The Department of Health and Human Services
The Department of Justice
Health Care Fraud and Abuse Control Program
Annual Report For FY 2003




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 seventh 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 2003, the Federal government won or negotiated more than $1.8 billion in judgments and settlements in health care fraud matters. As a result of enforcement actions, judgments, settlements, and administrative proceedings, the Federal government collected more than $1.4 billion and distributed more than $1.03 billion during FY 2003. Over $500 million that was collected during the FY 2003 reporting period was distributed in early 2004 and the distribution of these funds will be described in greater detail in the Annual Report for 2004(2). Of the amount distributed to victim agencies in FY 2003, approximately $723 million was returned to the Medicare Trust Fund and $151.6 million was returned to the Centers for Medicare and Medicaid Services ("CMS") as the Federal share of Medicaid restitution. The HCFAC account has returned over $5.69 billion to the Medicare Trust Fund since the inception of the program in 1997.

Enforcement Actions

Federal prosecutors filed 362 criminal indictments in health care fraud cases in 2003. A total of 437 defendants were convicted for health care fraud-related crimes during the year. There were also 1,277 civil matters pending, and 231 civil cases filed in 2003. HHS excluded 3,275 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. All funds deposited in the Trust Fund as a result of the Act are available for the operations of the Trust Fund(3).

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 2003, the Secretary and the Attorney General certified $240.558 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 $114 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 2003, over $1.03 billion was deposited with the Department of the Treasury and CMS, transferred to other federal agencies administering health care programs, or paid to private persons during the fiscal year. In addition, over $500 million collected in 2003 was distributed in the first quarter of fiscal year 2004 and will be described in greater detail in the Annual Report for 2004(4). The following chart provides a breakdown of the 2003 transfers/deposits:

Total Transfers/Deposits by Recipient FY 2003
Department of the Treasury  
  HIPAA Deposits to the Medicare Trust Fund  
  Gifts and Bequests0
  Amount Equal to Criminal Fines*2,474,513
  Civil Monetary Penalties7,149,975
  Amount Equal to Asset Forfeiture **0
  Amount Equal to Penalties and Multiple Damages232,882,476
Centers for Medicare and Medicaid Services 
 OIG Audit Disallowances - Recovered42,472,162
 Restitution/Compensatory Damages437,911,954
Sub Total$722,891,080

Restitution/Compensatory Damages to Federal Agencies  
 Centers for Medicare and Medicaid Services14,684,625
 Office of Personnel Management16,544,238
  Other Agencies 5,662,788
Sub Total$41,090,635

Relators' Payments ***$269,563,831
TOTAL ****$1,033,545,546

*Due to a debt collection reporting system transition during FY 2003, reporting of criminal fines to the Department of Treasury for FY 2003 was limited to the 1st and 2nd quarters. Criminal fines recovered in the 3rd and 4th quarters of FY 2003 will be included in FY 2004 criminal fine collections.
**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 seventh year of operation, the Secretary and the Attorney General certified $240.558 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(5) 160,000
 Office of the General Counsel4,527
 Administration on Aging3,250
 Centers for Medicare and Medicaid Services23,366
 Assistant Secretary for Budget, Technology and Finance0
Sub Total$191,143

Department of Justice 
 United States Attorneys30,400
 Civil Division14,459
 Criminal Division1,580
 Civil Rights Division1,976
 Nursing Home Initiative1,000
Sub Total$49,415


Overall Recoveries

In 2003, the Federal government won or negotiated more than $1.8 billion in judgments and settlements in health care fraud matters. As a result of enforcement actions, judgments, settlements, and administrative proceedings, the Federal government was able to distribute during 2003 $1.03 billion of the funds collected. Approximately $723 million of this amount was returned to the Medicare Trust Fund, and $151.6 million was recovered as the Federal share of Medicaid restitution. Some of the judgments, settlements, and administrative impositions in 2003 will result in distributions in future years, just as some of the distributions in 2003 are attributable to actions from prior years. As noted previously, over $500 million collected in fiscal year 2003 was distributed early in fiscal year 2004.

