1. A Comparison of Medicaid Federal Upper Limit Amounts to Acquisition Costs, Medicare Payment Amounts, and Retail Prices
2. Community Service Block Grant Recovery Act Funding for Vulnerable and In-Crisis Community Action Agencies: Alert
3. Review of Maryland's Claims Associated With the Increased Federal Medical Assistance Percentage Under the American Recovery and Reinvestment Act of 2009
4. Review of the Reconciliation and Reporting of Medicaid Non-Risk Contract Payments by the Utah Department of Health
5. Review of Geographic Classification of Skagit Valley Hospital for Medicare Operating Disproportionate Share Hospital Payment
6. Outlier Average Manufacturer Prices in the Federal Upper Limit Program
7. Review of OneLegacy's Reported Fiscal Year 2006 Organ Acquisition Overhead Costs and Administrative and General Costs
8. Review of Florida's Claims Associated With the Increased Federal Medical Assistance Percentage Under the American Recovery and Reinvestment Act of 2009

1. A Comparison of Medicaid Federal Upper Limit Amounts to Acquisition Costs, Medicare Payment Amounts, and Retail Prices

The OIG found that Federal upper limit (FUL) amounts calculated under the current method continue to be substantially higher than other pricing points, potentially costing the program hundreds of millions of dollars per year. In the aggregate, fourth-quarter 2007 FUL amounts were (1) more than four times higher than average pharmacy acquisition costs for 50 high-expenditure FUL drugs, (2) almost three times higher than average Part D payment amounts for 572 FUL drugs, and (3) two times higher than retail prices for 291 drugs available through discount generic programs.

The Deficit Reduction Act of 2005 (DRA) required that, beginning January 1, 2007, FULs be based on 250 percent of the lowest AMP rather than 150 percent of the lowest price published in national compendia. However, in connection with a lawsuit filed by two trade associations representing retail pharmacies, a Federal judge issued a preliminary injunction preventing CMS from moving forward with AMP-based reimbursement under Medicaid. As a result, CMS is still basing FULs on the pre-DRA method as of January 2010.

The OIG found that in the fourth quarter of 2007, FUL amounts calculated under the DRA-mandated method were, in the aggregate, 66 percent below the FUL amounts based on published prices. In the aggregate, these AMP-based FUL amounts were much closer to pharmacy acquisition costs, Part D payment amounts, and retail generic program prices. However, for many individual drugs, the DRA-based changes to the calculation methodology often led to FUL amounts that were substantially below these other pricing points.

The OIG recommend that CMS continue to work with Congress to identify strategies that would lower inflated FUL amounts for multiple-source drugs. CMS concurred with OIG’s recommendation. However, the agency expressed concerns with certain aspects of OIG’s methodology. Based on their data, none of these concerns fundamentally change the underlying findings of the report.

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2. Community Service Block Grant Recovery Act Funding for Vulnerable and In-Crisis Community Action Agencies: Alert

This memorandum is to alert the Administration for Children and Families (ACF) that Community Service Block Grant program funds made available under the American Recovery and Reinvestment Act of 2009 (P.L. No. 111-5, Recovery Act), may be at risk for fraud, waste, and abuse at certain community action agencies that State agencies have designated as "vulnerable" or "in crisis." The OIG’s November 2009 review of ACF records identified 20 community action agencies in 16 States that the States had reported as vulnerable or in crisis as of October 30, 2009. These 20 agencies are scheduled to receive a total of $44.9 million in Recovery Act funds.

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3. Review of Maryland's Claims Associated With the Increased Federal Medical Assistance Percentage Under the American Recovery and Reinvestment Act of 2009

The OIG’s review found that the Maryland Department of Health and Mental Hygiene's (the State agency) $276 million in claims associated with the temporarily increased Federal medical assistance percentage (FMAP) was computed using the Medicaid expenditure base specified in the American Recovery and Reinvestment Act of 2009, P.L. No. 111-5 (Recovery Act), and the expenditures were supported by the State agency's accounting records. The Recovery Act provides, among other initiatives, fiscal relief to States to protect and maintain State Medicaid programs in a period of economic downturn. For the recession adjustment period (October 1, 2008, through December 31, 2010), the Recovery Act provides an estimated $87 billion in additional Medicaid funding based on temporary increases in States' FMAPs.

In addition, the State agency had policies and procedures in place to segregate Medicaid expenditures that qualified for the temporarily increased FMAP and to ensure that those Medicaid expenditures that did not qualify were not being claimed for reimbursement at the temporarily increased FMAP.

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4. Review of the Reconciliation and Reporting of Medicaid Non-Risk Contract Payments by the Utah Department of Health

The Utah Department of Health, Division of Health Care Financing (the State agency), which administers the Medicaid program in Utah, adequately fulfilled the requirements of the upper payment limit (UPL) reconciliation for non-risk managed care contracts and did not appear to exceed the UPL for reporting year 2007; however, there were areas in which the State agency could improve the completeness, accuracy, and transparency of the UPL reconciliation process. Moreover, for State fiscal year 2008 the State agency did not accurately report payments made under the non-risk managed care contracts.

