2011 Work Plan Expands Health Reform Reviews

13 October 2010 Publication
Authors: Maria E. Gonzalez Knavel Nathaniel M. Lacktman Judith A. Waltz

Legal News Alert: Health Care

At the beginning of each new fiscal year, the Office of Inspector General (OIG) at the Department of Health & Human Services (HHS) issues its Work Plan. The Work Plan reflects (in large part) only two aspects of the work of the OIG: projects originating within the Office of Audit Services (OAS), which conducts financial, billing, and performance audits of HHS programs; and projects originating within the Office of Evaluations and Inspections (OEI), which provides management reviews and evaluations of HHS program operations. What it does not reflect, except by providing general statistics, is the work of the Office of Investigations or the Office of Counsel to the Inspector General, in investigating and litigating matters involving individual providers and suppliers.

Like many to-do lists, the OIG’s plan is aspirational and, as a result, many projects are carried over from year-to-year as priorities shift and projects planned in the beginning of the fiscal year are set aside. The fact that a project has not been carried over does not suggest that the OIG is no longer interested in that area. If a project is carried over (rather than cancelled), it typically means the OIG continues to remain interested in it, notwithstanding its changing priorities.

This fiscal year, with the passage of health care reform contained in the Patient Protection and Affordable Care Act (PPACA), there will be an even greater shifting and refocusing of resources. While last year’s plan included some new priorities related to the American Recovery and Reinvestment Act of 2009 (ARRA), this year’s plan includes an even more fundamental shift as Congress and the Obama administration look to implement and fund health care reform.

Below is an overview of some of the major projects from this year’s Work Plan. We also indicate which OIG office has primary responsibility for the project. Providers and suppliers who are relying on the Work Plan to influence their own compliance agendas for the upcoming year should review the Work Plan in full, and also are reminded that, as discussed above, the Work Plan is not an all-inclusive listing of the OIG’s areas of interest.

Medicare Part A


The OIG’s priorities in its hospital reviews include provider-based status, quality issues (such as hospital-acquired conditions or adverse events), and reimbursement issues, such as outlier or excessive payments.

Provider-Based Status for Inpatient and Outpatient Facilities (OAS)

This is the third consecutive year that the OIG has listed a review of the correct application of the provider-based rules in its annual Work Plan. When a hospital identifies a facility as provider-based, the services rendered there qualify for increased hospital-level inpatient or outpatient reimbursement — as compared to generally lesser reimbursement as a freestanding entity. Provider-based status for outpatient clinics also may increase coinsurance liability for Medicare beneficiaries.

The OIG will determine the appropriateness of the provider-based designation and the potential impact on the Medicare program and its beneficiaries of hospitals improperly claiming provider-based status for inpatient and outpatient facilities. In light of the complexity and subjectivity of the provider-based rules, coupled with the potential to generate significant “supplemental payments” through the outpatient prospective payment system, provider-based status remains an important area for internal compliance auditing and education

Hospital Payments for Non-physician Outpatient Services Under the Inpatient Prospective Payment System (OAS)

This is the second consecutive year that the OIG has identified this area for review. The OIG will review the appropriateness of payments for non-physician outpatient services that were provided to beneficiaries shortly before or during Medicare Part A-covered stays at acute care hospitals. The Social Security Act prohibits separate payments for outpatient diagnostic services and admission-related non-diagnostic services rendered during the three days prior to the day of admission to an acute care hospital that is reimbursed under the inpatient prospective payment system (IPPS) for general acute care hospitals. The OIG stated that its prior work in this area found a significant number of improper claims.

Critical Access Hospitals (OAS)
This the second consecutive year that the OIG has listed payments to Critical Access Hospitals (CAH) for review. CAH are generally paid 101 percent of the reasonable costs of providing covered CAH services, and such payments are often well in excess of the amount that the CAH would have received if they were reimbursed as hospitals under IPPS. Despite the small size, limited resources, and the essential role of CAH in rural communities, the OIG is focusing attention on whether these institutions are meeting the CAH-designation criteria and conditions of participation, and whether payments to CAH were in accordance with Medicare requirements. Fortunately, auditing compliance with CAH requirements is relatively simple, and CAH providers should perform such internal reviews to ensure full compliance.

Medicare Excessive Payments (OAS)
The OIG will review Medicare claims with high payments to determine whether they were appropriate. The OIG stated that its prior work has shown that claims with unusually high payments are incorrect for various reasons. It will review certain outpatient claims in which payments by Medicare exceeded charges by the provider and the billing codes appear to be aberrant, and will review the effectiveness of the claims processing edits used to identify excessive payments.

Medicare Disproportionate Share Payments (OAS)
This is the second consecutive year that the OIG has listed Medicare disproportionate share hospital (DSH) payments as an area for review. Because of increasing DSH payments, the OIG will review whether these payments were in accordance with Medicare methodology and will examine the total amounts of uncompensated care costs that hospitals incur.

