Department of Justice Seal

The Department of Health and Human Services
The Department of Justice
Health Care Fraud and Abuse Control Program
Annual Report For FY 2002




All years are fiscal years unless
otherwise noted in the text.


The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national Health Care Fraud and Abuse Control Program (HCFAC or the Program), under the joint direction of the Attorney General and the Secretary of the Department of Health and Human Services (HHS)(1), acting through the Department's Inspector General (HHS/OIG), designed to coordinate Federal, state and local law enforcement activities with respect to health care fraud and abuse. In its sixth year of operation, the Program's continued success again confirmed the soundness of a collaborative approach to identify and prosecute the most egregious instances of health care fraud, to prevent future fraud or abuse, and to protect program beneficiaries.

Monetary Results

In 2002, the Federal government won or negotiated more than $1.8 billion in judgments, settlements, and administrative impositions in health care fraud cases and proceedings. As a result of these activities, as well as prior year judgments, settlements, and administrative impositions, the Federal government collected over $1.6 billion, of which approximately $1.4 billion was returned to the Medicare Trust Fund. An additional $59 million was recovered as the federal share of Medicaid restitution. This is the largest return to the government since the inception of the Program.

Enforcement Actions

Federal prosecutors filed 361 criminal indictments in health care fraud cases in 2002. A total of 480 defendants were convicted for health care fraud-related crimes during the year. There were also 1,529 civil matters pending, and 221 civil cases filed in 2002. HHS excluded 3,448 individuals and entities from participating in the Medicare and Medicaid programs, or other federally sponsored health care programs, most as a result of convictions for crimes relating to Medicare or Medicaid, for patient abuse or neglect, or as a result of licensure revocations.



As Required by
Section 1817(k)(5) of the Social Security Act


The Social Security Act section 1128C(a), as established by the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud and Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, including both public and private health plans.

The Act requires that an amount equaling recoveries from health care investigations -- including criminal fines, forfeitures, civil settlements and judgments, and administrative penalties, but excluding restitution, compensation to the victim agency, and relators' shares -- be deposited in the Medicare Trust Fund.(2) All funds deposited in the Trust Fund as a result of the Act are available for the operations of the Trust Fund.

As stated above, the Act appropriates monies from the Medicare Trust Fund to an expenditure account, called the Health Care Fraud and Abuse Control Account (the Account), in amounts that the Secretary and Attorney General jointly certify as necessary to finance anti-fraud activities. The maximum amounts available for certification are specified in the Act. Certain of these sums are to be used only for activities of HHS/OIG, with respect to Medicare and Medicaid programs. In 2002, the Secretary and the Attorney General certified $209 million for appropriation to the Account. A detailed breakdown of the allocation of these funds is set forth later in this report. These resources generally supplement the direct appropriations of HHS and the Department of Justice (DOJ) that are devoted to health care fraud enforcement, though they provide the sole source of funding for Medicare and Medicaid enforcement by HHS/OIG. (Separately, the Federal Bureau of Investigation (FBI) received $101 million from HIPAA which is discussed in the Appendix.)

Under the joint direction of the Attorney General and the Secretary, the Program's goals are:

  1. to coordinate Federal, state and local law enforcement efforts relating to health care fraud and abuse;

  2. to conduct investigations, audits and evaluations relating to the delivery of and payment for health care in the United States;

  3. to facilitate enforcement of all applicable remedies for such fraud;

  4. to provide guidance to the health care industry regarding fraudulent practices; and

  5. to establish a national data bank to receive and report final adverse actions against health care providers.

The Act requires the Attorney General and the Secretary to submit a joint annual report to the Congress which identifies both:

  1. the amounts appropriated to the Trust Fund for the previous fiscal year under various categories and the source of such amounts; and

  2. the amounts appropriated from the Trust Fund for such year for use by the Attorney General and the Secretary and the justification for the expenditure of such amounts.

This annual report fulfills the above statutory requirements.


