OIG 2012 Work Plan

10 October 2011 Publication
Author(s): Nathaniel M. Lacktman Maria E. Gonzalez Knavel Anil Shankar Lawrence W. Vernaglia Judith A. Waltz Adria Warren

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 in large part reflects only two aspects of the work of 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, 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 OIG is no longer interested in that area. If a project is carried over, rather than cancelled, it typically means OIG continues to remain interested in it, notwithstanding its changing priorities.

Overall, the 2012 Work Plan reflects a greater focus on the new issues raised by the changes introduced by the Patient Protection and Affordable Care Act (PPACA). There are a significant number of new projects related to state Medicaid programs, as well as an emphasis on fraud and abuse reviews. Medicare Parts C and D also received an increased share of OIG’s attention regarding new projects. As might be expected, these new projects and the overall direction of the 2012 Work Plan reflect a focus on evolving areas of fraud and abuse and resource allocation under federal health care programs.

Below is an overview of some of the major projects from the 2012 Work Plan, with particular emphasis on new projects. We also indicate which OIG office has primary responsibility for the project. Providers and suppliers relying on the Work Plan to design 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 OIG's areas of interest.

Medicare Parts A and B


The 2012 Work Plan identifies 23 projects targeting hospitals. Of these 23, six are new projects. OIG will continue reviews related to hospital reporting of adverse events and present on admission conditions, as well as outlier payments and reporting of quality data. New OIG projects include the following:

  • Accuracy of Present-on-Admission Indicators Submitted on Medicare Claims (OEI). OIG will review the accuracy of present-on-admission (POA) indicators submitted on inpatient hospital claims. CMS requires hospitals to submit POA indicators with each diagnosis code on Medicare hospital inpatient claims. Under PPACA, hospitals with high rates of hospital-acquired conditions receive reduced payments, so POA indicators are necessary to implement the new requirement.
  • Medicare Inpatient and Outpatient Payments to Acute Care Hospitals (OAS). OIG will review hospital Medicare payments to determine hospital compliance with selected billing requirements and to recommend recovery of overpayments for providers that routinely submit improper claims. OIG will review high- and low-compliance risk hospitals and will compare the compliance practices of the two groups.
  • Acute-CareHospitalInpatient Transfers to Inpatient Hospice Care (OAS). OIG will review Medicare claims for inpatient stays for which the beneficiary was transferred to hospice care. For such claims, OIG will examine the financial or common ownership relationship between the acute-care hospital and the hospice provider. OIG also will examine how Medicare treats reimbursement for similar transfers from the acute care setting to other settings.
  • Medicare Outpatient Dental Claims (OAS). OIG will review hospital outpatient payments for dental services to determine whether payments for dental services were made in accordance with Medicare requirements. Generally, Medicare excludes dental services, but OIG audits revealed that providers were receiving Medicare reimbursement for noncovered dental services, resulting in significant overpayments.
  • Inpatient Rehabilitation Facilities (OEI). OIG will examine the appropriateness of admissions to inpatient rehabilitation facilities (IRFs). IRFs provide rehabilitation services for patients who require a hospital-level of care to improve their ability to function. OIG will review the level of therapy and how much concurrent group therapy is provided.

Physicians and Non-Physician Providers

The 2012 Work Plan identifies 36 projects targeting physicians and other Medicare Part B Provider/Suppliers. Of these 36, 13 are new projects. OIG will continue reviews related to physicians, ambulatory surgical centers, evaluation and management services, clinical social workers, independent therapists, sleep testing, diagnostic radiology, laboratories, partial hospitalization programs, and end-stage renal disease facilities. OIG also will continue medical claims reviews of error-prone providers, and will continue to review the extent to which Medicare payments are billed for services ordered or referred by excluded providers. New OIG projects include the following:

  • High Cumulative Part B Payments (OAS). OIG will review controls that identify high cumulative Medicare Part B payments to physicians and suppliers to determine whether those controls are effective. High cumulative payments may draw greater OIG scrutiny on the grounds there may be a likelihood of incorrect billing or fraud and abuse.
  • Incident-to-Services (OEI). OIG will review physician billing for “incident-to” services to determine whether those services have a higher error rate than other services, and will review CMS’ ability to monitor services billed as “incident-to.”
  • Medicare Oversight of Dialysis Facilities (OEI). OIG will assess Medicare’s oversight of end-stage renal dialysis (ESRD) facilities, including how well CMS holds state survey and certification agencies and ESRD networks accountable.
  • Bundled Prospective Payment System for Renal Dialysis Services (OAS). OIG will review Medicare pricing and utilization of renal dialysis services under the new bundled ESRD PPS, and determine whether Medicare payments under the PPS were made in accordance with Medicare requirements.
  • Ambulances (OEI). OIG will compare reimbursements by other payers for ambulance services to Medicare fee schedules. In a second project, OIG will examine Medicare claims data to identify questionable billing for ambulance services that were potentially not medically reasonable and necessary, and will examine relationships between ambulance companies and other providers.
  • Use of Modifiers During the Global Surgery Period (OAS). OIG will review the appropriateness of certain claims modifier codes during the global surgery period and determine whether Medicare payments for those codes were proper. The Work Plan notes that prior work has shown that improper use of modifiers has resulted in inappropriate payments.
  • Partial Hospitalization Programs in Community Mental Health Centers (OEI). OIG will identify questionable billing characteristics associated with partial hospitalization program claims submitted by community mental health centers, and assess fraud prevention and detection activities by relevant CMS contractors.
  • Impact of Opting Out of Medicare (OEI). OIG will review the extent to which physicians are opting out of Medicare and whether physicians who have opted out of Medicare are submitting claims to Medicare. In addition, OIG will determine whether specific areas of the country have seen higher numbers of physicians opting out and the potential impact on beneficiaries.
  • Organ Procurement Organizations (OAS). OIG will review Medicare payments to organ procurement organizations for errors, including whether the organizations correctly reported organ statistics for purpose of proper allocation to their cost report.