Reliability of Hospital-Reported Quality Measure Data (OAS)
This is the third consecutive year that the OIG has announced it will review hospitals’ controls related to quality of care data submitted to CMS. Hospitals are required to report quality measures for a set of 10 indicators to CMS. Failure to report the quality measures results in a two-percent payment reduction. The OIG will determine whether hospitals have implemented sufficient controls to ensure the validity of their quality measurement data.

Hospital Admissions With Conditions Coded Present-on-Admission (OAS)
The OIG will review Medicare claims to determine which types of facilities are most frequently transferring patients with certain diagnoses that were coded as being present on admission (POA). For certain diagnoses specified by CMS, hospitals receive a lower payment amount if the specified diagnoses were acquired in the hospital rather than being POA.

Early Implementation of Medicare’s Policy for Hospital-Acquired Conditions (OEI)
The OIG will review the early implementation of CMS’s hospital-acquired conditions (HAC) policy. The HAC policy prevents additional payment to hospitals under the IPPS for certain conditions or complications that are determined to be reasonably preventable. The OIG will review Medicare claims data to identify the number of beneficiary stays associated with HAC and determine their impact on reimbursement.

Hospital Reporting for Adverse Events (OEI)
The OIG will continue its review of hospital reporting for adverse events. The OIG previously reviewed the types of adverse events that have been referred to as “never events,” or “serious reportable events,” which are events that the National Quality Forum (NQF) deemed “should never occur in a health care setting,” such as surgery on the wrong limb. Reviews of adverse events will include an examination of the national incidence of adverse events among hospitalized Medicare beneficiaries and the extent to which hospital systems captured adverse events and reported the information to external patient-safety oversight entities. The OIG also will review responses to adverse events in hospitals by Medicare oversight entities. 

Medicare Inpatient and Outpatient Hospital Claims for the Replacement of Medical Devices (OAS)
The OIG will review hospital inpatient and outpatient claims to determine whether such claims included procedures for the insertion of replacement medical devices in compliance with Medicare regulations that exclude from Medicare coverage an item or a service for which neither the beneficiary (nor anyone on his or her behalf) has an obligation to pay. If a hospital receives a partial or full credit from the manufacturer because the device is recalled or under warranty, Medicare is not responsible for the full cost of the replaced medical device.

Observation Services During Outpatient Visits (OEI)
Hospitals have many challenges in understanding observation status rules, not only in Medicare but also in a diverse set of rules from commercial payors. The OIG will continue its review of hospital compliance with the rules as set forth in the Claims Processing Manual. The OIG's study focuses on whether and to what extent hospitals’ use of observation services affects the care Medicare beneficiaries receive and the financial impact of observation status on beneficiaries.

Hospital Inpatient Outlier Payments (OEI)
Recent whistleblower lawsuits have resulted in millions of dollars in settlements from hospitals charged with inflating Medicare claims to qualify for outlier payments, which are supplemental Medicare payments to hospitals when patients incur extraordinarily high costs. The OIG will focus on hospital inpatient outlier payments and identify characteristics of hospitals with high or increasing rates of outlier payments.

Home Health Agencies (HHA)
The OIG continues to scrutinize HHA by focusing almost exclusively on the accuracy and propriety of billings. The OIG will continue its review from previous years of Part B payments for home health beneficiaries (OAS), including payment for services and supplies provided under arrangements by outside suppliers; the extent to which the billing codes for home health resource groups are accurate; and the incidence of outlier payments for insulin injections by HHA. The OIG also will continue to monitor HHA profitability trends (OAS) and review CMS’s process for ensuring that HHA submit accurate and complete Outcome and Assessment Information Set data (OEI).

Medicare Home Health Agency Enrollment (OEI)
This is a new OIG area of focus. The OIG will review whether inaccurate information on provider enrollment applications has resulted in improper enrollment. The OIG also will review program integrity efforts of CMS, its contractors, and state agencies during the HHA provider enrollment process.

Skilled Nursing Facilities (SNF)
The OIG continues its review of services provided to beneficiaries in SNF, focusing mainly on quality issues such as oversight of poorly performing nursing homes (OEI) and the facilities’ adherence to quality of care requirements (Medicare requirements for quality of care in SNF (OEI)), as well as an analysis of SNF with high rates of hospitalizations. The OIG calls for a continuation of payment reviews of psychotherapy services and of atypical antipsychotic drugs. In addition, the OIG will continue its examination of the accuracy of facilities’ Resource Utilization Groups (RUG) coding. Pursuant to a directive from Congress, the OIG will continue to monitor payments made for Part B services in SNF, focusing on potential abuse. In addition, the OIG will focus on criminal background checks for SNF (OEI) to determine whether and the extent to which SNF have employed individuals with criminal convictions. The OIG also will review the program of national and state background checks for prospective long-term-care employees mandated by the PPACA and review procedures implemented by participating states for long-term-care facilities or providers conducting background checks and assessment of the costs of conducting such checks.