This fiscal year, HHS and DOJ have brought to successful conclusion the investigation and prosecution of numerous health care fraud schemes. These achievements confirm once again the importance of coordination between HHS and DOJ to maximize recoveries for taxpayer-funded health care programs victimized by fraud and/or abuse, and to promote prompt detection, punishment and deterrence of those who exploit health care programs for personal or corporate gain. In addition to the enforcement actions described in this report, numerous audits, evaluations and other coordinated efforts have yielded substantial recoveries of overpaid funds, protected vulnerable beneficiaries, and prompted changes in Federal health care programs that reduce susceptibility to fraud. During FY 2003, the many significant accomplishments of the HCFAC Program included the following:

Pharmaceutical Companies

Prescription Drug Fraud

Internet Pharmacy Fraud


Durable Medical Equipment


Home Health

Home Health

Ambulance Services

Physical Therapists

Medicare Contractors

Quality of Care

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



One important mechanism for safeguarding the care provided to program beneficiaries is through exclusions of providers and suppliers who have engaged in patient abuse or neglect or fraud. During 2003, the HHS/OIG excluded more than 3,000 such individuals from participation in Medicare, Medicaid and other Federal health care programs, among them:

Nursing Home Studies:

Quality of nursing home care remains an area of intense interest for HHS/OIG. In recent years, the HHS/OIG conducted numerous studies assessing facets of the quality of life and care in nursing homes. In 2003, these studies included the following: The prosecutions and settlements discussed above and throughout this report reflect the culmination of investigations that have been ongoing for several years. A more detailed description of 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 the accomplishments described herein 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 seventh year of the Program, the Act provided that between $150 and $160 million be devoted to these purposes. The Secretary and the Attorney General jointly allotted $160 million to HHS/OIG in 2003, an increase of $15 million over 2002.

HHS/OIG conducted or participated in 819 prosecutions or settlements in 2003, of which 567, or 69 percent, were health care cases. A total of 3,275 individuals and entities were also excluded, many as a result of criminal convictions for crimes related to Medicare or Medicaid (707); or to other health care programs (130); for patient abuse or neglect (257); or as a result of licensure revocations (1,747).

In addition to the role played by the HHS/OIG's in the judgments and settlements described in the Accomplishments section, HHS acted on HHS/OIG recommendations and collected $42.5 million in disallowances of improperly paid health care funds in 2003. 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 2003, such funds not expended amounted to more than $20.8 billion -- nearly $16.9 billion in Medicare savings, and $3.9 billion in savings to the Medicaid program.

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 the following.

Program Exclusions: The HHS/OIG excluded 3,275 individuals and entities from participation in Medicare, Medicaid and other Federal health care programs. Such exclusions are a vital way to prevent fraud and to protect program beneficiaries. Some of these exclusions are described in the Program Accomplishments section above. Others included the following:

Studies, Audits and Evaluations:

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, prevention activities reduce program losses and enforcement costs. CIAs: Many health care providers that enter agreements with the government to settle potential liabilities for violations of the FCA also agree to adhere to a separate CIA. Under this agreement, the provider commits to establishing a program or taking other specified steps to ensure its future compliance with Medicare and Medicaid rules. At the close of 2003, HHS/OIG was monitoring more than 375 CIAs.

