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HHS OIG Issues Work Plan for 2006

December 9, 2005

The Department of Health and Human Services’ Office of the Inspector General (OIG) has released its Work Plan for Fiscal Year 2006. The OIG Work Plan traditionally establishes the Office’s priorities for inquiry and investigation into areas the OIG believes pose major vulnerability to the integrity of HHS programs and services. The Plan identifies those areas where the OIG will be focusing its audit and investigatory resources over the coming year, and is an extremely useful resource for health care entities to utilize in identifying potential areas of risk in their own business operations. Consultation with the Work Plan’s priorities can help health care entities uncover potential weaknesses in their operations, and aid in updating or developing compliance standards and personnel training.

This Alert focuses on three areas of the OIG Work Plan that should be of particular interest to health care entities:

  • Expected health care fraud and abuse investigations to be undertaken by the OIG Office of Investigations
  • New audits to be conducted by the OIG Office of Audit Services
  • Specific Medicare Part D administration concerns.

The Office of Investigations (“OI”) comprises the investigatory division of the OIG. The main purpose of the OI is to investigate fraud committed against the Medicare and Medicaid programs. The OI also investigates business arrangements that could potentially violate the health care anti-kickback statutes.

In 2006, the OI will be paying particular attention to three areas of potential healthcare fraud and/or abuse: (1) Medicare Part D; (2) pharmaceutical fraud; and (3) quality-of-care for beneficiaries living in nursing facilities.

The OI has evidently invested much time and effort into understanding the intricacies of the laws and regulations pertaining to Medicare Part D. Additional in-depth training is being provided to Special Agents so that the OI can aggressively pursue Part D fraud and abuse once the benefit becomes available. In connection with Part D, the Work Plan indicates that the OI expects to investigate and uncover kickback violations, billing for services not rendered, false statements, prescription shorting in institutional settings, and telephone scams. While Part D affects many health care sectors, prescription drug plans, pharmacy benefit managers, drug manufacturers, and pharmacies should be especially diligent about complying with Part D laws and regulations.

Pharmaceutical costs are of course consuming an ever-increasing portion of government health program spending. The OI therefore will continue to investigate illegal schemes to market, obtain, use, and distribute prescription drugs. According to the Work Plan, the OI believes its planned investigations will allow it to address the problem of inflated drug prices, protect federal programs from making improper payments, and deter the illegal use of prescription drugs.

The growth of the elderly population has also led the OI to pay careful attention to quality-of-care issues for health care program beneficiaries who are residents of nursing facilities. The OI believes Medicare and Medicaid are frequently billed for medically unnecessary services, for services not rendered, or for services not rendered as prescribed. The Work Plan identifies these areas as continued priorities for investigation. The OI will also seek to protect elderly beneficiaries from scams involving identity theft related to the prescription drug discount card program.


OIG audits are conducted by the Office of Audit Services (“OAS”). One of the purposes of an OAS audit is to identify systemic weaknesses in federal health programs that give rise to fraud, waste, or abuse. Next to investigations, OIG audits pose the most significant enforcement risk to health care businesses. Health care entities whose operations involve a particular audit item are well-advised to review their operations to assure compliance with federal rules and regulations.

The OAS audit priorities for 2006 are identified below by health care entity category. The focus below is on audits that are “new” for 2006. Selected audits begun in prior years which may be of continuing interest are also included.

Planned “inspections” of interest are also included below. Inspections are conducted by the Office of Evaluations and Inspections (“OEI”), and are primarily conducted to gather information for departmental and Congressional decision-makers. Inspections can frequently be an indicator of areas where the OIG may be conducting audits or investigations in the future.

A. Hospitals

The following new hospital audits will be conducted in 2006:

Adjustments for Graduate Medical Education Payments
OAS will determine if Medicare reimbursements properly reflected audit adjustments for GME.

Inpatient Hospital Payments for New Technologies
OAS will examine the costs associated with new devices and technologies to determine if the reimbursement is appropriate.

Outpatient Department Payments
OAS will review payments to hospital outpatient departments with an eye toward the appropriateness of payments made for multiple procedures, repeat procedures, and global surgeries.

Compliance with the Health Insurance Portability and Accountability Act (HIPAA) – University Hospital
OAS will assess a particular university hospital’s implementation of HIPAA requirements with respect to safeguarding beneficiaries’ protected health information. OAS will review the hospital’s computer information systems and security systems to determine if they meet the HIPAA standards and have controls to protect Medicare beneficiary information.

OIG will also carry over the following continuing audits from last year’s Work Plan, and hospitals should consider these audit topics as continuing risk areas:

  • Medical education payments for dental and podiatry residents
  • Inpatient rehabilitation facilities payments
  • Critical access hospitals
  • Rebates paid to hospitals
  • Group purchasing organizations
  • Contractual arrangements with suppliers
  • Long term care hospital payments

B. Physicians

The following items will be the focus of new physician audits for 2006:

Billing Service Companies
OAS will review the relationships between billing companies and the physicians and other Medicare providers who use their services. OIG is concerned with the types of arrangements physicians have with billing services and the impact of these arrangements on physicians’ billings.

Payment to Providers of Care for Initial Preventive Physical Examination
OAS will evaluate the impact of IPPE on Medicare payments and physician billing practices, as the new HCPCS provides an opportunity for physicians to receive a higher payment for services that were previously rendered.