Medicare Part B

Physicians and Non-Physician Providers

The Work Plan identifies 20 projects targeting physician and non-physician providers. Of these 20 projects, 10 projects are characterized as new starts (although seven of those new starts had been identified in the 2010 Work Plan).

Error-Prone Providers: Medicare Part A and Part B (OAS)
The OIG will review Medicare Part A and Part B claims submitted by so-called “error-prone providers” who have been identified through CMS’s Comprehensive Error Rate Testing (CERT) program data. The OIG will select the top error-prone providers based on expected dollar error amounts and match selected providers against the National Claims History file to determine the total dollar amount of claims paid. The OIG will then conduct a medical review on a sample of claims to determine their validity, project its results to each provider’s population of claims, and request refunds on projected overpayments.

Partial Hospitalization Program Services (OEI)
The OIG will review the appropriateness of Medicare payments for partial hospitalization program (PHP) psychiatric services, an intensive outpatient program of psychiatric services that hospitals may provide to individuals in lieu of inpatient psychiatric care. Because Medicare spending for PHP services has increased over the years, the OIG will determine whether Medicare payments for PHP psychiatric services in hospital outpatient departments and freestanding community mental health centers met Medicare requirements based on documentation supporting psychiatric services, including patient plans of care, physician supervision, and certification requirements.

Medicare Billings With Modifier "GY" (OEI)
The OIG will review the appropriateness of the use by physicians and other providers of modifier GY on claims for services that are not covered by Medicare. The GY modifier is used in coding for services that are statutorily excluded or do not meet the definition of a covered service. Although providers are not required to provide beneficiaries with an Advance Beneficiary Notice for such services (because the basis for denial would not be a lack of medical necessity but rather a lack of coverage for the services), beneficiaries are liable for all charges associated with these services. The OIG is concerned that beneficiaries may be unknowingly acquiring large medical bills.

Place of Service Errors (OAS)
The OIG will review physician coding of place of service on Medicare Part B claims for services performed in ambulatory surgical centers (ASC) and hospital outpatient departments. Because Medicare pays a physician a higher amount when a service is performed in a physician’s office (as opposed to services performed in a hospital outpatient department or, with certain exceptions, ASC, where the overhead costs are generally not a cost to the physician), the OIG will determine whether physicians properly coded the places of service on claims for services provided in ASC and hospital outpatient departments.

Evaluation and Management (E&M) Services (OAS)
The OIG will review E&M claims to identify coding patterns and trends in E&M services because such services represented 19 percent of all Medicare Part B payments last year. Furthermore, because Medicare contractors have noted an increased frequency of medical records with identical documentation across services, the OIG will review multiple E&M services for the same providers and beneficiaries to identify EHR documentation practices associated with potentially improper payments.

Medicare Providers’ Compliance With Assignment Rules (OEI)
The OIG will review the extent to which providers comply with assignment rules and determine whether and to what extent beneficiaries are inappropriately billed in excess of amounts allowed by Medicare requirements. The OIG also will assess beneficiaries’ awareness of their rights and responsibilities regarding potential billing violations and Medicare coverage guidelines.

Payments for Services Ordered or Referred by Excluded Providers (OEI)
The OIG will review the nature and extent of Medicare payments for services ordered or referred by excluded providers (Medicare regulations prohibit payment for any items or services furnished, ordered, or prescribed by an excluded individual or entity). As part of this review, the OIG will examine CMS’s oversight mechanisms to identify and prevent improper payments for services based on orders or referrals by excluded providers.

Outpatient Physical Therapy Services Provided by Independent Therapists (OAS)
The OIG will review outpatient physical therapy services provided by independent therapists to determine whether they comply with Medicare reimbursement regulations. Previously, the OIG identified claims for therapy services provided by independent physical therapists that were not reasonable, not medically necessary, or not properly documented. Focusing on independent therapists who have a high utilization rate for outpatient physical therapy services, the OIG will determine whether the services that they billed to Medicare were in accordance with federal requirements.

Appropriateness of Medicare Payments for Polysomnography (OEI) and Medicare Payments for Sleep Testing (OAS)
The OIG will review the appropriateness of Medicare payments for sleep studies because Medicare payments for polysomnography increased from $62 million in 2001 to $235 million in 2009. The OIG will examine the factors contributing to the rise in Medicare payments for sleep studies, assess provider compliance with federal program requirements, and review the appropriateness of Medicare payments for sleep test procedures provided at sleep disorder clinics.

