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Testimony before the Subcommittee on Federal Financial Management, 
Government Information, Federal Services, and International Security, 
Committee on Homeland Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 3:00 p.m. EDT:
Wednesday, September 30, 2009: 

Medicaid: 

Fraud and Abuse Related to Controlled Substances Identified in Selected 
States: 

Statement of Gregory D. Kutz, Managing Director: 
Forensic Audits and Special Investigations: 

GAO-09-1004T: 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

Prescription drug abuse is a serious and growing public health problem. 
According to the Centers for Disease Control and Prevention (CDC), drug 
overdoses, including those from prescription drugs, are the second 
leading cause of deaths from unintentional injuries in the United 
States, exceeded only by motor vehicle fatalities. There are reports 
and allegations that criminals and drug abusers are able to 
illegitimately acquire controlled substances by filing fraudulent 
Medicaid claims, seeking treatment from medical practitioners for 
feigned injuries and illnesses, and perpetrating other fraudulent 
activities.[Footnote 1] The cost associated with controlled substance 
fraud and abuse is more than the cost of prescription drug purchases 
since there are related medical services, such as doctor and emergency 
room visits, which precede the dispensing of these medications. Several 
closed criminal cases highlight Medicaid fraud and abuse related to 
controlled substances. 

* An Ohio physician was convicted in 2006 for filing $60 million in 
fraudulent Medicaid, Medicare, and other insurance claims. The 
physician, a pain management specialist, prescribed multiple injections 
of controlled substances for his patients. He then billed Medicaid and 
other insurance plans for those treatments. The physician was found to 
have fostered an addiction to controlled substances in his patients so 
that he could profit from their habit and increase the income he 
received from their medical claims. Two patients who regularly saw him 
died under his care; one from a multiple-drug overdose in the 
physician's office and one from an overdose of OxyContin taken on the 
same day that the prescription was written. The physician was sentenced 
to life imprisonment. 

* In 2006, a Florida physician was sentenced to life in prison 
following his conviction on multiple charges, including wire fraud, 
illegal distribution of controlled substances, and Medicaid fraud. The 
physician, a general practitioner, wrote excessive prescriptions to 
patients for controlled substances without giving them physical 
examinations or additional follow-up treatments. The physician directed 
patients to have their prescriptions filled at specific pharmacies and 
warned them against filling their prescriptions at pharmacies that 
would ask too many questions about the quantity and combination of 
controlled substances prescribed. In fact, the physician was found to 
have known some of his patients were addicts feeding their drug habits. 
Five of his patients died from taking drugs he prescribed. 

* During 2004 to 2005, a pharmacist created false telephone 
prescriptions for Vicodin, an addictive narcotic pain reliever that 
combines hydrocodone and acetaminophen, and provided thousands of the 
pills to at least two purported customers. The pharmacist also 
submitted false claims for the drugs to Medicaid and other insurance 
companies stating that they were prescribed for legitimate patients. 
The customers were actually friends of the pharmacist who sold the 
drugs and split the profits with him. In 2009, the pharmacist was 
convicted of health care fraud, Medicaid fraud, and distribution of 
dangerous controlled substances. 

My statement summarizes our report issued today to your subcommittee. 
[Footnote 2] This testimony discusses (1) continuing indications of 
fraud and abuse related to controlled substances paid for by Medicaid; 
(2) specific case study examples of fraudulent, improper, or abusive 
controlled substance activity; and (3) the effectiveness of internal 
controls that the federal government and selected states have in place 
to prevent and detect fraud and abuse related to controlled substances. 

