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Many Flaws in Medicare Part D's Fraud Prevention, Says HHS Inspector

John Commins, for HealthLeaders Media, March 4, 2010

Though five years into the Medicare Part D drug program, CMS' efforts to root out fraud and waste are still "limited in scope and may not sufficiently protect the program," a federal inspector told Congress on Wednesday.

"Lack of effective oversight exposes the Part D program and Medicare beneficiaries to a wide range of fraud, waste, and abuse, including inappropriate billings, payments for excluded drugs, drug diversion, improper bid submissions, excessive premiums, and illegal marketing schemes," Robert Vito, a regional inspector general for HHS, told the Senate Committee on Homeland Security and Governmental Affairs.

"The failure to address these vulnerabilities puts the scarce resources of the Medicare Trust Fund at risk," he added.

Medicare Part D was enacted in 2003, and operational by Jan. 1, 2006. Because of the "extremely short implementation schedule" of two years, Vito said CMS concentrated on "implementation activities, including the development of procedures, data systems, and infrastructure to carry out all the necessary functions."

Medicare Part D begins the current fiscal year with 27 million beneficiaries enrolled in the program, 17 million of whom are in stand-alone plans. Since the program's inception, Medicare has paid nearly $200 billion for the Part D program, Vito said.

Vito's office identified several problem areas:

  • The program was launched with limited safeguards. "CMS relied largely on complaints to identify potential fraud in Part D and not all of these complaints were investigated in a timely way. In addition, we found that no significant data analysis had been conducted specifically to detect or prevent fraud and abuse," Vito said.
  • Medicare Drug Integrity Contractors—MEDICs—monitoring Medicare Part D have identified most fraud though external sources, such as beneficiary complaints, rather than proactive methods. An OIG report in October noted that of the 4,194 potential fraud and abuse incidents that MEDICs identified in 2008, 87% were identified through external sources.
  • MEDICs complain of long delays and limited access to CMS data. "MEDICs also lack the authority to directly obtain information, such as prescriptions and medical records from pharmacies, pharmacy benefit managers, and physicians," Vito said.
  • Plan sponsors are supposed to have plans in place to identify fraud and abuse, but many did not meet CMS requirements, or contained only broad outlines. CMS has yet to finalize audits of plan sponsors' compliance plans.
  • Plan sponsors' efforts to identify fraud vary widely because the specifics of each plan's fraud identification program are left to each individual plan sponsor. OIG found that during the first six months of 2007, 90% of all fraud and abuse incidents were identified by only seven of 86 plan sponsors.
  • CMS' oversight of account payment accuracy is weak. The monthly payments that Medicare makes to plan sponsors for providing Part D coverage is based on estimates the sponsors provide in their approved bids, and include the sponsors' expected profits. "Inaccuracies in sponsors' bids have resulted in Medicare paying higher payments and beneficiaries paying higher premiums than they should have," Vito said.
  • Most Part D plans routinely overestimate their costs. In 2006, for example, Part D plans owed Medicare more than $4 billion. "We recommended that CMS ensure that sponsors' bids accurately reflect their costs of providing the benefit, and when sponsors fail to do so, that CMS hold sponsors more accountable for inaccuracies in the bids," Vito said.
  • CMS' Part D audits do not ensure accountability. The two audit mechanisms CMS has in place to ensure the accuracy of the bid—the bid audit and the financial audit—are largely ineffectual for detecting and correcting bid inaccuracies.

Vito offered the committee a handful of recommendations that he said would improve fraud identification and program accountability:

  • CMS should implement a comprehensive program integrity plan that includes specific action items, target dates, and assigned staff for follow up. It also is crucial that audits are conducted in a timely manner and that mechanisms are established to hold plan sponsors accountable for the problems identified.
  • CMS should improve oversight of MEDICs, including their analysis to detect fraud and abuse. MEDICs should be given the legal authority to obtain critical information directly from pharmacies, pharmacy benefit managers, and prescribing physicians.
  • CMS should ensure that plan sponsors are implementing effective compliance plans, so they can flag potentially fraudulent issues early on.
  • CMS, MEDICs, and plan sponsors need to perform innovative data analysis of claims and payment information, and embrace proactive methods of fraud detection.

John Commins is a senior editor with HealthLeaders Media.

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