Diagnostic Testing and Imaging

The 2011 Work Plan identifies five projects specifically targeting diagnostic testing services, imaging services, and portable X-ray suppliers, an increase over the three projects identified in the 2010 Work Plan.

Billing of Portable X-Ray Suppliers (OEI)
The OIG will review providers of portable X-ray services with unusual claims patterns and identify Medicare claims that are questionable. There are four components of diagnostic imaging services furnished by portable X-ray suppliers: the technical and professional components of a test, a setup component, and a transportation component. The OIG will examine the billing patterns of portable X-ray suppliers to identify those patterns that merit additional scrutiny.

Medicare Payments for Part B Imaging Services (OAS)
The OIG will review Medicare payments for Part B imaging services, focusing on the practice expense components, including the equipment utilization rate, in order to determine whether Medicare payments reflect the expenses incurred and whether the utilization rates reflect industry practices.

Excessive Payments for Diagnostic Tests (OAS)
The OIG will review Medicare payments for high-cost diagnostic tests to determine whether they were medically necessary, including the extent to which the same diagnostic tests are ordered for a beneficiary by primary care physicians and physician specialists for the same treatment.

Geographic Areas With a High Density of Independent Diagnostic Testing Facilities (IDTF) (OEI)
The OIG will review services and billing patterns in geographic areas with high concentrations of IDTF, due to known issues of noncompliance with Medicare standards and potential improper payments.

IDTF Compliance With Medicare Standards (OEI)
The OIG will review selected IDTF enrolled in Medicare to determine the extent to which they comply with the 17 IDTF Medicare enrollment standards.

Laboratory Issues

The 2011 Work Plan marks a significant increase in the number of projects specifically addressing laboratory issues. Whereas the 2010 Work Plan identified one laboratory-specific project, the 2011 Work Plan outlines four projects, all of which are characterized as new starts.

Lab Test Unbundling by Clinical Laboratories (OAS)
The OIG will focus on whether laboratories have inappropriately unbundled laboratory profile and panel tests to maximize profits. In addition, the OIG will focus on the controls Medicare carriers have in place to detect and prevent inappropriate payments.

Medicare Part B Payments for Glycosylated Hemoglobin A1C Tests
The OIG will review the medical necessity and frequency of this test for compliance with CMS’s Coverage Determination Manual.

Lab Test Payments: Comparison of Medicare With Other Public Payors (OEI)
The OIG will review the extent to which Medicare payment rates for laboratory tests vary from other public payors and will compare Medicare laboratory payment rates for the 10 most-utilized lab tests with those of other public payors, such as state Medicaid programs.

Trends in Laboratory Utilization (OEI)
The OIG will review trends in laboratory utilization under the Medicare program. Medicare spending on clinical laboratory services has increased 92 percent in the last decade, reaching approximately $7 billion in 2008. The OIG will examine the types of laboratory tests and the number of laboratory tests ordered, as well as how physician specialty, diagnosis, and geographic differences in the practice of medicine affect laboratory test ordering.

Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Suppliers and Items

The OIG continues its intense focus on DMEPOS suppliers and items. Of the 12 projects outlined in the 2011 Work Plan, four are new starts (although one of those new starts, Medicare Pricing for Parenteral Nutrition (OEI), was identified in the 2010 Work Plan).

Competitive Bidding Process for Medical Equipment and Supplies (OAS) and Competitive Bidding Program: Supplier Influence on Physician Prescribing (OEI)
The OIG will review the process CMS used to conduct competitive bidding and subsequent pricing determinations for certain DMEPOS items and services in selected competitive bidding areas under rounds one and two of the competitive bidding program. The OIG also will review DMEPOS claims to determine the extent to which suppliers participating in the competitive bidding program are soliciting physicians to prescribe certain brands or modes of delivery of covered items that are more profitable to suppliers.

Frequency of Replacement Supplies for DMEPOS (OAS)
The OIG will review the compliance of DMEPOS suppliers with Medicare requirements for frequently replaced DMEPOS items. Medicare Manuals provide that a beneficiary or a beneficiary’s caregiver must specifically request refills of repetitive services and/or supplies before they are dispensed. The manuals further state that a supplier may not initiate a refill of an order and may not automatically dispense a quantity of supplies on a predetermined regular basis. In particular, OIG findings indicate that certain suppliers have automatically shipped continuous positive airway pressure system and respiratory-assist device supplies when no physician order for refills was in effect. The OIG will select a sample of claims for frequently replaced supplies to determine whether payments to DMEPOS suppliers met Medicare requirements.

Medicare Part B Payments for Home Blood Glucose Testing Supplies (OAS)
The OIG will review Medicare Part B payments for home blood glucose test strips and lancet supplies. The local coverage determinations issued by the four DME Medicare Administrative Contractors require that the physician’s order for each item billed to Medicare include certain elements and be retained by the supplier to support billing for those services. Because the amount of supplies allowable for Medicare reimbursement differs depending on the applicable modifier, the OIG will determine the appropriateness of Medicare Part B payments to DMEPOS suppliers for home blood glucose test strips and lancet supplies.

