additionally, we determined the percentage of 

16 In the remainder of this report, calculations involving the amount allowed (total 

amount Medicare spent, including the beneficiary copayment) are referred to as either the 

amount Medicare spent or paid. 

17 The four inhalation drugs under review were actually represented by five Healthcare 

Common Procedures Coding System (HCPCS) codes on Medicare claims during 2007. In 

the first half of 2007, albuterol and levalbuterol had separate HCPCS codes. However, in 

the second half of 2007 these drugs were combined into one new HCPCS code. We focused 

the analysis involving these two drugs on the first half of 2007, when the drugs had 

separate HCPCS codes. 

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INTRODUCTION 

beneficiaries in South Florida and in the rest of the country who had 

more than one supplier providing inhalation drugs in 2007. 

LCD guideline comparison. An LCD (L5007) provides guidelines for the 

maximum milligrams per month that may reasonably be billed 

(without additional documentation) for the majority of the inhalation 

drugs covered by Medicare. We compared actual beneficiary 

utilization to guidelines in the LCD for the four drug products 

(albuterol, levalbuterol, ipratropium bromide, and budesonide) 

included in the beneficiary comparison. 

The maximum doses listed in the LCD for albuterol, levalbuterol, and 

ipratropium bromide were consistent throughout 2007. However, 

budesonide did not have a maximum milligrams per month listed in 

the LCD before its July 1, 2007, revision. Therefore, our analysis of 

this drug (in terms of the LCD) was limited to the second half of 2007. 

Additionally, the HCPCS codes, and subsequently the Medicare 

payment amount, for levalbuterol and albuterol were combined as of 

July 1, 2007 (although the maximum doses for each remained the 

same). As a result, it was not possible to differentiate between 

albuterol and levalbuterol billed on claims during the second half of 

2007. Because of this, we analyzed albuterol and levalbuterol claims 

for only the first half of 2007. 

Because beneficiaries may receive up to a 90-day supply of a drug, 

edits for the utilization guidelines were set for an 83-day period 

(excluding a 7-day grace period for delivery). For each of the four 

drugs included in the LCD analysis, we calculated the average 

Medicare payment per beneficiary for an 83-day period. We 

calculated these amounts for beneficiaries in South Florida and the 

rest of the country and compared them to the Medicare payment 

amount that reflected the maximum milligrams listed in the LCD for 

3 months (i.e., 90 days). We also calculated the percentage of South 

Florida beneficiaries exceeding the utilization guidelines within the 

83-day period and compared it to the percentage exceeding it in the 

rest of the country. Please refer to the Appendix for a more detailed 

description of this analysis. 

Relationships among suppliers, physicians, and beneficiaries. For each 

South Florida beneficiary with a paid inhalation drug claim in 2007, 

we determined whether or not there was a Medicare Part B service 

claim (e.g., Medicare-billed office visit) occurring in 2005, 2006, or 

2007 with the physician who ordered the inhalation drug. In 

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INTRODUCTION 

addition, for each supplier, we determined the percentage of South 

Florida beneficiaries with paid inhalation drug claims that did not 

have Part B service claims in 2005 through 2007 with the ordering 

physician listed on the inhalation drug claim. 

Using the physician’s identifier, we selected the 10 prescribing 

physicians associated with the highest dollar amount of South Florida 

inhalation drug claims submitted in 2007. We then determined 

whether there are certain suppliers operating in South Florida that 

had large volumes of claims with any of the high-dollar physicians. 

Limitations 

The Health Insurance Portability and Accountability Act of 1996 

requires issuance of a unique NPI to each physician, supplier, and other 

health care provider. CMS began issuing NPIs on May 23, 2005; 

however, it was not until May 23, 2008, that all submitted claims were 

required to have an NPI. In the interim, CMS allowed submitted claims 

to have either the NPI only; the Medicare legacy identifier only 

(i.e., Unique Physician Identification Number); or a combination of the 

NPI and Medicare legacy identifier on the claim. For calculations in 

this report involving Part B service claims, we excluded claims for 

which only an NPI was present; i.e., we included only claims that listed 

a legacy identifier. In South Florida, these NPI-only claims accounted 

for less than 1 percent of the total amount submitted to Medicare and of 

the total amount Medicare paid for inhalation drugs. 

