Life Science Compliance Update

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March 14, 2014

HHS OIG 2014 Work Plan

The U.S. Department of Health & Human Services ("HHS") Office of Inspector General ("OIG") released its annual 2014 Work Plan. In addition, the OIG has posted a 25-minute video vignette featuring senior OIG executives discussing the OIG's top priorities for fiscal year 2014. The OIG annually publishes a Work Plan that summarizes new and ongoing reviews and activities that OIG plans to pursue during the applicable fiscal year. 

As noted by The Beat at Cooley Health: The inclusion of an item in the OIG Work Plan does not necessarily mean that OIG will seek enforcement with regard to that item, or that all interested parties will be contacted by the OIG in connection with a review. In addition, the OIG may (and often will) evaluate individuals and companies in connection with issues that are not listed in the Work Plan.  However, the inclusion of an item Work Plan does indicate that the OIG is actively interested in learning more about the topic listed. OIG audits and evaluations often result in enforcement and/or policy recommendations to the applicable agency (such as the Centers for Medicare & Medicaid Services), and thus the Work Plan is a good point of reference in considering targeted areas of focus and audit for internal compliance departments.

Some items of note from the Work Plan:

New inpatient admission criteria

OIG will determine the impact of new inpatient admission criteria on hospital billing, Medicare payments, and beneficiary payments. This review will also determine how billing varied among hospitals in FY 2014. Previous OIG work found overpayments for short inpatient stays, inconsistent billing practices among hospitals, and financial incentives for billing Medicare inappropriately. Beginning in FY 2014, new criteria state that physicians should admit for inpatient care those beneficiaries who are expected to need at least 2 nights of hospital care. Beneficiaries whose care is expected to last less than 2 nights should be treated as outpatients. The criteria represent a substantial change in the way hospitals bill for inpatient and outpatient stays.

Medicare costs associated with defective medical devices

OIG will review Medicare claims to identify the costs resulting from additional utilization of medical services associated with defective medical devices and determine the impact of the cost on the Medicare Trust Fund. CMS has previously expressed concerns about the impact of the cost of replacement devices, including ancillary cost, on Medicare payments for inpatient and outpatient services.

Analysis of salaries included in hospital cost reports

OIG will review data from Medicare cost reports and hospitals to identify salary amounts included in operating costs reported to and reimbursed by Medicare. OIG will also determine the potential impact on the Medicare Trust Fund if the amount of employee compensation that could be submitted to Medicare for reimbursement on future cost reports had limits. Employee compensation may be included in allowable provider costs only to the extent that it represents reasonable remuneration for managerial, administrative, professional, and other services related to the operation of the facility and furnished in connection with patient care.

Oversight of pharmaceutical compounding

OIG will describe Medicare's oversight of pharmaceutical compounding in Medicare-participating acute care hospitals. OIG will also describe how State agencies and hospital accreditors assess such pharmacy services in hospitals. Medicare oversees the safety of pharmaceuticals compounded at Medicare participating hospitals through the accreditation and certification process. This work is particularly important in view of a recent meningitis outbreak resulting from contaminated injections of compounded drugs.

Reasonableness of Medicare's fee schedule amounts for selected medical equipment items compared to amounts paid by other payers

The review will determine the reasonableness of the Medicare fee schedule amount for various medical equipment items, including commode chairs, folding walkers, and transcutaneous electrical nerve stimulators. OIG will compare Medicare payments made for various medical equipment items to the amounts paid by non-Medicare payers, such as private insurance companies and the Department of Veterans Affairs (VA), to identify potentially wasteful spending. OIG will estimate the financial impact on the Medicare program and on beneficiaries of aligning the fee schedule payments for the various Items with those of non-Medicare payers.

Prior OIG work found that Medicare overpays for various types of medical equipment. Federal statutes and regulations authorize CMS to determine whether the standard methods of determining the fee schedule amounts have resulted in unreasonably high or low payment amounts for particular items or services. If CMS determines that the standard methods of determining fee schedule amounts for certain categories of items or services will result in "grossly deficient or excess amounts," CMS may replace the current fee schedule amounts with special payment limits that are reasonable and equitable.

