Life Science Compliance Update

September 15, 2016

New OIG Guidance on IRO Independence and Objectivity


In August 2016, new Health and Human Services (HHS) Office of Inspector General (OIG) guidance was issued on Independent Review Organization (IRO) independence and objectivity. This new guidance follows the original guidance offered in 2004, prompted by inquiries from individuals and entities who were subject to Corporate Integrity Agreements (CIAs) regarding circumstances that might affect the independence of an IRO that performs CIA reviews.

Then, in 2007, the Government Accountability Office (GAO) updated its auditing standards, leading to an updated guidance from the OIG in 2010 to reflect those updated standards and additional types of IRO reviews included in CIAs, such as arrangements reviews, promotional and product services reviews, etc.).

This most recent guidance reflects the 2011 revisions to the GAO auditing standards and is a summary of the OIG’s views on the relevant principles that should be used to assess the independence and objectivity of an IRO that performs CIA reviews.

Summary of OIG’s Views on Applicable Independence and Objectivity Standards

The OIG has previously determined it to be appropriate to adopt the standards for auditor independence and objectivity that are set forth in the GAO Government Auditing Standards (December 2011 Revision), also known as the “Yellow Book.” The Yellow Book provides both ethical principles and general standards that apply to all types of IRO reviews performed under CIAs and that form the basis of the OIG’s requirements relating to independence and objectivity of the IRO.

Oftentimes, CIAs will require that each IRO used by the provider must furnish a certification that the IRO has evaluated its professional independence and objectivity with respect to the review being performed for the provider and that the IRO has concluded that it is independent and objective.


The Yellow Book provides that objectivity includes “independence of mind and appearance when providing audits, maintaining an attitude of impartiality, having intellectual honesty, and being free of conflicts of interest.” The concepts of objectivity are closely related and independence impairments impacts objectivity.


The Yellow Book requires that, in all matters relating to audit work, the audit organization and individual auditor remain independent. Independence comprises both independence of mind and independence in appearance. IROS must maintain independence so that their opinions, findings, conclusions, judgments, and recommendations are impartial, and viewed as impartial by the OIG.

The Yellow Book identifies two categories of threats to independence: (1) “self-review threat”: the threat that an auditor or audit organizations that has provided nonaudit services will not appropriately evaluate the results of previous judgments made or services performed as part of the nonaudit services when forming a judgment significant to an audit and (2) “management participation threat”: the threat that results from an auditor taking on the role of management or otherwise performing management functions on behalf of the entity undergoing the audit.

Services that Likely Would Not Impair the IRO’s Independence and Objectivity

The OIG has set forth examples of nonaudit services furnished by an IRO to an entity under a CIA that likely would not present an impairment to the IRO’s independence and objectivity with respect to the IRO performing a CIA review for that entity.

Some services that likely would not impair the independence and objectivity include services such as: IRO personnel furnishing general compliance training that addresses the requirements of the provider’s CIA and introduces employees to the provider’s overall compliance program; the IRO performs routine tasks relating to the provider’s confidential disclosure program, such as answering the confidential hotline or transcribing the allegations received via the hotline; and the IRO provides personnel to perform work plan procedures that are developed by the provider’s internal audit department and are not related to the subject matter of the CIA reviews.

Services that Likely Would Impair the IRO’s Independence and Objectivity

Likewise, the OIG set forth a list of examples of nonaudit services furnished by an IRO to an entity under a CIA that, if the IRO performed, would likely be considered an impairment of independence and objectivity.

Services that likely would have an impact on independence and objectivity include: a provider using a billing system or coding software that was developed or designed by the IRO and the IRO is being engaged to perform a claims review; the IRO participates in decision making relating to the confidential disclosure program, such as determining which allegations warrant further investigation or the appropriate corrective action to take in response to compliance allegations; or the IRO is engaged to provide consulting services to the provider during the term of the CIA on a matter that is related to the subject matter of the CIA reviews.

Professional Judgment and Competence

According to the Yellow Book, auditors should use professional judgment in all aspects of their professional responsibilities, including following the independence standards and related conceptual framework, maintaining objectivity and credibility, assigning competent staff to the audit, defining the scope of work, evaluation, documenting, and reporting the results of the work, and maintaining appropriate quality control over the audit process.

September 13, 2016

GAO Issues Report on Generic Drug Price Increases


On September 12, 2016, the Government Accountability Office (GAO) released a report about generic drug prices in the Medicare Part D program. The report provides an overview of changes in Part D generic drug prices over time, the extent to which Part D generic drugs experienced “extraordinary” price increases, the effect of the increase on benefit design, and factors that were identified by stakeholders as contributing to drug prices.

This report has been issued in response to a request made to GAO that they examine price trends for generic drugs, and the factors that affect prices. In addition to analyzing pricing data, GAO created price indexes to show price trends; determined the number of drugs that had an extraordinary price increase of 100% or more; and interviewed drug manufacturers, Medicare Part D plan sponsors, pharmacy benefit managers, relevant trade associations, and economics experts, to identify factors that contribute to generic drug price changes.

Overall Generic Price Trends

The GAO looked at data from Part D claims from Q1 2010 through Q2 2015. GAO found that “generic drug prices fell 59 percent from the first quarter of 2010 through the second quarter of 2015,” reflecting a “changing basket” of 2,378 drugs during that time period. According to the report, prices under Medicare Part D fell rapidly from Q1 2010 through Q4 2012 and then declined moderately thereafter through Q2 of 2015 for the changing basket of drugs.