Recommendations for Systemic Improvements: Frequently, investigations, audits and evaluations reveal vulnerabilities or incentives for questionable or fraudulent financial practices in agency programs or administrative processes. As required by the Inspector General Act, HHS/OIG makes recommendations to address these vulnerabilities, and thereby promotes economy and efficiency in HHS programs and operations. Relying on the independent factual information generated by HHS/OIG, agency managers recommend legislative proposals or other corrective actions that, when enacted or implemented, close loopholes and reduce improper payments or conduct. The net savings from these joint efforts toward program improvements can be substantial. Many of the studies described throughout this report offered evidence and ideas supporting proposals for significant cost savings during 2003 and beyond. Examples of these reviews include the following:

Focus on DME

Audits and Evaluations:

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 2003, involving all aspects of the health care industry. These include:

Kickbacks: The Balanced Budget Act of 1997 authorized the HHS/OIG to impose civil monetary penalties against those who pay or receive remuneration in violation of the anti-kickback statute. During 2003, the HHS/OIG stepped up enforcement efforts under this administrative authority. Among these actions were:

Office of the General Counsel

The Office of the General Counsel (OGC) was allocated $4.53 million in HCFAC funding to support the Department's program integrity activities. These funds were used primarily for litigation activity, both administrative and judicial.



False Claims and Qui Tam Actions

Medicare Secondary Payer

Policy Guidance and Education.

Administration on Aging

In 2003, the Administration on Aging (AoA) was allocated $3.25 million in HCFAC funds to support the Senior Medicare Patrol (SMP) Projects, and to maintain effective partnerships for detecting and reporting error, fraud and abuse. AoA provided technical assistance and support to the 57 SMP projects, and national community education efforts, with a particular focus on vulnerable populations, persons with low health literacy, culturally diverse backgrounds and persons living in rural areas. The SMP projects provided direct and widespread education to older Americans through an extensive network of senior volunteers, designed to increase recognition and reporting of potential errors and fraud in the Medicare and Medicaid programs.


Centers for Medicare and Medicaid Services

In 2003, the Centers for Medicare and Medicaid Services (CMS) was allocated $23.37 million to fund a variety of projects related to fraud, waste and abuse in the Medicare and Medicaid programs. Of this amount, $10 million was specifically dedicated to combat fraud in the Medicaid program.

CMS has increased its efforts to use advanced technology to detect and prevent fraud and abuse and to ensure that CMS pays the right providers, the right amount, for the right service, on behalf of the right beneficiary. CMS fraud, waste, and abuse projects are described below.

Payment Accuracy Measurement (PAM) and State Children's Health Insurance Plan (SCHIP) Error Rate Pilot: HCFAC funding will allow for twenty-seven states to participate in the third year of the PAM project, which develops payment accuracy measurement methodologies and conducts pilot studies to measure and reduce state Medicaid payment errors.

During the third year of the PAM project, each of the 27 states will pilot test the CMS Model in their Medicaid and/or SCHIP programs. The CMS Model has been designed to produce state-specific payment error rate estimates, and through weighted aggregation, national level payment error rate estimates for Medicaid.


Automating Medicaid State Plans: In 2003, HCFAC funds were allocated to Medstat, Inc., to research options for automating the Medicaid State Plan process, from plan amendment creation at the state level through the submittal and approval process at the regions and central office. This allows CMS to understand the current state-of-the-art choices for document management, information flow and analysis, and the timing and resources necessary to achieve these goals. A Medicaid State Plan database will allow broad and timely access to program information for CMS, the states and other partners.

Waiver Management System Database: In 2003, HCFAC funds were allocated to update and improve the current 1915(c) Waiver Management System Database (WMSD), including a web-based application for WMSD and to improve state long term care data collection and analysis in order to support financial oversight and accountability.

Annuities: In 2003, HCFAC funds were allocated to the CNA Corporation for a research project titled, "Collection and Analysis of Information and Analysis of State and Federal Policies Concerning the Use of Annuities to Shelter Assets in State Medicaid Programs." The project uses both qualitative and quantitative research methods to develop a comprehensive picture of states' experience with the use of annuities as an asset-sheltering device by Medicaid applicants and their spouses. This project also uses a methodology to estimate the cost of this practice to the Federal government and the states.

