Recent OIG Audit Reports Provide Insights Where Fraud Audits Likely To Look Next

Healthcare providers, Medicare, Medicaid, Children’s Health Insurance Program (CHIP) intermediaries, State Medicaid and CHIP fund recipients, Medicare and Medicaid Advantage Plan and others wanting to get a leg up on potential audit targets likely to draw the attention of the Department of Health & Human Services (HHS) Office of Inspector General (OIG) and their health care fraud auditors and investigators may get valuable insights by monitoring OIG audit reports of Medicare Intermediaries and others.  Reports of deficiencies uncovered in these audits and recommendations to tighten procedures and seek repayments often prompt demands for repayment and tighter payment and audit guidelines and procedures.
The following are some of the most recently-issued OIG audit reports:
  • New York Claimed Some Unallowable Costs for Services by New York City Providers under the State’s Developmental Disabilities Waiver Program (A-02-10-01027)

OIG says the New York State Department of Health (DOH) claimed Federal Medicaid reimbursement for some Office for People With Developmental Disabilities (OPWDD) waiver program services provided by New York City providers that did not comply with certain Federal and State requirements.

Based on sample results, OIG estimates that DOH improperly claimed $7.8 million in Federal Medicaid reimbursement for OPWDD waiver program services during calendar years 2006 through 2008. Federal law authorizes Medicaid home and community-based services (HCBS) waiver programs. A State’s HCBS waiver program must be approved by CMS and allows a State to claim Federal reimbursement for services not usually covered by Medicaid.

Of the 100 beneficiary-months in the random sample, DOH properly claimed Medicaid reimbursement for OPWDD waiver program services during 86 beneficiary-months. However, DOH claimed Medicaid reimbursement for services that did not comply with certain Federal and State requirements for the remaining 14 beneficiary-months. OIG reported the claims for unallowable services were made because DOH and OPWDD’s policies and procedures for overseeing and administering the waiver program were not adequate to ensure that (1) providers claimed reimbursement only for services actually provided and maintained all the required documentation to support services billed and (2) OPWDD waiver program services were provided only to beneficiaries pursuant to written plans of care.

OIG recommended that DOH:

  • Refund $7.8 million to the Federal Government and
  • Work with OPWDD to strengthen policies and procedures to ensure that (a) providers claim reimbursement only for OPWDD waiver program services actually provided and maintain the required documentation to support services billed and (b) OPWDD waiver program services are provided pursuant to written plans of care.

DOH and OPWDD concurred with the recommendations.

  • Medicare Contractors’ Payments to Providers in Jurisdiction 11 for Full Vials of Herceptin Were Often Incorrect (A-03-11-00013)

OIG reported that most payments for one or more full vials of Herceptin that the Medicare contractors made to providers in Jurisdiction 11 (North Carolina, South Carolina, Virginia, and West Virginia) from January 2008 through December 2010 were incorrect. Herceptin (trastuzumab) is a Medicare-covered biological drug used to treat breast cancer that has spread to other parts of the body.

Of the 2,507 selected line items, OIG says 2,029 were incorrect and included overpayments totaling $2.4 million that the providers had not identified or refunded by the beginning of our audit. Providers refunded overpayments on 138 line items totaling $131,000 before our fieldwork. The remaining 340 line items were correct.

The 2,029 incorrect line items included incorrect units of service and a lack of supporting documentation. The providers attributed the incorrect payments to chargemaster errors, clerical errors, and billing systems that could not prevent or detect the incorrect billing of units of service. In some cases, providers could not store unused doses for later use because their pharmacies incorrectly reconstituted the Herceptin. When this occurred, the providers billed Medicare for the entire vial, including waste. The Medicare contractors made these incorrect payments because neither the Fiscal Intermediary Standard System nor the Common Working File had sufficient edits in place during our audit period to prevent or detect the overpayments.

OIG recommended that Palmetto GBA, LLC (Palmetto), the Medicare Administrative Contractor for Jurisdiction 11:

  • (1) Recover the $2.4 million in identified overpayments,
  • Implement a system edit that identifies for review line items for multiuse-vial drugs with units of service equivalent to one or more entire vials, and
  • Use the results of this audit in its provider education activities.