GAO additionally looked at an “established basket” of 1,441 drugs that “were present during the entire period of analysis.” The established basket, “decreased moderately and then increased slightly.” Overall, drugs in the established basket declined by 14% from the first quarter of 2010 through the second quarter of 2015, but trends varied over time: the prices decreased by 22% from Q1 2010 through Q4 2012, from that point until Q2 2015, the price increased by 10%.

It is likely that the steeper price decrease experienced by the changing basket was due to rapid price declines among new generic drugs, which are found in the changing basket but not the established one. GAO found that prices declined much more rapidly for generics newly billed under Medicare Part D relative to established generic drugs.

Price Increases

In reference to the “extraordinary” price increases, the GAO found that more than 300 of the established generic drugs had at least one extraordinary price increase during the time period (defined as a price increase of 100% or more). The report notes that certain categories of generics were more prone to extraordinary price increases than others and that the extraordinary price increases did not impact benefit design too much because of continued relative lower cost compared to their branded counterparts. Additionally, it was noted that some of the more expensive generic drugs are placed on non-preferred generic tiers, which are still cheaper for the beneficiary than the tiers that have branded products.

Factors Contributing to Drug Prices

According to the report, the factor that most impacted generic drug prices was competition – “price and availability” of the same drug from other manufacturers was the “primary driver” of generic price increases. The GAO also noted that generic competition is impacted by factors, including “raw material shortages, production difficulties, consolidation among manufacturers, and a backlog of new generic drug applications awaiting federal review.”

The appendices at the end of the report provide detailed information on the specific generics that underwent extraordinary price increases and information on the categories of generics that experienced a price increase.

June 20, 2016

GAO Report Harshly Critical of Medicare Advantage Plans

A May 2016 report from the United States Government Accountability Office (GAO) is harshly critical of Private Medicare Advantage plans, stating that the plans have overbilled the government by billions of dollars, but have rarely been forced to repay the money or face other consequences for their actions. The report, "Fundamental Improvements Needed in CMS's Effort to Recover Substantial Amounts of Improper Payments," called for "fundamental improvements" to curb overbilling by the health plans, which are paid more than $160 billion annually. The privately run health plans, an alternative to traditional fee-for-service Medicare, have proven popular with seniors and have enrolled more than 17 million people. The plans, which were the subject of a Center for Public Integrity investigation, also enjoy strong support in Congress.  

This report follows an October 2014 audit by the GAO that was prompted by the Center for Public Integrity's "Medicare Advantage Money Grab" series. The series documented nearly $70 billion in improper payments to health plans, most of which were inflated fees from overstating patients' health risks, from 2008 through 2013 alone.

The investigation performed by the Center for Public Integrity traced the overpayments to abuse of a billing formula known as a risk score, which pays higher rates for sicker patients and less for people in good health. Since 2004, that risk score has been used on the "honor system," despite criticism that many health plans have overstated how sick some patients are to boost their revenues. Such a practice is referred to as "upcoding."

CMS also released records to the Center for Public Integrity through a court order in a Freedom of Information (FOIA) lawsuit that showed overbilling has wasted tax dollars almost since risk scores were introduced in 2004. As an example, one review of 2005 payments determined that almost one-third of patients that were enrolled in 22 health plans were not actually as sick as was claimed; as a result, the audit projected overpayments of $4.2 billion.

In the report, the GAO noted that CMS had failed to target health plans with "known improper payment risk," thereby allowing the worst performers to continue escaping the net. The GAO also criticized the agency for allowing audits and appeals to drag on for years: i.e., some audits of 2007 payments to health plans are still under appeal.

America's Health Insurance Plans, an industry trade organization, responded to the GAO report by stating that an "unconfirmed diagnosis" in an audit does not mean that the patient doesn't have the disease. The trade group also also been known to criticize the audit review as not yet complete or "fully tested," to ensure stability and reliability.

David Lipschuz, an attorney with the Center for Medicare Advocacy, noted that his group is "troubled" by the extent of the improper payments to Medicare Advantage plans and the government's "lack of progress on recouping and deterring such payments." He further noted that he is hopeful that policymakers who focus on protecting Medicare Advantage profit take heed of this GAO report to ensure that the recommendations are implemented.

CMS officials have begun to audit Medicare Advantage payments from 2011 and 2012, and have set a goal to have all Medicare Advantage contracts audited on an annual basis. According to the agency, "HHS is strongly committed to program integrity in the Medicare Advantage program and takes seriously our responsibility to protect taxpayer dollars by identifying and correcting improper payments."

GAO officials noted that while CMS is stepping up their RADV audits, much more needs to be done: the upcoming audits are expected to recover around $370 million; however, that is only around 3% of the total estimated annual overpayment. HHS concurred with all five recommendations made in the report, which also included: modifying CMS's calculation of coding intensity; modifying CMS's selection of contracts for contract-level RADV audits to focus on those contracts most likely to have high rates of improper payments; enhancing the timeliness of CMS's contract-level RADV process; improving the timeliness of CMS's contract-level RADV appeal process by requiring that reconsideration decisions be rendered within a specified number of days comparable to other medical record review and first-level appeal time frames in the Medicare program; and ensuring that CMS develops specific plans and a timetable for incorporating a RAC into the program as mandated by the Affordable Care Act.


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