The research includes in-depth interviews and data collection in selected states and counties; review of litigation and administrative appeals pertaining to annuities; focus groups with seniors regarding awareness, attitudes, and likely use of various financing or asset sheltering mechanisms, including annuities to cover the costs of long term care; information-gathering from representatives of insurance industry groups, elder law attorneys, consumer advocates and others, regarding the annuities marketplace, sales practices, the secondary market for annuities, and related issues.

Financial Management Data Redesign Project (FMDRP): HCFAC funding was used to develop and enhance an integrated financial management tool that links existing CMSO data systems and tools. This tool was developed through a contract with Enterprise Technology Partners (ETP). The linked tools contain critical financial, statistical, administrative and other data.

This tool will allow CMSO to better focus its financial management reviews, targeting service areas of high financial exposure and supporting the key Administration goal of improved financial management for the Medicaid program. After CMS has reviewed and tested this tool, it will be rolled out to regional offices.

Medicaid Audits: In 2003, HCFAC funds were allocated to CMS to support a series of special Medicaid audits to be conducted by the HHS/OIG through an Interagency Agreement with CMS. A total of 16 audits were undertaken in states and issue areas specified by CMS. The targeted areas included: upper payment limits, school-based claims, adult rehabilitation services, home and community based services, and Medicaid administrative costs reported by state agencies other than the Medicaid single state agency.

Medicare/Medicaid Data Match Expansion Project: In 2003, HCFAC funds were allocated to the CMS to expand upon a joint Medicare and Medicaid data-matching project. The data-matching project was developed to examine the health care claims data from health care programs that share many common beneficiaries and providers and for aberrancies indicative of potential fraud or abuse that may not be evident when provider billings for either Medicare or Medicaid are viewed in isolation. The data match enables analysts and investigators to see the "whole picture" which, heretofore, had not been possible.

Continued operation of the California data-matching project has resulted in an estimated $71 million worth of recoupments and savings. More than 90 potential investigations have been opened thus far by program safeguard contractors, and are in various stages of development. Given the overall success of the pilot project in California, CMS is developing the Medicare-Medicaid data match projects in Texas, Illinois, North Carolina, Florida, New Jersey and Pennsylvania, Ohio and Washington, as well as continuing operation and maintenance of the original project in California.

Medicare + Choice Steering and Discrimination Project: In 2003, HCFAC funding was allocated to the Division of Program Accountability and Payment (DPAP) to review the Medicare + Choice (M+C) plan benefit packages that may deny, limit, or condition the coverage or furnishing of benefits to individuals eligible to enroll in an M+C plan offered by an M+C organization on the basis of any factor that is related to health status. Statutory and regulatory provisions authorize CMS to develop and implement methods for detecting health screening and steerage of Medicare beneficiaries. Over the past several years the M+C benefit packages have markedly changed and considerable concern has been raised by beneficiaries, Congress, and others about the potential for health screening through the types of benefits and cost-sharing structures offered to beneficiaries. CMS wants to ensure that groups are not being discriminated against or steered into or out of certain plans based on their health status.


United States Attorneys

The ninety-three United States Attorneys and their assistants serve as the nation's principal prosecutors of federal crimes, including crimes committed by health care providers. Similarly, civil attorneys in the United States Attorneys' Offices (USAOs) are responsible for bringing affirmative civil cases to recover funds that federal health care programs have paid as a result of fraud, waste, and abuse, with support in those cases designated by the Civil Division for joint handling. USAOs also handle most criminal and civil appeals at the federal appellate level.

In 2003, the USAOs were allocated $30.4 million dollars in HCFAC program funds to support civil and criminal health care fraud and abuse litigation as exemplified in the Program Accomplishment's section, infra. The USAOs dedicated substantial resources to combating health care fraud and abuse in FY 2003. HIPAA allocations have supplemented those resources by providing dedicated positions for attorneys, paralegals, auditors and investigators, as well as funds for litigation of resource-intensive health care fraud cases.