The UPL constitutes the maximum amount that is eligible for Federal reimbursement. Federal requirements for non-risk contracts stipulate that a State Medicaid agency must have a process in place to assure that the non-risk contractor's total payments do not exceed what the State agency would have paid, on a fee-for-service basis, under the State Medicaid plan.

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5. Review of Geographic Classification of Skagit Valley Hospital for Medicare Operating Disproportionate Share Hospital Payment

Geographic classifications used by Noridian Administrative Services, LLC (Noridian), to calculate the Medicare operating disproportionate share hospital (DSH) adjustment resulted in an overpayment at one hospital. Of the operating DSH adjustment of $2.2 million that Skagit Valley Hospital (Skagit Valley) claimed on its cost report for the fiscal year ending December 31, 2004, $418,000 was excessive because Noridan calculated the operating DSH adjustment as if the hospital was urban for the entire cost report period. However, Skagit Valley was rural for the period January 1, 2004, through September 30, 2004.

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6. Outlier Average Manufacturer Prices in the Federal Upper Limit Program

According to manufacturers, outlier AMPs for Medicaid FUL drugs were typically accurate and reflective of sales to the retail pharmacy class of trade in January 2008. When the new AMP-based FUL provisions are implemented, CMS plans to exclude the lowest AMP from the FUL calculation if it is more than 60 percent below the second-lowest AMP to ensure that at least two drug products are available at or below the FUL amount. In January 2008, the lowest AMPs for 242 FUL drugs were excluded for meeting this criterion. About 20 percent of these outlier AMPs posed potential problems for CMS. For example, some AMPs identified by CMS as outliers may only have appeared as such because of discrepancies in the unit of AMP submission. Furthermore, some outlier AMPs are not accurate and would no longer be outliers if revised data were used. Also, several outlier drug products are no longer sold by manufacturers and therefore should not be included in FUL calculations.

OIG supports CMS's continuing efforts to ensure the integrity of future FUL amounts based on AMPs and further recommends that CMS: (1) examine the units of AMP submission for all FUL drugs before establishing FUL amounts, (2) direct manufacturers to periodically examine their monthly AMP calculations to ensure accurate reporting of data, and (3) continue directing manufacturers to report termination dates for discontinued drug products as soon as they are known.

CMS concurred with their first and third recommendations but did not explicitly concur or not concur with The OIG’s second recommendation. CMS believes it would not be beneficial to instruct manufacturers to reexamine their AMPs without additional information from OIG regarding the causes of the inaccurate AMPs. OIG will provide details regarding inaccurate AMPs directly to CMS, along with any explanations voluntarily offered by manufacturers for their AMP revisions.

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7. Review of OneLegacy's Reported Fiscal Year 2006 Organ Acquisition Overhead Costs and Administrative and General Costs

OneLegacy did not fully comply with Medicare requirements for reporting selected organ procurement organizations (OPO) overhead costs and administrative and general costs in its fiscal year (FY) 2006 Medicare cost report. Of the $3.2 million of costs the OIG reviewed, $2.6 million was allowable. The remaining $531,000 represents $291,000 of unallowable costs and $240,000 of unsupported costs. As a result, OneLegacy overstated its Medicare reimbursement in the FY 2006 Medicare cost report by an estimated $297,000.

The OIG recommended that OneLegacy (1) submit a revised FY 2006 Medicare cost report to the fiscal intermediary to correct the estimated Medicare overstatement of $297,000 and (2) develop and implement procedures to ensure that costs reported in future Medicare cost reports are allowable, supportable, and in compliance with Medicare requirements.

In its comments on the OIG’s draft report, OneLegacy partly agreed and partly disagreed with their findings. OneLegacy stated that it was unable to implement the first recommendation because the fiscal intermediary has never allowed OPOs to reopen closed reports. OneLegacy agreed with the second recommendation.

After reviewing OneLegacy's comments and the additional documentation that OneLegacy provided, the OIG revised their findings and modified their first recommendation. Nothing in OneLegacy's comments and additional documentation caused the OIG to revise their other findings. The fiscal intermediary informed them that it could reopen the cost report at the provider's request.

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8. Review of Florida's Claims Associated With the Increased Federal Medical Assistance Percentage Under the American Recovery and Reinvestment Act of 2009

The Agency for Health Care Administration's (State agency) $817 million in claims associated with the temporarily increased Federal medical assistance percentage (FMAP) were computed using the Medicaid expenditure base specified in the American Recovery and Reinvestment Act of 2009, P.L. No. 111-5 (Recovery Act), and the expenditures were supported by the State agency's accounting records. The Recovery Act provides, among other initiatives, fiscal relief to States to protect and maintain State Medicaid programs in a period of economic downturn. For the recession adjustment period (October 1, 2008, through December 31, 2010), the Recovery Act provides an estimated $87 billion in additional Medicaid funding based on temporary increases in States' FMAPs.

In addition, the State agency had policies and procedures in place to segregate Medicaid expenditures that qualified for the temporarily increased FMAP and to ensure that those Medicaid expenditures that did not qualify were not being claimed for reimbursement at the temporarily increased FMAP.

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