We did not examine medical records to verify whether there was 

documentation to support claims for a drug that exceeded the maximum 

milligrams per month listed in the LCD. 

Standards 

This study was conducted in accordance with the “Quality Standards 

for Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

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In 2007, South Florida accounted 

for 17 percent of the total 

Medicare reimbursement for 

inhalation drugs ($160 million of 

$946 million), even though just 

2 percent of beneficiaries resided there.18 Medicare paid almost 

$143 million for inhalation drugs in Miami-Dade County alone—an 

amount 20 times greater than the amount paid in Cook County, Illinois, 

the county (outside South Florida) with the next highest total 

payments. However, according to Medicare enrollment data, Cook 

County is home to almost twice as many Medicare beneficiaries as 

Miami-Dade County. 

Although only 2 percent of Medicare 

beneficiaries live in South Florida, this area 

accounted for 17 percent of Medicare spending 

on inhalation drugs in 2007 

Δ FINDINGS 

In 2007, Medicare’s average per-beneficiary spending on inhalation drugs 

was five times higher in South Florida than in the rest of the country 

Among beneficiaries with paid inhalation drug claims, Medicare spent 

approximately $4,400 per South Florida beneficiary on those drugs in 

2007. In the rest of the country, Medicare spent $815 per beneficiary on 

inhalation drugs that year (see Table 1). For 53 percent of the South 

Florida beneficiaries, Medicare spending for inhalation drugs was 

greater than $2,000 each in 2007. In comparison, just 11 percent of 

beneficiaries in the rest of the country exceeded that amount. For 

10 South Florida beneficiaries, Medicare paid an average of $44,000 for 

inhalation drugs in 2007, an amount 54 times higher than the average 

per-beneficiary payment outside South Florida. These 10 beneficiaries 

had an average of more than $72,000 in submitted inhalation drug 

claims in 2007. 

Table 1. Inhalation Drug Claims in 2007 (per beneficiary) 

South Florida Rest of the Country 

Average 

Number of Paid 

Claims 

Average Amount 

Paid 

Average 

Number of 

Paid Claims 

Average 

Amount Paid 

Inhalation drug claims for Medicare 

beneficiaries in 2007* 

10.2 $4,377 6.5 $815 

 * Limited to beneficiaries with paid inhalation drug claims. 

 Source: OIG analysis of inhalation drug claims in the Medicare NCH file, 2007. 

11 

18 CMS Medicare Enrollment Reports. Available online at 

https://www.cms.hhs.gov/MedicareEnrpts/. Accessed on October 21, 2008. Enrollment data 

have not been updated since July 1, 2007; therefore, this estimate assumes that Medicare 

enrollment did not change significantly after July 1, 2007. 

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FINDINGS 

Medicare per-beneficiary spending on brand name inhalation drugs was 

much greater in South Florida than in the rest of the country; spending 

on generic inhalation drugs was similar 

For the four inhalation drugs that accounted for the majority of 

spending, Medicare spent substantially more per beneficiary on the 

brand name products (budesonide and levalbuterol) in South Florida 

compared to the amount spent in the rest of the country. As Table 2 

illustrates, among those who received budesonide in 2007, Medicare’s 

per-beneficiary spending for the drug was much higher in South Florida 

($4,429 per beneficiary in South Florida compared to $1,567 per 

beneficiary in the rest of the country). In addition, in the first half of 

2007 (before the HCPCS coding change), Medicare’s per-beneficiary 

spending on levalbuterol in South Florida was more than double its 

spending in the rest of the country ($2,312 per beneficiary in South 

Florida compared to $1,035 per beneficiary in the rest of the country). 

At the same time, per-beneficiary payments for the two generic 

inhalation drugs (albuterol and ipratropium bromide) were roughly the 

same or less in South Florida. 

 * The amounts listed for albuterol and levalbuterol are for the first half of 2007, when they had separate HCPCS codes. 