Palmetto concurred with the OIG findings and recommendations and described corrective actions that it had taken or planned to take.

  • Texas Did Not Report Excess Contractor Profits in Accordance With Federal Regulations (A-06-10-00062) 

A Medicaid Management Information System (MMIS) is a system of software and hardware used to process Medicaid claims and manage information about Medicaid beneficiaries, services, and providers. The Texas Health and Human Services Commission (State agency) contracts with a fiscal agent, Affiliated Computer Services/Texas Medicaid Health Partnership (ACS/TMHP), to process claims through the MMIS. The contract between the State agency and ACS/TMHP requires a prospective price redetermination (PPR) audit to establish whether ACS/TMHP earned profit in excess of the 11 percent allowed by the contract.

OIG reports it found that the State agency did not refund $2.6 million (Federal share) of the $26.7 million in excess profits identified through the PPR audit in accordance with Federal requirements. During fiscal year 2009, the State agency claimed expenditures for 20 MMIS projects with total costs of $71.3 million. All of these expenditures were allowable and claimed at the appropriate reimbursement rate; however, the State agency did not obtain prior approval for 2 of the 20 projects. Also, the State agency did not obtain prior approval for 16 additional projects. The total budgets for the 18 projects for which the State agency did not obtain prior approval totaled $59 million ($32.9 million Federal share).

OIG recommended that the State agency:

  • (1) Refund to the Federal Government $2.6 million for excess profits related to the PPR audit,
  • Ensure that prior approval is obtained on future projects as required by Federal regulations, and
  • Obtain retroactive approval for the 18 projects that did not have the required prior approval from the Centers for Medicare & Medicaid Services (CMS).

The State agency agreed with OIG’s first and third recommendations and described corrective actions it had taken or planned to take. Regarding the second recommendation, the State agency described the process by which it seeks CMS approval for certain projects.

  • Review of Medicare Outpatient Billing for Selected Drugs at Self Regional Healthcare (A-09-12-02032)

For the 61 line items reviewed, OIG reported that Self Regional Healthcare did not bill Medicare for injections of selected drugs in accordance with Federal requirements, resulting in overpayments totaling $130,000.

  • Review of Medicare Outpatient Billing for Selected Drugs at Methodist Healthcare – Memphis Hospitals (A-09-12-02022)   

For 60 of the 82 line items reviewed, OIG reported it found that Methodist Healthcare – Memphis Hospitals did not bill Medicare for injections of selected drugs in accordance with Federal requirements, resulting in overpayments totaling $178,000.

  • Medicare Part D Made Some Incorrect Payments to Community Insurance Inc. for Institutional Beneficiaries in 2008 (A-05-11-00042)

OIG reports that the Medicare Part D program incurred drug costs for Medicare Advantage beneficiaries during Skilled Nursing stays that should have been covered under Part C in 2008. Community Insurance Inc’s incurrence of the $23,000 in gross drug costs as Part D costs had an overpayment effect of $13,000 as well as a $9,000 reconciliation effect at year end.

  • North Shore Community Health, Inc., Claimed Unallowable Costs Against Recovery Act Grants (A-01-11-01502)

OIG reported it could not determine whether $2 million in American Recovery and Reinvestment Act of 2009 (Recovery Act) grant costs claimed by North Shore Community Health, Inc. (North Shore), was allowable under the terms of the grants and applicable Federal regulations. North Shore did not track and account for Recovery Act expenditures separately from other (Federal and non-Federal) operating expenses; therefore, it could not demonstrate that it spent Recovery Act grant funds for allowable costs.

OIG says this deficiency occurred because North Shore did not:

  • (1) Maintain a financial management system that provided for accurate, current, and complete disclosure of the financial results of its Recovery Act grants and
  • Separately track and account for Recovery Act funds.  