As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited and appropriated to the Medicare Trust Fund, and the source of such deposits. In 2002, as a result of the combined anti-fraud actions of the Federal and state governments and others, the Federal government collected a record high of more than $1.6 billion in connection with health care fraud cases and matters.(3) These funds were deposited with the Department of the Treasury and the Centers for Medicare and Medicaid Services (CMS), transferred to other Federal agencies administering health care programs, or paid to private persons. The following chart provides a breakdown of the transfers/deposits:

Total Transfers/Deposits by Recipient 2002
Department of the Treasury  
  HIPAA Deposits to the Medicare Trust Fund  
    Gifts and Bequests $6,820
    Amount Equal to Criminal Fines 430,536,063
    Civil Monetary Penalties 6,692,976
    Amount Equal to Asset Forfeiture * 0
    Amount Equal to Penalties and Multiple Damages 328,566,049
Centers for Medicare and Medicaid Services  
  OIG Audit Disallowances - Recovered 150,239,823
  Restitution/Compensatory Damages 551,205,138

Restitution/Compensatory Damages to Federal Agencies  
  Office of Personnel Management 50,571,353
  Other Agencies 12,536,742

Relators' Payments ** 101,165,649
  TOTAL *** 1,631,520,613

*This includes only forfeitures under 18 U.S.C. � 1347, a Federal health care fraud offense that became effective on August 21, 1996. Not included are forfeitures obtained in numerous health care fraud cases prosecuted under Federal mail and wire fraud and other offenses.
**These are funds awarded to private persons who file suits on behalf of the Federal government under the qui tam provisions of the False Claims Act, 31 U.S.C. � 3730(b).
***Funds are also collected on behalf of state Medicaid programs and private insurance companies; these funds are not represented here.

The above transfers include certain collections, or amounts equal to certain collections, required by HIPAA to be deposited directly into the Medicare Trust Fund. These amounts include:

  1. Gifts and bequests made unconditionally to the Trust Fund, for the benefit of the Account or any activity financed through the Account;

  2. Criminal fines recovered in cases involving a Federal health care offense, including collections under section 24(a) of title 18, United States Code (relating to health care fraud);

  3. Civil monetary penalties in cases involving a Federal health care offense;

  4. Amounts resulting from the forfeiture of property by reason of a Federal health care offense, including collections under section 982(a)(6) of title 18, United States Code; and

  5. Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the general fund of the Treasury obtained under sections 3729 through 3733 title 31, United States Code (known as the False Claims Act, FCA), in cases involving claims related to the provision of health care items and services (other than funds awarded to a relator, for restitution or otherwise authorized by law).

HIPAA also requires an independent biannual review of these deposits by the General Accounting Office (GAO).



In the sixth year of operation, the Secretary and the Attorney General certified $209 million as necessary for the Program. The following chart gives the allocation by recipient:

(Dollars in thousands)
Organization Allocation

Department of Health and Human Services  
  Office of Inspector General (4) 145,000
  Office of the General Counsel 4,180
  Administration on Aging 2,000
  Centers for Medicare and Medicaid Services 2,675
  Assistant Secretary for Budget, Technology and Finance 125
Total 153,980

Department of Justice  
  United States Attorneys 25,200
  Civil Division 26,029
  Criminal Division 1,270
  Civil Rights Division 1,815
  Justice Management Division 886
Total 55,200
TOTAL $209,180



During this year, the Federal government won or negotiated more than $1.8 billion in judgments, settlements, and administrative impositions in health care fraud cases and proceedings. As a result of these activities, as well as prior year judgments, settlements, and administrative impositions, the Federal government collected $1.6 billion in cases resulting from health care fraud and abuse, of which approximately $1.4 billion was returned to the Medicare Trust Fund, and $59 million was recovered as the Federal share of Medicaid restitution. It should be emphasized that some of the judgments, settlements, and administrative impositions in 2002 will result in collections in future years, just as some of the collections in 2002 are attributable to actions from prior years.


Working together, HHS, DOJ and their partners have brought to successful conclusion the investigation and prosecution of numerous health care fraud schemes. Among them are:

These and other settlements reflect the culmination of investigations that have been ongoing for several years.

Quality of Care

One area in which collaboration has proved most effective has been in enforcement and oversight of issues relating to quality of care, as demonstrated by the following:

Enforcement Actions. Several important enforcement actions culminated in 2002:

Nursing Facility Quality of Care - OIG Symposium. The HHS/OIG hosted a symposium entitled, "Nursing Facility Quality of Care: Improving Government Enforcement Efforts." The symposium sought to enhance the government's enforcement efforts through an analysis of the current methods utilized by the government to pursue quality of care cases in nursing homes. The symposium included a series of case studies presented by attorneys and investigators who had successfully conducted quality of care cases. The meeting drew participants from CMS, DOJ, United States Attorneys' Offices (USAOs), MFCUs, state survey officials, and the HHS/OIG.