Table 2. Paid Inhalation Drug Claims for Individual Drug Products in 2007 

South Florida Rest of the Country 

Short Description of Drugs 

Percentage of 

Beneficiaries 

Receiving Drug 

Average 

Number of 

Paid Claims 

Average 

Amount 

Paid 

Percentage of 

Beneficiaries 

Receiving Drug 

Average 

Number of 

Paid Claims 

Average 

Amount 

Paid 

Budesonide inhalation solution (unit 

dose), up to 0.5 mg 56 6.6 $4,429 14 5.1 $1,567 

Levalbuterol inhalation solution (unit 

dose), 0.5 mg* 

71 4.1 $2,312 19 2.7 $1,035 

Albuterol inhalation solution 

(unit dose), 1 mg* 

17 2.1 $37 40 2.7 $50 

Ipratropium bromide inhalation 

solution (unit dose), 1 mg 29 3.3 $46 23 3.8 $43 

Calculations for individual drugs are based only on the beneficiaries who were provided those drugs. Therefore, the figures listed in this 

table do not add up to the figures listed for all inhalation drugs per beneficiary in Table 1. 

Source: OIG analysis of inhalation drug claims in the Medicare NCH file, 2007. 

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FINDINGS 

Furthermore, not only did Medicare spend more per beneficiary on brand 

name drugs in South Florida, but also substantially more South Florida 

beneficiaries had claims for brand name drugs. In 2007, 56 percent of 

South Florida beneficiaries who received inhalation drugs had 

Medicare-paid claims for budesonide, compared to 14 percent of 

beneficiaries who received inhalation drugs in the rest of the country. 

Before the HCPCS coding change, 71 percent of these South Florida 

beneficiaries had paid claims for levalbuterol, versus just 19 percent of 

these beneficiaries elsewhere. 

As a result, Medicare’s total expenditures for budesonide and levalbuterol 

were disproportionately higher in South Florida. Medicare spent 

$306 million for budesonide in 2007; 30 percent ($91 million) of this was 

attributed to budesonide payments in South Florida. Similarly, Medicare 

spent $205 million on levalbuterol in the first half of 2007 (before the 

HCPCS coding change), with South Florida accounting for 25 percent 

($51 million) of that total. 

Because Medicare payment amounts were substantially higher for 

budesonide and levalbuterol (before the HCPCS coding change) than the 

two generic drugs, suppliers may have had a greater incentive to overbill 

for the brand name products.19 Budesonide had the highest 

reimbursement amount among the products we reviewed. 

Consistent with the substantial 

differences in inhalation drug 

utilization and expenditures 

between beneficiaries in South 

Florida and those in the rest of the country, the suppliers that provided 

drugs in South Florida exhibited different billing patterns as well. Not 

only did suppliers bill more per beneficiary for inhalation drugs in 

South Florida when compared to amounts billed in the rest of the 

country, but also in many cases, multiple suppliers billed for inhalation 

drugs provided to the same beneficiary. 

Supplier billing patterns for inhalation drugs 

differed substantially between South Florida 

and the rest of the country 

13 

19 In 2007, the average Medicare payment amount for one vial of budesonide was $4.67; 

levalbuterol was $3.66; albuterol was $0.18; and ipratropium bromide was $0.10. After 

Medicare combined the payment amounts for levalbuterol and albuterol, one vial of either 

drug was reimbursed at $1.18. 

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FINDINGS 

Beneficiaries in South Florida were more likely to have multiple suppliers 

Thirty-one percent of South Florida beneficiaries had more than one 

supplier providing inhalation drugs during 2007. Thirty-five percent 

of the multiple-supplier beneficiaries received drugs from three or 

more suppliers, often for the same drug in the same month. For 

example, one beneficiary received levalbuterol and budesonide from 

12 different suppliers in 2007, with as many as 6 suppliers each 

providing both drugs in a single month. In comparison, only 

12 percent of beneficiaries in the rest of the country had claims 

submitted from more than one supplier, with almost all of these 

(91 percent) receiving drugs from just two. 

Beneficiaries with claims for budesonide were particularly likely to have 

more than one supplier of the drug. In the first half of 2007, an average 

of 27 percent of beneficiaries with budesonide claims in South Florida 

had multiple suppliers providing budesonide compared to 9 percent of 

beneficiaries in the rest of the country (budesonide’s average payment 

amount per vial was $4.67 in 2007). In contrast, in the first half of 

2007, 4 percent of South Florida beneficiaries and 7 percent of 

beneficiaries in the rest of the country had more than one supplier of 

albuterol (albuterol’s average payment amount was $0.18 per vial). 

