Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE DRUG PLAN 


SPONSORS’ IDENTIFICATION OF 


POTENTIAL FRAUD AND ABUSE
 

Daniel R. Levinson
 

Inspector General 


October 2008
 

OEI-03-07-00380
 
 

 

 

 

 

 

 

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 

To determine: 

1. the extent to which Medicare stand-alone prescription drug plan 

sponsors identified potential fraud and abuse; 

2. the type of potential fraud and abuse that these plan sponsors 

identified; and 

3. the extent to which these plan sponsors conducted inquiries, initiated 

corrective actions, and made referrals for further investigation 

regarding potential fraud and abuse. 

BACKGROUND 

As of January 1, 2006, Medicare beneficiaries could obtain prescription 

drug coverage under the Medicare Part D program. Part D 

expenditures for 2007 were approximately $49.5 billion. As of August 

2008, 26 million beneficiaries were enrolled in Part D and two-thirds 

were in stand-alone drug plans. 

Plan sponsors are private companies that contract with the Centers for 

Medicare & Medicaid Services (CMS) to provide Part D drug coverage to 

Medicare beneficiaries. Sponsors are required to have a comprehensive 

program to detect and deter fraud and abuse. They can identify 

potential fraud and abuse through internal efforts such as claim 

reviews, and through complaints or referrals from external sources such 

as CMS, Medicare Drug Integrity Contractors (MEDIC), law 

enforcement agencies, beneficiaries, and pharmacy providers. 

Upon identifying potential fraud and abuse, sponsors are required to 

conduct an inquiry and initiate appropriate corrective action. CMS 

recommends that sponsors refer potential fraud and abuse incidents to 

MEDICs and/or law enforcement agencies. 

The only type of fraud and abuse information CMS requires sponsors to 

report to CMS is the aggregate number of fraud and abuse complaints 

they received directly from beneficiaries each quarter. 

We analyzed data representing the first 6 months of 2007 from 

86 of 91 stand-alone drug plan sponsors. We did not include 

5 of the 91 plan sponsors because 1 had been terminated from the 

program, 1 was under investigation, and the other 3 did not provide 

data in time to be included in our review. 

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E X E CUTIVE S U MMAR Y 
 

FINDINGS 

Overall, 24 of 86 Part D stand-alone plan sponsors did not identify 

any potential fraud and abuse incidents; most potential fraud and 

abuse incidents were associated with only a small number of plan 

sponsors. Twenty-four plan sponsors (28 percent) did not identify any 

potential fraud and abuse incidents in the first 6 months of 2007 either 

from internal efforts or complaints from external sources. Of the 

62 plan sponsors that identified a total of 9,774 incidents of potential 

fraud and abuse during this period, 7 plan sponsors accounted for 

90 percent of all incidents. One of the seven plan sponsors identified 

67 percent of all incidents. 

Plan sponsors identified 78 percent of all potential fraud and abuse 

incidents through internal efforts; however, 42 plan sponsors did not 

identify any potential fraud and abuse through internal efforts. One 

plan sponsor was associated with 84 percent of the potential fraud and 

abuse identified through internal efforts. 

Twenty-two percent of potential fraud and abuse incidents identified 

came from external sources; however, 34 plan sponsors did not identify 

any potential fraud and abuse incidents from external sources. Two 

plan sponsors had the majority (51 percent) of these incidents. 

Inappropriate billing was the most prevalent type of potential fraud 

and abuse incident identified, and pharmacies were associated with 

most of the potential fraud and abuse incidents. Plan sponsors 

identified 26 different types of fraud and abuse (both from internal 

efforts and complaints from external sources). Of the 26 types, the most 

prevalent type was inappropriate billing, which accounted for 9,073 

incidents. An example of inappropriate billing is submitting claims for 

drugs not provided. 

Plan sponsors identified 11 types of persons or entities associated with 

potential fraud and abuse. Pharmacies/pharmacists were most often 

associated with these incidents. 

Not all 62 plan sponsors that identified potential fraud and abuse 

incidents conducted inquiries, initiated corrective actions, or made 

referrals for further investigation. Three actions that plan sponsors 

can take after identifying potential fraud and abuse are conducting 

inquiries, initiating corrective actions, and referring incidents for 

further investigation. Of the 62 plan sponsors that identified incidents 

of potential fraud and abuse, 47 conducted inquiries, 32 initiated 

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E X E CUTIVE S U MMAR Y 

corrective actions, and 33 referred incidents to other entities for further 

investigation. Overall, 17 plan sponsors initiated all three actions, 

21 initiated two actions, 19 initiated one action, and 5 did not initiate 

any of these actions. 

RECOMMENDATIONS 

Plan sponsors are the first line of defense against Part D fraud and 

abuse. However, we found that some plan sponsors did not identify any 

potential fraud and abuse incidents. Moreover, some of the plan 

sponsors that identified potential fraud and abuse incidents did not 

initiate inquiries, corrective actions, or referrals. 

CMS does not routinely collect information that would describe the 

overall volume or types of Part D fraud and abuse that occur or that 

would inform CMS as to the effectiveness of the comprehensive fraud 

and abuse plan each sponsor is required to have in place. The only 

information that CMS requires plan sponsors to report to CMS 

concerning fraud and abuse is the quarterly aggregate number of fraud 

and abuse complaints that plan sponsors receive from beneficiaries. 

A crucial aspect of protecting the integrity of the Part D program is 

ensuring that the plan sponsors have a comprehensive and effective 

program to detect and deter fraud and abuse. Therefore, we recommend 

that CMS: 

Review Part D plan sponsors to determine why certain sponsors 

have identified especially high or low volumes of potential fraud and 

abuse incidents. 

Determine whether the Part D plan sponsors that identified potential 

fraud and abuse initiated inquiries and corrective actions as 

required by CMS, and made referrals for further investigation as 

recommended by CMS. 

Require Part D plan sponsors to maintain and routinely report 

information related to the results of sponsors’ fraud and abuse 

programs. 

Use this required information to help determine the effectiveness of 

sponsors’ fraud and abuse programs. 

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EXECUTIVE SUMMARY 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS stated that it is committed to combating fraud, waste, and abuse 

in the Part D program but that because of limited funding, it has not 

been able to perform as much direct oversight of the Part D sponsors’ 

fraud, waste, and abuse efforts as expected. 

In response to OIG’s first recommendation, CMS stated that it agreed 

that the variability in the number of potential fraud and abuse incidents 

identified by sponsors is a concern and that CMS will examine the data 

more closely by referring the findings to MEDICs. CMS also stated that 

it intends to revise the reporting requirements and give sponsors more 

specific guidance on how to track and properly label incidents, e.g., as 

an education issue or a potential fraud issue. 