In addition to the staff positions funded by HCFAC, EOUSA's Office of Legal Education (OLE) uses HCFAC funds to train AUSAs and other Department attorneys, as well as paralegals, investigators, and auditors in the investigation and prosecution of health care fraud. In 2003, OLE conducted courses and presentations on health care fraud, including the Health Care Fraud and Affirmative Civil Enforcement seminar; the Health Care Fraud Coordinator's Conference (Civil and Criminal), the Health Care Fraud Symposium, the Health Care Fraud Special Topics Conference, and Justice Television Network broadcast trainings on the medical privacy provisions of HIPAA.

Civil Prosecutions

In 2003, the USAOs had 1,574 health care fraud criminal matters pending, involving 2,496 defendants. The USAOs filed criminal charges in 362 cases involving 531 defendants, and obtained 437 federal health care related convictions in 2003. USAOs receive referrals of health care fraud cases from a wide variety of sources, including the FBI, the HHS/OIG, Medicaid Fraud Control Units in State Attorney Generals' Offices, and other federal, state, and local law enforcement agencies. In FY 2003, USAOs received new case referrals involving 1,352 defendants, and obtained convictions of 437 defendants. Examples of just a few of the criminal cases USAOs brought this past year are set forth in the Program Accomplishments section of this report.

Criminal Prosecutions

The USAOs use affirmative civil enforcement litigation to recover monies wrongfully taken from the Medicare Trust Fund and other taxpayer-funded health care systems, and to ensure that the federal health care programs are fully compensated for the losses and damages resulting from such thefts. The FCA is one of the most important tools the USAOs use for these purposes. The FCA subjects those who knowingly present false claims for payment to the government, including health care providers who submit claims to federal health care programs, to treble damages and civil penalties.

USAOs receive civil health care fraud referrals from a variety of sources, principally the federal investigative agencies that refer criminal cases, and by means of qui tam complaints. Under the FCA, a qui tam plaintiff (known as a "relator") must file his or her complaint under seal in a United States District Court, and serve a copy of the complaint upon the United States Attorney for that judicial district, as well as the Attorney General. USAOs routinely assign civil AUSAs to every qui tam case filed in their districts, as well as any matter referred by a law enforcement agency. At the end of FY 2003, the USAOs opened 870 new health care fraud matters (including qui tam actions), and had 1,277 matters pending. In order to maximize resources, Civil Division attorneys may become actively involved and participate with the USAOs in qui tam cases involving more than one district and with potential recoveries substantially over one million dollars. USAOs generally remain responsible in all other qui tam cases for investigating the relator's allegations and, where appropriate, litigating and/or settling the case. In 2003, USAOs filed or intervened in 231 civil health care fraud cases. The Program Accomplishments section includes just a few examples of the many civil matters that USAOs successfully resolved in 2003.

Civil Division

In 2003, the Civil Division was allocated $14.5 million in HCFAC funds to support civil health care fraud litigation. (The Civil Division also administers the Nursing Home Initiative allocation of $1 million.) Civil Division attorneys pursue civil remedies in health care fraud matters, working closely with the USAOs, the FBI, the HHS/OIG 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 Federal Employees Health Benefits Program (FEHBP), and other government health care programs.


In 2003, the Division opened or filed a total of 230 health care fraud cases or matters. In addition to these new efforts, the Civil Division pursued 442 existing cases, often working with Assistant United States Attorneys. 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 Program Accomplishments section, above.

The Civil Division is also staffing and providing a coordination function in the FCA investigations alleging pharmaceutical pricing fraud against government health care programs. These matters span multiple districts and present myriad legal and factual issues that require substantial coordinating efforts of the Civil Division. Since 2001, six cases involving allegations of pricing fraud by pharmaceutical manufacturers against Medicaid and Medicare have been settled by the government for a total recovery of $1.66 billion.