Recommendations to Improve Quality of Care. The HHS/OIG issued several significant reports assessing a variety of facets of the quality of care provided to program beneficiaries. These included: 


Enforcement Actions: Prescription drug pricing remains an important area of inquiry for the HCFAC program. A number of investigations, audits and evaluations focused on whether the government is paying reasonable and appropriate amounts for covered prescription drugs. For example:

Studies of Medicare and Medicaid Drug Pricing and Payment:


Improperly Reported and Paid Discharges: Under Medicare rules, a consolidation of hospitals is considered a change of ownership. After a consolidation, only the surviving hospital would be entitled to Medicare payments because it was the legal owner on the date patients were discharged. The HHS/OIG conducted a review to determine whether hospitals that ceased to exist after consolidation with another hospital improperly submitted claims for prospective payment system discharges. The review revealed that 15 such hospitals were improperly paid $8 million for 1,118 prospective payment system discharges. These claims were submitted and paid because neither the fiscal intermediaries nor the hospitals had a clear understanding of Medicare payment rules on hospital consolidations. The DOJ has reached settlements, and fiscal intermediaries have begun collecting the overpayments.

Disproportionate Share Hospital Payments: The Medicare, Medicaid, and State Child Health Insurance Program Benefits Improvement and Protection Act of 2000 increased public hospitals' Medicaid disproportionate share hospital (DSH) reimbursement from 100 percent to 175 percent of uncompensated care costs--a change expected to increase Federal spending by $380 million during FYs 2003 through 2005. Based on recent and ongoing reviews, HHS/OIG has concluded that the reimbursement increase may not be warranted. These studies have shown that DSH payments are not always retained by public hospitals, are often returned to the states for other uses, and are not always calculated correctly. The HHS/OIG recommended that CMS seek legislation to at least delay, if not repeal, the implementation of the increase in DSH payments until the need for and use of DSH funds for direct care of uninsured patients can be examined.

If the new limit is implemented, additional legislative reform is needed to ensure that DSH funds remain at the hospitals to provide care to vulnerable populations. CMS initially concurred, but later said that it would not seek a legislative change.

Reviews during 2002 found that DSH payments to some hospitals in California and Missouri exceeded the individual hospitals' uncompensated costs, contrary to provisions of the Omnibus Budget Reconciliation Act of 1993. DSH payments to one hospital exceeded its hospital-specific limit by $38.7 million. In both states, the limits were overstated because the states' calculations were flawed. The HHS/OIG recommended that the states return the overpayments to the Federal government and implement procedures and controls to prevent similar claims.

A more detailed description of these and other accomplishments of the major Federal participants in the coordinated effort established under HIPAA follows. While information in this report is presented in the context of a single agency, most of these accomplishments reflect the combined efforts of HHS, DOJ and other partners in the anti-fraud efforts.


Office of Inspector General

Certain of the funds appropriated under HIPAA are, by law, set aside for Medicare and Medicaid activities of HHS/OIG. During the sixth year of the Program, the Act provided that between $140 and $150 million be devoted to these purposes. The Secretary and the Attorney General jointly allotted $145 million to HHS/OIG in 2002, an increase of $15 million over 2001.

HHS/OIG conducted or participated in 753 prosecutions or settlements in 2002, of which 568, or 75 percent, were health care cases. A total of 3,448 individuals and entities were also excluded, many as a result of criminal convictions for crimes related to Medicare or Medicaid (670); or to other health care programs (138); for patient abuse or neglect (296); or as a result of licensure revocations (1,720).

In addition to HHS/OIG's role in bringing about the judgments and settlements described in the Overview of Accomplishments, HHS acted on HHS/OIG recommendations and collected $150.2 million in disallowances of improperly paid health care funds in 2002. HHS/OIG continues to work with CMS to develop and implement recommendations to correct systemic vulnerabilities detected during HHS/OIG evaluations and audits. These corrective actions often result in health care funds not expended (that is, funds put to better use as a result of implemented HHS/OIG initiatives). In 2002, such funds not expended amounted to more than $19.8 billion -- nearly $14.3 billion in Medicare savings, and $5.6 billion in savings to the Medicaid program.

Fraud and Abuse Prevention

HIPAA's increased resources have enabled HHS/OIG to broaden its efforts both to detect fraud and abuse, and to prevent it. Prevention initiatives, such as those listed below, inform and assist the health care industry and its patients. Equally important, these prevention activities reduce program losses and enforcement costs.