Medicare Market Shares of Mail-Order Diabetic Testing Strips (OEI)
The OIG will determine the brands and models of diabetic testing strips reimbursed by Medicare, to be published in a study due by January 1, 2011. The results of the study might be used by CMS in future rounds of competitive bidding for mail-order diabetic testing strips to ensure that the winning bidders are able to provide beneficiaries’ preferred types of testing strips. The OIG also will determine the market shares of mail-order diabetic testing strips received by Medicare beneficiaries.

Medicare Payments to DME Suppliers for Power Wheelchairs (OEI). The OIG will review documentation for payments to DMEPOS suppliers for standard and complex rehabilitation power wheelchairs to determine whether the claims were medically necessary. The OIG also will determine whether suppliers had documentation from the beneficiaries’ medical records, as required, that supported the medical necessity of the power wheelchairs and whether this was consistent with documentation from the physicians who ordered the power wheelchairs.

Part B Payments for Prescription Drugs

The 2011 Work Plan outlines a total of eight projects for Part B prescription drug payments. Although five of these projects were characterized as new starts, three of them had been announced in the FY 2010 Work Plan: Comparing Average Sales Prices to Average Manufacturer Prices (OEI), Billing for Immunosuppressive Drugs (OAS), and Payments for Off-Label Anticancer Pharmaceuticals and Biologicals (OAS). The remaining projects are focused on billing, pricing, and utilization issues.

Medicare Payments for Part B Drugs (OAS)
The OIG will review services associated with Medicare claims for Part B drugs. Medicare Part B covers drugs that are furnished “incident to” a physician’s service, provided that the drugs are not usually self-administered by the patients who take them. The OIG will determine whether Medicare payments for the Part B drugs, where associated with a physician service, were made in accordance with Medicare requirements.

Fluctuation of Average Sales Price for Medicare Part B Drugs (OEI)
The OIG will review trends and variations in quarterly average sales prices (ASP) from the implementation of the payment methodology in 2005 to the present. The OIG will determine the degree of fluctuation in ASP from quarter to quarter and examine the potential monetary impact of ASP fluctuation on Part B payments for drugs, as well as how those fluctuations compare to price-change indexes developed by the Bureau of Labor Statistics.

Medicare Part C

Medicare Advantage (MA) Payments for Medicare Part D Drugs on Behalf of Institutionalized Beneficiaries (OAS)
In an effort to identify potential duplicate payments, the OIG will review the extent to which Medicare Part D paid for drugs that should have been covered under Medicare Part C in 2008 by matching Part D payment data for institutionalized beneficiaries against Part C negotiated drug information between MA plans and CMS.

Duplicate Fee-for-Service Billings for MA Beneficiaries (OAS)
The OIG will determine whether providers were improperly reimbursed for inpatient hospital services provided to beneficiaries enrolled in MA plans by determining whether Medicare Administrative Contractor and/or fiscal intermediary payments to hospitals for inpatient services provided to MA plan beneficiaries complied with federal regulations.

Medicare Advantage Plans and DME (OAS)
The OIG will review MA plans' oversight of contractors that provide DME items to enrolled beneficiaries to determine how effective the MA plan sponsors’ controls are over various matters, including the selection of suppliers, assessing medical need for DME, and validating service delivery to prevent fraud, waste, and abuse for payments to DME suppliers providing services to MA enrolled beneficiaries.

MA Plans' Identification of Potential Fraud and Abuse (OEI)
The OIG will review the extent to which MA plan sponsors identified and addressed potential fraud and abuse incidents and determine whether, in response to potential fraud and abuse incidents, the MA plan sponsors conducted inquiries, initiated corrective actions, or referred incidents for further investigation.

Medicare Part D

Medicare Part D Claims Duplicated in Part A and Part B (OAS)
The OIG will review Medicare Part D claims to determine whether they were duplicated in Part A or Part B and also will determine, for the sampled Part D claims, the accuracy of the payments made.

Part D Sponsors' Audits of Pharmacies (OAS; OEI)
The OIG will review Part D sponsors' and their pharmacy benefit managers' (PBM) pharmacy audit processes to (1) identify amounts recouped from the pharmacies and ensure that the amounts have been properly reported as overpayments to CMS, (2) determine whether recoveries by Part D sponsors or their PBM are properly accounted for, and (3) review the extent to which pharmacy audits focus on uncovering fraud, waste, and abuse versus program noncompliance.