CMS concurred with OIG’s second recommendation and will refer the 

data in this report to MEDICs for further investigation. 

Although CMS provided comments about OIG’s third recommendation, 

CMS did not state whether it concurred. CMS did state that OIG’s 

report would be useful when CMS initiates its Part D sponsor 

compliance plan audits. CMS stated that our report will help ensure 

that sponsors are conducting their own internal investigations and 

taking appropriate corrective actions. CMS did not address OIG’s 

fourth recommendation. 

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Δ TABLE OF CONTENTS 

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

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

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

Some plan sponsors did not identify any potential 

fraud and abuse ........................................ 8

 Inappropriate billing was most prevalent type of potential 

fraud and abuse ....................................... 10 
 

Not all plan sponsors with potential fraud and abuse 

initiated inquiries, corrective actions, or referrals ............ 11 
 

RECOMMENDATIONS ..................................... 14 
 

Agency Comments and Office of Inspector General Response . . . 15 

APPENDIXES ............................................. 17 
 

A: Selected Fraud and Abuse Activities for Stand-Alone 

 Drug Plan Sponsors, First 6 Months of 2007 .............. 17 
 

B: Types of Potential Fraud and Abuse Identified by 

 Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 . . 20 

 C: Agency Comments ................................... 24 
 

ACKNOWLEDGMENTS .................................... 27 
 
 

 INTRODUCTION INTRODUCTION 

 

 

 

 

 

 

 

 

Δ INTRODUCTION 

OBJECTIVES 

To determine: 

1. the extent to which Medicare stand-alone prescription drug plan 

sponsors identified potential fraud and abuse; 

2. the type of potential fraud and abuse that these plan sponsors 

identified; and 

3. the extent to which these plan sponsors conducted inquiries,

 initiated corrective actions, and made referrals for further

 investigation regarding potential fraud and abuse. 

BACKGROUND 

As of January 1, 2006, Medicare beneficiaries could obtain prescription 

drug coverage under the Medicare Part D program (hereinafter 

Part D).1 Part D expenditures for 2007 were approximately 

$49.5 billion.2 

Stand-Alone Drug Plan Coverage 

Stand-alone drug plan coverage refers to a plan for prescription drugs 

only. Beneficiaries who enroll in Part D have the option to receive their 

drug coverage from a stand-alone drug plan sponsor or a managed-care 

plan sponsor that covers other medical benefits in addition to 

prescription drugs. 

Two-thirds of the 26 million beneficiaries enrolled in Part D as of 

August 2008 were enrolled in plans offered by stand-alone plan 

sponsors.3 

Prescription Drug Plan Sponsors 

Prescription drug plan sponsors (plan sponsors) are private companies 

that provide Part D drug coverage to Medicare beneficiaries. The 

Centers for Medicare & Medicaid Services (CMS) makes monthly 

prospective payments to sponsors for each of the beneficiaries covered 

1 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 § 101; 

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

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

Medical Insurance Trust Funds, “2008 Annual Report,” p. 111. Available online at 

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

April 22, 2008. 

3 CMS, “Monthly Contract and Enrollment Summary Report.” Available online at 

http://www.cms.hhs.gov/MCRAdvPartDEnrolData/. Accessed on September 29, 2008. 

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INTRODUCTION 

by the sponsors’ plans. The payments are based on estimates that 

sponsors provide in their approved bids prior to the beginning of the 

plan year. Sponsors’ bids are based on their actual costs from the base 

year. After the close of the plan year, CMS must reconcile the payments 

with the sponsors’ actual costs to determine whether sponsors owe 

money to Medicare or Medicare owes money to sponsors based on 

legislatively mandated risk-sharing percentages.4 Thus, under Part D, 

both Medicare and sponsors share the profits and losses of providing the 

benefit. 

CMS contracts with plan sponsors to provide drug plans in designated 

regions. CMS established 39 stand-alone drug plan regions in 2007. Of 

the 39 regions, 25 included one State each, 9 included multiple States, 

and the remaining 5 included one U.S. territory each. Plan sponsors 

may offer plans in one or more regions and may offer plans with 

different features within each region. Plan sponsors may also offer 

plans to employer/union groups. 

Plan sponsors may use related entities and subcontractors to fulfill their 

Part D contract. A related entity is a company that is related to the 

plan sponsor by common ownership or control. The subcontractors of 

plan sponsors may also subcontract.5 For example, a plan sponsor 

might subcontract with a pharmacy benefit manager (PBM), and the 

PBM might subcontract with numerous pharmacies. Regardless of the 

number of subcontractors and related entities involved per plan 

sponsor, the plan sponsor is ultimately responsible for the Medicare 

contract requirements and all data submitted to CMS.6 

Detecting and Deterring Fraud and Abuse 

Plan sponsors are required to have a comprehensive program to detect 

and deter fraud and abuse.7 The specifics of the program are left to the 

discretion of each plan sponsor. However, CMS provides fraud and 

abuse program guidelines for plan sponsors in chapter 9 of its 

“Prescription Drug Benefit Manual” (hereinafter CMS Manual). 

Fraud and abuse reporting. CMS does not require plan sponsors to 

report statistics about fraud and abuse detection and deterrence other 

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4 42 U.S.C. § 1395w-115e. 

5 CMS refers to the subcontractors as first tier and downstream entities. CMS, 

“Prescription Drug Benefit Manual,” v. 4-25-06, ch. 9, § 40. 

6 42 CFR §§ 423.505(i) and 423.505(k). 

7 42 CFR § 423.504(b)(4)(vi)(H). 

2 
 

 

 

 

 

 

 

 

INTROD U C T I O N 

than the quarterly aggregate number of fraud and abuse complaints 

that plan sponsors receive from beneficiaries. The requirement to 

report complaints is based on a Federal regulation that requires plan 

sponsors to keep track of enrollee grievances.8 CMS uses the term 

“grievance” for beneficiary complaints to sponsors to distinguish them 

from beneficiary complaints that CMS receives from its complaint 

lines.9 We will use the term “complaints from beneficiaries” or 

“beneficiary complaints” to refer to grievances in this report. Fraud and 

abuse is one of 11 categories of beneficiary complaints that plan 

sponsors report to CMS. 

Plan sponsors must report to CMS the number of beneficiary complaints 

they receive for each plan. CMS’s instructions state that because plan 

sponsors must maintain certain information about the enrollee 

regarding each complaint, plan sponsors should be able to report the 

data by plan.10 

CMS defines fraud and abuse complaints as follows: 

• A fraud complaint is an allegation that a person or an entity 

(e.g., beneficiary, provider, or plan) engaged in an intentional 

deception or misrepresentation that they know or believe to be 

false and that they know could result in some unauthorized 

benefits. 