Focus on Quality of Care

HHS/OIG investigations, audits and evaluations focus not just on improper billing for health care services, but also the quality of care provided to program beneficiaries. Activities designed to promote or safeguard beneficiary care included:

Other Judgments and Settlements.

In addition to the significant enforcement actions described in the Program Accomplishments section of this report, and those immediately above, HHS/OIG conducted or participated in numerous investigations that resulted in prosecution or settlement during 2002, involving all aspects of the health care industry. These include:

Evidence showed that the woman, even after two indictments, still continued to falsely bill health care programs for services not rendered.

Office of the General Counsel

The Office of the General Counsel (OGC) was allocated $4.18 million in HCFAC funding for 2002 to supplement OGC's efforts to support the Administration's program integrity activities. These funds were used primarily for litigation activity, both administrative and judicial.





Policy Guidance and Education

Administration on Aging

In 2002, the Administration on Aging (AoA) was allocated $2 million in HCFAC funds to develop and disseminate consumer education information to older Americans, with a particular focus on persons with low health literacy, individuals from culturally diverse backgrounds, persons living in rural areas, and other vulnerable populations. AoA and its nationwide network of agencies supported community education activities designed to assist older Americans and their families to recognize and report potential errors or fraudulent situations in the Medicare and Medicaid programs.


Centers for Medicare and Medicaid Services

In 2002, $2.675 million in HCFAC funds was allocated to the CMS to provide Federal grant funding for states to participate in the second year of the Medicaid Payment Accuracy Measurement (PAM) project, which develops payment accuracy measurement methodologies and conducts pilot studies to measure and reduce state Medicaid payment errors.

Each of the twelve states will pilot test the CMS PAM Model. This model was developed by CMS and The Lewin Group, in collaboration with the nine states that participated during the first year of the project. The CMS PAM Model was designed to explore the feasibility of conducting payment accuracy studies in all states using a single methodology that can produce both state-specific and national level payment accuracy estimates. In addition, the CMS PAM Model has been designed to estimate payment accuracy for both the fee for service and managed care components of the Medicaid program. Of the twelve states, seven states will pilot test the model in fee-for-service, one state will pilot test the model in managed care, and four states will pilot test the model in both fee for service and managed care.

All states were solicited to participate in the PAM demonstration project under the authority of section 402(a)(1)(j) of the Social Security Act Amendments of 1967.


Assistant Secretary for Budget, Technology and Finance

For 2002, $125,000 of funds from the Account were transferred to the Office of the Budget, Technology, and Finance to support the Unified Financial Management System (UFMS) Program. The overall strategic goal of the program is to unify HHS' financial management by designing and implementing a modern, Department-wide financial management system. Once fully implemented, UFMS will significantly enhance the Department's internal controls, management's stewardship, and accountability over financial transactions, operations, and assets. The unified system will be comprised of two primary sub-components-a system for CMS and its Medicare contractors (the Healthcare Integrated General Ledger and Accounting System (HIGLAS)) and another system for the rest of HHS. UFMS will also institute a consolidated departmental financial reporting capability. HHS will ensure the new system's compliance with statutory requirements of the Chief Financial Officers Act of 1990, the Federal Financial Management Improvement Act of 1996, the Reports Consolidation Act of 2000, the Federal Manager's Financial Integrity Act (FMFIA) of 1982, and other pertinent laws.


United States Attorneys

Health care fraud involves a variety of schemes that defraud public insurers, private insurers and health care providers nationwide. In addition to Medicare and Medicaid, a number of federally funded health benefit programs have been the targets of health care fraud schemes. The fraudulent activity may include double billing schemes, kickbacks, billing for unnecessary or unperformed tests, or fraudulent activity may relate to the quality of care provided to patients. In addition to monetary losses, some improper activities endanger patient safety. United States Attorneys' offices (USAOs) are responsible for civil and criminal prosecutions of health care professionals, providers and others.

USAOs continue to strengthen and refine cooperative efforts with Federal, state and local law enforcement agencies involved in the prevention, evaluation, detection, and investigation of health care fraud and abuse. In addition to the FBI, HHS/OIG and CMS, USAOs work with State MFCUs, State Attorneys General, Offices of Inspectors General for a number of federal agencies, Drug Enforcement Administration (DEA), FDA, DCIS and TRICARE Support Office.