To identify whether there are continuing indications of fraud and abuse 
related to controlled substances paid for by Medicaid, we obtained and 
analyzed Medicaid claims paid in fiscal years 2006 and 2007 from five 
states: California, Illinois, New York, North Carolina, and Texas. To 
identify indications of fraud and abuse related to controlled 
substances paid for by Medicaid, we obtained and analyzed Medicaid 
prescription claims data for these five states from the Centers for 
Medicare & Medicaid Services (CMS). To identify other potential fraud 
and improper payments, we compared the beneficiary and prescriber shown 
on the Medicaid claims to the Death Master Files (DMF) from the Social 
Security Administration (SSA) to identify deceased beneficiaries and 
prescribers.[Footnote 3] To identify claims that were improperly 
processed and paid by the Medicaid program because the federal 
government banned these prescribers and pharmacies from prescribing or 
dispensing to Medicaid beneficiaries, we compared the Medicaid 
prescription claims to the exclusion and debarment files from the 
Department of Health and Human Services Office of Inspector General 
(HHS OIG) and the General Services Administration (GSA). To develop 
specific case study examples in selected states, we identified 25 cases 
that illustrate the types of fraudulent, improper, or abusive 
controlled substance activity we found in the Medicaid program. To 
develop these cases, we interviewed pharmacies, prescribers, law 
enforcement officials, and beneficiaries, as appropriate, and also 
obtained and reviewed registration and enforcement action reports from 
the Drug Enforcement Administration (DEA) and HHS. To identify the 
effectiveness of internal controls that the federal government and 
selected states have in place to prevent and detect fraud and abuse 
related to controlled substances, we interviewed Medicaid officials 
from the selected state offices and CMS. More details on our scope and 
methodology can be found in our report that we issued today.[Footnote 
4] 

We conducted this forensic audit from July 2008 to September 2009, in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. We conducted our related 
investigative work in accordance with standards prescribed by the 
Council of the Inspectors General on Integrity and Efficiency (CIGIE). 

Tens of Thousands of Medicaid Beneficiaries Visit Multiple Medical 
Practitioners to Obtain Controlled Substances: 

Approximately 65,000 Medicaid beneficiaries in the five states 
investigated visited six or more doctors to acquire prescriptions for 
the same type of controlled substances in the selected states during 
fiscal years 2006 and 2007.[Footnote 5] These individuals incurred 
approximately $63 million in Medicaid costs for these drugs, which act 
as painkillers, sedatives, and stimulants.[Footnote 6] In some cases, 
beneficiaries may have a justifiable reason for receiving prescriptions 
from multiple medical practitioners, such as visiting specialists or 
several doctors in the same medical group. However, our analysis of 
Medicaid claims found at least 400 of them visited 21 to 112 medical 
practitioners and up to 46 different pharmacies for the same controlled 
substance. In these situations, Medicaid beneficiaries were likely 
seeing several medical practitioners to support and disguise their 
addiction or fraudulently selling their drugs. 

Our analysis understates the number of instances and dollar amounts 
involved in the potential abuse related to multiple medical 
practitioners. First, the total we found does not include related costs 
associated with obtaining prescriptions, such as visits to the doctor's 
office and emergency room. Second, the selected states did not identify 
the prescriber for many Medicaid claims submitted to CMS. Without such 
identification, we could not always identify and thus include the 
number of unique doctors for each beneficiary that received a 
prescription. Third, our analysis did not focus on all controlled 
substances, but instead targeted 10 types of the most frequently abused 
controlled substances. Table 1 shows how many beneficiaries received 
controlled substances and the number of medical practitioners that 
prescribed them the same type of drug. 

Table 1: Number of Beneficiaries That Received 1 of 10 Controlled 
Substances from 6 or More Prescribers in Fiscal Year 2006 and Fiscal 
Year 2007: 

Controlled substance: Amphetamine derivatives (e.g., Adderall); 
Number of prescribers in selected states: 6-10: 2,877; 
Number of prescribers in selected states: 11-15: 55; 
Number of prescribers in selected states: 16-20: [Empty]; 
Number of prescribers in selected states: 21-50: [Empty]; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 2,932; 
Medicaid amount paid: $6,616,000. 

Controlled substance: Benzodiazepine (e.g., Valium and Xanax); 
Number of prescribers in selected states: 6-10: 14,006; 
Number of prescribers in selected states: 11-15: 669; 
Number of prescribers in selected states: 16-20: 85; 
Number of prescribers in selected states: 21-50: 22; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 14,782; 
Medicaid amount paid: $7,266,000. 