Inhalation drug suppliers billed more for beneficiaries in South Florida 

than in the rest of the country 

Overall, suppliers billed Medicare an average of $1,176 in inhalation 

drug claims for each of their South Florida beneficiaries in 2007; on 

average, they were paid $585 for each beneficiary that year. In the rest 

of the country, suppliers billed Medicare an average of $661 per 

beneficiary for inhalation drugs in 2007 and were paid $307. One 

supplier in South Florida was paid an average of $14,000 per 

beneficiary for inhalation drugs in 2007—an amount 46 times the 

average for the rest of the country. 

Effective July 1, 2007, 

utilization guidelines for 

budesonide were included on 

LCD L5007. However, as of September 2008, the PSC covering 

Florida had not implemented edits to deny budesonide claims in 

Medicare paid for inhalation drug claims that 

did not comply with LCD guidelines 

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FINDINGS 

excess of the LCD amount.20 As Table 3 shows, the average Medicare 

payment for a 90-day supply21 of budesonide in South Florida 

($1,874 per beneficiary) was more than double the payment amount 

for the maximum milligrams listed in the LCD ($888 per beneficiary) 

during the second half of 2007; in the rest of the country, the average 

payment for budesonide was lower than the LCD guideline 

($746 per beneficiary). Seventy-five percent of South Florida 

beneficiaries who received budesonide had paid claims that exceeded 

the utilization guidelines, compared to 14 percent of beneficiaries in 

the rest of the country. In the case of one South Florida beneficiary, 

Medicare paid for a 90-day supply of budesonide that was 15 times 

greater than the maximum listed in the LCD (and was provided by 

four different suppliers during the period). 

Table 3. Ninety-Day Supply of Drugs Covered Under the LCD (per beneficiary) 

South Florida Rest of the Country 

 Short Description of Drug 

Maximum 

Payment Amount 

in LCD for 90-Day 

Drug Supply 

Average 

Payment 

Percentage of 

Beneficiaries 

Exceeding LCD 

Average 

Payment 

Percentage of 

Beneficiaries 

Exceeding LCD 

Budesonide inhalation solution 

(unit dose), up to 0.5 mg 

$888 $1,874 74.5% $746 14.3% 

Levalbuterol inhalation solution 

(unit dose), 0.5 mg 

$2,041 $1,619 24.0% $736 0.7% 

 Albuterol inhalation solution 

 (unit dose), 1 mg 

$102 $30 0.3% $35 0.6% 

 Ipratropium bromide inhalation 

 solution (unit dose), 1 mg $53 $33 19.7% $24 3.4% 

The average payment amounts listed are for only an 83-day period in 2007. Not all beneficiaries receiving each drug had a claim during the 

sampled time. Therefore, these monthly averages will not add up to the average spending per drug for the entire year. 

 Source: OIG analysis of inhalation drug claims in the Medicare NCH file, 2007. 

Although the average payment for the other inhalation drugs fell 

below the guidelines set by the LCD, several individual South Florida 

beneficiaries still exceeded the maximum payment amount for a 

90-day supply of those drugs. For example, nearly a quarter of South 

Florida beneficiaries exceeded the maximum amount for levalbuterol, 

15 

20 We discussed the implementation of the budesonide edit only with staff from 

Jurisdiction C (the region including Florida) on August 18, 2008. We did not determine 

whether other PSCs had this edit in place. 

21 As discussed in the methodology and appendix, this 90-day supply was actually 

calculated based on claims from an 83-day period to allow for a 7-day delivery window. 

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FINDINGS 

and 20 percent exceeded it for ipratropium bromide. In contrast, only 

1 percent and 3 percent of beneficiaries in the rest of the country 

exceeded the limits for these drugs, respectively. For the remaining 

drug (albuterol), less than 1 percent of the beneficiaries in South 

Florida and in the rest of the country exceeded the limits. 

