Private Medicare Drug Plans Should Have Anti-Fraud Programs

Ruzanna Harutyunyan's picture

CMS has not conducted audits to ensure that Medicare prescription drug plans have implemented programs to prevent fraud as required by law, a lack of oversight that "risks significant misuse of funds in this $39 billion program," according to a Government Accountability Office report scheduled for release on Monday, the AP/Orlando Sentinel reports. For the report, GAO examined five unnamed plans to determine whether they met requirements to participate in the Medicare prescription benefit.

The report found, for example, that only two of the plans had established training programs to educate employees about the relevant laws and common methods of fraud. However, all five plans had established written standards for the detection and prevention of abuse and waste. The report recommended that CMS conduct timely audits of the programs implemented by Medicare prescription drug plans to prevent fraud.

CMS officials said that, although they have not conducted onsite audits, they have asked the plans to submit self-assessment surveys. In addition, they said that CMS has focused on complaints after Congress in 2003 capped funds for agency audit programs at $720 million. Acting CMS Administrator Kerry Weems said that the cap "has seriously degraded CMS' ability to meet its responsibilities in combating fraud and abuse."

In response to the report, Sen. Charles Grassley (R-Iowa) said, "This is unacceptable," adding, "Some plan sponsors are dragging their feet on required anti-fraud prevention, and CMS is letting them get away with it" (Freking, AP/Orlando Sentinel, 8/22).

DME Fraud

In related news, the HHS Office of Inspector General in a final report to be filed this week is expected to criticize CMS for incorrect claims of success in fighting Medicare fraud in the durable medical equipment industry, the Miami Herald reports (Weaver, Miami Herald, 8/23). The New York Times last week reported that the draft report shows claims made by CMS that the agency had reduced Medicare DME fraud to about $700 million were based on improper auditing and fell short of the actual amount of fraud.

According to the report, at issue is the auditing CMS used as a basis for its fraud reduction claims. The Times reported that CMS hired AdvanceMed, a subsidiary of Computer Sciences Corporation, to audit Medicare DME spending. The report states that CMS officials told AdvanceMed to ignore an auditing program -- called Comprehensive Error Rate Testing, or CERT -- which is required by law. Under CERT, claims are selected randomly and auditors compare invoices to physicians' records to ensure the spending was justified. The report says that AdvanceMed was told by CMS officials only to examine the invoices from DME suppliers.

The report found that in fiscal year 2006, CMS failed to detect that more than one-third of spending on DME was fraudulent. Using data from other Medicare reports, the undiscovered fraud would equal about $2.8 billion, according to the Times. The report found that AdvanceMed auditing revealed 7.5% of Medicare DME claims were not supported by documentation. The OIG report states that AdvanceMed would have discovered that 31.5% of claims were not supported by documentation had it used CERT (Kaiser Daily Health Policy Report, 8/21).


According to a summary of the draft report obtained by the Herald, Medicare officials "orally instructed (auditors) to deviate from written policies by making determinations based primarily on the limited medical records available from (equipment) suppliers." The draft also suggests that the inspector general will criticize CMS for instructing auditors to check on equipment providers' paperwork but skip over verification of medical and patient records. The final report is expected to instruct Medicare to confirm in audits on claims payments that physicians actually prescribed equipment, providers delivered it and patients received it, according to the Herald.


Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee, said, "I want to know what happened, who's responsible, who will be held accountable and what [HHS Secretary Mike Leavitt] will do about it." He added, "If people cooked the books, manipulated the methodology or told the contractor to ignore the rules, those individuals need to take the heat."

Rep. Ileana Ros-Lehtinen (R-Fla.) said the House Committee on Oversight and Government Reform would hold hearings on the issue this fall. Rep. Mario Diaz-Balart (R-Miami) said, "If this is true, this is an outrageous and unforgivable stunt. Cracking down on fraud should be a top priority for Medicare, not fixing numbers to make an agency look better." He added, "I expect hearings and I expect answers -- truthful answers -- from Medicare about this report."

CMS spokesperson Jeff Nelligan said the $3 billion figure for improper medical equipment payments that the Times attributed to the draft report is "an unsupported extrapolation at this time because the report only cited percentages." He added, "We have far exceeded our expectations, having reduced the error rate beyond the 2006 goal of 5.1%" (Miami Herald, 8/23).


* Miami Herald: "The amount of fraud and corruption" in Medicare is "simply mind-boggling" and "exceeded only by a staggering lack of oversight by Congress and by Medicare's own failure to protect the program against open thievery," according to a Herald editorial. If the HHS Inspector General's claims of Medicare "'cooking the books' ... proves true, heads should roll at [CMS]," the editorial states, adding that Congress is "equally at fault" because it has failed to "adequately fund investigations, and after medical industry lobbyists complained about a new law requiring competitive bidding, Congress reneged on the deal" (Miami Herald, 8/24).

* Wall Street Journal: The "politicos lingering around Washington can barely keep a straight face as they claim to be shocked" about the "evidence of fraud in Medicare" contained in the draft report, or "rather, more fraud," a Journal editorial states. House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.) and "his ilk consistently claim that Medicare is a model for government-run 'universal' health care because it spends less on overhead than the private sector," the editorial states. However, "insurance companies spend money to screen their claims for fraud," while "Medicare automatically pays more than 95% of the bills it receives," according to the Journal. The editorial adds, "This lack of scrutiny reduces overhead, but it makes the program highly vulnerable to abuse." The Journal concludes, "The real reason liberals like Mr. Stark are outraged is because they want to claim one of Medicare's vices as a virtue, to help along their health care ambitions," but the report "makes their argument poor politically" and "shows that taxpayers will be literally poorer if Stark gets his way" (Wall Street Journal, 8/23).

Reprinted with permission from You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign up for email delivery at . The Kaiser Daily Health Policy Report is published for, a free service of The Henry J. Kaiser Family Foundation. © 2007 Advisory Board Company and Kaiser Family Foundation. All rights reserved.