Each USAO has appointed both a civil and a criminal health care fraud coordinator to assist in tracking referrals, overseeing investigations and facilitating communication between Federal, state and local law enforcement groups. In addition, many cases are investigated in a parallel fashion, so that the potential criminal and civil remedies are addressed more efficiently, by the attorneys and agencies investigating the wrongdoing. The criminal and civil judgments and settlements discussed in the Program Accomplishments sections of this report provide examples of some significant health care cases in the USAOs, many of which are investigated as parallel investigations and prosecutions.

Prior to enactment of the HIPAA, USAOs dedicated substantial resources to combating health care fraud and abuse. HIPAA allocations have supplemented those resources by providing dedicated positions for attorneys, paralegals, auditors and investigators.


The Executive Office for the United States Attorneys'/Office of Legal Education (OLE) is responsible for providing health care fraud training for Assistant United States Attorneys (AUSAs) and Department attorneys, paralegals, investigators, and auditors. During 2002, OLE conducted a number of courses and presentations on health care fraud, including:

While the primary participants in OLE-sponsored courses were DOJ employees, agency counsel and investigative personnel were also invited to participate as presenters and students. In addition to OLE-sponsored training, a number of AUSAs, auditors and investigators participated in multi-agency health care fraud programs, as students and as speakers.

Program Accomplishments - Criminal Prosecutions

The primary objective of criminal prosecution efforts is to ensure the integrity of our nation's health care programs and to punish and deter those who, through their improper activities, adversely affect the health care system and the taxpayers.

Each time a criminal case is accepted for consideration of prosecution in a USAO, it is opened as a matter pending in the district. A referral remains a matter until an indictment or information is filed or the case is declined for prosecution. In 2002, the USAOs had 1,606 health care criminal matters pending, involving 2,441 defendants.

During 2002, 361 cases were filed involving 608 defendants, a one percent increase over 2001 in the number of defendants. There were 480 health care related convictions in 2002, a three percent increase over 2001. Convictions include both guilty pleas and jury verdicts. A sample of the criminal cases brought by USAOs, in addition to those set forth in the overview section of this report, is set out below:

Program Accomplishments - Civil Cases

Civil health care fraud efforts constitute a major focus of Affirmative Civil Enforcement (ACE) activities. The ACE Program helps ensure that federal laws are obeyed and that violators provide compensation to the government for losses and damages they cause. Civil health care fraud matters ordinarily involve the United States utilizing the FCA, as well as common law fraud remedies, payment by mistake, unjust enrichment and conversion to recover damages from those who have submitted false or improper claims to the United States.

Each time a civil referral is made to a USAO it is opened as a matter pending in the district. Civil health care fraud matters are referred directly from federal or state investigative agencies, or result from filings by private persons known as "relators," who file suits on behalf of the Federal Government under the 1986 qui tam amendments to the FCA. Relators may be entitled to share in the recoveries resulting from these lawsuits. At the end of 2002, the USAOs had 1,529 civil health care fraud matters pending. A matter becomes a case when the United States files a civil complaint, or intervenes in a qui tam action, in United States District Court. The vast majority of civil health care fraud cases and matters are settled without a complaint ever being filed. In 2002, 221 civil health care fraud cases were filed.

A sample of the civil cases brought by USAOs, in addition to those in described in the overview section, are set forth below.

Civil Division

Civil Division attorneys vigorously pursue civil remedies in health care fraud matters, working closely with the USAOs, the FBI, the Inspectors General of the HHS and the Department of Defense, CMS, and other federal and state law enforcement agencies. Cases involve providers of health care services, supplies and equipment, as well as carriers and fiscal intermediaries, that defraud Medicare, Medicaid, TRICARE, the FEHBP, and other government health care programs.


In 2002, the Division opened or filed a total of 74 health care fraud cases or matters. In addition to these new efforts, the Civil Division pursued 390 existing cases. A significant number of these health care fraud cases have the potential for particularly high damages. Civil Division attorneys were actively involved in the recoveries described in the overview - TAP Pharmaceuticals, PacifiCare Health Systems, General American Life Insurance, the State of California, American Medical Response, and the KPMG cases. The following examples demonstrate the breadth and significance of other cases in which the Division was involved during 2002.