• An abuse complaint is an allegation that a person or an entity 

(e.g., beneficiary, provider, or plan) engaged in behavior that they 

should have known to be false and that could result in some 

unauthorized benefits. 

Internal and external sources of information about potential fraud and 

abuse. Plan sponsors can identify potential fraud and abuse through 

internal efforts, such as claim reviews and subcontractor audits.11 

Plan sponsors can also identify potential fraud and abuse through 

complaints they receive from external sources. External sources include 

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8 42 CFR § 423.564(g). 

9 CMS, “CY 2007 Part D Reporting Requirements: Frequently Asked Questions.” 

10 Ibid. 

11 CMS, “Prescription Drug Benefit Manual,” v. 4-25-06, ch. 9, §§ 50.2.6.1–50.2.6.3.
 

3 
 

 

 

 

INTRODUCTION 
 

CMS, Medicare Drug Integrity Contractors (MEDIC), law enforcement 

agencies, beneficiaries, and pharmacy providers. 

In this report, when we use the phrase “complaints from external 

sources,” we mean all fraud and abuse complaints or referrals made to 

plan sponsors, including those from beneficiaries. 

Inquiries into potential fraud and abuse. Plan sponsors are required to 

conduct a timely, reasonable inquiry (i.e., preliminary investigation) 

when evidence suggests potential fraud or abuse related to payment or 

delivery of Part D prescription drug items or services.12 CMS 

recommends that the inquiry be initiated no later than 2 weeks from 

the date the incident is identified. In the event that the plan sponsor 

does not have time or resources to investigate the incident, CMS 

recommends that plan sponsors refer the incident to a MEDIC within 

2 weeks from the date the incident is identified. MEDICs will further 

investigate referrals from plan sponsors and make referrals to law 

enforcement agencies when necessary.13 MEDICs are responsible for 

assisting CMS with Part D audits, oversight, and antifraud and abuse 

efforts. 

Corrective actions. In response to potential fraud and abuse, plan 

sponsors are required to carry out appropriate corrective actions 

(e.g., repayment of overpayments and disciplinary action against 

responsible individuals).14 

Referrals to Government entities for further investigation. CMS 

recommends that after conducting inquiries, if plan sponsors identify 

potential fraud or abuse, they should refer the incidents to a MEDIC for 

further investigation. CMS recommends that the referral be made 

within 2 months of determining that fraud or abuse may have 

occurred.15 

CMS also recommends that plan sponsors voluntarily report potential 

fraud or abuse discovered at the level of the plans, subcontractors, or 

sponsor-related entities to law enforcement entities, such as the Office 

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12 42 CFR § 423.504(b)(4)(vi)(G)(1). 

13 CMS, “Prescription Drug Benefit Manual,” v. 4-25-06, ch. 9, § 50.2.8.3. 

14 42 CFR § 423.504(b)(4)(vi)(G)(2). 

15 CMS, “Prescription Drug Benefit Manual,” v. 4-25-06, ch. 9, § 50.2.8.2. 

4 
 

 

 

 

 

INTRODUCTION 

of Inspector General (OIG) (through OIG’s Provider Self-Disclosure 

Protocol) or the Department of Justice.16 17 

Plan sponsors can also make referrals for further investigation to other 

Government entities, including CMS, State agencies, and local law 

enforcement agencies. 

Related Study by the Office of Inspector General 

In December 2006, OIG issued a report entitled “Prescription Drug Plan 

Sponsors’ Compliance Plans” (OEI-03-06-00100). In this study, OIG 

found that of 79 compliance plans for stand-alone drug plan sponsors: 

•	 14 did not indicate that the sponsors had any procedures in 

place to identify fraud and abuse; 

•	 19 did not indicate that the sponsors had procedures to 

voluntarily report fraud or misconduct to Government entities, 

such as OIG or the Department of Justice; 

•	 43 did not describe procedures for responding to compliance 

violations; and 

•	 54 did not provide detailed descriptions of the types of corrective 

actions sponsors undertake in response to compliance violations. 

METHODOLOGY 

Scope 

We reviewed Medicare Part D stand-alone drug plan sponsors’ fraud 

and abuse information for the first 6 months of 2007. During this 

period, there were 91 such plan sponsors across the country and in U.S. 

territories. However, our study includes 86 plan sponsors with a total of 

2,039 plans.18 We did not include five plan sponsors because one had 

16 Ibid. In December 2007, CMS issued a final rule retaining plan sponsors’ voluntary 

self-reporting of potential fraud or misconduct. However, in the publication of the rule, 

CMS stated that it is committed to adopting mandatory self-reporting and was seeking 

additional comments to craft a mandatory provision. 72 Fed. Reg. 68700, 68707 

(Dec. 5, 2007). 

17 OIG’s Provider Self-Disclosure Protocol offers providers a method of coming forward to 

work openly and cooperatively with OIG to quantify a particular problem and ultimately to 

promote a higher level of ethical and lawful conduct throughout the health care industry. 

63 Fed. Reg. 58399 (Oct. 30, 1998). 

18 We did not include employer/union groups that contract directly with CMS in this 

study. However, some plan sponsors in our study provided national or regional plans to 

employer/union groups. These plans are included in our study. 

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INTROD U C T I O N 

been terminated from the program, one was under investigation, and 

three did not respond to our data request in time to be included in our 

review. 

Of the 2,039 plans in our review, 1,332 were also offered to beneficiaries 

in 2006. For these 1,332 plans, we also collected data for the last 

6 months of 2006. 

Data Collection 

Plan sponsors. We sent a data request to each plan sponsor that was on 

file in CMS’s Health Plan Management System as of October 2007. We 

requested that the plan sponsors send us data regarding each of their 

plans. 

Thirteen plan sponsors in our study did not provide data by plan as we 

requested. These plan sponsors stated that they do not track their data 

at that level. Eight of these plan sponsors provided their data 

aggregated to the plan sponsor level. The other five plan sponsors 

provided data for each State and/or U.S. territory where their plans 

were offered. 

For the first 6 months of 2007 and, if applicable, the last 6 months of 

2006, we asked each plan sponsor to provide the number of potential 

fraud and abuse incidents identified through internal efforts and the 

number of complaints received from external sources as defined by 

CMS. These external sources include CMS, MEDICs, law enforcement 

agencies, beneficiaries, and others. We also asked for the number and 

types of fraud and abuse identified, the number and types of persons or 

entities associated with the fraud and abuse incidents identified, the 

number of inquiries conducted, the number and types of corrective 

actions initiated as a result of the fraud and abuse identified, and the 

number of referrals for further investigation made to Government 

entities. 

Centers for Medicare & Medicaid Services. We collected information 

about the plan sponsors from CMS’s Part D enrollment files and Health 

Plan Management System. We collected the number of plans offered, 

regions covered, and beneficiaries enrolled. 