Part D and Medicaid Prescription Drug Prices (OEI)
Pursuant to its requirements under PPACA, the OIG will review prices paid for Medicare Part D plans and state Medicaid agencies for 200 high-volume prescription drugs. To assess the impact of any price discrepancies on the federal government and beneficiaries, the OIG will compare prices paid (including discounts and rebates) under the programs.

340B Drug Pricing in the Medicare Part D Program (OAS)
To determine whether Part D sponsors are sharing any 340B program savings received with the federal government, the OIG will review whether Part D sponsors are including the savings received in the remuneration information provided to CMS.

Medicare Part D Sponsors' Internal Controls for Fraud, Waste, and Abuse and Medicare Prescription Drug Sponsors' Training on Fraud, Waste, and Abuse (OAS)
The OIG will review the Medicare Part D sponsors' programs and compliance plans to control fraud, waste, and abuse. The OIG also will review the fraud, waste, and abuse training Part D sponsors provided for their network pharmacies in 2009.

Dual Eligibles' Access to Drugs Under Medicare Part D (OEI)
Pursuant to its requirements under the PPACA, the OIG will review the extent to which Part D sponsors' drug formularies include drugs commonly used by dual-eligible beneficiaries and will compare the availability of drugs commonly used by dual-eligible beneficiaries enrolled in plans that charge premiums above the national average monthly bid amount to the availability under those plans that have premiums below that amount.

Medicare and Medicaid Security of Portable Devices Containing Personal Health Information at Contractors and Hospitals (OAS)
The OIG will review the security controls of Medicare and Medicaid contractors and hospitals for preventing the loss of protected health information stored on portable devices and media (e.g., laptops, jump drives, backup tapes, and equipment considered for disposal) and will assess and test the contractors' and hospitals' policies and procedures for the protection, access, storage, and transport of electronic health information.


The OIG’s Medicaid review teams are focused on payments to hospitals, long-term and community care, prescription drugs, Medicaid administration, and information systems controls.

Medicaid Hospitals

Hospital Outlier Payments (OAS)
The OIG will follow up on its previous efforts to review state Medicaid payments for hospital outliers, which are cases that incur extraordinarily high costs. Prior OIG work involving Medicare claims for hospital outliers identified vulnerabilities in the Medicare payment methodology. For the second year, the OIG seeks to determine whether similar vulnerabilities exist in state Medicaid agencies' methods of computing inpatient hospital cost outlier payments.

Provider Eligibility for Medicaid Reimbursement (OAS)
The OIG will continue to review whether states appropriately determined provider eligibility for Medicaid reimbursement (i.e., compliance with Medicare Conditions of Participation). The OIG previously identified significant unallowable Medicaid payments made to hospitals that did not meet Medicare program eligibility requirements as part of the DSH program.

Potentially Excessive Medicaid Payments for Inpatient and Outpatient Services (OAS)
Again, the OIG has expanded its review of Medicaid inpatient and outpatient claims to Medicaid. The review will focus on whether vulnerabilities exist in state agency controls to detect potentially excessive Medicaid payments to institutional providers for inpatient and outpatient services and whether costs are "reasonable and necessary for the proper and efficient performance and administration" of the payments. Excessive payments may be attributable to billing errors on the submitted claims such as inaccuracies in the diagnosis codes, admission codes, discharge codes, procedure codes, charges, Healthcare Common Procedure Coding System (HCPCS) codes, and number of units billed.

Medicaid Home, Community, and Nursing Home Care
The oversight of Medicaid home, community, and nursing home facilities in the Work Plan represents a continuation of most of the OAS projects described in the FY 2009 and 2010 Work Plans with some additional reviews. The projects include reviews of community residences, continuing day treatment, home- and community-based services, adult day services, and Medicaid hospice services.

CMS Oversight of Accuracy of Nursing Home Minimum Data (OEI)
Once again, the OIG will review CMS’s oversight of Minimum Data Set (MDS) data submitted by nursing homes certified to participate in Medicare or Medicaid. MDS data include the residents’ physical and cognitive functioning, health status and diagnoses, preferences, and life care wishes. The OIG will review CMS’s processes for ensuring that nursing homes submit accurate and complete MDS data.

Transparency Within Nursing Facility Ownership (OAS)
The OIG will assess the impact of the ownership structures of investor-owned nursing homes on staffing, quality of care, legal liability, and transparency in nursing home care.

States’ Administration and Use of Civil Monetary Penalty Funds in Medicaid Nursing Homes (OEI)
The OIG will continue its review of states' administration and use of civil monetary penalties (CMP) imposed on nursing homes for failure to meet health and safety requirements, and the policies and procedures regarding the appropriate use of the CMP funds received in accordance with federal requirements.

Medicaid Incentive Payments for Nursing Facility Quality of Care Performance Measures (OAS)
The OIG will look at the effectiveness of incentive payments based on nursing homes' quality of care performance.