Controlled substance : Fentanyl (e.g., Duragesic); 
Number of prescribers in selected states: 6-10: 777; 
Number of prescribers in selected states: 11-15: 41; 
Number of prescribers in selected states: 16-20: 6; 
Number of prescribers in selected states: 21-50: 1; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 825; 
Medicaid amount paid: $7,810,000. 

Controlled substance: Hydrocodone (e.g., Vicodin and Lortab); 
Number of prescribers in selected states: 6-10: 31,364; 
Number of prescribers in selected states: 11-15: 3,518; 
Number of prescribers in selected states: 16-20: 723; 
Number of prescribers in selected states: 21-50: 340; 
Number of prescribers in selected states: 51+: 9; 
Total: 35,954; 
Medicaid amount paid: $9,172,000. 

Controlled substance: Hydromorphone (e.g., Dilaudid); 
Number of prescribers in selected states: 6-10: 590; 
Number of prescribers in selected states: 11-15: 67; 
Number of prescribers in selected states: 16-20: 14; 
Number of prescribers in selected states: 21-50: 11; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 682; 
Medicaid amount paid: $983,000. 

Controlled substance: Methadone (e.g., Dolophine and Methadose); 
Number of prescribers in selected states: 6-10: 824; 
Number of prescribers in selected states: 11-15: 76; 
Number of prescribers in selected states: 16-20: 9; 
Number of prescribers in selected states: 21-50: 2; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 911; 
Medicaid amount paid: $546,000. 

Controlled substance: Methylphenidate (e.g., Ritalin and Concerta); 
Number of prescribers in selected states: 6-10: 4,821; 
Number of prescribers in selected states: 11-15: 106; 
Number of prescribers in selected states: 16-20: 3; 
Number of prescribers in selected states: 21-50: 1; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 4,931; 
Medicaid amount paid: $10,866,000. 

Controlled substance: Morphine (e.g., MS Contin and AVINZA); 
Number of prescribers in selected states: 6-10: 810; 
Number of prescribers in selected states: 11-15: 50; 
Number of prescribers in selected states: 16-20: 8; 
Number of prescribers in selected states: 21-50: 1; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 869; 
Medicaid amount paid: $4,119,000. 

Controlled substance: Non-Benzodiazepine sleep aids (e.g., Ambien and 
Lunesta); 
Number of prescribers in selected states: 6-10: 2,821; 
Number of prescribers in selected states: 11-15: 49; 
Number of prescribers in selected states: 16-20: 5; 
Number of prescribers in selected states: 21-50: [Empty]; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 2,875; 
Medicaid amount paid: $5,739,000. 

Controlled substance: Oxycodone (e.g., OxyContin and Percocet); 
Number of prescribers in selected states: 6-10: 5,349; 
Number of prescribers in selected states: 11-15: 435; 
Number of prescribers in selected states: 16-20: 73; 
Number of prescribers in selected states: 21-50: 18; 
Number of prescribers in selected states: 51+: [Empty]; 
Total: 5,875; 
Medicaid amount paid: $10,163,000. 

Controlled substance: Total; 
Number of prescribers in selected states: 6-10: 64,239; 
Number of prescribers in selected states: 11-15: 5,066; 
Number of prescribers in selected states: 16-20: 926; 
Number of prescribers in selected states: 21-50: 396; 
Number of prescribers in selected states: 51+: 9; 
Total: 70,636; 
Medicaid amount paid: $63,280,000. 

Source: GAO. 

Note: The numbers in the total columns do not necessarily represent 
unique beneficiaries. A single beneficiary could have been prescribed 
more than one type of controlled substance by more than one doctor. The 
number of unique beneficiaries represented in this table is 64,920. The 
maximum number of doctors from which a beneficiary received 1 of the 10 
types of controlled substance prescriptions was 112. 

[End of table] 

Controlled Substances Prescribed or Filled by Banned Providers: 

We found 65 medical practitioners and pharmacies in the selected states 
had been barred or excluded from federal health care programs, 
including Medicaid, when they wrote or filled Medicaid prescriptions 
for controlled substances during fiscal years 2006 and 2007. 
Nevertheless, Medicaid approved the claims at a cost of approximately 
$2.3 million. The offenses that led to their exclusion from federal 
health programs included Medicaid fraud and illegal diversion of 
controlled substances. Our analysis understates the total number of 
excluded providers because the selected states either did not identify 
the prescribing medical practitioner for many Medicaid claims (i.e., 
the field was blank) or did not provide the taxpayer identification 
number for the practitioner, which was necessary to determine if a 
provider was banned. 