According to Medicare data, 

for 62 percent of South Florida 

inhalation drug claims, the 

beneficiaries on these claims did 

not have a Medicare-billed office 

visit or other service in the past 3 years with the physician who 

reportedly prescribed the drug. Medicare paid $114 million 

(71 percent of total South Florida payments) for these inhalation drug 

claims in 2007. For example, one beneficiary had almost $45,000 in 

Medicare-paid claims for inhalation drugs in 2007 even though the 

beneficiary did not have a single billed service visit with any of the six 

physicians who reportedly prescribed the drugs. 

For 62 percent of inhalation drug claims in South 

Florida, the beneficiary did not have a Part B 

service visit during the last 3 years with the 

physician who reportedly prescribed the drug 

For 16 percent of suppliers, not a single South Florida beneficiary to 

whom they provided inhalation drugs had a billed service with the 

physician listed on the claim form 

In other words, every one of these suppliers’ inhalation drug claims 

listed a beneficiary that did not have a Medicare-paid office visit or 

other service in 2005, 2006, or 2007 with the physician who reportedly 

prescribed the drugs. For an additional 27 percent of suppliers, more 

than half of their inhalation drug claims were for beneficiaries who 

had no Part B service claims with the physician listed on the claim. 

Furthermore, among the 10 suppliers with the highest dollar amount 

of inhalation drug reimbursement in 2007, between 66 percent and 

97 percent of claims were for beneficiaries without any associated 

Part B services. These 10 suppliers accounted for almost a quarter of 

the total amount billed to Medicare for inhalation drugs in South 

Florida. 

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FINDINGS 

In 2007, 10 South Florida 

physicians were each listed as 

the ordering physician on more 

than $3.3 million in submitted 

inhalation drug claims, or an average of $12,000 per day. In 

comparison, only one of the nearly 200,000 physicians ordering 

inhalation drugs for beneficiaries in the rest of the country had claims 

submitted totaling more than this amount. 

Certain ordering physicians in South Florida 

were associated with a large volume of 

inhalation drug claims 

Among the 10 South Florida physicians, all but one had significant 

increases in the total amount billed with their identifiers as compared 

to the amount billed in the previous year. For example, one physician 

was listed as the ordering physician on $4.7 million in submitted 

inhalation drug claims in 2007, a 56-fold increase from the $84,000 

submitted for inhalation drugs claims billed with that identifier in 

2006. 

Each of the 10 physicians reportedly ordered inhalation drugs for an 

average of 745 South Florida beneficiaries in 2007. These physicians 

had Medicare-paid office visits or other Part B-related services in 

2005 through 2007 with between 1 percent and 53 percent of the 

beneficiaries for whom they reportedly ordered inhalation drugs in 

2007. 

Medicare paid a total of $28 million for inhalation drugs reportedly 

ordered by these 10 physicians during the year. Based on claims 

data, 148 different suppliers provided inhalation drugs to the South 

Florida beneficiaries associated with these physicians. However, 

33 suppliers accounted for the majority (79 percent) of the amount 

paid by Medicare. 

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Δ RECOMMENDATIONS 

South Florida has been identified by OIG, CMS, and other agencies as a 

high-risk area for fraudulent billings to Medicare by DME suppliers. 

Fraudulent billings jeopardize the financial integrity of Medicare and 

may endanger Medicare beneficiaries when the drugs are 

overprescribed. 

Our findings demonstrate that even though CMS has made efforts to 

reduce DME fraud in South Florida, a problem may persist among DME 

suppliers billing for inhalation drugs. Medicare spent substantially 

more on inhalation drugs per beneficiary in South Florida during 2007 

than on beneficiaries in the rest of the country. The greatest spending 

discrepancies occurred among the brand name drugs budesonide and 

levalbuterol. In particular, spending and utilization for budesonide 

were much higher not only in comparison to averages in the rest of the 

country but also in relation to coverage guidelines. Furthermore, many 

of the South Florida beneficiaries did not have a Medicare service claim 

during the last 3 years with the physician who reportedly prescribed the 

inhalation drugs. Therefore, we recommend that CMS: 

Ensure That All PSCs, Particularly the PSC Covering Florida, Are 

Enforcing the Guidelines for Maximum Milligrams per Month for All 

Inhalation Drugs, Especially Budesonide 

LCD L5007 states that claims exceeding the maximum milligrams per 

month for certain inhalation drugs should be denied as not medically 

necessary unless there is documentation to justify larger amounts. 