OIG will carry over the following continuing audits from last year’s Work Plan, and physicians should consider them as continuing risk areas:

  • Care plan oversight
  • Ordering physicians excluded from Medicare
  • “Long Distance” physician claims

C. Medical Equipment and Supplies

OIG has not announced any new audits related to medical equipment providers and medical suppliers. However, OEI will be conducting two new inspections in 2006. Suppliers should consider these topics as likely subject matter for future audits or investigations:

DME Payments for Beneficiaries Receiving Home Health Services
OEI will review medical records for DME items and supplies furnished to beneficiaries receiving home health agency services to determine whether the items and supplies were reasonable and necessary for the beneficiaries’ conditions.

Medical Necessity of Durable Medical Equipment
OEI will determine the appropriateness of Medicare payments for certain items of durable medical equipment, such as power wheelchairs, wound care equipment and supplies, and glucose test strips. OEI will assess whether the suppliers’ documentation supports the claim, whether the item was medically necessary, and/or whether the beneficiary actually received the item.

D. Medicare Managed Care

OAS will carry over the following audits from last year’s Work Plan, and managed care organizations should consider them as continuing risk areas:

  • Administrative costs
  • Managed care encounter data
  • Marketing practices of managed care organizations

E. Medicare Contractor Operations

The following audits have been carried over from last year’s Work Plan, and will continue to serve as risk areas for Medicare contractors:

  • Pre-award reviews of contract proposals
  • Contractors’ administrative costs
  • Pension segmentation, costs, and closing
  • CMS oversight of contractor performance
  • Duplicate Medicare Part B payments
  • Handling of beneficiary inquiries and appeals
  • Provider education and training

F. Home Health

OAS will carry over the following audits from last year’s Work Plan; home health agencies should consider them as continuing risk areas:

  • Home health outlier payments
  • Enhanced payments for home health therapy

G. Nursing Homes

OIG will be instituting several new inspections into two skilled nursing facility related issues. The OEI will look into SNF use of the additional funds provided by the forecast error correction rule. Second, the OIG will consider SNF involvement in consecutive inpatient stays. Nursing facilities should consider these inspections as predictors of future audits or investigations. The only new nursing home audit for 2006 has been identified as follows:

Skilled Nursing Facility Payments for Day of Discharge
OAS will determine whether Medicare is inappropriately paying SNFs for day-of-discharge services.

Finally, the OIG will continue to pursue the following audits from last year’s Work Plan, and nursing homes should consider them as continuing risk areas:

  • Skilled nursing facility consolidated billing
  • Skilled nursing facility rehabilitation and infusion therapy services


Not surprisingly, in addition to its investigative initiatives, the OIG’s 2006 focus on Part D will include a series of planned audits and evaluations on Prescription Drug Plans (“PDPs”) and Medicare Advantage Prescription Drug Plans (“MA-PDs”). As the benefit is launched, OIG will be looking to see that plans are complying with Part D laws and regulations and CMS guidance. Other health care entities whose operations include Part D should also review these items, especially pharmacy benefit managers and pharmaceutical manufacturers.

The following audits and evaluations of the new Prescription Drug Plan and Medicare Advantage Prescription Drug Plan will be conducted in 2006:

Medicare Part D Risk-Sharing Payments and Recoveries
OAS will determine whether CMS and the PDPs have established adequate controls over Medicare Part D risk sharing payments and recoveries to ensure that the plans submit accurate and timely information to CMS and payments and recoveries are made appropriately.

Prescription Drug Benefit
OAS will examine the bidding of prescription drugs when a Medicare Advantage organization offers both a Part D plan and a plan with supplemental prescription drug coverage. OAS will also examine the impact of the amount a beneficiary must spend on Part D covered drugs to reach catastrophic coverage of prescription drugs available under a MA sponsored plan and any drug benefit provided as an additional benefit.

OIG has also announced several new inspections for 2006 of which prescription drug plans and Medicare Advantage Prescription Drug Plans should be aware:

Prescription Drug Plan and Marketing Materials for Prescription Drug Benefits
OEI will determine whether marketing materials for Medicare PDPs comply with applicable regulations and guidelines, including whether the PDPs’ marketing materi­als are clear and understandable to Medicare beneficiaries.

Medicare Prescription Drug Benefit Pharmacy Access in Rural Areas
OEI will assess the extent to which drug plans comply with MMA minimum pharmacy access requirements.

Monitoring Fluctuation in Drug Prices Under PDPs and MA-PDs
OEI will examine price variation patterns and fluctuations for PDPs and MA-PDs.

Enrollee Access to Negotiated Prices for Covered Part D Drugs
OEI will examine compliance with the requirement that drug plans must provide enrollees access to negotiated prices for covered Part D drugs, including all discounts, subsidies, rebates, and remunerations, regardless of whether the drug was paid for under the benefit.

PDPs Use of Formularies
OEI will evaluate whether PDPs’ use of formularies complies with applicable regulations, specifically focusing on (1) the Pharmacy and Therapeutics Committees that construct the formularies, (2) the breadth and depth of drugs included on the formularies, and (3) benefi­ciary management tools including beneficiaries’ rights to formulary exceptions and appeals.

PDP and MA-PD Implementation of Required Programs to Deter Fraud and Abuse
OEI will evaluate the PDPs and MA-PDs implementation of required programs to deter fraud, waste, and abuse. This study will follow up on the OIG inspection that will assess program integrity safeguards in the PDP and MA-PD application process.

Please contact for more information.