Nursing Homes

The 2012 Work Plan identifies eight projects targeting nursing homes. Of those eight, three projects are new projects. OIG continues its review of services provided to beneficiaries in skilled nursing facilities, 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 skilled nursing facilities (OEI)), as well as an analysis of skilled nursing facilities with high rates of hospitalizations. OIG will continue its examination of the accuracy of Part A payments and facilities' Resource Utilization Groups (RUG) coding. OIG will continue its review of nursing homes’ emergency plans and emergency preparedness and evacuation deficiencies.

The following three nursing home projects are new this year.

  • Safety and Quality of Post-Acute Care for Medicare Beneficiaries (OEI). OIG will review the quality of care and safety of Medicare beneficiaries transferred from acute-care hospitals to post-acute care. OIG will evaluate the transfer process and identify rates of adverse events and preventable hospital readmissions from post-acute-care settings, with particular focus on skilled nursing, inpatient rehabilitation, and long-term-care hospitals.
  • Nursing Home Compliance Plans (OEI). OIG will review Medicare- and Medicaid-certified nursing homes’ implementation of compliance plans as part of their day-to-day operations and whether the plans contain elements identified in OIG’s compliance program guidance. OIG will assess whether CMS has incorporated compliance requirements into Requirements of Participation and oversees provider implementation of plans. Section 6102 of the PPACA requires nursing homes to operate a compliance and ethics program, containing at least eight components, to prevent and detect criminal, civil, and administrative violations and promote quality of care. PPACA requires CMS to issue regulations by 2012 and skilled nursing facilities to have plans that meet such requirements by or after 2013.
  • Questionable Billing Patterns During Non-Part A Nursing Home Stays (OEI). OIG will identify questionable billing patterns associated with nursing homes and Medicare providers for Part B services provided to nursing home residents whose stays are not paid for under Medicare’s Part A SNF benefit. Part B services provided during a non-Part A stay must be billed directly by suppliers and other providers. A series of studies will examine podiatry, ambulance, laboratory, and imaging services.

Medical Equipment and Supplies

The 2012 Work Plan reflects a continued increase in OIG’s focus on suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). Of the 14 projects outlined in the 2012 Work Plan, four are new this year.

