Life Science Compliance Update

June 24, 2015

OIG Continues Fight Against Medicare Part D Fraud and Abuse With Two New Reports


Last week, the Department of Health and Human Services announced the largest ever Medicare Fraud Strike Force sweep, with charges brought against 243 individuals for approximately $712 million in billings. More than 44 of the defendants arrested were charged with fraud related to the Medicare prescription drug benefit program known as Part D. The HHS Office of Inspector General has now released two reports that similarly target Part D fraud. “OIG has seen an increase in Part D fraud complaints,” the agency states. “As such, OIG has made Part D fraud a top priority.”

Their first report, Ensuring the Integrity of Medicare Part D, summarizes OIG’s body of work in the Part D arena and provides an update on the Center of Medicare and Medicaid Services’ efforts to address the weaknesses in Part D program integrity that OIG has identified. Second, Questionable Billing and Geographic Hotspots Point to Potential Fraud and Abuse in Medicare Part D looks at the spike in spending on commonly abused opioids over the last decade, targets pharmacy related fraud schemes related to opioids, and identifies “geographic hotspots” for certain noncontrolled drugs.

Ensuring the Integrity of Medicare Part D

The first report provides a useful summary of numerous OIG investigation, audits, evaluations, and guidances related to Medicare Part D. OIG notes that around 39 million beneficiaries receive Part D benefits through more than 2,000 plans sponsored by private companies. Payments for Part D drugs are approximately $121 billion per year. OIG also outlines the “key players” in protecting Part D: “Part D plan sponsors are responsible for monitoring and paying Part D drug claims,” they state. “CMS is responsible for overseeing the program, and has contracted with the MEDIC [the Medicare Drug Integrity Contractor) to perform program integrity functions.” The MEDIC is required to investigate potential fraud and abuse referred to it through external sources, such as complaints, as well as identify potential fraud and abuse through proactive methods, such as data analysis.

OIG Examples of Part D Fraud(source: OIG: "Ensuring the Integrity of Medicare Part D," June 18, 2015)

“Over the last 9 years, plan sponsors, the MEDIC, and CMS have taken steps to address OIG recommendations in these areas, and progress has been made,” states OIG. However, OIG notes that Part D remains vulnerable to fraud. Particularly, OIG finds that the program’s underlying vulnerabilities “cluster around two issues involving all three levels of program oversight (plan sponsors, the MEDIC, and CMS).” First, is the need to more effectively collect and analyze program data to proactively identify and resolve program vulnerabilities and prevent fraud, waste, and abuse before it occurs; and second, is the need to more fully implement robust oversight designed to ensure proper payments, prevent fraud, and protect beneficiaries.

"To fully protect Part D from fraud, waste, and abuse, CMS should take further action and implement OIG's unimplemented recommendations," OIG advised.

Specifically, CMS should:

  • (1) require plan sponsors to report all potential fraud and abuse to CMS and/or the MEDIC;
  • (2) require plan sponsors to report data on the inquiries and corrective actions they take in response to fraud and abuse;
  • (3) expand drug utilization review programs to include additional drugs susceptible to fraud, waste, and abuse;
  • (4) implement an edit to reject prescriptions written by excluded providers;
  • (5) exclude Schedule II drug refills when calculating final payments to plan sponsors at the end of each year;
  • (6) seek authority to restrict certain beneficiaries to a limited number of pharmacies or prescribers;
  • (7) develop and implement a mechanism to recover payments from plan sponsors when law enforcement agencies do not accept case referrals;
  • (8) determine the effectiveness of plan sponsors' fraud and abuse detection programs; and
  • (9) ensure that plan sponsors' compliance plans address all regulatory requirements and CMS guidance.  

Download the complete report.

Questionable Billing and Geographic Hotspots Point to Potential Fraud and Abuse in Medicare Part D

OIG's second report focuses on what the agency deems "questionable billing" related to frequently abused opioids (including OxyContin, hydrocodone-acetaminophen, fentanyl, and morphine sulfate). "Since 2006, Medicare spending for commonly abused opioids has grown faster than spending for all Part D drugs," OIG states. 

"OIG investigations have identified pharmacy-related fraud schemes in Part D," the report states. "These schemes include drug diversion, billing for drugs that are not dispensed, and kickbacks." While pharmacy-related fraud schemes often involve commonly abused opioids, they can also involve noncontrolled drugs. OIG found that more than 1,400 pharmacies had questionable billing for Part D drugs in 2014, as indicated in the following table. Notably, OIG indicated somewhat ominously: "[a]lthough some of this billing may be legitimate, all of these pharmacies warrant further scrutiny. To followup on these pharmacies, OIG will conduct investigations and audits. As appropriate, we will also refer pharmacies to other law enforcement agencies and to CMS."