Analysis 

For all plan sponsors in our study, we summarized responses for each 

question in our data request at the plan sponsor level. For the 73 plan 

sponsors that provided data by plan, we also summarized responses for 

each question at the plan level. We summarized data by State and U.S. 

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INTROD U C T U C T I O N I O N 

territory for respondents that provided the data by those variables. We 

identified the mean, median, maximum, and minimum for each 

question. 

We also compared plan sponsors’ responses based on the number of 

plans offered, regions covered, and beneficiaries enrolled. 

For plan sponsors that provided data for the last 6 months of 2006, we 

compared those data with data from the first 6 months of 2007. 

However, we did not include the 2006 information in this report because 

it was not significantly different from the 2007 data. 

We assigned an identification number to the plan sponsors in our review 

based on the number of potential fraud and abuse incidents they 

identified through internal efforts. We use these identification numbers 

in all of our report tables so that the reader can identify information 

related to the same plan sponsor across the different tables. 

Our findings that plan sponsors identified or did not identify potential 

fraud and abuse incidents are based on the numeric data that plan 

sponsors provided. 

Limitations 

We did not independently verify the information plan sponsors provided 

to us or to CMS’s Health Plan Management System. 

We use the term “incident” (i.e., potential fraud and abuse incident) to 

represent an instance of misconduct or a violation, not the number of 

providers involved in the misconduct or violation. However, in our 

analysis of plan sponsor responses, we saw that the numbers plan 

sponsors provided for certain questions about fraud and abuse volume 

did not always match. One example was a plan sponsor that reported 

identifying a total of 92 incidents of potential fraud and abuse from 

internal and external sources but conducted only 46 inquiries. Another 

example was a plan sponsor that reported identifying a total of 66 

incidents of potential fraud and abuse but initiated 171 corrective 

actions. We did not determine why this information did not match. 

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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Δ FINDINGS 

Overall, 24 of 86 Part D stand-alone plan 

sponsors did not identify any potential fraud 

and abuse incidents; most potential fraud and 

abuse incidents were associated with only a 

small number of plan sponsors 

Twenty-four plan sponsors 

(28 percent) did not identify any 

incidents of potential fraud and 

abuse, either from internal efforts or 

complaints from external sources, in 

the first 6 months of 2007. 

Sixty-two plan sponsors (72 percent) 

identified a total of 9,774 potential fraud and abuse incidents in this 

time period. Of these 62 plan sponsors, the number of incidents per 

plan sponsor ranged from 1 to 6,533, with a median of 11. Plan 

sponsors are not required to report to CMS the number of fraud and 

abuse incidents they identify, only the number of beneficiary complaints 

they receive.

Most of these potential fraud and abuse incidents were associated with 

seven plan sponsors. As shown in Table 1, these seven plan sponsors 

represent 90 percent of the total number of potential fraud and abuse 

incidents (8,817 of 9,774). One of these seven plan sponsors identified 

67 percent of the incidents. Although these seven plan sponsors 

identified most of the potential fraud and abuse incidents, only two of 

the seven are among the top seven plan sponsors with the largest 

beneficiary enrollment. Appendix A provides the number of potential 

fraud and abuse incidents identified and other information for 86 plan 

sponsors. 

Table 1. Top Seven Plan Sponsors That Identified the Most 

Potential Fraud and Abuse Incidents, First 6 Months of 2007 

Number of Percentage of All 

Plan Potential Fraud Potential Fraud Number of 

Sponsor and Abuse and Abuse Number of Regions

ID Incidents Incidents1 Plans Offered Covered2 

1 6,533 67% 104 34 

33 860 9% 104 34 

2 636 7% 107 35 

14 258 3% 104 34 

3 242 2% 2 1 

10 166 2% 41 34 

5 122 1% 101 33

 Total 8,817 90% 

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Sources: CMS’s Health Plan Management System data and OIG analysis of plan sponsor responses. 1 Percentages are affected by rounding.
 2 National employer/union group plans are not included in this column. 

8 
 

 

 

 

FINDINGS 

Plan sponsors identified 78 percent of all potential fraud and abuse 

incidents through internal efforts; however, 42 plan sponsors did not 

identify any potential fraud and abuse through internal efforts 

Of the 9,774 incidents of potential fraud and abuse, 7,595 incidents 

(78 percent) were identified through internal efforts. An example of an 

internal effort is claim reviews. Forty-four plan sponsors (51 percent) 

identified potential fraud and abuse from internal efforts; 42 plan 

sponsors (49 percent) did not identify any potential fraud and abuse 

from internal efforts. 

One plan sponsor was associated with 84 percent of the potential fraud and 

abuse incidents identified through internal efforts. As shown in Table 2, 

one plan sponsor was responsible for 84 percent of the potential fraud 

and abuse incidents identified through internal efforts (6,410 of 

7,595 incidents). Table 2 also shows that this plan sponsor, along with 

two additional plan sponsors, made up 95 percent of the potential fraud 

and abuse incidents identified from internal efforts. Appendix A 

provides data on all plan sponsors’ internal efforts. 

Table 2. Top Three Plan Sponsors With the Most Potential Fraud and 

Abuse Incidents Identified Through Internal Efforts, First 6 Months of 

2007 

Plan Sponsor ID 

Number of Incidents Plan 

Sponsors Identified Through

Internal Efforts 

Percentage of All Incidents 

Plan Sponsors Identified

Through Internal Efforts 

1 6,410 84% 

2 592 8% 

3 242 3%

 Total 7,244 95% 

Source: OIG analysis of plan sponsor responses. 

Twenty-two percent of potential fraud and abuse incidents identified came 

from external sources; however, 34 plan sponsors did not identify any 

potential fraud and abuse incidents from external sources 

Of the 9,774 incidents of potential fraud and abuse identified by plan 

sponsors, 2,179 (22 percent) were complaints from external sources. 

Fifty-two plan sponsors (60 percent) had fraud and abuse complaints 

from external sources; 34 plan sponsors (40 percent) had no complaints 

from external sources. Of the 2,179 complaints from external sources, 

80 were from law enforcement agencies, 936 were from CMS and 

MEDICs, and 1,163 were from beneficiaries and other sources such as 

pharmacy providers. 

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F I NDING S 

Two plan sponsors were associated with 51 percent of these incidents. 

Two plan sponsors had the majority (51 percent) of the complaints from 

external sources. Appendix A provides the number of potential fraud 

and abuse incidents identified through external sources for all 86 plan 

sponsors. 

Inappropriate billing was the most prevalent 

type of potential fraud and abuse incident 

identified; pharmacies were associated with 

most of the potential fraud and abuse incidents 

Plan sponsors identified 

26 different types of fraud and 

abuse (both from internal efforts 

and complaints from external 

sources). Plan sponsors are not 

required to report to CMS the types of potential fraud and abuse they 

identify. 