Medicaid Paid for Controlled Substance Prescriptions Filled for Dead 
Beneficiaries or "Written" by Dead Doctors: 

Our analysis of matching Medicaid claims in the selected states with 
SSA's DMF found that controlled substance prescription claims to over 
1,800 beneficiaries were filled after they died. Even though the 
selected state programs stated that beneficiaries were promptly removed 
from Medicaid following their deaths based on either SSA DMF matches or 
third party information, these same state programs paid over $200,000 
for controlled substances during fiscal years 2006 and 2007 for 
postdeath controlled substance prescription claims. In addition, our 
analysis also found that Medicaid paid about $500,000 in Medicaid 
claims based on controlled substance prescriptions "written" by over 
1,200 doctors after they died.[Footnote 7] 

The extent to which these claims were paid due to fraud is not known. 
For example, in the course of our work, we found that certain nursing 
homes use long-term care pharmacies to fill prescriptions for drugs. 
One long-term care pharmacy dispensed controlled substances to over 50 
beneficiaries after the date of their death because the nursing homes 
did not notify the pharmacy of their deaths prior to delivery of the 
drugs. The nursing homes that received the controlled substances, which 
included morphine, Demerol, and Fentanyl, were not allowed to return 
them because, according to DEA officials, the Controlled Substances Act 
of 1970 (CSA) does not permit the return of these drugs. Officials at 
two selected states said that unused controlled substances at nursing 
homes represent a waste of Medicaid funds and also pose risk of 
diversion by nursing home staff. In fact, officials from one state said 
that the certain nursing homes dispose of these controlled substances 
by flushing them "down the toilet," which also poses environmental 
risks to our water supply. 

Examples of Fraud, Waste, and Abuse of Controlled Substances in 
Medicaid: 

In addition to performing the aggregate-level analysis discussed above, 
we also performed in-depth investigations for 25 cases of fraudulent or 
abusive actions related to the prescribing and dispensing of controlled 
substances through the Medicaid program in the selected states. We have 
referred certain cases to DEA and the selected states for further 
investigation. The following provides illustrative detailed information 
on four cases we investigated: 

* Case 1: The beneficiary used the identity of an individual who was 
killed in 1980 to receive Medicaid benefits. According to a state 
Medicaid official, he originally applied for Medicaid assistance in a 
California county in January 2004. During the application process, the 
man provided a Social Security card to a county official.[Footnote 8] 
When the county verified the Social Security Number (SSN) with SSA, SSA 
responded that the SSN was not valid. The county enrolled the 
beneficiary into Medicaid provisionally for 90 days under the condition 
that the beneficiary resolve the SSN discrepancy with SSA within that 
time frame. Although the beneficiary never resolved the issue, he 
remained in the Medicaid program until April 2007. Between 2004 and 
2007, the Medicaid program paid over $200,000 in medical services for 
this beneficiary, including at least $2,870 for controlled substances 
that he received from the pharmacies.[Footnote 9] We attempted to 
locate the beneficiary but could not find him. 

* Case 2: The physician prescribed controlled substances to the 
beneficiary after she died in February 2006. The physician stated that 
the beneficiary had been dying of a terminal disease and became unable 
to come into the office to be examined. The physician stated that in 
instances where a patient is compliant and needs pain medication, 
physicians will sometimes prescribe it without requiring an 
examination. A pharmacy eventually informed the physician that the 
patient had died and the patient's spouse had continued to pick up her 
prescriptions for Methadone, Klonopin, and Xanax after her death. 
According to the pharmacy staff, the only reason they became aware of 
the situation was because an acquaintance of the spouse noticed him 
picking up prescriptions for a wife who had died months ago. The 
acquaintance informed the pharmacy staff of the situation. They 
subsequently contacted the prescribing physician. Since this incident, 
the pharmacy informed us that it has not filled another prescription 
for the deceased beneficiary. 