Medicaid Prescription Drugs

Because the cost of prescription drugs accounts for such a large portion of Medicaid spending, the OIG plans to be aggressive in its review of manufacturers' reporting of costs, states' pursuit of drug rebates, and documentation to support both costs and claims amounts.

Calculation of Average Manufacturer Prices (AMP)
The OIG will review selected drug manufacturers to evaluate their methodologies for calculating the AMP and to determine whether the methodologies are in line with applicable statutes and regulations and with the manufacturers' rebate agreements. Drug manufacturers’ calculations affect the prices they report to the Medicaid program and they also affect the Federal Upper Limit (FUL) price. The OIG also will review manufacturers' rationales and methodologies for recalculation of Base Date AMP, which is the AMP on the first day of the first month a single-source drug was marketed; manufacturers may adjust this price for inflation, thereby affecting rebate amounts.

FUL Payment Drugs (OAS)
There is concern that pharmacies may be altering dosage forms of some commonly prescribed Medicaid drugs in order to circumvent FULs on other dosage forms. The OIG will review prescription drug claims to see whether pharmacies have altered prescriptions to maximize reimbursement.

Medicaid Drug Pricing in State Maximum Allowable Cost (MAC) Programs (OEI)
The OIG will review state MAC programs to determine how state MAC lists are developed, prices are set, and how prices compare to the FUL amounts. This study will compare state MAC programs to determine which programs are most successful in reducing Medicaid expenditures.

Changes in Prices for Medicaid Brand-Name Drugs (OEI)
The average increase of the price of brand-name drugs used by Medicaid beneficiaries has outpaced the rate of inflation. Congress has voiced concerns about the impact on Medicaid expenditures, since most states base their reimbursement rates on published prices. The OIG will review how these price increases affect Medicaid reimbursement amounts.

Pharmacy Prescription Drug Claims and Reimbursement
The OIG will scrutinize data reported by participating pharmacies and the documentation maintained by pharmacies to support claims. The Work Plan calls for the OIG to:

  • Determine whether states accurately reported Medicaid expenditures for prescription drugs and whether the claims related to the expenditures were adequately supported by pharmacy records.
  • Review pharmacies' acquisition costs for prescription drugs. Typically, for drugs without established upper limits, drugs are reimbursed at the lower of the usual and customary charge or the estimated acquisition cost (EAC) plus a reasonable dispensing fee. The EAC is based on the average wholesale price (AWP), which as of October 2011 no longer will be available as a benchmark price. The OIG wants to compare actual acquisition costs to other benchmark prices, such as the AMP and the wholesale acquisition cost, to determine the effect of the lack of AWP data on states.
  • Review and assess the extent to which large chain pharmacies are billing state Medicaid programs for the usual and customary charges under retail discount generic programs. These programs offer selected generic drugs for very low costs such as $4 per one-month prescription. The study focuses on whether Medicaid is being billed properly for these types of prescriptions.

Medicaid Payments for Drugs Not Approved for Use by Children (OAS)
This project is a continuing OAS audit and will look at whether Medicaid and the Children's Health Insurance Program have been paying for drugs not approved by the FDA for the use by children.

Medicaid Third-Party Liability for Prescription Drug Payments (OAS)
This ongoing audit is reviewing whether states have implemented adequate controls to ensure that Medicaid is the payor of last resort and is not used if other available sources of payment, either through payors or otherwise, are available.

The Deficit Reduction Act (DRA) of 2005. Impact on Medicaid Rebates for Authorized Generic Drugs (OEI)
This continuing project reviews whether manufacturers have complied with requirements to include prices available to secondary manufacturers of authorized generic drugs in their best price calculations. The DRA imposed this requirement, which has the potential to increase the amount of Medicaid rebates and the effect of the DRA requirements on the number of new authorized generics available on the market.

Other Medicaid Services
The OIG will conduct various reviews of Medicaid payments for the following: dental services; physical, occupational, and speech therapy; rehabilitative services; medical equipment; family planning; school-based services; and transportation services.

Program Integrity
The OIG will continue to review payments made to providers and suppliers to determine the extent to which they were paid during periods of termination or exclusion from the Medicaid program. In addition, the OIG will extend its efforts from last year to determine the extent to which states have controls in place to identify claims associated with invalid or inactive unique physician identifier numbers (UPIN).

Public Health Reviews

Complaint Investigation Process (OAS)
The FDA uses a complaint investigation process as a key mechanism to identify contaminated or harmful foods, feed, drugs, cosmetics, biologics, and medical devices. The OIG intends to examine the adequacy of this process in order to determine whether complaints are properly recorded in the Consumer Complaint System and investigated in an expeditious manner. The OIG also will review the FDA process for categorizing and using complaints to identify trends and patterns in reported illnesses or injuries.