  • Questionable Billing for Medicare Diabetic Testing Supplies (OEI). Under this new project, OIG will review Medicare claims for diabetic testing strips and lancets (diabetic testing supplies) to identify questionable billing and characteristics that may be indicative of fraud, waste, and abuse. Medicare has utilization guidelines for the amount of diabetic testing supplies that beneficiaries may receive. To receive reimbursement from Medicare, suppliers must maintain documentation demonstrating that their claims meet all Medicare coverage, coding, and medical necessity requirements. OIG will look for claims with certain characteristics indicative of improper billing.
  • Effectiveness of Edits to Prevent Payments to Multiple Suppliers of Home Blood-Glucose Testing Supplies (OEI). Under this new project, OIG will review the DME Medicare Administration Contractors’ (MACs’) claims processing edits (special system controls) designed to prevent payments to multiple suppliers of home blood-glucose test strips and lancets and determine whether they are effective in preventing inappropriate payments. The LCDs issued by the four DME MACs state that a DME supplier may not dispense test strips and lancets until a beneficiary has nearly exhausted the previously dispensed supplies. The LCDs also require that a beneficiary or a caregiver must specifically request the refill of test strips and lancets before the DME supplier dispenses them to a beneficiary. Prior OIG reports identified inappropriate payments to multiple DME suppliers for test strips and lancets dispensed to the same beneficiary with overlapping service dates.
  • Collection of Surety Bonds for Overpayments Made to DMEPOS Suppliers (OEI). Under this new project, OIG will review CMS’s use of surety bonds to recover overpayments made to DMEPOS suppliers. OIG will determine the amount of overpayments CMS sought and recouped through DMEPOS surety bonds, and identify barriers to surety bond collection. Certain DMEPOS suppliers must provide and maintain a surety bond of no less than $50,000. CMS uses these security bonds as a means to limit fraud risk to Medicare by ensuring only legitimate suppliers are enrolled and to recoup overpayments.
  • DMEPOS Competitive Bidding Program and Process (OEI). 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. 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 DME (OAS). OIG will review the compliance of DME suppliers with Medicare requirements for frequently replaced DME items. Medicare Manuals provide that a beneficiary or a beneficiary’s caregiver must specifically request refills of repetitive services and/or supplies before a supplier dispenses them. 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. OIG will select a sample of claims for frequently replaced supplies to determine whether payments to DME suppliers met Medicare requirements.
  • Medicare Part B Payments for Home Blood Glucose Testing Supplies (OAS). OIG will review Medicare Part B payments for home blood glucose test strips and lancet supplies. The local coverage determinations (LCD) issued by the four DME MACs 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, OIG will determine the appropriateness of Medicare Part B payments to DMEPOS suppliers for home blood glucose test strips and lancet supplies.
  • Medicare Payments for Various Categories of DME (OAS). OIG will review the appropriateness of Medicare Part B payments to DME suppliers of power mobility devices (e.g., scooters), hospital beds and accessories, oxygen concentrators, and enteral/parenteral nutrition. Because prior OIG reviews identified issues such as Medicare payments for DMEPOS that were not ordered by physicians, not delivered to the beneficiaries, or not needed by beneficiaries, OIG will identify DMEPOS suppliers in selected geographic areas with high-volume claims and reimbursement to determine whether payments were made in accordance with Medicare requirements.
  • Medicare Payments for DMEPOS Claims With Modifiers (OAS). OIG will review the appropriateness of Medicare Part B payments to DMEPOS suppliers that submitted claims with modifiers. For certain items to be covered under the Medicare program, DMEPOS suppliers must use modifiers to indicate that they have the appropriate documentation on file; the suppliers are required to provide, upon request, the documentation to support their claims for payment. The DME MACs have indicated that suppliers had little or no documentation to support these modified claims, suggesting that many of the claims submitted may have been invalid and should not have been paid by Medicare. OIG will determine whether payments to DMEPOS suppliers met Medicare requirements.

Diagnostic Testing and Imaging

Potential overutilization of sleep testing is a long-standing government concern, and OIG reiterated that that it will review the appropriateness of payments for sleep test procedures, including examining the factors contributing to the rise in Medicare payments for sleep studies. OIG also will assess provider compliance with federal program requirements for sleep studies, including whether appropriate modifier codes are being reported. Additionally, OIG will review payments for high-cost diagnostic radiology tests to determine whether they were medically necessary and the extent to which the same diagnostic tests are ordered for a beneficiary by primary care physicians and physician specialists for the same treatment.


No new reviews were proposed in the Work Plan for clinical laboratories, but ongoing projects were noted, all of which are expected to be completed during FY 2012. These include a review of trends in laboratory utilization, including the types of tests and the numbers of tests ordered. This analysis also will include OIG scrutiny as to what factors may influence physician ordering of laboratory tests. Another ongoing review will examine how the methods of establishing Medicare laboratory test payment rates vary from those of state Medicaid and Federal Employee Health Benefits programs. The methodology for this review will compare Medicare payment rates for 20 lab tests (those identified as most frequently ordered and most costly in terms of total dollars paid) against the payment rates of those other programs. Finally, OIG will continue to work on its review of Part B payments for glycated hemoglobin A1C tests, with a focus on the Medicare contractors’ procedures for screening for appropriate frequency of testing.

Home Health Services

Of the nine projects outlined in the 2012 Work Plan, five are new this year. OIG will continue to review CMS’ oversight of Outcome and Assessment Information Set (OASIS) data submitted by Medicare-certified Home Health Agencies (HHAs), which has been used by CMS for its HHA prospective payment system (PPS) since 2000. OIG also will continue to review compliance with various aspects of the home health PPS, including the documentation required in support of the claims paid by Medicare. In addition, OIG will review Medicare claims submitted by HHAs to determine the extent to which the claims meet Medicare coverage requirements. This will include an assessment of the accuracy of resource group codes submitted for Medicare home health claims in 2008. Finally, OIG will review cost report data to analyze HHA revenue and expense trends under the home health PPS to determine whether the payment methodology should be adjusted. OIG will examine various Medicare and overall revenue and expense trends for freestanding and hospital-based HHAs. New OIG projects include the following:

  • States’ Survey and Certification of Home Health Agencies (OEI). OIG will review the timeliness and outcomes of HHA standard and complaint surveys conducted by State Survey Agencies and Accreditation Organizations, the nature and follow-up of complaints against HHAs, and CMS oversight activities. CMS relies on the survey and certification process, conducted at least once every 36 months, to ensure HHA compliance with Medicare Conditions of Participation.
  • Missing or Incorrect Patient Outcome and Assessment Data (OAS). OIG will review HHA OASIS data, which is submitted independent of the HHA’s claim for episode payment, to identify payments for episodes for which OASIS data were not submitted or for which the billing code on the claim is inconsistent with OASIS data. OASIS is a standard set of data items used to assess the clinical needs, functional status, and service utilization of a beneficiary receiving home health services.
  • Questionable Billing Characteristics of Home Health Service (OEI). OIG proposes to identify and review HHAs that had a high percentage of claims meeting at least one of the questionable billing characteristics (i.e., characteristics that may indicate potential fraud) in 2010.
  • Medicare Administrative Contractors’ Oversight of Home Health Agency Claims (OEI). OIG will review fraud and abuse prevention and services performed by the home health benefit Medicare Administrative Contractors (MACs), and the reduction of payment errors by MACs.
  • Wage Indexes Used to Calculate Home Health Payments (OAS). OIG will determine whether Medicare home health payments were calculated using incorrect wage indexes and evaluate the adequacy of controls to prevent such inaccuracies.


The 2012 Work Plan identifies two projects targeting hospices, one of which is a new project. OIG will continue to review the use of hospice general inpatient care from 2005 to 2010, and will assess the appropriateness of hospices’ general inpatient care claims and hospice beneficiaries’ drug claims billed under Part D. The new OIG project is the following:

  • Hospice Marketing Practices and Financial Relationships With Nursing Facilities (OEI). Under this new project, OIG will review hospices’ marketing materials and practices and their financial relationships with nursing facilities. OIG is concerned with instances in which hospices aggressively marketed their services to nursing facility residents. OIG will focus its review on hospices that have a high percentage of their beneficiaries in nursing facilities.

Part B Payments for Prescription Drugs

Reimbursement for prescription drugs under the Medicare Part B program continues to be a topic of interest for OIG. Of the 11 projects, five of them are new. In addition to the new projects described below, OIG has ongoing evaluations/inspections related to a number of pricing benchmarks, including ASP, AMP, and WAMP. OIG also has ongoing projects related to billing for immunosuppressive drugs, payments for off-label anticancer pharmaceuticals and biologicals, and both an audit and an evaluation related to the use of the drugs Lucentis and Avastin to treat wet age-related macular degeneration. New OIG projects include the following:

  • Costs and Payments for ESRD Drugs (OEI). OIG will review the new bundled rate system and compare acquisition costs for these drugs to the inflation-adjusted cost estimates. This system went into effect January 1, 2011. This review appears to stem from previous OIG work that found that inflation adjustments based on data from the Bureau of Labor Statistics did not accurately measure changes in acquisition costs for these expensive ESRD drugs.
  • Physician-Administered Drugs and Biologicals (OAS). OIG will compare the Medicare reimbursement methodology for physician-administered drugs to State Medicaid reimbursement methodologies to determine whether significant Part B savings can be achieved. Medicare Part B typically reimburses at ASP plus six percent, whereas states only have to ensure that the ingredient cost approximates the estimated acquisition cost. Medicaid also requires manufacturers to pay rebates. OIG’s audit will measure the extent of cost-savings that could result from applying these methodology to Medicare Part B drug reimbursement.
  • Off-Label and Off-Compendia Use of Medications in Government Prescription Drug Programs (OEI). This review will measure the extent of off-label/off-compendia use of prescription drugs under both the Medicare and Medicaid programs. OIG also plans to examine CMS’s oversight of off-label uses and whether the coverage requirements are being met when Medicare or Medicaid reimburses for these drugs.
  • Medicare Payments for the Drug Herceptin (OAS). OIG’s interest in Herceptin is related to the fact that for drugs packaged in single-use vials, Medicare reimburses for the amount that must be discarded after administering a dose. Herceptin is packaged in multiuse vials, and there is no reimbursement for discarded amounts. OIG will examine whether providers accurately billed for the drug, taking these requirements into consideration.
  • Medicare Outpatient Payments for Drugs (OAS). This study focuses on correct coding and billing of drugs, such as chemotherapy drugs, that must be reported in units. Prior reviews by OIG have identified coding problems or problems with overbilling of these units.

Medicare Part C

In the 2012 Work Plan, OIG continues many of the Medicare Part C — Medicare Advantage (MA) projects listed in its prior Work Plan (including enhanced payment to plans for certain beneficiaries; enrollment for Special-Needs Plans; MA risk adjustments data submission/validation; duplicate payments for drugs for institutionalized beneficiaries; and MA reporting requirements). There are three new OIG projects, described below.