In addition to their litigating responsibilities, Civil Division attorneys have played a role in coordinating and presenting the DOJ's views to HHS as its offices interpret and apply the Anti-Kickback statute and Stark laws prohibiting physician self-referral. For example, the Division has provided assistance to the HHS/OIG in issuing its advisory opinions regarding the Anti-Kickback statute and fraud alerts, and to CMS in connection with the issuance of CMS' final regulation on the physician self-referral prohibition. In addition, the Civil Division, working with other components of the Department of Justice, has provided views on the Pharmaceutical Industry Compliance Guidance.

In addition to these 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 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 and other theories involving providers' egregious "failures of care." It also is in the forefront in developing the field of elder abuse and neglect forensics to improve detection, reporting, training, investigation, and prosecution in this emerging area.

Civil Division attorneys provide guidance and training to government attorneys to assure the Department's continued compliance with the Health and Human Services Standards for Privacy of Individually Identifiable Health Information, commonly known as the HIPAA privacy rule.

Also, the Civil Division continues to co-chair, with the Criminal Division, the Health Care Fraud Working Group to coordinate the health care fraud enforcement activities of all concerned federal and state agencies.

Criminal Division

In FY 2003, the Criminal Division was allocated $1.58 million in HCFAC program funds to support criminal health care fraud litigation. 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 and coordinating complex health care fraud litigation nationwide and is currently involved in national investigations of hospitals, medical equipment suppliers, and vocational rehabilitation and health care management services, as well as other health care providers. An example of a successful Fraud Section prosecution in 2003 follows: In addition to its litigating responsibilities, the Fraud Section conducted numerous training sessions and workshops for Department attorneys and investigators, executive branch health care program integrity administrators, and state and local law enforcement personnel on the health oversight and law enforcement exceptions to the HIPAA medical records privacy regulations which became effective in April 2003. In partnership with the FBI, the Fraud Section prepared and disseminated HIPAA medical records privacy training materials to more than 16,000 state and local law enforcement agencies nationwide. The Section also developed a special electronic mail account to disseminate, upon request, additional supplemental HIPAA medical records privacy training and guidance materials prepared for state and local law enforcement agencies and has since responded to more than 1,200 state and local law enforcement agency requests for the supplemental training materials.

Civil Rights Division

In FY 2003, the Civil Rights Division was allocated $1.98 million in HCFAC funds to support civil rights division litigation activities related to health care fraud. The Special Litigation Section of the Civil Rights Division 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 role in the HCFAC Program and is the sole DOJ 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 preliminarily reviewed conditions and services at 38 nursing home facilities in 19 states during FY 2003. 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 reviewed information pertaining to areas such as: abuse and neglect, medical and mental health care, use of restraints and seclusion, fire and environmental safety, and placement in the most integrated setting appropriate to individual needs.

In FY 2003, the Special Litigation Section opened CRIPA investigations of two nursing homes: A. Holly Patterson Geriatric Center in Uniondale, New York, and Nashville Metropolitan Bordeaux Hospital in Nashville, Tennessee. Staff participated in ongoing nursing home investigations, including the investigation of Laguna Honda Hospital and Rehabilitation Center 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.

The Division sent letters of findings to appropriate public officials for our investigations of Banks-Jackson-Commerce Medical Center and Nursing Home in Commerce, Georgia; Mercer County Geriatric Center 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. These investigations involved on-site evaluation tours with expert consultants, review of documentary evidence, and interviews of staff. Section staff continued to monitor our agreement in Bergen Regional Medical Center in Paramus, New Jersey.

In addition, the staff initiated CRIPA investigations of facilities for persons with developmental disabilities including: Conway Human Development Center in Conway, Arkansas; Woodbridge Developmental Center in Woodbridge, New Jersey; and Boston Higashi School in Randolph, Massachusetts. Special Litigation Section staff conducted tours of the Conway and Woodbridge facilities, accompanied by expert consultants, reviewed documents, and interviewed facility staff.