* Case 3: A mother with a criminal history and Ritalin addiction used 
her child as a means to doctor shop for Ritalin and other similar 
controlled stimulants used to treat attention-deficit/hyperactivity 
disorder (ADHD). Although the child received overlapping prescriptions 
of methylphenidate and amphetamine medications during a 2-year period 
and was banned (along with his mother) from at least three medical 
practices, the Illinois Medicaid program never placed the beneficiary 
on a restricted recipient program. Such a move would have restricted 
the child to a single primary care physician or pharmacy, thus 
preventing him (and his mother) from doctor shopping. Over the course 
of 21 months, the Illinois Medicaid program paid for 83 prescriptions 
of ADHD controlled stimulants for the beneficiary, which totaled 
approximately 90,000 mg and cost $6,600. 

* Case 4: Claims indicated that a deceased physician "wrote" controlled 
substance prescriptions for several patients in the Houston area. Upon 
further analysis, we discovered that the actual prescriptions were 
signed by a physician assistant who once worked under the supervision 
of the deceased physician. The pharmacy neglected to update its records 
and continued filling prescriptions under the name of the deceased 
prescriber. The physician assistant has never been a DEA registrant. 
The physician assistant told us that the supervising physicians always 
signed prescriptions for controlled substances. After informing her 
that we had copies of several Medicaid prescriptions that the physician 
assistant had signed for Vicodin and lorazepam, the physician assistant 
ended the interview. 

Improved Fraud Controls Could Better Prevent Abuse and Unnecessary 
Medicaid Program Expenditures: 

CMS Conducts Limited Oversight over Controlled Substances in the 
Medicaid Program: 

Although states are primarily responsible for the fight against 
Medicaid fraud and abuse, CMS is responsible for overseeing state fraud 
and abuse control activities. CMS has provided limited guidance to the 
states on how to improve the state's control measures to prevent fraud 
and abuse of controlled substances in the Medicaid program. Thus, for 
the five state programs we reviewed, we found different levels of fraud 
prevention controls. For example, the Omnibus Budget Reconciliation Act 
(OBRA) of 1990 encourages states to establish a drug utilization review 
(DUR) program.[Footnote 10] The main emphasis of the program is to 
promote patient safety through an increased review and awareness of 
prescribed drugs. States receive increased federal funding if they 
design and install a point-of-sale electronic prescription claims 
management system to interact with their Medicaid Management 
Information Systems (MMIS), each state's Medicaid computer system. Each 
state was given considerable flexibility on how to identify 
prescription problems, such as therapeutic duplication and 
overprescribing by providers,[Footnote 11] and how to use the MMIS 
system to prevent such problems. The level of screening, if any, states 
perform varies because CMS does not set minimum requirements for the 
types of reviews or edits that are to be conducted on controlled 
substances. Thus, one state required prior approval when ADHD 
treatments like Ritalin and Adderall are prescribed outside age 
limitations, while another state had no such controlled substance 
requirement at the time of our review. 

Under the Deficit Reduction Act (DRA) of 2005,[Footnote 12] CMS is 
required to initiate a Medicaid Integrity Program (MIP) to combat 
Medicaid fraud, waste, and abuse.[Footnote 13] DRA requires CMS to 
enter into contracts with Medicaid Integrity Contractors (MIC) to 
review provider actions, audit provider claims and identify 
overpayments, and conduct provider education.[Footnote 14] To date, CMS 
has awarded umbrella contracts to several contractors to perform the 
functions outlined above. According to CMS, these contractors cover 40 
states, 5 territories, and the District of Columbia. CMS officials 
stated that CMS will award task orders to cover the rest of the country 
by the end of fiscal year 2009. CMS officials stated that MIC audits 
are currently under way in 19 states. CMS officials stated that most of 
the MIP reviews will focus on Medicaid providers and that the state 
Medicaid programs handle beneficiary fraud. Because the Medicaid 
program covers a full range of health care services and the 
prescription costs associated with controlled substances are relatively 
small, the extent to which MICs will focus on controlled substances is 
likely to be relatively minimal. 