However, 75 percent of Medicare beneficiaries in South Florida 

exceeded the utilization guideline for budesonide. Although we did not 

determine whether documents supporting this use were provided to the 

PSCs, it seems improbable that three-quarters of the South Florida 

beneficiaries would require a higher dose of budesonide. In comparison, 

only 14 percent of beneficiaries in the rest of the country had claims for 

budesonide exceeding the utilization guideline. 

Furthermore, although the average monthly reimbursement for other 

inhalation drugs fell below the guidelines set by the LCD, several 

individual South Florida beneficiaries still exceeded the maximum 

milligrams per month. For example, almost a quarter of South Florida 

beneficiaries exceeded the LCD guidelines for levalbuterol. 

Based on our conversations with DME MAC staff from the jurisdiction 

that includes Florida, claim edits have been put in place to detect when 

beneficiaries exceed the maximum milligrams per month for most 

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RECOMMENDATIONS 

inhalation drugs covered by the LCD. However, as of August 18, 2008, 

there are currently no such edits for budesonide, even though the 

utilization guideline has been in effect for over a year. Adding an edit to 

detect overutilization of budesonide and ensuring that payments for 

other inhalation drugs comply with LCD utilization guidelines will help 

minimize payments for unnecessary medications. 

Eliminate Medicare’s Vulnerability to Potentially Fraudulent or 

Excessive Claims for Beneficiaries Prescribed Inhalation Drugs in 

South Florida 

Medicare spending per beneficiary on inhalation drugs, especially 

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

country. The increased spending in this region, along with that fact 

that the beneficiaries listed on more than 60 percent of South Florida 

inhalation drug claims did not have a Medicare-billed office visit during 

the last 3 years with the physician who reportedly prescribed the drug, 

suggests improper billing for inhalation drugs by DME suppliers 

operating in South Florida. One method CMS could use to better detect 

aberrancies and further reduce Medicare’s vulnerability is working with 

the DME MACs and PSCs to establish additional claims edits. 

Review Cases in Which the DME Supplier Appears To Be Fraudulently 

Billing Medicare for Inhalation Drugs and Take Appropriate Action 

Based on the Review’s Results 

DME suppliers billed almost twice as much for inhalation drugs 

provided to beneficiaries in South Florida compared to beneficiaries in 

the rest of the country. In addition, multiple suppliers often submitted 

claims for the same drug for the same beneficiary in a single month. 

Because South Florida has been a notoriously high-risk area for 

supplier DME fraud, CMS should take action to ensure that claims 

submitted by these suppliers, particularly the top-billing DME 

suppliers, are legitimate. We will provide CMS with information on the 

suppliers and physicians associated with a large quantity of 

questionable inhalation drug claims for its review. Where appropriate, 

CMS should take steps to revoke the Medicare billing numbers of 

suppliers with fraudulent claims. Additionally, we will refer to our 

Office of Investigations information on the DME suppliers with 

aberrant billing patterns. 

 

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RECOMMENDATIONS 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with all three of our recommendations. CMS stated 

that through its Program Integrity Miami field office and the DME Stop 

Gap Plan, it has already identified and begun to address many of the 

same issues cited in our report. In addition, CMS noted that OIG’s 

findings reinforce the validity of the agency’s efforts. 

In response to our recommendations, CMS stated that, as of September 

2008, the DME PSC for South Florida and the DME MAC had 

implemented a “medically unlikely” edit for budesonide. According to 

CMS, there was an immediate and significant 50-percent decrease in 

both allowed and billed amounts for the drug in Miami-Dade and 

Broward counties. In addition, CMS described the efforts by its Miami 

and Los Angeles field offices to identify physicians who ordered high 

volumes of DME items, including inhalation drugs, for beneficiaries 

with no clinical relationship to the physician. Following the interviews 

with these physicians, the field office revoked billing privileges of 

suppliers not meeting supplier standards and established granular 

prepay edits at the beneficiary, supplier, physician, and procedure code 

level to deny payment to suppliers for DME never ordered by these 

physicians. Finally, CMS expressed its commitment to continually 

reviewing and refining the process to improve the Medicare program 

and will review any additional information provided by OIG. 