In addition to these case-specific accomplishments, the Department's Nursing Home Initiative, coordinated by the Civil Division, promotes, among other things, increased prosecution and coordination at Federal, state and local levels to fight the abuse, neglect, and financial exploitation of the nation's senior and infirm population. The Department is pursuing a growing number of cases under the FCA involving providers' egregious "failures of care." The financial crisis in the nursing home industry has to date resulted in bankruptcy filings by five of the seven largest nursing home chains and several smaller chains. These bankruptcy cases are the largest ever involving health care providers, and raise the specter of failure of care, as well as financial issues. The significance of these cases require considerable and ongoing coordination among the Civil Division's Corporate Finance and Civil Fraud sections, the Criminal Division, CMS, and HHS/OIG. In addition, as part of the Nursing Home Initiative, the Department, through the Office of Justice Programs, has made several grants to further knowledge of the forensic aspects of elder abuse, to promote prevention, and to assist local prosecutors in elder abuse, neglect, and exploitation matters.

Also, the Civil Division co-chairs with the Criminal Division the National Level Health Care Fraud Working Group, which meets quarterly and coordinates the health care fraud enforcement activities of all concerned Federal and state agencies.

Vital resources were made available from the Account to provide the Civil Division with personnel, Automated Litigation Support, auditors, and consultants. These resources supplemented other Civil Division funds. During 2002, these monies were used to support a host of health care fraud matters and the Department's tobacco litigation.

Criminal Division

The Fraud Section of the Criminal Division develops and implements white collar crime policy and provides support for the Federal white collar enforcement community. The Fraud Section supports the USAOs with legal and investigative guidance and, in certain instances, provides trial attorneys to prosecute criminal fraud cases. For several years, a major focus of Fraud Section personnel and resources has been to investigate and prosecute fraud involving Federal health care programs.

The Fraud Section has provided guidance to FBI agents, AUSAs and Criminal Division attorneys on criminal, civil and administrative tools to combat health care fraud, and worked on an interagency level through:

The Fraud Section has responsibility for handling complex health care fraud litigation nationwide and examples of successful prosecutions in 2002 include:

Civil Rights Division

The Special Litigation Section of the Civil Rights Division vigorously pursues relief affecting public, residential health care facilities and has established an Institutional Health Care Abuse and Neglect Initiative to carry out the Department's initiative to eliminate abuse and grossly substandard care in Medicare and Medicaid funded nursing homes and other long-term care facilities.

The Section plays a critical role in the HCFAC Program and is the sole Department component responsible for the Civil Rights of Institutionalized Persons Act, 42 U.S.C. � 1997 (CRIPA). CRIPA authorizes investigation of conditions of confinement at state and local residential institutions (including facilities for persons with developmental disabilities or mental illness, and nursing homes) and initiation of civil action for injunctive relief to remedy a pattern or practice of violations of the constitution or federal statutory rights. The review of conditions in facilities for the mentally ill and for persons with developmental disabilities, and nursing homes comprises a significant portion of the program. The Special Litigation Section works collaboratively with the USAOs around the country and with HHS.


As part of the Department's Institutional Health Care Abuse and Neglect Initiative, and as an enhancement to the Department's ongoing CRIPA enforcement efforts, the Special Litigation Section staff reviewed conditions and services at 60 nursing home facilities in 24 states during 2002. The task in preliminary inquiries is to determine whether there is sufficient information supporting allegations of unlawful conditions to warrant formal investigation under CRIPA.

The section reviews information pertaining to areas such as abuse and neglect, medical and mental health care, use of restraints, fire and environmental safety, and placement in the most integrated setting appropriate to individual needs.

In 2002, the Special Litigation Section opened full CRIPA investigations of four nursing homes: Mercer County Nursing Home in Trenton, New Jersey; Nim Henson Geriatric Center in Breathitt County, Kentucky; Reginald P. White Nursing Facility in Meridian, Mississippi; and Claudette Box Nursing Facility in Mt. Vernon, Alabama. The Section resolved its CRIPA investigation of the Long Term Care Division of the Bergen Regional Medical Center in Paramus, New Jersey through a memorandum of understanding that provides for improved medical care, accident and fall prevention, reduced use of restraints and an assessment of whether the residents are being served in the most integrated setting appropriate to their needs.

Staff participated in ongoing nursing home investigations, including the investigation of Laguna Honda Hospital in San Francisco, California, the largest public nursing home facility in the United States; and Bradley County Health Care and Rehabilitation Center in Cleveland, Tennessee. Section staff also completed the investigation of Banks-Jackson-Commerce Medical Center/Nursing Home in Commerce, Georgia, and sent a letter of findings to appropriate public officials. These investigations involved on site evaluation tours with expert consultants, review of documentary evidence and interviews of staff.