OIG recommended that the Health Resources and Services Administration (HRSA) require North Shore to refund $2 million to the Federal Government, or work with North Shore to determine whether any of the costs that it claimed against Recovery Act grants were allowable, and ensure North Shore:

  • (1) Develops a financial system that provides for the accurate, current, and complete disclosure of the financial results of each HHS-sponsored project or program and
  • Tracks and accounts for each grant’s expenditures separately from other operating expenditures.

North Shore stated that it adjusted its internal financial reporting process to be in compliance with Federal requirements.

Under the Recovery Act, P.L. No. 111-5, enacted February 17, 2009, HRSA received $2.5 billion, including $2 billion to expand the Health Center Program to serve more patients, stimulate new jobs, and meet the expected increase in demand for primary health care services among the Nation’s uninsured and underserved populations.

  • OIG Says Lawndale Christian Health Center Claimed Unallowable Costs Under Recovery Act Grants (A-05-11-00057)

Lawndale Christian Health Center claimed $535,000 that was allowable under the terms of the grant and applicable Federal regulations.  However, Lawndale claimed Federal grant expenditures totaling $174,000 that were unallowable.  We could not determine the allowability of costs totaling $637,000 according to the OIG. See

  • Alabama Improperly Claimed Federal Funds for Children’s Health Insurance Program Enrollees Who Had Medicaid or Other Health Insurance Coverage (A-04-11-08008)

OIG reports that Alabama improperly claimed Children’s Health Insurance Program (CHIP) Federal financial participation (FFP) for some individuals who were concurrently enrolled in CHIP and Medicaid.   The Federal and State Governments jointly fund and administer both Medicaid and CHIP.  States may not claim CHIP FFP for individuals who are concurrently enrolled in CHIP and Medicaid or who have other health insurance coverage.  See

Based on OIG sample results, OIG estimated that Alabama improperly claimed $1.5 million in CHIP FFP for enrollees who were concurrently enrolled in CHIP and Medicaid from October 1, 2009, through September 30, 2010.  Alabama also improperly claimed $153,000 in CHIP FFP for individuals who had other health insurance coverage from October 1, 2009, through September 30, 2010.

OIG says the concurrent enrollment in CHIP and Medicaid occurred because:

  • Medicaid enrollment could be retroactive for up to 3 months, during which the individual could also have been enrolled in CHIP and
  • Supplemental Security Income eligibility, and consequent Medicaid enrollment, could be retroactive to the original application date, a period during which the individual could also have been enrolled in CHIP. 

Moreover, the State agency did not have adequate internal controls to prevent or promptly correct concurrent enrollments.  The CHIP payments that Alabama claimed on behalf of individuals who had other health insurance coverage occurred because State policy allowed for a coordination of benefits between CHIP and other health insurance coverage.

OIG recommended that Alabama:

  • Refund $1.5 million (Federal share) for FFP claimed on behalf of individuals who were concurrently enrolled in CHIP and Medicaid,
  • Refund $153,000 (Federal share) for FFP claimed on behalf of individuals enrolled in CHIP who had other health insurance coverage,
  • Develop additional policies and procedures to prevent or promptly recoup CHIP payments made on behalf of individuals who are identified as enrolled concurrently in Medicaid, and
  • Revise the current policy that allows for a coordination of benefits between CHIP and other health insurance coverage. 

The OIG notes Alabama disagreed with all of its recommendations. 

  • South Carolina Claimed Some Unallowable Room-and-Board Costs under the Intellectual and Related Disabilities Waiver (A-04-11-04012)

OIG reports that the South Carolina Department of Health & Human Services (State agency) operates a waiver program that provides long-term care and support for individuals with intellectual or related disabilities.  The State agency contracts with the South Carolina Department of Disabilities and Special Needs (the Department) to provide waiver services.  The Department provides these services through contractual arrangements with a network of 39 local Disabilities and Special Needs (DSN) Boards.