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

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

have provided CMS with information on the suppliers and physicians 

that we identified as having potentially fraudulent activities in this 

report. 

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Δ APPENDIX ~ A 

Calculation for Local Coverage Determination Guideline Comparison 

A local coverage determination (LCD L5007) provides guidelines for the 

maximum milligrams per month that may reasonably be billed (without 

additional documentation) for the majority of the inhalation drugs 

covered by Medicare. Because beneficiaries may receive up to a 90-day 

supply of a drug, edits for the utilization guideline are set for an 83-day 

period (excluding a 7-day grace period for delivery). Because of this, we 

used an 83-day period for our LCD comparison analysis. 

For albuterol, levalbuterol, and ipratropium bromide, we identified each 

beneficiary’s initial drug claim in the first quarter of 2007 and selected 

the claims submitted in the 83 days following. Because budesonide did 

not have an LCD guideline until July 1, 2007, we selected the initial 

claim in the third quarter of 2007. For each selected beneficiary’s 

83-day period, we calculated the total Medicare payment amount for 

each drug. 

Because we selected beneficiaries with their initial claim in the first or 

third quarter, not all beneficiaries prescribed that drug were included in 

the analysis. For example, 25 percent of beneficiaries taking 

levalbuterol in 2007 did not have a claim in the first quarter and 

therefore were not included in this drug’s analysis. 

Additionally, we determined the average Medicare payment amount 

that would be reflective of the maximum milligrams listed in the LCD 

for 3 months. Because beneficiaries could have their 83-day period 

extend into the following quarter (e.g., a beneficiary could have had the 

initial claim on the last day of the first quarter, meaning the majority of 

the 83 days falls into the second quarter), we calculated the average 

maximum amount per month based on the first and second quarter for 

albuterol, levalbuterol, and ipratropium bromide, and based on the third 

and fourth quarter for budesonide. We calculated the average based on 

two quarters because Medicare payment amounts for each drug may 

fluctuate from quarter to quarter. To make it representative of the 

83-day period, we multiplied the average maximum amount per month 

by three (approximately 90 days). 

 O E I - 0 3 - 0 8 - 0 0 2 9 0 ABERRANT CLAIM PATTERNS FOR I NHALATION DRUGS IN S OUTH F LORIDA 21 
 

 

APPENDIX ~ A 

Using the beneficiary’s total Medicare payment amount in the 83 days, 

we determined the percentage of beneficiaries who exceeded the 

payment amount associated with the maximum milligrams listed in the 

LCD for 3 months. We also calculated the average Medicare payment 

amount per each drug for South Florida beneficiaries and compared it to 

the average amount for beneficiaries in the rest of the country. We then 

compared both amounts to the 90-day maximum amount in the LCD 

guidelines. 

 O E I - 0 3 - 0 8 - 0 0 2 9 0 ABERRANT CLAIM PATTERNS FOR I NHALATION DRUGS IN S OUTH F LORIDA 22 
 

 

 O E I - 0 3 - 0 8 - 0 0 2 9 0 ABERRANT CLAIM PATTERNS FOR I NHALATION DRUGS IN S OUTH F LORIDA 23 
 

 

Δ APPENDIX ~ B 

Agency Comments 

 O E I - 0 3 - 0 8 - 0 0 2 9 0 ABERRANT CLAIM PATTERNS FOR I NHALATION DRUGS IN S OUTH F LORIDA 24 
 

 

APPENDIX ~ B 

 O E I - 0 3 - 0 8 - 0 0 2 9 0 ABERRANT CLAIM PATTERNS FOR I NHALATION DRUGS IN S OUTH F LORIDA 25 
 

 

 O E I - 0 3 - 0 8 - 0 0 2 9 0 ABERRANT CLAIM PATTERNS FOR I NHALATION DRUGS IN S OUTH F LORIDA 26 

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 David E. Tawes, Director of the Medicare and 

Medicaid Prescription Drug Unit. 

Stephanie Yeager served as the lead analyst for this study. Other 

regional and central office staff who contributed include Scott Manley 

and Dave Graf.