In 2002, the Division filed a joint motion to dismiss United States v. City of Philadelphia (E.D. Pa.), its CRIPA case involving conditions and practices at the Philadelphia Nursing Home. The court dismissed the case based on the demonstrated compliance of the City in meeting the terms of the consent decree.

In addition, the staff conducted a new CRIPA investigation of one residential facility for persons with developmental disabilities: New Lisbon Developmental Center in New Lisbon, New Jersey. Special Litigation Section staff conducted tours of the facility, accompanied by expert consultants, reviewed documents, and interviewed facility staff.

In 2002, the Section found that conditions and practices at two state-operated facilities for persons with developmental disabilities, Woodward and Glenwood Resource Centers in Iowa, violate the residents' federal constitutional and statutory rights. The Division informed the State that the psychiatric and psychological care and community placement programs at both Woodward and Glenwood failed to meet accepted professional standards and that Woodward is resorting to improperly restraining residents in lieu of adequate psychological and behavioral services, treatment, and training. Finally, the Division informed the Governor that the State is failing to ensure that residents at both facilities are being served in the most integrated setting appropriate to meet their individualized needs.

The Section continued its investigations of the following residential facilities for the developmentally disabled: Agnews and Sonora Developmental Centers in California; Pinecrest and Hammond Developmental Centers in Louisiana; Landmark Learning Center in Florida; Holly Center in Maryland; New Castle Developmental Center in Indiana; Rainier Residential Rehabilitation Center and Frances Haddon Morgan Centers in Washington; and Oakwood Developmental Center in Kentucky. In many of these investigations, negotiations toward settlement are continuing regarding the correction of remaining deficient conditions. In some of these matters, the Section is reviewing voluntary compliance to improve conditions.

The Section also initiated an investigation of four mental health facilities in North Carolina: John Umstead Hospital, Dorothea Dix Hospital, Cherry Hospital and Broughton Hospital. The Section continued to review compliance with a plan to correct identified deficiencies at Western State Hospital, a mental health facility in Staunton, Virginia.

The Section staff also conducted compliance reviews in ongoing CRIPA cases involving a variety of facilities: United States v. Tennessee (M.D. Tenn.) involving Clover Bottom Developmental Center, Harold Jordan Center, and Greene Valley Developmental Center; United States v. Tennessee (W.D. Tenn.) involving Arlington Developmental Center; United States v. Tennessee (D. Tenn.) involving the Memphis Mental Health Institute; United States v. New Mexico (D. N. Mex.) involving the New Mexico School for the Visually Handicapped; United States v. Connecticut (D. Conn.) involving Southbury Training School; United States v. Hawaii (D. Haw.) involving Hawaii State Hospital and the community mental health system; and United States v. Indiana involving Ft. Wayne Developmental Center and Muscatatuck Developmental Center in Indiana. The Section is continuing to pursue Evans and United States v. Williams (D. D.C.) which was filed prior to the passage of CRIPA and involves hundreds of community placements for members of the class with developmental disabilities in the District of Columbia. In each of these cases, staff reviewed compliance with the terms of previously filed agreements and court orders.

In addition to its law enforcement activities, the Special Litigation Section is responsible for representing the Civil Rights Division in the Department's health care fraud activities. The Section participates, for example, as a Department and Civil Rights representative on an inter-agency Nursing Home Steering Committee. The Section has also participated in public education and outreach by speaking and participating at both national and regional conferences on quality of care in health care facilities.

Justice Management Division

The Justice Management Division, Debt Collection Management Staff continues to perform for the Program various administrative and coordination duties. The duties of the office include: budget formulations, oversight and coordinating with the Office of Management and Budget and CMS; coordinating with HHS/OIG and the Department of the Treasury on the tracking of collections; coordinating with the GAO on required audits; and preparation and coordination of the annual report.


Federal Bureau of Investigation
Mandatory Funding

"There are hereby appropriated from the general fund of the United States Treasury and hereby appropriated to the Account for transfer to the Federal Bureau of Investigation to carry out the purpose described in subparagraph (C), to be available without further appropriation - (I) for fiscal year 2002, $101,000,000."