Of the 26 types of potential fraud and abuse, the most prevalent type 

was inappropriate billing, with 9,073 incidents. An example of 

inappropriate billing is submitting claims for drugs not provided. 

The second most prevalent type of potential fraud and abuse identified 

by plan sponsors was providing false information, with 520 incidents. 

An example of providing false information is misrepresentation of a 

beneficiary’s personal identity, eligibility, medical condition, or plan 

enrollment. 

The third most prevalent type of potential fraud and abuse identified by 

plan sponsors was doctor shopping, with 400 incidents. “Doctor 

shopping” is the term used for consulting a number of doctors for the 

purpose of inappropriately obtaining multiple prescriptions for drugs. 

Plan sponsors identified fewer than 152 incidents of each of the other 

23 types of potential fraud and abuse. Appendix B provides the number 

and types of potential fraud and abuse reported by plan sponsors. 

Plan sponsors reported that pharmacies/pharmacists were the entities 

most often associated with potential fraud and abuse incidents. Plan 

sponsors reported that pharmacies/pharmacists were associated with 

9,852 incidents (92 percent).19 Plan sponsors reported that beneficiaries 

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19 The number 9,852 is higher than the 9,774 potential fraud and abuse incidents that 

plan sponsors identified. One possible explanation is that more than one person or entity 

was identified for each incident of potential fraud and abuse. 

10 
 

 

 

 

 

F I NDING S 

were associated with 591 incidents and sales or marketing brokers were 

associated with 124 incidents. Plan sponsors themselves were also 

listed as entities associated with potential fraud and abuse during this 

period. Table 3 shows the persons or entities plan sponsors reported as 

associated with potential fraud and abuse. 

Table 3. Persons or Entities Associ

Abuse Incidents, First 6 Months of 2

Person or Entity 

ated With Potential Fraud and 

007 

Number of Incidents 

Pharmacy/pharmacist 9,852 

Beneficiary 591 

Sales or marketing broker 124 

Third party 82 

Physician or other prescriber 56 

Plan sponsor 44 

PBM 6 

Family member 5 

Insurance agency/agent 3 

Claims adjudicator 2 

Drug manufacturer 1 

Total 10,7661 

Source: OIG analysis of plan sponsor responses. 

1 The number 10,766 is higher than the total number of potential fraud and abuse incidents that plan 

sponsors identified and higher than the aggregated number of different types of fraud and abuse they 

reported. One possible explanation is that more than one person or entity was identified for each incident 

of potential fraud and abuse. 

Not all 62 plan sponsors that identified potential 

fraud and abuse incidents conducted inquiries, 

initiated corrective actions, or made referrals for 

further investigation 

Three actions that plan sponsors 

can take after identifying 

potential fraud and abuse are 

conducting inquiries, initiating 

corrective actions, and referring 

incidents for further investigation. 

Plan sponsors are not required to report to CMS any data concerning 

the actions they take in response to potential fraud and abuse. 

Of the 62 plan sponsors that identified potential fraud and abuse, 

47 conducted inquiries, 32 initiated corrective actions, and 33 referred 

incidents to other entities for further investigation. Overall, 17 plan 

sponsors initiated all three actions, 21 initiated two actions, 19 initiated 

one action, and 5 did not initiate any of these actions. Appendix A 

provides inquiry, corrective action, and referral information for all plan 

sponsors. 

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FINDINGS 

Inquiries. Of the 62 plan sponsors that identified potential fraud and 

abuse, 47 conducted 1,904 inquiries during the review period.20 Of 

these 1,904, one plan sponsor conducted 849 inquiries, or 45 percent. 

The top four plan sponsors conducted 72 percent of all these inquiries. 

CMS recommends that plan sponsors refer fraud and abuse incidents to 

MEDICs when they do not have the time or resources to conduct 

inquiries. Of 15 plan sponsors that identified potential fraud and abuse 

incidents but did not conduct inquiries, none sent any incidents to 

MEDICs because of time or resource constraints. 

Corrective actions. Of the 62 plan sponsors that identified potential 

fraud and abuse, 32 initiated 9,011 corrective actions.21 The most 

frequent type of corrective action was repayment of overpayments, with 

8,318 actions taken. One plan sponsor that initiated 71 percent of the 

corrective actions (6,410 of 9,011) used repayments to address 

98 percent of its potential fraud and abuse incidents. The second most 

frequent type of corrective action initiated was termination from the 

network, with 476 actions taken. Table 4, on the next page, shows the 

number and types of corrective actions plan sponsors initiated and the 

number of sponsors that initiated each type. 

Three plan sponsors initiated a significantly higher number of 

corrective actions compared to the total number of potential fraud and 

abuse incidents they identified. These three plan sponsors initiated 

795, 479, and 171 corrective actions, respectively, although they 

identified only 70, 2, and 66 potential fraud and abuse incidents. 

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20 One plan sponsor that had not identified any potential fraud and abuse during this 

period reported conducting one inquiry. Therefore, the total number of inquiries plan 

sponsors conducted during this time period is 1,905. 

21 Two plan sponsors that had not identified any potential fraud and abuse during this 

period each reported initiating one corrective action. Therefore, the total number of 

corrective actions that plan sponsors initiated during this time period is 9,013. 

12 
 

 

 

FINDINGS 

Table 4. Corrective Actions Initiated by Plan Sponsors, First 6 Months of 2007 

Type of Correction Action 

Number of Times 

Type Was Initiated 

Number of Plan 

Sponsors That 

Initiated Each Type1 

Repayment of erroneous payment or overpayment 8,318 20 

Termination from network 476 14 

Disciplinary action 158 8 

Correction of data 16 4 

Utilization monitoring 8 1 

Premium or true out-of-pocket cost adjustment 6 1 

Reverse processing of erroneous prescriptions 6 1 

Oversight 2 1 

Unidentified 21 4 

Total 9,011 

Source: OIG analysis of plan sponsor responses.
 1Column cannot be totaled because some plan sponsors are represented in more than one row. 

Referrals. Of the 62 plan sponsors that identified potential fraud and 

abuse incidents, 33 made at least 1 referral for further investigation, for 

a total of 1,701 referrals.22 The referrals were made to CMS, 

Department of Justice agencies, local law enforcement agencies, 

MEDICs, OIG, State agencies, and other plan sponsors.
 

Eighty-nine percent of these referrals went to MEDICs (1,522 of 1,701). 

Two plan sponsors made 89 percent of the referrals to MEDICs 

(1,347 of 1,522). 

22 One plan sponsor that reported not identifying any potential fraud and abuse during 

this period also reported referring three incidents of potential fraud and abuse for further 

investigation. Therefore, the total number of referrals for further investigation during this 

time period is 1,704. 

