Medicare Drug Plan Sponsors' Identification of Potential Fraud and Abuse

OBJECTIVES

To determine:

1. the extent to which Medicare stand-alone prescription drug plan sponsors identified potential fraud and abuse;
2. the type of potential fraud and abuse that these plan sponsors identified; and
3. the extent to which these plan sponsors conducted inquiries, initiated corrective actions, and made referrals for further investigation regarding potential fraud and abuse.

BACKGROUND

As of January 1, 2006, Medicare beneficiaries could obtain prescription drug coverage under the Medicare Part D program. Part D expenditures for 2007 were approximately $49.5 billion. As of August 2008, 26 million beneficiaries were enrolled in Part D and two-thirds were in stand-alone drug plans.

Plan sponsors are private companies that contract with the Centers for Medicare & Medicaid Services (CMS) to provide Part D drug coverage to Medicare beneficiaries. Sponsors are required to have a comprehensive program to detect and deter fraud and abuse. They can identify potential fraud and abuse through internal efforts such as claim reviews, and through complaints or referrals from external sources such as CMS, Medicare Drug Integrity Contractors (MEDIC), law enforcement agencies, beneficiaries, and pharmacy providers.

Upon identifying potential fraud and abuse, sponsors are required to conduct an inquiry and initiate appropriate corrective action. CMS recommends that sponsors refer potential fraud and abuse incidents to MEDICs and/or law enforcement agencies.

The only type of fraud and abuse information CMS requires sponsors to report to CMS is the aggregate number of fraud and abuse complaints they received directly from beneficiaries each quarter.

We analyzed data representing the first 6 months of 2007 from 86 of 91 stand-alone drug plan sponsors. We did not include 5 of the 91 plan sponsors because 1 had been terminated from the program, 1 was under investigation, and the other 3 did not provide data in time to be included in our review.

FINDINGS

Overall, 24 of 86 Part D stand-alone plan sponsors did not identify any potential fraud and abuse incidents; most potential fraud and abuse incidents were associated with only a small number of plan sponsors. Twenty-four plan sponsors (28 percent) did not identify any potential fraud and abuse incidents in the first 6 months of 2007 either from internal efforts or complaints from external sources. Of the 62 plan sponsors that identified a total of 9,774 incidents of potential fraud and abuse during this period, 7 plan sponsors accounted for 90 percent of all incidents. One of the seven plan sponsors identified 67 percent of all incidents. Plan sponsors identified 78 percent of all potential fraud and abuse incidents through internal efforts; however, 42 plan sponsors did not identify any potential fraud and abuse through internal efforts. One plan sponsor was associated with 84 percent of the potential fraud and abuse identified through internal efforts. Twenty-tv percent of potential fraud and abuse incidents identified came from external sources; however, 34 plan sponsors did not identify any potential fraud and abuse incidents from external sources. Two plan sponsors had the majority (51 percent) of these incidents. Inappropriate billing was the most prevalent type of potential fraud and abuse incident identified, and pharmacies were associated with most of the potential fraud and abuse incidents.

Plan sponsors identified 78 percent of all potential fraud and abuse incidents through internal efforts; however, 42 plan sponsors did not identify any potential fraud and abuse through internal efforts. One plan sponsor was associated with 84 percent of the potential fraud and abuse identified through internal efforts.

Twenty-two percent of potential fraud and abuse incidents identified came from external sources; however, 34 plan sponsors did not identify any potential fraud and abuse incidents from external sources. Two plan sponsors had the majority (51 percent) of these incidents.

Inappropriate billing was the most prevalent type of potential fraud and abuse incident identified, and pharmacies were associated with most of the potential fraud and abuse incidents. Plan sponsors identified 26 different types of fraud and abuse (both from internal efforts and complaints from external sources). Of the 26 types, the most prevalent type was inappropriate billing, which accounted for 9,073 incidents. An example of inappropriate billing is submitting claims for drugs not provided.

Plan sponsors identified 11 types of persons or entities associated with potential fraud and abuse. Pharmacies/pharmacists were most often associated with these incidents.

Not all 62 plan sponsors that identified potential fraud and abuse incidents conducted inquiries, initiated corrective actions, or made referrals for further investigation. Three actions that plan sponsors can take after identifying potential fraud and abuse are conducting inquiries, initiating corrective actions, and referring incidents for further investigation. Of the 62 plan sponsors that identified incidents of potential fraud and abuse, 47 conducted inquiries, 32 initiated corrective actions, and 33 referred incidents to other entities for further investigation. Overall, 17 plan sponsors initiated all three actions, 21 initiated two actions, 19 initiated one action, and 5 did not initiate any of these actions.

RECOMMENDATIONS

Plan sponsors are the first line of defense against Part D fraud and abuse. However, we found that some plan sponsors did not identify any potential fraud and abuse incidents. Moreover, some of the plan sponsors that identified potential fraud and abuse incidents did not initiate inquiries, corrective actions, or referrals.

CMS does not routinely collect information that would describe the overall volume or types of Part D fraud and abuse that occur or that would inform CMS as to the effectiveness of the comprehensive fraud and abuse plan each sponsor is required to have in place. The only information that CMS requires plan sponsors to report to CMS concerning fraud and abuse is the quarterly aggregate number of fraud and abuse complaints that plan sponsors receive from beneficiaries.

A crucial aspect of protecting the integrity of the Part D program is ensuring that the plan sponsors have a comprehensive and effective program to detect and deter fraud and abuse. Therefore, we recommend that CMS:

• Review Part D plan sponsors to determine why certain sponsors have identified especially high or low volumes of potential fraud and abuse incidents.
• Determine whether the Part D plan sponsors that identified potential fraud and abuse initiated inquiries and corrective actions as required by CMS, and made referrals for further investigation as recommended by CMS.
• Require Part D plan sponsors to maintain and routinely report information related to the results of sponsors’ fraud and abuse programs.
• Use this required information to help determine the effectiveness of sponsors’ fraud and abuse programs.

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE

CMS stated that it is committed to combating fraud, waste, and abuse in the Part D program but that because of limited funding, it has not been able to perform as much direct oversight of the Part D sponsors’ fraud, waste, and abuse efforts as expected.

In response to OIG’s first recommendation, CMS stated that it agreed that the variability in the number of potential fraud and abuse incidents identified by sponsors is a concern and that CMS will examine the data more closely by referring the findings to MEDICs. CMS also stated that it intends to revise the reporting requirements and give sponsors more specific guidance on how to track and properly label incidents, e.g., as an education issue or a potential fraud issue.

CMS concurred with OIG’s second recommendation and will refer the data in this report to MEDICs for further investigation.

Although CMS provided comments about OIG’s third recommendation, CMS did not state whether it concurred. CMS did state that OIG’s report would be useful when CMS initiates its Part D sponsor compliance plan audits. CMS stated that our report will help ensure that sponsors are conducting their own internal investigations and taking appropriate corrective actions. CMS did not address OIG’s fourth recommendation.