The Section continued its investigations of the following residential facilities for the developmentally disabled: Agnews and Sonoma Developmental Centers in San Jose and Eldridge, California; Pinecrest and Hammond Developmental Centers in Pineville and Hammond, Louisiana; Landmark Learning Center in Opa-Locka, Florida; Holly Center in Salisbury, Maryland; Rainier Residential Rehabilitation Center and Frances Haddon Morgan Center in Buckley and Bremerton, Washington; and Woodward and Glenwood Resource Centers in Woodward and Glenwood, Iowa. 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.

In 2003, the Section found that conditions and practices at two state-operated facilities for persons with developmental disabilities violate the residents' federal constitutional and statutory rights. Those facilities are: Oakwood Communities in Somerset, Kentucky, and New Lisbon Developmental Center in New Lisbon, New Jersey.

The Section continued its investigations of the following mental health facilities: John Umstead Hospital, Dorothea Dix Hospital, Cherry Hospital, and Broughton Hospital in Butner, Raleigh, Goldsboro, and Morgantown, North Carolina; and Metropolitan State Hospital in Norwalk, California. The Section sent a letter of findings concerning the investigation of the Children and Adolescent programs at Metropolitan State Hospital during the fiscal year.

The Section staff also conducted compliance reviews in ongoing CRIPA cases involving a variety of facilities. In each of these cases, staff reviewed compliance with the terms of previously filed agreements and court orders.

     A. Facilities for persons with developmental disabilities: Southbury Training School (United States v. Connecticut (D. Conn.)); Embreeville Center (United States v. Pennsylvania (E.D. Pa.)); Arlington Developmental Center (United States v. Tennessee (W.D. Tenn.)); Clover Bottom Developmental Center, Greene Valley Developmental Center, and Harold Jordan Center (United States v. Tennessee (M.D. Tenn.)); Southern Wisconsin Developmental Center and Central Wisconsin Developmental Center (United States v. Wisconsin (W.D. Wis.)); Centro de Servicios Multiples de Camaseyes, Centro de Servicios Multiples Rosario Bellber and community-based services (United States v. Commonwealth of Puerto Rico (D. P. R.)); and Ft. Wayne Developmental Center and Muscatatuck Developmental Center (United States v. Indiana (S.D. Ind.)).

     B. Facilities for persons with mental illness: Hawaii State Hospital, the children and adolescent residential services at Queens Medical Center and Kahi Mohala Behavioral Treatment Center and community-based mental health services (United States v. Hawaii (D. Haw.)); Guam Adult Mental Health Unit (United States v. Territory of Guam (D. Guam)); Pilgrim Psychiatric Center (United States v. New York (E.D. N.Y.)); and Memphis Mental Health Institute (United States v. Tennessee (W.D. Tenn.)).

     C. Other Facilities: New Mexico School for the Visually Handicapped (United States v. New Mexico (D. N. Mex.)). In addition to its law enforcement activities regarding health care fraud activities, the Special Litigation Section is responsible for representing the Department and the Civil Rights Division on an inter-agency committee on elder care issues. The Section has also participated in public education and outreach by speaking and participating at conferences on quality of care in health care facilities.


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 2003, $114,000,000."

Under HIPAA, the FBI was budgeted $114 million in 2003 for health care fraud enforcement. This money was used to support 878 positions (507 Agent/371 Support), an increase of 68 positions over FY 2002 (42 Agent, 26 Support.). As the FBI has increased the number of agents assigned to health care fraud investigations, the number of pending investigations has increased more than 400 percent, from 591 cases in 1992 to 2,262 cases through 2003. FBI-led investigations resulted in 414 criminal health care fraud convictions and 523 indictments and informations being filed in FY 2003.

With health care expenditures rising at three times the rate of inflation, it is especially important to coordinate all investigative efforts to combat fraud within the health care system. The FBI is the primary investigative agency involved in the fight against health care fraud that has jurisdiction over both the federal and private insurance programs. With more than $1 trillion being spent in the private sector on health care and its related services, the FBI's efforts are crucial to the success of the overall program. The FBI leverages its resources in both the private and public arenas through investigative partnerships with agencies such as the HHS/OIG, Food and Drug Administration, Defense Criminal Investigative Service, Office of Personnel Management, Internal Revenue Service and various state and local agencies. On the private side, the FBI is actively involved with national groups, such as the National Health Care Anti-Fraud Association (NHCAA), the Blue Cross and Blue Shield Association and the Coalition Against Insurance Fraud, as well as many other professional and grass-roots efforts to expose and investigate fraud within the system.