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Δ RECOMMENDATIONS 

Plan sponsors are the first line of defense against Part D fraud and 

abuse. They are required to have a comprehensive program to detect 

and deter Part D fraud and abuse. However, we found that some of 

these plan sponsors did not identify any potential fraud and abuse 

incidents; most incidents were identified by a small number of plan 

sponsors; and not all plan sponsors that identified potential fraud and 

abuse conducted inquiries, initiated corrective actions, or made referrals 

for further investigation. 

CMS does not routinely collect information that would describe the 

overall volume or types of Part D fraud and abuse that occur or other 

outcome-related information that would inform CMS as to the 

effectiveness of the comprehensive fraud and abuse plan each sponsor is 

required to have in place. The only information concerning fraud and 

abuse that CMS requires to be reported is the quarterly aggregate 

number of fraud and abuse complaints that plan sponsors received from 

beneficiaries. There is no required reporting to CMS of information 

relating to self-identified instances of fraud or allegations received from 

sources other than beneficiaries. Further, the data CMS collects about 

beneficiary complaints to plan sponsors do not provide information 

about whether, or how effectively, the plan sponsors addressed the 

allegations. 

A crucial aspect of protecting the integrity of the Part D program is 

ensuring that the plan sponsors have in place a comprehensive and 

effective program to detect and deter fraud and abuse. Therefore, we 

recommend that CMS: 

Review Part D plan sponsors to determine why certain sponsors have 

identified especially high or low volumes of potential fraud and abuse 

incidents. 

Determine whether the Part D plan sponsors that identified potential fraud 

and abuse initiated inquiries and corrective actions as required by CMS, and 

made referrals for further investigation as recommended by CMS. 

Require Part D plan sponsors to maintain and routinely report information 

related to the results of sponsors’ fraud and abuse programs. 

Such information should include, but not be limited to, the number and 

types of potential fraud and abuse incidents identified through internal 

efforts and external sources, the number of inquiries conducted into 

potential fraud and abuse, the number and types of corrective actions 

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RECOMMENDATIONS 

initiated, the number of referrals for further investigation, and the 

types of agencies to which referrals were sent. Moreover, all categories 

of required information should be clearly defined to prevent 

misinterpretation and to ensure that information from different sources 

can be compared. 

Use this required information to help determine the effectiveness of 

sponsors’ fraud and abuse programs. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS stated that it is committed to combating fraud, waste, and abuse 

in the Part D program but that because of limited funding, it has not 

been able to perform as much direct oversight of the Part D sponsors’ 

fraud, waste, and abuse efforts as it anticipated. 

CMS questioned the validity of our report numbers and stated that 

incidents might include beneficiary misunderstandings, a sponsor’s 

noncompliance, and incidents of potential fraud. 

The data that we requested from sponsors were specifically about 

potential fraud and abuse incidents. We asked sponsors to provide us 

the number of potential fraud and abuse incidents that they identified 

through internal efforts and the number of potential fraud and abuse 

incidents that they identified through external sources (e.g., law 

enforcement agencies, MEDICs, providers, and beneficiaries). We used 

terms from two CMS sources: (1) the “Prescription Drug Benefit 

Manual,” chapter 9, which provides guidance on fraud and abuse 

programs; and (2) the CMS instructions to sponsors for reporting 

beneficiary complaint numbers. We agree that potential fraud and 

abuse incidents should be further defined by CMS to ensure 

comparability of data across sponsors and this is included in our third 

recommendation. 

In response to OIG’s first recommendation, CMS stated that it agreed 

that the variability in the number of potential fraud and abuse incidents 

identified by sponsors is a concern. CMS will examine the data more 

closely by referring the findings to MEDICs for further investigation. 

CMS also stated that it intends to revise the reporting requirements to 

enhance the data collected and give sponsors more specific guidance on 

how to track and properly label incidents, e.g., as an education issue or 

a potential fraud issue. 

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R E C O MMENDA T I O N S 

CMS concurred with OIG’s second recommendation and will refer the 

data in this report to MEDICs for further investigation. 

Although CMS provided comments about OIG’s third recommendation, 

CMS did not state whether it concurred. CMS did state that OIG’s 

report would be useful when CMS initiates its Part D sponsor 

compliance plan audits. CMS stated that our report will help ensure 

that sponsors are conducting their own internal investigations and 

taking appropriate corrective actions. CMS did not address OIG’s 

fourth recommendation. 

CMS provided technical comments. CMS stated that the number of 

complaint categories in the Complaint Tracking Module should be 

10 and not 11 as stated on page 3 of the report. We did not change the 

number of complaint categories because there is an 11th category in the 

Complaint Tracking Module (“Other”). 

CMS stated that our methodology would be improved by including 

information about enrollments. However, during a meeting with CMS 

about our findings, prior to the issuance of our draft report, CMS staff 

requested that OIG remove enrollment information from the tables in 

the report because they believed that readers could use it to identify 

sponsors. OIG has provided CMS with a crosswalk to identify sponsors 

in our report tables for further analysis or followup. 

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

indicate whether it concurs with our third and fourth recommendations 

and what steps, if any, it will take to implement them. The full text of 

CMS’s comments is provided in Appendix C. 

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-

Δ APPENDIX~A 

The table below provides information about the 86 Part D stand-alone drug plan sponsors 

reviewed in this report. The information is sorted by the number of potential fraud and abuse 

incidents plan sponsors identified through internal efforts. 

Selected Fraud and Abuse Activities for Stand Alone Drug Plan Sponsors, First 6 Months of 2007 

Plan 

Sponsor 

ID 

Number 

of Plans 

Offered 

Number of 

Regions 

Covered1 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Through 

Internal 

Efforts 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Through 

External 

Sources2 

Total 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Number of 

Inquiries 

Conducted 

Number of 

Corrective 

Actions 

Initiated 

Number of 

Referrals to 

Other Entities 

for Further 

Investigation 

1 104 34 6,410 123 6,533 0 6,410 0 

2 107 35 592 44 636 30 565 6 

3 2 1 242 0 242 242 154 0 

4 2 1 37 3 40 0 20 0 

5 101 33 33 89 122 122 10 16 

6 107 31 30 62 92 46 0 46 

7 4 1 27 0 27 0 27 0 

8 85 38 22 44 66 51 171 18 

9 104 34 21 49 70 65 795 827 

10 41 34 20 146 166 166 0 0 

11 5 1 15 3 18 17 0 2 

12 2 1 13 0 13 5 0 8 

13 56 33 12 27 39 20 0 0 

14 104 34 9 249 258 18 14 38 

15 5 1 9 2 11 11 0 2 

16 2 1 9 1 10 10 7 4 

17 70 34 8 24 32 0 8 11 

18 69 21 8 17 25 10 0 0 

19 17 1 7 9 16 8 0 8 

20 4 1 7 1 8 8 0 0 

21 5 1 6 0 6 6 0 8 

22 5 1 5 10 15 14 1 6 

23 110 36 4 88 92 19 0 4 

24 68 33 4 73 77 2 0 6 

25 92 34 4 13 17 17 17 0 

26 3 1 4 3 7 7 10 0 

27 1 1 4 0 4 4 0 3 

28 4 1 4 0 4 4 0 4 

29 15 3 3 16 19 19 11 6 

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-

 