Pharmacies with Questionable Billing

OIG's report also identifies "geographic hotspots for certain noncontrolled drugs," which they describe as metropolitan areas where average Medicare payments per beneficiary for certain drugs are significantly higher than the average payments nationwide. "Although medical necessity and prescribing patterns may vary across different areas of the country, these patterns raise questions about whether these drugs were medically necessary or were provided to beneficiaries," OIG states. "The diversion of noncontrolled substances is becoming more common, and fraud related to these drugs can present a significant financial loss to Medicare."

OIG hotspots

"The billing patterns in hotspots raise questions about whether these drugs were medically necessary or were actually provided to beneficiaries," OIG concludes. "Also, because some of these drugs are available as generics or over the counter, there are questions about whether pharmacies are billing for the higher priced brand-name drug but providing a less expensive drug."


As OIG explicitly states, Medicare Part D fraud is a top priority for the agency. The two reports, along with the extensive Part D-related enforcement actions last week, shows that the government has already put a lot of time into analyzing Part D prescription trends and what they deem to be abnormalities. OIG's latest recommendations to CMS to step up its oversight could foretell even greater enforcement. 

June 15, 2015

HHS-OIG Fraud Alert: Physician Compensation Arrangements May Result in Significant Liability


Last week, the Department of Health and Human Services Office of Inspector General (OIG) released a fraud alert entitled “Physician Compensation Arrangements May Result in Significant Liability.” The OIG states that physicians who enter into “compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide.” While the agency does not necessarily mention anything groundbreaking in the kickback arena, the OIG specifically noted its recent settlements with 12 individual physicians who entered into “potentially illegal medical directorships and office staff arrangements” as the impetus for the alert. 

The OIG did not name the 12 physicians in the Fraud Alert, but the individuals and a small summary about the alleged scheme are included on OIG’s website. It turns out that all 12 involved physicians had compensation arrangements with Fairmont Diagnostic Center and Open MRI Inc. (Fairmont) and settled with the OIG between 2013 and 2014. Fairmont and its founder Dr. Jack Baker settled allegations that the company entered these prohibited financial relationships including "sham personal services contracts," for medical directorships back in 2012.  View the Fairmont False Claims Act settlement here.  

In the individual physician settlements, OIG alleged that the compensation paid under the medical directorship arrangements constituted improper remuneration under the anti-kickback statute for a number of reasons, including:

(1)  The financial arrangement took into account the physicians’ volume or value of referrals

(2)  The payments did not reflect fair market value for the services to be performed, and

(3)  The physicians did not actually provide the medical directorship services called for under the agreements. 

OIG also alleged that some of the 12 physicians had entered into arrangements under which an affiliated health care entity paid the salaries of the physicians’ front office staff. "Because these arrangements relieved the physicians of a financial burden they otherwise would have incurred, OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians," the agency states. "OIG determined that the physicians were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law."

Tips for Medical Directors

In an informative document released a few years ago entitled “A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse,” OIG outlined a long list of useful information for doctors to stay out of kickback trouble. The roadmap includes a list of “tips” for medical directors. OIG linked to this document in its latest fraud alert, so it is worth looking back on. 

"If you choose to accept a medical directorship at a nursing home or other facility, you must be prepared to assume substantial professional responsibility for the care delivered at the facility," OIG states. "As medical director, patients (both your own patients and the patients of other attending physicians) and their families count on you, and State and Federal authorities may hold you accountable as well."

To do this job well, physicians should, according to the agency:

  • Actively oversee clinical care in the facility;
  • Lead the medical staff to meet the standard of care; 
  • Ensure proper training, education, and oversight for physicians, nurses, and other staff members; and
  • Identify and address quality problems

The roadmap also offered a number of case examples for medical directors to take note of.

  • A physician group practice paid the Government $1 million and entered into a 5-year Corporate Integrity Agreement to settle alleged violations of the AKS, FCA, and Stark law related to medical directorships with a medical center. Allegedly, the agreements were not in writing, the physicians were paid more than fair market value for the services they rendered, and the payment amounts were based on the value of referrals the physicians sent to the medical center.

  • Two orthopedic surgeons paid $450,000 and $250,000 to settle allegations related to improper medical directorships with a company that operated a diagnostic imaging center, a rehabilitation facility, and an ambulatory surgery center. The company allegedly provided the physicians with valuable compensation, including free use of the corporate jet, under the medical directorship agreements, which required the physicians to render limited services in return. The agreements with the physicians allegedly called for redundant services and served to encourage the physicians to refer their patients to the facilities operated by the company.


The latest OIG alert publicizes some recent enforcement actions against individual physicians. The government has long said it will increasingly target individuals, and the agency has made clear through this notice that they are particularly interested in medical directorship agreements. 



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