  • Accuracy of Expenditures Claimed on Cost Reports by Health Care Prepayment Plans (OAS). OIG will review expenditures claimed on cost reports by selected Health Care Prepayment Plans (HCPPs) to determine whether selected HCPPs’ expenditures were reasonable and allowable for reimbursement. HCPPs must submit a final cost report to CMS within 120 days after the close of a contract period. CMS performs a reconciliation of the final cost report to determine any liability due to CMS or the HCPP. The review of the expenditures claimed in cost reports is being undertaken because HCPPs are entitled to reimbursement only for expenditures that are reasonable and necessary.
  • Quality-Based Bonus Payments to Unrated Plans in 2011 and 2012 (OEI). OIG will determine the amounts of quality-based payments made to unrated MA plans in 2011 and 2012. OIG will review the extent to which CMS collects data for MA plans that are unrated. MA plans receive adjustment payments based on their quality ratings. PPACA requires that quality-based bonus payments be paid to qualifying new MA plans that have not had MA contracts in the proceeding three years. In addition, PPACA requires CMS to develop a methodology to determine whether plans with low enrollment qualify for quality bonus payments.
  • Medicare Advantage Plans’ Compensation for Field Marketing Organizations (OEI). OIG will determine the extent to which MA plans vary in their compensation of field marketing organizations (FMOs). MA plan sponsors may hire FMOs to sell or promote Medicare products on the plan sponsor’s behalf either directly or through sales agents or a combination of both. Pertinent federal regulations do not establish limits on the FMO compensation paid by MA plans. OIG will determine whether compensation paid by MA plans to FMOs implicates the federal Anti-Kickback Statute. OIG will attempt to determine whether significant variation in FMO compensation could lead FMO-employed sale agents to enroll Medicare beneficiaries in MA plans based on specific financial incentives rather than a plan that best suits a beneficiary’s health care needs.

Medicare Part D

Drug pricing and reimbursement for drugs under the Medicare Part D program continues to be a hot topic for OIG, as evidenced by the 21 Part D projects highlighted in the 2012 Work Plan. Of these 21 projects, 10 are new. OIG continues its review of potentially duplicated Medicare Part D claims in Parts A and B, characteristics associated with billing in 2009, sponsors’ drug cost under retail discount generic programs, and drug claims for hospice beneficiaries that are duplicated under Parts A and D. OIG also has ongoing projects related to unusual claims for Schedule II and other drugs, pharmaceutical manufacturer rebates, and off-formulary drugs. Finally, OIG continues to review Part D formulary coverage determinations and beneficiary appeals process, risk sharing and corridors, true out-of-pocket costs tracking, and implementation of supporting systems at small- and medium-size plans and plans new to Medicare. New OIG projects include the following:

  • Increase in Prices for Part D Brand Name Drugs (OEI). OIG will determine whether Part D prices for brand-name prescription drugs, including rebates, are rising faster than inflation. OIG will also determine the effect of price increases on Medicare Part D payment amounts. Manufacturer rebates under Part D are typically lower than those under Medicaid, where the rebates are statutorily set.
  • Part D Payments for Drugs Dispensed at Retail Pharmacies With Discount Generic Programs (OEI). OIG’s interest in this project stems from several retail chain pharmacies’ implementation of discount generic drug programs offered to retail customers. OIG will review whether Part D claims were paid at retail pharmacies’ discounted prices and whether these prices appear on the CMS’ Plan Finder Web site for beneficiaries to access. Where a contract between a sponsor and retail pharmacy includes a “usual and customary” clause obligating the sponsor to pay the lowest price charged by the pharmacy, OIG contends the sponsor should pay the discounted generic drug price.
  • Prescription Drug Event Data Submitted for Incarcerated Individuals (OAS). OIG will review prescription drug event (PDE) data to determine if Part D program sponsors submitted PDE data for incarcerated individuals and to determine whether CMS accepted the data. Incarcerated individuals technically do not reside in a service area of a Part D plan because service areas do not include facilities used to house incarcerated individuals. Consequently, incarcerated individuals are ineligible for Part D program benefits.
  • Medicare Prescription Drug Integrity Contractors’ Activities to Detect and Deter Fraud and Abuse in Part D (OEI). OIG will follow up from its prior review, Medicare Drug Integrity Contractors’ Identification of Potential Part D Fraud and Abuse, and provide an update on the operations of the three Medicare Prescription Drug Integrity Contractors (MEDICs) CMS awarded contracts to in 2006. The MEDICs were tasked with performing functions that address fraud, waste, and abuse for the Part D program.


The 2012 Work Plan identifies 82 projects regarding state Medicaid programs. Of these, 21 are new projects. The Work Plan continues OIG’s emphasis on the review of manufacturers' reporting of costs, states' pursuit of drug rebates, and documentation to support both costs and claims amounts. The Work Plan continues prior projects related to potentially excessive hospital payments, and its review of payments for specific services, such as hospice, medical equipment, family planning, physical therapy, occupational therapy, and speech therapy. New OIG projects include the following:

Medicaid Prescription Drug Pricing, Reimbursement, and Rebates

  • Federal Share of Rebates (OAS). OIG will review states’ reporting of the federal share of Medicaid rebate collections to determine whether states are correctly identifying and reporting the increases in rebate collections. Changes introduced by PPACA are expected are expected to result in increased rebate payments by drug manufacturers to the states. These provisions would increase the minimum rebate percentages, increase the additional rebate on new formulations of existing drugs, and allow for rebates on drugs dispensed through Medicaid MCOs.
  • Appropriateness of Federal Upper Limit Amounts (OEI). OIG will review the Federal Upper Limit (FUL) amounts under the PPACA methodology to estimate pharmacy acquisition costs for selected drugs. OIG will also evaluate the appropriateness of the current method for calculating the FUL (i.e., no less than 175 percent of the Average Manufacturer Price (AMP)).
  • Update of Manufacturer Compliance With AMP Reporting Requirements (OEI). Following increased enforcement actions by CMS and OIG, OIG will review manufacturer compliance with AMP reporting requirements to determine what percentage of manufacturers complied with AMP reporting requirements in 2011. A prior OIG report concluded that more than half of the drug manufacturers required to submit quarterly AMP reports failed to do so.
  • States’ Collection of Rebates for Drugs Paid by Managed Care Organizations (OEI). OIG will determine whether Medicaid managed care organizations (MCO) are providing state Medicaid agencies with the utilization data needed to collect rebates for drugs used by Medicaid MCOs enrollees. The review will focus on whether states have procedures to verify the accuracy of the utilization data provided by Medicaid MCOs, whether and how states are invoicing manufacturers for these rebates, whether states are collecting these rebates from manufacturers, and what procedures states have to track rebate collection for drugs dispensed to Medicaid MCO enrollees.
  • Rebates on New Formulations (OAS). OIG will review drug manufacturers’ compliance with Medicaid drug rebate requirements for drugs that are new formulations of existing drugs to determine whether manufacturers have correctly identified all their drugs that are subject to the new provision in law that increases the additional rebate for drugs that are new formulations of existing drugs if certain conditions are met. Manufacturers pay the additional rebate based on the existing drug if it is higher than the additional rebate that is based on the new formulation.
  • Home, Community, and Personal Care Services (OEI). The oversight of Medicaid home health, assisted living, adult day care, and personal care services in the 2012 Work Plan represents a continuation of projects initiated in prior years, with two new projects. OIG will determine which HCBS waiver participants have plans of care, receive the services in their plans, and receive services from qualified providers and concerns about the quality of care. In addition, OIG will review CMS policies and practices for reviewing the sections of Medicaid state plans related to eligibility for home health services and describe how CMS intends to enforce compliance with appropriate eligibility requirements for home health services. OIG intends to identify the number of states that violate federal regulations by inappropriately restricting eligibility for home health services to homebound recipients.
  • State-Operated Facilities: Reasonableness of Payment Rates (OAS). OIG will determine whether Medicaid payment rates to state-operated facilities are reasonable and made in accordance with federal and state requirements, focusing on the extent to which payments to providers have exceeded the requirements in selected states.
  • Payments for Health-Care-Acquired Conditions (OAS). OIG will determine whether selected state agencies made Medicaid payments for health-care-acquired conditions and provider-preventable conditions and quantify the amount of Medicaid payments for such conditions. As of July 1, 2011, federal payments to states are prohibited for any amounts expended for providing medical assistance for health care-acquired conditions.
  • Supplemental Payments to Public Providers (OAS). OIG will review Medicaid supplemental payments by states to public providers and determine whether they comply with Federal Upper Payment Limit (UPL) requirements. Federal funds are not available for Medicaid payments that exceed the UPL. This project is a follow-up to previous OIG work involving supplemental payments to public facilities that resulted in program revisions that saved billions in Medicaid funding. This project will focus on the amount of Medicaid funding claimed by selected states as part of UPL programs, as well as the use of the funds.
  • Emergency Payments by State Medicaid Agencies (OAS). OIG will determine whether emergency payments to providers made by state Medicaid agencies were adequately supported. Because emergency payments have a substantial risk of inaccuracy, OIG will assess states’ overpayment reconciliation and recoupment processes to determine whether charges to Medicaid were based on actual expenditures.
  • Vulnerabilities Identified During Medicaid State Program Integrity Reviews (OEI). OIG will review corrective actions state Medicaid agencies have implemented to address the findings and recommendations from state Medicaid program integrity reviews conducted by CMS. OIG will determine why states have not implemented all corrective actions, examine the follow-up that CMS performed to ensure that corrective actions were taken by states, and examine the evidence that CMS reviewed to ensure corrective actions were implemented.
  • State Agencies’ Terminations of Providers Terminated Under Medicare or by Other States (OEI). OIG will review states’ compliance with the new requirement that state Medicaid agencies terminate providers that have been terminated under Medicare or by another state. OIG will determine whether such providers are terminated by all states, assess the status of the supporting information-sharing system, determine how CMS is ensuring that states share complete and accurate information, and identify obstacles states face in complying with the termination requirement.
  • Federal Funds Generated Through Medicaid Provider Taxes (OAS). OIG will review state health-care-related taxes imposed on various Medicaid providers to determine whether the taxes comply with applicable federal requirements. Previous OIG work raised concerns about states’ use of health-care-related taxes because many states finance a portion of their Medicaid spending by imposing taxes on health care providers. OIG will focus on the mechanism states use to raise revenue through provider taxes and determine the amount of Federal funding generated.
  • Form CMS-64: Medicaid Monetary Drawdowns, Overpayment Reporting and Collections, and Accuracy of Medicaid Collections and Federal Share (OAS). With respect to claiming Federal Financial Participation (FFP) for state Medicaid expenditures, OIG has initiated three new projects. First, OIG will review the Medicaid monetary drawdowns that states received from the Federal Reserve System to determine whether they were supported by actual expenditures reported by the states on the Form CMS-64. Second, OIG will determine whether states are reporting overpayments identified by federal audits on the Form CMS-64, as federal regulations require, and whether the overpayments have been recouped. Third, OIG will determine whether states accurately captured Medicaid collections on their Form CMS-64, as well as returned the correct federal share related to those collections.
  • Program Administration, Information Systems, and Data Integrity (OAS). OIG will review state agencies’ procedures for re-determining the eligibility status of Medicaid beneficiaries and determine the amount of unallowable payments associated with beneficiaries who did not receive the required Medicaid eligibility redeterminations. OIG will also review states’ implementation of the National Coding Initiative to ensure proper implementation in selected states.
  • Medicaid Managed Care (OEI). The Work Plan identifies seven Medicaid managed care projects, one of which is a new project. OIG will continue its reviews of previous years and also will review the extent to which Medicaid managed care encounter data included in Medicaid Statistical Information System (MSIS) submissions to CMS accurately represents all services provided to beneficiaries. Federal law requires states and managed care entities to submit data elements deemed necessary by the Secretary for use in program integrity, program oversight, and administration. Federal Medicaid matching funds for the operation of an MSIS can be withheld from states that fail to submit required Medicaid data, including encounter data.