FDA Oversight of Investigational New Drug Applications (OEI)
The OIG will review the FDA’s process for evaluating investigational new drug (IND) applications. If the FDA has failed to respond within 30 days following receipt of an IND, the drug sponsor may commence clinical trials without the FDA's approval. The OIG will review the FDA's timeliness of IND review and identify challenges in the IND review process.

510(k) Process for Device Approval (OEI)
The OIG will review the FDA’s internal controls and quality review procedures for the 510(k) device approval process. Under the simplified 510(k) device approval process, certain devices may be approved if the manufacturer demonstrates that the device is as safe and effective as a device already approved (substantial equivalence). The OIG is concerned that manufacturers may “stretch the evidence to claim that the device is substantially equivalent to an already-approved device.” In addition, the OIG will examine the extent to which manufacturers submit data on long-term safety under the 510(k) process and the FDA’s post-marketing surveillance of such medical devices.

Department-Wide Issues

Pre-Existing Condition Insurance Plans (OEI)
The PPACA mandated the creation of Pre-Existing Condition Insurance Plans (PCIP), which are temporary high-risk health insurance pool programs that provide health insurance coverage to uninsured individuals who have pre-existing conditions. The PCIP provide health insurance coverage until health insurance exchanges begin operating in 2014, and are required to develop, implement, and execute operating procedures to prevent, detect, and recover payments (when applicable or allowable), and promptly report to HHS incidences of waste, fraud, and abuse. The OIG will review the controls that states and the Office of Consumer Information and Insurance Oversight have in place to prevent and identify fraudulent health care claims for individuals covered by PCIP. The OIG also will examine the effectiveness of federal agencies in working together to administer the PCIP program.

Recovery Act Reviews

Unlike some of the other areas listed above, Recovery Act Reviews do include some projects where the OIG’s Office of Investigations (OI) will be taking the lead.

Integrity of Recovery Act Expenditures (OI)
The OIG will focus significant attention on funds appropriated under the ARRA. ARRA funding resulted in a significant increase in the number of grants and contracts awarded by HHS, including payment incentives for EHR, adoption and federal awards for health information technology (HIT) initiatives. In addition, the ARRA requires a higher level of transparency and accountability in the awarding and expenditures of funds. The OIG will review and evaluate credible allegations of improper expenditures of ARRA funds to identify cases in which criminal investigations will be opened and enforcement actions pursued.

Enforcement of Whistleblower Protections (OI)
As part of its scrutiny of ARRA funds, the OIG also will review and evaluate credible allegations of reprisals against whistleblowers by persons receiving ARRA funds. The ARRA extended whistleblower protection to employees who reasonably believe they are being retaliated against for reporting misuse of ARRA funds received by their non-federal employers.

Medicare and Medicaid Incentive Payments for EHR (OAS, OEI)
The OIG will review Medicare and Medicare incentive payments to eligible health care professionals and hospitals for adopting EHR and CMS’ safeguards to prevent erroneous incentive payments. Specifically, the OIG will review Medicare incentive payment data from 2011 to identify payments to providers that should not have received incentive payments (e.g., those not meeting meaningful use criteria). The OIG also will assess CMS’s plans to oversee incentive payments, as well as its payments to state Medicaid agencies for implementing the Medicaid EHR incentive program. Authorized by the ARRA, the Medicare and Medicaid incentive payments are scheduled to begin in 2011 and continue through 2016 for Medicare and 2021 for Medicaid, with Medicare payment penalties for health professionals and hospitals that fail to become meaningful users of EHR beginning in 2015.

Medicaid Disproportionate Share Hospital Payments (OAS)
The OIG will review DSH payments to determine whether the expenditures claimed meet Medicaid requirements. Section 5002 of the ARRA provides fiscal relief to states by increasing most states’ FY 2009 and 2010 Medicaid DSH allotments by 2.5 percent; these payments supplement the regular payments that DSH hospitals receive for providing care to Medicaid beneficiaries.


The OIG has announced a long set of priorities in its plan for audits and evaluations in this first post-health care reform year. DMEPOS suppliers continue to be targeted for intense review. The OIG continues to remain interested in quality of care and drug pricing issues. The OIG will have to balance these priorities in this upcoming year with reviews that are mandatory under this year’s health care reform provisions.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Heidi A. Sorensen
Washington, D.C.

Jeffrey R. Bates
Los Angeles, California

Maria E. Gonzalez Knavel
Milwaukee, Wisconsin

Renate M. Gray
Milwaukee, Wisconsin

Joyce E. Gresko
Washington, D.C.

Leeann M. Habte
Los Angeles, California

Nathaniel M. Lacktman
Tampa, Florida

Shilpa S. Patel
New York, New York

Richard K. Rifenbark
Los Angeles, California

Judith A. Waltz
San Francisco, California

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