APPENDIX~A 

Selected Fraud and

(continued) 

 Abuse Activities for Stand Alone Drug Plan Sponsors, First 6 Months of 2007 

Plan 

Sponsor 

ID 

Number of 

Plans 

Offered 

Number of 

Regions 

Covered1 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Through 

Internal 

Efforts 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Through 

External 

Sources2 

Total 

Number 

of 

Potential 

Fraud 

and 

Abuse 

Incidents 

Identified 

Number of 

Inquiries 

Conducted 

Number of 

Corrective 

Actions 

Initiated 

Number of 

Referrals to 

Other Entities 

for Further 

Investigation 

30 42 12 3 10 13 5 0 0 

31 4 2 3 5 8 0 0 0 

32 2 1 3 3 6 0 0 1 

33 104 34 2 858 860 849 209 624 

34 2 1 2 10 12 12 2 8 

35 6 1 2 5 7 6 6 3 

36 3 1 2 0 2 0 479 0 

37 2 1 2 0 2 2 2 0 

38 68 34 1 59 60 0 57 3 

39 3 1 1 11 12 12 1 23 

40 104 34 1 5 6 5 1 3 

41 67 33 1 4 5 3 3 3 

42 5 1 1 3 4 4 1 1 

43 5 1 1 0 1 0 2 1 

44 3 1 1 0 1 1 0 0 

45 4 1 0 34 34 32 0 3 

46 14 7 0 14 14 14 0 0 

47 9 1 0 13 13 1 13 0 

48 3 1 0 10 10 10 8 0 

49 4 1 0 7 7 7 0 0 

50 4 1 0 4 4 0 0 0 

51 2 1 0 4 4 3 0 0 

52 4 1 0 4 4 4 0 0 

53 56 24 0 3 3 3 1 0 

54 6 2 0 3 3 3 3 2 

55 3 1 0 3 3 3 0 0 

56 4 1 0 2 2 2 2 2 

57 2 1 0 2 2 2 0 0 

58 2 1 0 2 2 0 0 0 

59 4 1 0 2 2 0 0 0 

60 4 1 0 1 1 0 1 0 

61 4 1 0 1 1 0 0 1 

62 1 1 0 1 1 0 0 0 

63 33 10 0 0 0 0 0 0 

64 36 34 0 0 0 0 0 0 

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-

APPENDIX~A 

Selected Fraud and

2007 (continued) 

 Abuse Activities for Stand Alone Drug Plan Sponsors, First 6 Months of 

Plan 

Sponsor 

ID 

Number of 

Plans 

Offered 

Number of 

Regions 

Covered1 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Through 

Internal 

Efforts 

Number of 

Potential 

Fraud and 

Abuse 

Incidents 

Identified 

Through 

External 

Sources2 

Total 

Number 

of 

Potential 

Fraud 

and 

Abuse 

Incidents 

Identified 

Number of 

Inquiries 

Conducted 

Number of 

Corrective 

Actions 

Initiated 

Number of 

Referrals to 

Other Entities 

for Further 

Investigation 

65 3 1 0 0 0 0 0 0 

66 4 1 0 0 0 0 0 0 

67 4 1 0 0 0 0 0 0 

68 5 1 0 0 0 0 0 0 

69 5 1 0 0 0 0 0 0 

70 37 35 0 0 0 0 0 0 

71 4 1 0 0 0 1 1 3 

72 6 3 0 0 0 0 0 0 

73 4 1 0 0 0 0 0 0 

74 9 1 0 0 0 0 0 0 

75 10 5 0 0 0 0 0 0 

76 2 1 0 0 0 0 0 0 

77 4 1 0 0 0 0 0 0 

78 2 1 0 0 0 0 1 0 

79 4 1 0 0 0 0 0 0 

80 4 1 0 0 0 0 0 0 

81 3 1 0 0 0 0 0 0 

82 2 1 0 0 0 0 0 0 

83 3 1 0 0 0 0 0 0 

84 4 1 0 0 0 0 0 0 

85 4 1 0 0 0 0 0 0 

86 3 1 0 0 0 0 0 0 

 Total 2,039 7,595 2,179 9,774 1,905 9,013 1,704 

Sources: Centers for Medicare & Medicaid Services’ Health Plan Management System data, and Office of Inspector General analysis of 

plan sponsor responses. 

1 There are 39 stand-alone drug plan regions. Of the 39, 25 include only one State, 9 include multiple States, and 5 include one 

U.S. territory each. The national employer/union group plans in our review are not included in the count of regions for this column. 2 This column includes complaints that plan sponsors received from CMS, Medicare Drug Integrity Contractors, law enforcement 

agencies, beneficiaries, and others. 

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Δ APPENDIX~B 

Examples in this table came from the Centers for Medicare & Medicaid Services (CMS), 

“Prescription Drug Benefit Manual,” chapter 9, sections 70.1 through 70.1.7; Medicare Drug 

Integrity Contractors’ internal categories for complaints; and plan sponsor responses to our 

review questions. 

Types of Potential Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 

Type of Fraud 

 and Abuse 

Number of 

Incidents Examples 

Inappropriate 

Billing 9,073 

• Billing for drugs or services not provided. 

• Billing multiple payers for the same prescriptions, except as required 

for coordination of benefit transactions. 

• Billing based on group visits, e.g., a pharmacist visits a nursing home 

and bills for numerous prescriptions without furnishing any specific 

service to individual patients. 

Providing False 

Information 520 

• Plan sponsor or subcontractor falsified information furnished to CMS. 

• Prescriber falsified information submitted through a prior authorization 

or other formulary oversight mechanism in order to justify coverage. 

• Misrepresentation of beneficiary's personal identity or eligibility 

information, medical condition, or plan enrollment information. 

Doctor 

Shopping 400 

• Beneficiary consulted a number of doctors for the purpose of 

inappropriately obtaining multiple prescriptions for narcotic painkillers 

or other drugs. 

Attempting To 

Steal 

Beneficiary 

Identity/Money 

151 

• Beneficiary was asked for credit card or banking information. 

• Beneficiary was asked for payment over the telephone or Web. 

• Individual or organization posed as Medicare or Social Security with 

intent to steal beneficiary's identity or money. 