Selected States Lack Comprehensive Fraud Prevention Framework for 
Controlled Substances: 

The selected states did not have a comprehensive fraud prevention 
framework to prevent fraud and abuse of controlled substances paid for 
by Medicaid. The establishment of effective fraud prevention controls 
by the selected states is critical because the very nature of a 
beneficiary's medical need--to quickly obtain controlled substances to 
alleviate pain or treat a serious medical condition--makes the Medicaid 
program vulnerable to those attempting to obtain money or drugs they 
are not entitled to receive. Instead of these drugs being used for 
legitimate purposes, these drugs may be used to support controlled 
substance addictions and sale of the drugs on the street. As shown in 
figure 1 below, a well-designed fraud prevention system (which can also 
be used to prevent waste and abuse) should consist of three crucial 
elements: (1) preventive controls, (2) detection and monitoring, and 
(3) investigations and prosecutions. In addition, as shown in figure 1, 
the organization should also use "lessons learned" from its detection 
and monitoring controls and investigations and prosecutions to design 
more effective preventive controls. 

Figure 1: Fraud Prevention Model: 

[Refer to PDF for image: illustration] 

Potential fraud, waste, and abuse: 
Prevention controls: 
Lessons learned influence future use of preventive controls. 

Additional potential fraud, waste, and abuse: 
Detection and monitoring: 
Lessons learned influence future use of preventive controls. 

Additional potential fraud, waste, and abuse: 
Investigations and prosecutions: 
Lessons learned influence future use of preventive controls. 

Source: GAO. 

[End of figure] 

Preventive Controls: Fraud prevention is the most efficient and 
effective means to minimize fraud, waste, and abuse. Thus, controls 
that prevent fraudulent health care providers and individuals from 
entering the Medicaid program or submitting claims are the most 
important element in an effective fraud prevention program. Effective 
fraud prevention controls require that where appropriate, organizations 
enter into data-sharing arrangements with organizations to perform 
validation. System edit checks (i.e., built-in electronic controls) are 
also crucial in identifying and rejecting fraudulent enrollment 
applications or claims before payments are disbursed. Some of the 
preventive controls and their limitations that we observed at the 
selected states include the following. 

* Federal Debarment and Exclusion: Federal regulation requires states 
to ensure that no payments are made for any items or services 
furnished, ordered, or prescribed by an individual or entity that has 
been debarred from federal contracts or excluded from Medicare and 
Medicaid programs. Officials from all five selected states said that 
they do not screen prescribing providers or pharmacies against the 
federal debarment list, also known as the Excluded Parties List System 
(EPLS). Further, officials from four states said when a pharmacy claim 
is received, they do not check to see if the prescribing provider was 
excluded by HHS OIG from participating in the Medicaid program. 

* Drug Utilization Review: As mentioned earlier, states perform drug 
utilization reviews (DUR) and other controls during the prescription 
claims process to promote patient safety, reduce costs, and prevent 
fraud and abuse. The drug utilization reviews include prospective 
screening and edits for potentially inappropriate drug therapies, such 
as over-utilization, drug-drug interaction, or therapeutic 
duplication.[Footnote 15] In addition, selected states also require 
health care providers to submit prior authorization forms for certain 
drug prescriptions because those medications have public health 
concerns or are considered high risk for fraud and abuse. Each state 
has developed its DUR differently and some of the differences that we 
saw from the selected states include the following. 

- Officials from certain states stated that they use the prospective 
screening (e.g., over-utilization or overlapping controlled substance 
prescriptions) as an automatic denial of the prescription, while other 
states generally use the prospective screening as more of an advisory 
tool for pharmacies. 

- The types of drugs that require prior authorization vary greatly 
between the selected states. In states where it is used, health care 
providers may be required to obtain prior authorization if a specific 
brand name is prescribed (e.g., OxyContin) or if a dosage exceeds a 
predetermined amount for a therapeutic class of controlled substances 
(e.g., hypnotics, narcotics). 