Manufacturer reporting of Average Sales Price (ASP)

ASPs reported quarterly by manufacturers are used by CMS to set payment rates for drugs covered under Medicare Part B. OIG previously found that a number of manufacturers were not reporting ASP to CMS, either because they were not required to or because they were violating the requirement to report. OIG will conduct a new study to determine the potential effect on average sales price reporting if all manufacturers of Part B-covered drugs were required to submit ASPs to CMS and whether CMS has improved its process for collecting ASP data,

Medicare coverage of off-label uses

Medicare Part B generally covers approved drugs for on-label indications and also off-label indications that are supported in recognized compendia or supported by clinical evidence reported in medical literature. OIG will conduct a new study of the oversight of CMS and its contractors to ensure that payments for Part B drugs meet the appropriate coverage criteria.

Payment for compounded drugs

OIG will conduct a new study to examine the policies and procedures of Medicare Administrative Contractors for processing Part B claims for compounded drugs and assess the appropriateness of such claims. Medicare pays for compounded drugs only when they are prepared in compliance with the Federal Food, Drug, and Cosmetic Act. 

Conflicts of interest involving compendia

Generally, Medicare covers drugs that are approved by FDA and used for indications that are either approved or supported in one or more drug compendia recognized by CMS. While publishers are required to have publicly transparent processes for evaluating anti-cancer drug therapies and or identifying potential conflicts related to inclusion of those therapies in the compendia, there are no such requirements for non-anticancer drugs. OIG will initiate a new study of the processes used by the publishers of these drug compendia to evaluate anticancer and non-anticancer drug therapies and identify conflicts of interest related to the therapies included in the compendia.

Medicaid Drug Rebate Program

OIG intends to continue its ongoing evaluation of whether manufacturers are complying with average manufacturer price ("AMP") reporting requirements. In addition, a new review will assess manufacturer compliance with MDRP requirements for calculating rebates for new formulations of existing oral dosage form innovator drugs. The Affordable Care Act made significant changes to the statutory definition of AMP and added the new formulation provision. However, CMS has not issued final regulations to implement these new statutory provisions, many aspects of which are subject to varying interpretations. CMS expects to issue its final MDRP rule in May 2014.

Evaluation and management services—Inappropriate payments

OIG will determine the extent to which selected payments for evaluation and management (E/M) services were inappropriate. OIG will also review multiple E/M services associated with the same providers and beneficiaries to determine the extent to which electronic or paper medical records had documentation vulnerabilities. Medicare contractors have noted an increased frequency of medical records with identical documentation across services. Medicare requires providers to select the billing code for the service on the basis of the content of the service and to have documentation to support the level of service reported.

Contract management at the Centers for Medicare & Medicaid Services

OIG will determine the number and types of contracts active at CMS, the way in which CMS manages these contracts, the extent to which CMS performed all required contract closeouts, and the way in which CMS ensures that all required closeouts are completed. OIG will also determine how CMS ensures that contract file documentation is maintained as required by regulation. CMS relies extensively on contractors to help it carry out its basic mission, including administration, management, and oversight of its health programs. In fiscal year 2012, CMS obligated $4.8 billion under contracts for a variety of goods and services. Previous Government Accountability Office (GAO) reports highlighted the vulnerabilities and weaknesses within the contracting environment at CMS, including problems with the contract closeout process. Given the number of contracts and the obligated dollars, oversight and monitoring are vital for ensuring effective programs and safeguarding taxpayer dollars. In addition, timely and effective contract closeouts protect the Government's financial interests and allow for recovery of excess funds.

Administrative costs claimed by Medicare contractors

OIG will review administrative costs claimed by various contractors for their Medicare activities, focusing on costs claimed by terminated contractors. OIG will also determine whether the costs claimed were reasonable, allocable, and allowable. OIG will coordinate with CMS regarding the selection of the contractors to be reviewed.

Executive compensation benchmark

OIG will review contractor employee salaries charged to Medicare to determine whether the selected contractors applied a required senior executive compensation benchmark required by regulation and determine the potential cost savings if contractors were required to apply the same benchmark to all employee compensation.