Health care fraud investigations are among the highest priority investigations within the FBI and rank behind only Public Corruption and Corporate Fraud in the FBI's White Collar Crime Program Plan. In addition to being a partner in the majority of investigations listed in the body of this report, the FBI last year launched the Outpatient Surgery Initiative to combat the growing problem of fraudulent surgeries performed at certain outpatient facilities in Southern California. This nationwide scheme has drawn participants from 48 of the 50 states who have traveled to California to have unneeded surgery in exchange for a cash kickback, and has resulted in billings to the insurance companies in excess of $500 million. The FBI partnered with the NHCAA to collect intelligence on the problem, and launched a nationwide investigation. As part of the initiative, the FBI teamed with a media outlet to profile the matter on television in an effort to stem the tide of willing participants and expose the fraud to the public.

The majority of HIPAA funding received by the FBI is used to pay personnel costs associated with the 878 funded positions. Funds not used directly for personnel matters are used to provide operational support for major health care fraud investigations and national initiatives focusing on pharmaceutical fraud, outpatient surgery centers, and transportation providers. Further, the FBI continues to support individual investigative needs such as the purchase of specialized equipment and expert witness testimony on an as-needed basis.


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

ASC-Ambulatory Surgical Centers

AUSA-Assistant United States Attorneys

CIA-Corporate Integrity Agreement

CLIA-Clinical Laboratory Improvement Amendments

CMP-Civil Monetary Penalties

CMS-Centers for Medicare and Medicaid Services

CMSO-Center for Medicaid and State Operations

CNA-Certified Nurse Aide

CRIPA-Civil Rights of Institutionalized Persons Act

DAB-Departmental Appeals Board

DME-Durable Medical Equipment

DOJ-The Department of Justice

DRG-Diagnosis Related Group

DSH-Disproportionate Share Hospital

DPAP-Division of Program Accountability and Payment

ECG-Transtelephonic Electrocardiogram

ESRD-End Stage Renal Disease

FBI-Federal Bureau of Investigation

FCA-False Claims Act

FDA-Food and Drug Administration

FEHBP-Federal Employees Health Benefits Program

FMDRP-Financial Management Data Redesign Project

GSK-GlaxoSmith Kline

GAO-General Accounting Office

HCFAC-Health Care Fraud and Abuse Control Program

HHS-The Department of Health and Human Services

HI-Hospital Insurance Trust Fund

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

HMO-Health Maintenance Organization

M+C-Medicare + Choice

MSN-Medicare Summary Notices

MSP-Medicare Secondary Payer

NHCAA-National Health Care Anti-Fraud Association

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

OPD-Outpatient Departments

PAM-Payment Accuracy Measurement

PPS-Prospective Payment System

The Program-The Health Care Fraud and Abuse Control Program

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

SCHIP-State Children's Health Insurance Plan

SMP-Senior Medicare Patrol

TAG-Technical Advisory Group

TENS-Transcutaneous Electrical Nerve Stimulation

USAO-United States Attorney's Office

UPIN-Unique Physician Identity Number

WMSD-Waiver Management System Database

1. Hereafter, referred to as the Secretary.

2. In addition, over $380 million from cases settled in FY 2003 was collected and disbursed in FY 2004 and will be reported in detail for that period.

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

4. In 2003, DOJ collected, or continued to hold in suspense, additional funds from health care fraud cases and matters that were not distributed to the affected agencies and/or the Account in 2003 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 2004.

5. In addition, HHS/OIG obligated $1.7 million 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).