Detection and Monitoring: Even with effective preventive controls, 
there is risk that fraud and abuse will occur in Medicaid regarding 
controlled substances. States must continue their efforts to monitor 
the execution of the prescription program, including periodically 
matching their beneficiary files to third-party databases to determine 
continued eligibility, monitor controlled substance prescriptions to 
identify abuse, and make necessary corrective actions, including the 
following: 

* Checking Death Files: After enrolling beneficiaries, Medicaid offices 
in the selected states generally did not periodically compare their 
information against death records. 

* Increasing the Use of the Restricted Recipient Program: In the course 
of drug utilization reviews or audits, the State Medicaid offices may 
identify beneficiaries who have abused or defrauded the Medicaid 
prescription drug program and restrict them to one health care provider 
or one pharmacy to receive the prescriptions. This program only applies 
to those beneficiaries in a fee-for-service arrangement. Thus, a 
significant portion of the Medicaid recipients (those in managed care 
programs) for some of the selected states are not subject to this 
program. 

* Fully Utilizing the Prescription Drug Monitoring Program: Beginning 
in fiscal year 2002, Congress appropriated funding to the U.S. 
Department of Justice to support Prescription Drug Monitoring Programs 
(PDMP). These programs help prevent and detect the diversion and abuse 
of pharmaceutical controlled substances, particularly at the retail 
level where no other automated information collection system exists. If 
used properly, PDMPs are an effective way to identify and prevent 
diversion of the drugs by health care providers, pharmacies, and 
patients. Some of the limitations of PDMPs at the selected states 
include the following: 

- Officials from the five selected states said that physician 
participation in PDMP is not widespread and not required. In fact, one 
state did not have a Web-based PDMP; the health care provider has to 
put in a manual request to the agency to have a controlled substance 
report generated. 

- No nationwide PDMP exists, and only 33 states had operational 
prescription drug monitoring programs as of June 2009. According to a 
selected state official, people would sometimes cross state borders to 
obtain prescription drugs in a state without a program. 

Investigations and prosecutions: Another element of a fraud prevention 
program is the aggressive investigation and prosecution of individuals 
who defraud the federal government. Prosecuting perpetrators sends the 
message that the government will not tolerate individuals stealing 
money and serves as a preventive measure. Schemes identified through 
investigations and prosecution also can be used to improve the fraud 
prevention program. The Medicaid Fraud Control Unit (MFCU) serves as 
the single identifiable entity within state government that 
investigates and prosecutes health care providers that defraud the 
Medicaid program. In the course of our investigation however, we found 
several factors that may limit its effectiveness. 

* Federal regulations generally limit MFCUs from pursuing beneficiary 
fraud. According to MFCU officials at one selected state, this 
limitation impedes investigations because agents cannot use the threat 
of prosecution as leverage to persuade beneficiaries to cooperate in 
criminal probes of Medicaid providers. In addition, the MFCU officials 
at this selected state said that this limitation restricts the agency's 
ability to investigate organized crime related to controlled substances 
when the fraud is perpetrated by the beneficiaries. 

* Federal regulations do not permit federal funding for MFCUs to engage 
in routine computer screening activities that are the usual monitoring 
function of the Medicaid agency. According to MFCU officials at one 
selected state, this issue has caused a strained working relationship 
with the state's Medicaid OIG, on whom they rely to get claims 
information. The MFCU official stated that on the basis of fraud trends 
in other states, they wanted the Medicaid OIG to provide claims 
information on providers that had similar trends in their state. The 
Medicaid OIG cited this prohibition on routine computer screening 
activities when refusing to provide these data. In addition, this MFCU 
official also stated that its state Medicaid office and its OIG did not 
promptly incorporate improvements that it suggested pertaining to the 
abuse of controlled substances. 

Monitoring of Pharmacy and Physician Prescription Practices by DEA 
Related to Controlled Substances: 

DEA officials stated that although purchases of certain schedules II 
and III controlled substances by pharmacies are reported to and 
monitored by DEA, they do not routinely receive information on written 
or dispensed controlled substance prescriptions. In states with a PDMP, 
data on dispensed controlled substance prescriptions are collected and 
maintained by a state agency. In the course of an investigation on the 
diversion or abuse of controlled substances, information may be 
requested by DEA from a PDMP. In those states without a PDMP, DEA may 
obtain controlled substance prescription information during the course 
of an inspection or investigation from an individual pharmacy's 
records. 