Medicare contractor information systems security programs

OIG will review independent evaluations of information systems security programs of Medicare fiscal intermediaries, carriers, and MACs. OIG will report to Congress on its assessment of the scope and sufficiency of the independent evaluations and summarize their results. Federal law requires independent evaluations of the security programs of fiscal intermediaries, carriers, and MACs and requires OIG to assess such evaluations and report the results of its assessments to Congress.

Security of portable devices containing personal health information

OIG will review security controls implemented by Medicare and Medicaid contractors and at hospitals to prevent the loss of protected health information (PHI) stored on portable devices and media, such as laptops, jump drives, backup tapes, and equipment considered for disposal. Recent breaches related to Federal computers, including one involving a CMS contractor, have heightened concerns about protecting sensitive information. OIG will assess and test contractors' and hospitals' policies and procedures for electronic health information protections, access, storage, and transport. OMB recommended that all Federal departments and agencies take action to protect sensitive information by following the National Institute of Standards and Technology's Special Publications 800-53 and 800-53A.

Controls over networked medical devices at hospitals

OIG will determine whether hospitals' security controls over networked medical devices are sufficient to effectively protect associated electronically protected health information (ePHI) and ensure beneficiary safety. Computerized medical devices, such as dialysis machines, radiology systems, and medication dispensing systems that are integrated with EMRs and the larger health network, pose a growing threat to the security and privacy of personal health information. Such medical devices use hardware, software, and networks to monitor a patient's medical status and transmit and receive related data using wired or wireless communications.

Accuracy of the Physician Compare Website

OIG will review CMS's efforts to ensure that the Physician Compare website contains accurate information on health care providers. CMS was required by law to create the Physician Compare website, which is intended to help Medicare beneficiaries make informed choices about their health care by providing them with information about health care providers. CMS repurposed its Provider Enrollment, Chain, and Ownership System (PECOS) as its data source for provider information on Physician Compare. However, prior OIG work found that the provider information in PECOS was often inaccurate and, at times, incomplete. OIG will determine the potential effect of expanding the executive compensation benchmark to all employees.

Exclusions From Program Participation

OIG may exclude individuals and entities from participation in Medicare, Medicaid, and all other Federal health care programs for many reasons, some of which include program-related convictions, patient abuse or neglect convictions, licensing board disciplinary actions, or other actions that pose a risk to beneficiaries or programs. Exclusions are generally based on referrals from Federal and State agencies. OIG works with these agencies to ensure the timely referral of convictions and licensing board and administrative actions. In fiscal year (FY) 2013, OIG excluded 3,214 individuals and entities from participation in Federal health care programs. Searchable exclusion lists are available on OIG's website.

Civil Monetary Penalties

OIG pursues CMP cases, when supported by appropriate evidence, on the basis of the submission of false or fraudulent claims; the offer, payment, solicitation, or receipt of remuneration (kickbacks) in violation of the Social Security Act, § 1128B(b); violations of the Emergency Medical Treatment and Labor Act of 1986 (EMTALA); items and services furnished to patients of a quality that fails to meet professionally recognized standards of health care; and other conduct actionable under the Social Security Act, § 1128A, or other CMP authorities delegated to OIG.

False Claims Act Cases and Corporate Integrity Agreements

When adequate evidence of violations exists, OIG staff members work closely with prosecutors from the Department of Justice (DOJ) to develop and pursue Federal false claims cases against individuals and entities that defraud the Government. Authorities relevant to this work come from the False Claims Amendments Act of 1986 and the Fraud Enforcement and Recovery Act of 2009. OIG assists DOJ prosecutors in litigation and settlement negotiations arising from these cases. OIG also considers whether to invoke our exclusion authority on the basis of the defendants' conduct. When appropriate and necessary, OIG requires defendants to implement CIAs aimed at ensuring compliance with Federal health care program requirements.