Engaging in 

Improper 

Marketing 

Schemes 

139 

• Plan sponsor or subcontractor violated Medicare marketing guidelines 

or other Federal or State laws, rules, and regulations to improperly 

enroll beneficiaries in a Part D plan. 

Overcharging 

Beneficiary 58 

• Overcharging beneficiary for coinsurance or premium. 

• Pharmacy asked beneficiary to pay uncompensated amounts. 

• Bait and switch pricing, i.e., beneficiary is led to believe a drug will 

cost one price, but at point of sale beneficiary is charged a higher 

amount. 

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APPENDIX ~ B 

Types of Potential Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 (continued) 

Type of Fraud 

 and Abuse 

Number of 

Incidents Examples 

Inappropriate 

Prescription 

Dispensing 

50 

•

•

•

Dispensed expired or adulterated prescription drugs. 

Dispensed drugs without a prescription. 

Pharmacist or pharmacy benefit manager’s (PBM) mail order pharmacy 

split prescription to receive additional dispensing fee. 

Diverting 

Prescriptions 33 

•

•

•

Beneficiary obtained prescription drugs from a provider and gave or sold 

this medication to someone else. 

Inappropriate consumption or distribution of a beneficiary's medications 

by a caregiver or anyone else. 

Beneficiary resale of drugs on black market. 

Providing Data 

That Lacks 

Integrity to CMS 

27 

•

•

•

Submitted inaccurate or incomplete prescription drug event data or Part D 

plan quarterly data. 

Improperly reported enrollment/disenrollment data to CMS to inflate 

prospective payments. 

Inappropriately documented pricing information. 

Forging/Altering 

Documents 27 

•

•

Prescriptions were altered by someone other than the prescriber or 

pharmacist with prescriber approval to increase quantity or number of 

refills. 

Altered prescription, electronic claim records, medical document, etc., for 

greater payment. 

Inappropriate 

Enrollment/ 

Disenrollment 

26 

•

•

•

Beneficiary was dead at the time of enrollment. 

Beneficiary enrolled under multiple plans. 

Involuntary termination of enrollee for nonpayment of premium. 

Engaging in 

Potential Drug 

Abuse 

22 •

•

Possible controlled substance abuse. 

 Outlier nonnarcotic; wasteful and potentially abusive drug use. 

Billing the Wrong 

Person 8 • Wrong person charged for prescription. 

Inappropriate 

Prescribing 7 •

•

Off-label prescribing of controlled substance. 

Prescriber is on Office of Inspector General’s (OIG) Exclusion List. 

Misusing LowIncome Subsidy 5 

•

•

•

Plan sponsor provided false or misleading information regarding the 

number of its members who applied and qualified for the low-income 

subsidy in order to receive unwarranted low-income subsidy payments. 

Beneficiary not reimbursed by plan following retroactive low income 

subsidy determination. 

Beneficiary not receiving the low-income benefit approved by CMS. 

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APPENDIX ~ B 

Types of Potential Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 (continued) 

Type of Fraud Number of 

 and Abuse
 Incidents Examples 

Theft of • In context of e-prescribing, includes theft of provider's authentication, 

Prescriber’s 5 i.e., login, information, including Drug Enforcement Administration 

Prescription Pad number. 

• Selected/denied beneficiaries based on illness profile or other Adverse Selecting 4 discriminating factors. 

•	 Prescriber was offered or paid, solicited, or received unlawful 

remuneration to induce or reward the prescriber to write prescriptions 

Illegal for drugs. 

Remuneration, 4 • PBM received unlawful remuneration in order to steer a beneficiary 

Kickbacks, Bribes toward a certain plan or drug. 

•	 Inappropriate discounts, support services, educational grants, and 

research funding. 

• Any manipulation/miscalculation of beneficiary's TrOOP to keep 

Inappropriate beneficiary in the coverage gap. 

Manipulation of •	 Plan sponsor did not correctly calculate amount beneficiary spent on 4 True Out-of-Pocket prescription out of pocket. 

Costs (TrOOP) •	 Beneficiary manipulated TrOOP to push through the coverage gap to 

reach catastrophic coverage before being eligible. 

•	 Plan sponsor, PBM, or PBM's pharmacy and therapeutics committees 

made decisions in which costs took priority over criteria such as clinical 

efficacy and appropriateness of formulary drugs. Inappropriate Drug •	 Inappropriate formulary support activities such as inappropriate Formulary 3 payments to PBMs, and formulary placement payments in order to have Decisions manufacturer's products included on a plan's formulary. 

•	 Bait and switch, i.e., frequent formulary changes to induce beneficiaries 

to sign up for specific drugs that are later removed. 

•	 Beneficiary attempted to game her/his drug coverage by obtaining and 

storing large quantities of drugs and then disenrolling, thus avoiding Stockpiling 3 out-of-pocket costs, to protect against periods of noncoverage, or to sell 

drugs on black market. 

•	 Manufacturer provided free samples to physicians expecting those 

physicians to bill Federal health care programs for the samples. Inappropriate Sales •	 Illegal promotion of off-label drug usage through marketing, financial Technique by 2 incentives, or other promotion campaigns. Manufacturer •	 Inappropriate marketing or promotion of drugs/products (sales, 

marketing, discounting) by manufacturer. 

Prescribing Outside 2 • Providers wrote prescriptions outside of their scope of practice. Scope of Practice 

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APPENDIX ~ B 

Types of Fraud and Abuse Identified by Stand-Alone Drug Plan Sponsors, First 6 Months of 2007 (continued) 

Type of Fraud 

 and Abuse 

Number of 

Incidents Examples 

Mass Prescribing 2 

• Providers wrote prescriptions for drugs that were not medically 

necessary, often in mass quantities, and often for patients that were not 

theirs. These prescriptions were often written for controlled drugs for 

sale on the black market and might include improper payments to the 

provider. This practice is sometimes called a prescription mill. 

Hiding/Siphoning 

Illegal Profits 1 • Arrangements by providers with pharmacies, PBMs, etc. to hide/siphon 

illegal profits. 

Seeking Early 

Refills 1 • Beneficiary sought early refills. 

 Total 10,5771 

Source of numeric data: OIG analysis of plan sponsor responses.
 1 The number 10,577 is higher than the 9,774 potential fraud and abuse incidents that plan sponsors reported identifying from internal efforts and 

complaints from external sources. One possible explanation for the higher number is that more than one type of fraud and abuse was identified 

per incident.
 

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Agency Comments 

Δ APPENDIX~C 
 

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APPENDIX ~ C 
 

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APPENDIX ~ C 
 

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. 

Isabelle Buonocore 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 

Conswelia McCourt; central office staff who contributed include Linda 

Abbott and Sandy Khoury. 

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