Legal/Investigative Activities

Legal Activities

OIG’s legal activities consist of the resolution of civil and administrative health care fraud cases, including litigating the exclusion of individuals and entities from federal health care programs, pursuing Civil Monetary Penalty cases, working with prosecutors from the Department of Justice to develop Federal False Claims Act cases against individuals and entities that defraud the government, and the negotiation of corporate integrity agreements with health care providers as part of the settlement of federal health care program investigations. The 2012 Work Plan identifies one new project:

  • Review of Entities That Do Not Enter Into Corporate Integrity Agreements (OAS). OIG will review entities, including providers and/or suppliers, that settled fraud cases with the government but declined to enter into CIAs with OIG. CIAs promote compliance with the statutes, regulations, and written directives of Medicare, Medicaid, and federal health care programs. This OIG review may be similar to or more extensive than those performed by Independent Review Organizations under CIAs to assess the entity’s compliance with Federal health care program standards.

Investigative Activities

OIG’s investigative activities include the review and investigation of allegations of fraud and misconduct. These investigations lead to criminal prosecutions and exclusions of individuals and entities from federal health care programs and the recovery of damages and penalties through civil and administrative proceedings. In the 2012 Work Plan, specific areas of interest for OIG’s investigative functions include individuals, facilities, or entities that bill Medicare and/or Medicaid for claims not rendered, the submission of false claims, and claims that manipulate payment codes to inflate reimbursement amounts; business arrangements that violate the federal Anti-Kickback Statute and/or physician self referral law; quality of care issues in nursing facilities, institutions, community-based settings, and other care settings, including the billing of unnecessary services; and illegal schemes involving Medicare and Medicaid drug benefits.

Public Health Reviews

OIG conducts reviews of the public health agencies within the HHS. Of the 45 projects identified in the 2012 Work Plan, 19 are new. New OIG projects include the following:

  • Early Implementation of Patient Safety Organizations (OEI). OIG will review the policies and activities of Patient Safety Organizations (PSO) to determine the extent of participation among hospitals, their practices in receiving and analyzing adverse event reports, and the extent to which they provide information to providers and the Network of Patient Safety Databases maintained by the Agency for Healthcare Research and Quality (AHRQ). Federal law established a national network of PSOs, which are nongovernmental entities certified by HHS to collect and analyze reports of adverse events from hospitals and other health care settings. PSOs must meet certain criteria, establish a database to analyze patient safety information submitted by providers, and provide technical assistance to providers. OIG intends to evaluate PSOs’ efforts to identify and resolve patient safety problems in hospitals and identify any barriers to the full and effective implementation of the PSO program.
  • Prevention and Public Health Fund Recipient Capability Audits (OAS). OIG will perform limited-scope reviews to determine whether the Centers for Disease Control and Prevention’s (CDC’s) grantees have the capability to manage and account for federal funds, including PPACA funds, in accordance with federal regulations. OIG also will determine whether Prevention and Public Health Fund grantees are able to fulfill program requirements. Federal law authorized $500 million for FY 2010, of which $191.8 million was appropriated to CDC, with increasing amounts up to $2 billion for FY 2015, to support the Prevention and Public Health Fund. Pursuant to federal regulations, grantees receiving federal funds must ensure that they are used for authorized purposes.
  • The Food and Drug Administration's (FDA’s) Implementation of the Risk Evaluation and Mitigation Strategies Program (OEI). OIG will examine the extent to which FDA ensures that drug manufacturers comply with the requirements of the Risk Evaluation and Mitigation Strategies (REMS) program, which is a program to ensure that the benefits of a drug or biological product outweigh the risks. FDA may require a REMS plan for a high-risk drug, the safety of which depends on successful communication of risks and benefits. OIG also will review drug manufacturer assessments of the REMS program’s efficacy in minimizing risk to consumers. OIG indicates that ensuring the effectiveness of REMS plans is an important component of drug safety oversight, which is one of the Top Management and Performance Challenges that OIG identified for HHS. Drug manufacturers are required to submit assessments of the effectiveness of the REMS plan at scheduled intervals.
  • FDA Oversight of Claims Made on Dietary Supplement Labels (OEI). OIG will review a sample of dietary supplements to determine the extent to which their labeling complies with FDA regulations regarding structure function claims. Structure function claims describe the role of a dietary supplement on the structure and function of human bodies. OIG also will determine the extent to which manufacturers of supplements are listed in FDA’s Food Facility Registry as required by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act). FDA regulates claims made on the labels of dietary supplements but relies on manufacturers to substantiate these claims and does not require approval before marketing.
  • Community Health Center Limited-Scope Capability Audits (OAS). Funding provided to community health centers increased under PPACA. OIG will determine the capacity of community health centers receiving PPACA funds to manage and account for federal funds and to operate community health service delivery sites in accordance with federal requirements.
  • Informed Consent and Privacy Protection Procedures for National Institutes of Health (NIH) Grantees Conducting Genetic Research (OEI). OIG will determine the extent to which NIH grantees conducting genetic research comply with regulations and guidance on informed consent procedures. OIG will also assess the informed consent and privacy protection procedures used by these grantees and determine the extent to which they ensure that human subjects’ private information stored in biobanks is protected in future research. OIG notes that the growth of genetic research involving human subjects has raised many ethical questions surrounding privacy, confidentiality, and unintended harms.

Department-wide Issues

OIG engages in a number of department-wide reviews, including reviews related to financial statements, financial accounting, and information systems management. The 2012 Work Plan identifies 19 reviews of department-wide matters, including one new project.

  • Annual Accounting of Drug Control Funds (OAS). OIG will review HHS agencies’ compliance with the requirement that agencies expending funds on National Drug Control Program activities submit to the Office of National Drug Control Policy an annual accounting of the expenditure of drug control funds. The policy also requires that an agency submit with its annual accounting an authentication by the agency’s OIG in which OIG expresses a conclusion on the reliability of the agency’s assertions in its accounting. OIG will submit this authentication with respect to HHS’ FY 2010 annual accounting.
  • Compliance With Executive Order 13520: Reducing Improper Payments (OAS). OIG will review certain aspects of HHS' compliance with Executive Order 13520 on reducing improper payments. The Executive Order requires federal agencies to reduce improper payments by intensifying efforts to eliminate payment errors, waste, fraud, and abuse in major programs administered while continuing to ensure that federal programs serve and provide access to the intended beneficiaries. Pursuant to the Executive Order, HHS is required to provide to OIG a quarterly report of high-dollar overpayments. OIG is reviewing how the HHS is compiling these reports. OIG will assess the data presented in the reports and provide HHS any recommendations for modifying its methodology, improper-payment reduction plans, or program access and participation plans.
  • Fraud Vulnerabilities Presented by Electronic Health Records (OEI). Under this new project, OIG will identify fraud and abuse vulnerabilities in electronic health records (EHR) systems as articulated in literature and by experts and determine how certified EHR systems address these vulnerabilities. The Health Information Technology for Economic and Clinical Health Act provides $36 billion in incentives for adopting EHRs. Medicare and Medicaid EHR incentive programs require providers to use EHR systems that have been certified by a Department-authorized testing and certification body. The Office of the National Coordinator establishes the requirements and oversees the certification process.


OIG has announced a long set of priorities in its plan for audits and evaluations in this second post-health care reform year. DMEPOS suppliers continue to be targeted for review, but entities involved in Parts C and D also will note the increased attention. In addition, OIG has directed its efforts on examining state Medicaid programs, with 21 new projects identified this year. With the size and scope of these various projects, we can anticipate OIG will be required to balance priorities and assess which projects will be of most important interest. Ultimately, health care providers, suppliers, facilities, and payors are advised to keep in mind the OIG projects related to their line of business, as it can help shed light on those areas of compliance that the OIG believes important.

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:

Nathaniel M. Lacktman
Tampa, Florida

Lawrence C.Conn
Los Angeles, California

Maria E. Gonzalez Knavel
Milwaukee, Wisconsin

M. Leeann Habte
Los Angeles, California

Wiline Justilien
Washington, D.C.

Richard K. Rifenbark
Los Angeles, California

Anil Shankar
Los Angeles, California

Heidi A. Sorensen
Washington, D.C.

Lawrence W. Vernaglia
Boston, Massachusetts

Judith A. Waltz
San Francisco, California

Adria Warren
Boston, Massachusetts

Torrey K. Young
Boston, Massachusetts

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