OIG reported it found that the State agency claimed Medicaid reimbursement of $6.7 million ($4.8 million Federal share) for unallowable room-and-board costs under the waiver program that the Department operated.  The State agency claimed unallowable room-and-board costs because neither the State agency nor the Department had adequate controls to:

  • Ensure that the Department followed applicable Federal law and guidance or its own guidance or
  • Detect errors or misstatements on the local DSN boards’ cost reports. See

Additionally, OIG says the Department did not prescribe a uniform format for the local DSN boards to follow when preparing the cost reports.  Rather, each local board prepared its cost reports in its own format, making it difficult to identify when unallowable costs were claimed.

OIG recommended that the State agency:

  • Refund to the Federal Government $4.8 million, representing the Federal share of the room-and-board costs that the Department improperly claimed on its waiver cost reports;
  • Instruct the Department to follow Federal law and its own guidance and remove room-and-board related administrative and general costs from future waiver program cost reports;
  • Instruct the Department to develop a uniform cost reporting process and require each local board to follow this process;
  • Instruct the Department to strengthen its cost report review procedures to ensure that it will detect errors or misstatements on the local DSN boards’ cost reports; and
  • Strengthen its own procedures for reviewing the waiver cost reports submitted by the Department. 

The State agency concurred with all of our recommendations and said that it would work with CMS to negotiate repayment of the improperly claimed room-and-board costs.

  • Review of New Mexico Medicaid Personal Care Services Provided by Coordinated Home Health (A-06-09-00064)

The OIG reported that its audit found that the State did not always ensure that Coordinated Home Health’s (Coordinated) claims for Medicaid personal care services complied with certain Federal and State requirements.  Based on sample results, OIG estimated that Coordinated improperly claimed at least $11 million (Federal share) for personal care services during the period October 1, 2006, through September 30, 2008.

According to OIG, personal care services may be provided to individuals who are not inpatients at a hospital or residents of a nursing facility, an intermediate care facility for individuals with intellectual disabilities, or an institution for mental disease.  Examples of personal care services include, but are not limited to, cleaning, shopping, grooming, and bathing.

Of the 100 claims in the OIG sample, OIG reported that 54 complied with requirements, but 46 did not.  Three of the forty-six claims were partially allowable.   The 46 claims contained a total of 60 deficiencies:  49 deficiencies on insufficient attendant qualifications and 11 deficiencies on other  concluded that Coordinated improperly claimed $8,000 for the 46 claims.

  • Based on these findings, OIG recommended that the State:
  • Refund to the Federal Government the $11 million paid to Coordinated for unallowable personal care services and
  • Ensure that personal care services providers maintain evidence that they comply with Federal and State requirements. 

OIG reported that Coordinated disagreed with almost all of OIG’sfindings, and the State disagreed with OIG’s recommended refund amount.  The State also said that some of the documentation requirements are not Federal requirements; they are State requirements, which do not require recovery of payments.

For Help With Compliance, Investigations Or Other Needs

If you need help providing compliance or other training, reviewing or responding to these or other health care related risk management, compliance, enforcement or management concerns, the author of this update, attorney Cynthia Marcotte Stamer, may be able to help. Vice President of the North Texas Health Care Compliance Professionals Association, Past Chair of the ABA Health Law Section Managed Care & Insurance Section and the former Board Compliance Chair of the National Kidney Foundation of North Texas, Ms. Stamer has more than 24 years experience advising health industry clients about these and other matters. Ms. Stamer has extensive experience advising and assisting health care providers and other health industry clients to establish and administer medical privacy and other compliance and risk management policies, to health care industry investigation, enforcement and other compliance, public policy, regulatory, staffing, and other operations and risk management concerns. A popular lecturer and widely published author on health industry concerns, Ms. Stamer continuously advises health industry clients about compliance and internal controls, workforce and medical staff performance, quality, governance, reimbursement, and other risk management and operational matters. Ms. Stamer also publishes and speaks extensively on health and managed care industry regulatory, staffing and human resources, compensation and benefits, technology, public policy, reimbursement and other operations and risk management concerns/ She also regularly designs and presents risk management, compliance and other training for health care providers, professional associations and others.   Her publications and insights appear in the Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications.  You can get more information about her health industry experience here. Contact Ms. Stamer at (469) 767-8872 or via e-mail here.

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©2012 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press.  All other rights reserved

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