Providers' Compliance With Corporate Integrity Agreements

OIG often negotiates compliance obligations with health care providers and other entities as part of the settlement of Federal health care program investigations arising under a variety of civil false claims statutes. Subsequently, OIG assesses providers' compliance with the terms of the integrity agreements. For example, OIG conducts site visits to entities that are subject to integrity agreements to verify compliance, to confirm information submitted to us by the entities, and to assess the providers' compliance programs. OIG reviews a variety of information submitted by providers to determine whether their compliance mechanisms are appropriate and identify problems and establish a basis for corrective action. When warranted, OIG imposes sanctions, in the form of stipulated penalties or exclusions, on providers that breach integrity agreement obligations. Current CIAs and other integrity agreements are listed on OIG's website.

Advisory Opinions and Other Industry Guidance

To foster compliance by providers and industry groups, OIG responds to requests for formal advisory opinions on applying the antikickback statute and other fraud and abuse statutes to specific business arrangements or practices. Advisory opinions provide meaningful advice on statutes in specific factual situations. OIG also issues special fraud alerts and advisory bulletins about practices that OIG determines are suspect and CPG for specific areas. Examples are available on OIG's website at:

Provider Compliance Training

In spring 2011, OIG and its government partners provided in-person provider compliance training in Houston, Tampa, Kansas City, Baton Rouge, Denver, and Washington, DC. The sessions focused on the realities of Medicare and Medicaid fraud and the importance of implementing an effective compliance program. To expand access to providers nationwide, OIG broadcasted a free online live Webcast of the May 18 training in Washington. A complete video of the training is available on OIG's Provider Compliance Training website along with corresponding slides and written handouts. Also available are educational video and audio podcasts covering various topics to help prevent fraud, waste, and abuse. OIG's provider compliance training effort continues.

Provider Self-Disclosure

OIG is committed to assisting health care providers and suppliers in detecting and preventing fraud and abuse. Since 1998, OIG has made available comprehensive guidelines describing the process for providers to voluntarily submit to OIG self-disclosures of fraud, waste, or abuse. The Provider

Self-Disclosure Protocol gives providers an opportunity to minimize the potential costs and disruption that a full-scale OIG audit or investigation might entail if fraud is uncovered. In doing so, the self-disclosure also enables the provider to negotiate a fair monetary settlement and potentially avoid being excluded from participation in Federal health care programs.

The protocol guides providers and suppliers through the process of structuring a disclosure to OIG about matters that constitute potential violations of Federal laws (as opposed to honest mistakes that may have resulted in being overpaid by a Federal program). The provider or supplier is expected to thoroughly investigate the nature and cause of the matters uncovered and make a reliable assessment of their economic impact (e.g., an estimate of the losses to Federal health care programs). OIG evaluates the reported results of each internal investigation to determine the appropriate course of action. The self-disclosure guidelines are available on the OIG website. On April 17, 2013, OIG updated its Provider Self-Disclosure Protocol, available here.

Investigative Activities

OIG conducts and coordinates criminal, civil, and administrative investigations of fraud, waste, abuse, and misconduct related to more than 300 HHS programs and operations. The investigations include Medicare and Medicaid fraud, failure-of-care cases, child support enforcement violations, grant and contract fraud, computer intrusions, and employee misconduct. Investigations can lead to criminal prosecutions and program exclusions; recovery of damages and penalties through criminal, civil, and administrative proceedings; and corrective management actions, regulations, or legislation. Each year, thousands of complaints from various sources are brought to OIG's attention for review, investigation, and resolution. The nature and volume of complaints and priority of issues vary from year to year. OIG describes some of the more significant investigative outcomes in OIG's Semiannual Report(s) to Congress, which are available at the OIG website.

Medicare Fraud Strike Force Teams and Other Collaboration

OIG devotes significant resources to investigating Medicare and Medicaid fraud. OIG conducts investigations in conjunction with other law enforcement entities, such as the Federal Bureau of Investigation (FBI), the United States Postal Inspection Service, the Internal Revenue Service (IRS), and State Medicaid Fraud Control Units (MFCU). The Health Care Fraud Prevention and Enforcement Action Team (HEAT) was started in 2009 by the Department of Health and Human Services (HHS) and DOJ to strengthen programs and invest in new resources and technologies to prevent and combat health care fraud, waste, and abuse. Using a collaborative model, Medicare Fraud Strike Force teams coordinate law enforcement operations among Federal, State, and local law enforcement entities. These teams, now a key component of HEAT, have a record of successfully analyzing data to quickly identify and prosecute fraud. Strike Force teams were formed in March 2007 and are operating in nine major cities. The effectiveness of the Strike Force model is enhanced by interagency collaboration within HHS. For example, OIG refers credible allegations of fraud to CMS so it can suspend payments to perpetrators. During Strike Force operations, OIG and CMS work to impose payment suspensions that immediately prevent losses from claims submitted by Strike Force targets. In support of strike force operations, OIG:

  • investigates individuals, facilities, or entities that, for example, bill or are alleged to have billed Medicare and/or Medicaid for services not rendered, claims that manipulate payment codes to inflate reimbursement amounts, and false claims submitted to obtain program funds;
  • investigates business arrangements that allegedly violate the Federal health care antikickback statute and the statutory limitation on self-referrals by physicians;
  • examines quality-of-care and failure-of-care issues in nursing facilities, institutions, community-based settings, and other care settings and instances in which Federal programs may have been billed for services that were medically unnecessary, not rendered or not rendered as prescribed, or the care was so deficient that it constituted "worthless services."

Other areas of investigation include Medicare and Medicaid drug benefit issues and assisting CMS in identifying program vulnerabilities and schemes, such as prescription shorting (a pharmacy's dispensing of fewer doses of a drug than prescribed, but charging the full amount). Working with law enforcement partners at the Federal, State, and local levels, OIG investigates schemes that illegally market, obtain, and distribute prescription drugs. In doing so, OIG seeks to protect Medicare and Medicaid from making improper payments, deter the illegal use of prescription drugs, and curb the danger associated with street distribution of highly addictive medications.

FDA—Inspection of generic drug manufacturers

OIG will describe the extent to which FDA conducts inspections of generic drug manufacturers. OIG will also describe the results of such inspections and the enforcement actions taken by FDA in response to shortcomings or deficiencies found. FDA typically inspects drug manufacturing facilities prior to generic drug approval and also conducts routine inspections of both foreign and domestic manufacturers to monitor compliance with current good manufacturing practices. Generic drugs are copies of FDA-approved brand name drugs that must be equivalent to the original drug with respect to conditions of use, active

ingredient(s), route of administration, dosage form, strength, labeling, and performance characteristics. Pharmaceutical companies must receive FDA approval prior to marketing and manufacturing a new generic drug.

Public Health Legal Activities

OIG assists the Department of Justice (DOJ) in resolving civil and administrative fraud cases and promoting compliance of HHS grantees. OIG assists DOJ in developing and pursuing Federal False Claims Act cases against institutions that receive grants from NIH and other public health service agencies. OIG also assists DOJ prosecutors in litigation and in settlement negotiations.

Compliance With Requirements

In 2005, HHS issued a final regulation on possession, use, and transfer of select (biological) agents and toxins that applies to academic institutions; commercial manufacturing facilities; and Federal, State, and local laboratories. (70 Fed. Reg. 13294 (March 18, 2005), 42 CFR Part 73.) The rule authorizes OIG to conduct investigations and to impose civil monetary penalties against individuals or entities for violations of these requirements. OIG is continuing to coordinate efforts with CDC, the Federal Bureau of Investigation, and the Department of Agriculture to investigate violations of Federal requirements for the registration, storage, and transfer of select agents and toxins.

Payment Errors and Reporting

OIG will review certain aspects of HHS's compliance with the Improper Payments Information Act of 2002 (IPIA), as amended, regarding reporting improper payments. OIG will also assess HHS's compliance with the Improper Payment Elimination and Recovery Act (IPERA) and the data presented in HHS's Annual Financial Report (AFR) and provide recommendations for modifying the reporting and addressing the goals of the reporting requirements as needed. Pursuant to the OMB Circular accompanying IPERA, OIG is required to review how HHS is assessing the programs it reports as well as the accuracy and completeness of the reporting in the AFR. IPERA requires the head of a Federal agency with programs or activities that may be susceptible to significant improper payments to report to Congress the agency's estimate of improper payments. For any program or activity with estimated improper payments exceeding $10 million, the agency must report to Congress the actions that the agency is taking to reduce those payments.

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