The FBI works many health care fraud cases on a joint basis with other federal agencies, including the HHS/OIG. These two federal agencies collaborate through attendance at health care fraud working groups and each other's training conferences, case referral exchanges, and a liaison program between the two organizations. In addition, most health care fraud task forces formed by FBI field divisions represent the coordinated efforts among the FBI, MFCUs and state and local law enforcement, federal investigative agencies such as HHS/OIG, and private industry. The FBI and HHS/OIG continue to share a common commitment to ending fragmented health care fraud enforcement efforts and encouraging the coordination of investigative resources. The FBI, however, is the only federal investigative agency to have jurisdiction over both government sponsored health care programs and privately funded health care programs.

Under HIPAA, the FBI was provided $101 million in 2002 for health care fraud enforcement. As the FBI has increased the number of agents assigned to health care fraud investigations, the number of pending investigations has increased over 400 percent, rising from 591 cases in 1992 to 2,418 cases through 2002. Federal and state criminal health care fraud convictions resulting from FBI investigations have risen from 116 in 1992, to 549 through 2002. While the September 11, 2001 terrorist attacks temporarily affected the FBI's health care fraud enforcement program, health care fraud investigations remain a priority at the FBI. In 2002, the FBI sponsored training for approximately 100 agents having less than one year experience investigating health care fraud matters, advanced financial analysis training for health care support employees, and an advanced training covering the latest schemes and investigative techniques. In addition, the FBI recently dedicated additional training at Quantico for new agents to work on health care fraud matters.

The FBI continues to explore new ways to identify health care fraud. One of the innovative techniques initiated in 2002 by the FBI, in partnership with CMS, is the Medicare/Medicaid Data Analysis Center. This pilot project is analyzing claims made to both the federal Medicare and state Medicaid programs by the same providers in order to identify aberrant billing patterns, unusual growth in billings and/or utilization of services or treatments, billing for unusual time frames (i.e., more than 24 hours a day), and other indicia of potential fraud against both programs. Analysis from the project will be forwarded to the field divisions as health care referrals in previously undetected areas of fraud. The FBI expects to expand this pilot project in 2003.

A considerable portion of the increased funding was utilized to support major health care fraud investigations. In addition, operational support has been provided for FBI national initiatives focusing on pharmaceutical diversion, chiropractic fraud, medical clinics, and transportation providers. Further, the FBI continues to support individual field offices with equipment and to assist in various individual investigations.


The Account - The Health Care Fraud and Abuse Control Account

ACE - Affirmative Civil Enforcement

AoA - Administration on Aging

ASBTF - Assistant Secretary for Budget, Technology and Finance

CIA - Corporate Integrity Agreement

CMS - Centers for Medicare and Medicaid Services

CRIPA - Civil Rights of Institutionalized Persons Act

DME - Durable Medical Equipment

DOJ - The Department of Justice

FBI - Federal Bureau of Investigation

FCA - False Claims Act

FDA - Food and Drug Administration

FEHBP - Federal Employees Health Benefits Program

GAO - General Accounting Office

HHS - The Department of Health and Human Services

HIPAA, or the Act - The Health Insurance Portability and Accountability Act of 1996, P.L. 104-191

OGC - The Department of Health and Human Services, Office of the General Counsel

OIG - The Department of Health and Human Services, Office of Inspector General

OLE - Office of Legal Education, located within the Executive Office for the United States Attorneys

PAM - payment accuracy measurements

The Program - The Health Care Fraud and Abuse Control Program

Secretary - The Secretary of the Department of Health and Human Services

SMP - Senior Medicare Patrol

TAG - Technical Advisory Group

USAO - United States Attorney's Office


1. Hereafter, referred to as the Secretary.

2. Also known as the Hospital Insurance (HI) Trust Fund. All further references to the Medicare Trust Fund refer to the HI Trust Fund.

3. In 2002, DOJ collected, or continued to hold in suspension, additional funds from health care fraud cases and matters that were not disbursed to the affected agencies and/or the Account in 2002 due to: (i) ongoing litigation regarding relator shares in qui tam cases that will affect the amount retained by the Federal government; and (ii) receipt of funds late in the year that were then processed in FY 2003.

4. In addition, HHS/OIG obligated $2,059,000 in funds received as "reimbursement for the costs of conducting investigations and audits and for monitoring compliance plans" as authorized by section 1128C(b) of the Social Security Act, 42 U.S.C. � 1320a-7c(b).