GAO Recommendations and Agency Response: 

To address the concerns that I have just summarized, we made four 
recommendations to the Administrator of CMS in establishing an 
effective fraud prevention system for the Medicaid program. 
Specifically, we recommended that the Administrator evaluate our 
findings and consider issuing guidance to the state programs to provide 
assurance on the following: (1) effective claims processing systems 
prevent the processing of claims of all prescribing providers and 
dispensing pharmacies debarred from federal contracts (i.e., EPLS) or 
excluded from the Medicare and Medicaid programs (LEIE); (2) DUR and 
restricted recipient program requirements adequately identify and 
prevent doctor shopping and other abuses of controlled substances; (3) 
effective claims processing system are in place to periodically 
identify both duplicate enrollments and deaths of Medicaid 
beneficiaries and prevent the approval of claims when appropriate; and 
(4) effective claims processing systems are in place to periodically 
identify deaths of Medicaid providers and prevent the approval of 
claims when appropriate. CMS stated that they generally agree with the 
four recommendations and that it will continue to evaluate its programs 
and will work to develop methods to address the identified issues found 
in the accompanying report. 

Mr. Chairman, this concludes my prepared statement. Thank you for the 
opportunity to testify before the Subcommittee on some of the issues 
addressed in our report on continuing indications of fraud and abuse 
related to controlled substances paid for by Medicaid. I would be happy 
to answer any questions from you or other members of the Subcommittee. 

[End of section] 

Footnotes: 

[1] For purposes of this report, "controlled substance abuse" refers 
only to abuse related to drugs or substances that are regulated by the 
Drug Enforcement Administration (DEA). 

[2] GAO, Medicaid: Fraud and Abuse Related to Controlled Substances 
Identified in Selected States, [hyperlink, 
http://www.gao.gov/products/GAO-09-957] (Washington, D.C.: Sept. 9, 
2009). 

[3] Certain Medicaid claims did not capture the date of the 
prescription. If the prescribing date was unknown, we based our 
calculations on the 6 month period prior to the order being filled. 
This proxy was used as a reasonable estimate to be consistent with the 
6 month period allowed for valid refills and partial filling of 
prescriptions for certain controlled substances. 

[4] [hyperlink, http://www.gao.gov/products/GAO-09-957]. 

[5] The approximately 65,000 Medicaid beneficiaries comprise less than 
1 percent of the total number of Medicaid beneficiaries in these five 
states. 

[6] The $63 million makes up about 6 percent of the 10 controlled 
substances that we analyzed in these five states. 

[7] If the prescribing date was unknown, we based our calculations on 
the 6 month period prior to the order being filled. This proxy was used 
as a reasonable estimate to be consistent with the 6 month period 
allowed for valid refills and partial filling of prescriptions for 
certain controlled substances. 

[8] In California, Medicaid applications are submitted to the county, 
which are then forwarded to the state following a review. 

[9] The controlled substance amount is for fiscal years 2006 and 2007. 

[10] Omnibus Budget Reconciliation Act of 1990, Pub L. No. 101-508, 104 
Stat. 1388(1990). 

[11] Therapeutic duplication is the prescribing and dispensing of the 
same drug or two or more drugs from the same therapeutic class when 
overlapping time periods of drug administration are involved and when 
the prescribing or dispensing is not medically indicated. 

[12] Deficit Reduction Act of 2005, Pub. L. No. 109-171, 120 Stat. 
4(2005). 

[13] Although individual states are responsible for the integrity of 
their respective Medicaid programs, MIP represents CMS's first national 
strategy to detect and prevent Medicaid fraud and abuse. 

[14] In addition, CMS is required to provide effective support and 
assistance to states in their efforts to combat Medicaid provider fraud 
and abuse. 

[15] In addition, state Medicaid offices also perform retrospective 
analysis to identify patterns of potential waste and abuse of drugs so 
that pharmacies and Medicaid providers are notified of this potential 
problem. 

[End of section] 

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