Department of Health and Human Services
OFFICE OF
INSPECTOR GENERAL

MEDICARE IMPROPERLY PAID
MILLIONS OF DOLLARS FOR
PRESCRIPTION DRUGS PROVIDED
TO INCARCERATED BENEFICIARIES
DURING 2006 THROUGH 2010

Inquiries about this report may be addressed to the Office of Public Affairs at
Public.Affairs@oig.hhs.gov.

Gloria L. Jarmon
Deputy Inspector General
January 2014
A-07-12-06035

Office of Inspector General
https://oig.hhs.gov/

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, is
to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as the
health and welfare of beneficiaries served by those programs. This statutory mission is carried out
through a nationwide network of audits, investigations, and inspections conducted by the following
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Office of Audit Services
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its own audit resources or by overseeing audit work done by others. Audits examine the performance of
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intended to provide independent assessments of HHS programs and operations. These assessments help
reduce waste, abuse, and mismanagement and promote economy and efficiency throughout HHS.

Office of Evaluation and Inspections
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide HHS, Congress,
and the public with timely, useful, and reliable information on significant issues. These evaluations focus
on preventing fraud, waste, or abuse and promoting economy, efficiency, and effectiveness of
departmental programs. To promote impact, OEI reports also present practical recommendations for
improving program operations.

Office of Investigations
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of fraud and
misconduct related to HHS programs, operations, and beneficiaries. With investigators working in all 50
States and the District of Columbia, OI utilizes its resources by actively coordinating with the Department
of Justice and other Federal, State, and local law enforcement authorities. The investigative efforts of OI
often lead to criminal convictions, administrative sanctions, and/or civil monetary penalties.

Office of Counsel to the Inspector General
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering
advice and opinions on HHS programs and operations and providing all legal support for OIG’s internal
operations. OCIG represents OIG in all civil and administrative fraud and abuse cases involving HHS
programs, including False Claims Act, program exclusion, and civil monetary penalty cases. In
connection with these cases, OCIG also negotiates and monitors corporate integrity agreements. OCIG
renders advisory opinions, issues compliance program guidance, publishes fraud alerts, and provides
other guidance to the health care industry concerning the anti-kickback statute and other OIG enforcement
authorities.

Notices

THIS REPORT IS AVAILABLE TO THE PUBLIC
at https://oig.hhs.gov
Section 8L of the Inspector General Act, 5 U.S.C. App., requires
that OIG post its publicly available reports on the OIG Web site.

OFFICE OF AUDIT SERVICES FINDINGS AND OPINIONS
The designation of financial or management practices as
questionable, a recommendation for the disallowance of costs
incurred or claimed, and any other conclusions and
recommendations in this report represent the findings and
opinions of OAS. Authorized officials of the HHS operating
divisions will make final determination on these matters.

EXECUTIVE SUMMARY
Medicare Part D accepted prescription drug event records totaling almost $12 million in
unallowable gross drug costs on behalf of incarcerated beneficiaries during calendar years
2006 through 2010.
WHY WE DID THIS REVIEW
Individuals who are incarcerated in correctional facilities (incarcerated beneficiaries) are
generally not eligible for Federal health care benefits. We are conducting a series of reviews of
Medicare payments for services provided to incarcerated beneficiaries. We previously reported
that Medicare made improper Part A and Part B payments totaling $33.6 million to health care
providers for services provided to incarcerated beneficiaries. This is a review of payments made
on behalf of incarcerated beneficiaries in Medicare Part D.
The objective of this review was to determine the extent to which the Centers for Medicare
& Medicaid Services (CMS) accepted prescription drug event (PDE) records submitted by
sponsors for prescription drugs provided to incarcerated beneficiaries during calendar years
(CYs) 2006 through 2010.
BACKGROUND
Medicare Part D offers prescription drug benefits to individuals entitled to benefits under
Medicare Part A or enrolled in Medicare Part B. CMS, which administers Medicare, contracts
with private prescription drug plans to offer prescription drug benefits to eligible individuals
under Medicare Part D. Two types of private prescription drug plans provide Part D coverage:
Medicare Advantage prescription drug plans and stand-alone prescription drug plans. In this
report, we refer to entities that administer stand-alone prescription drug plans as “sponsors.”
Sponsors are paid prospectively, and CMS makes final payment determinations each year by
adjusting the sponsors’ payments using information from the PDE records.
An individual is eligible for Part D benefits if he or she is entitled to Medicare benefits under
Part A or enrolled in Part B and lives in the service area of a Part D plan. Federal regulations
specify that facilities in which individuals are incarcerated are not to be regarded as being within
service areas for purposes of Part D coverage.
For CYs 2006 through 2010, sponsors submitted final PDE records to CMS with gross drug costs
totaling approximately $256 billion.
WHAT WE FOUND
CMS inappropriately accepted PDE records submitted by sponsors for prescription drugs
provided to incarcerated beneficiaries and used those records to make its final payment
determinations. Specifically, for 49 of the 100 beneficiaries that we sampled, CMS accepted
1,298 PDE records submitted by sponsors for prescription drugs provided to incarcerated

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beneficiaries. The gross drug costs associated with these 1,298 accepted PDE records totaled
$325,903. On the basis of our sample results, we estimated that CMS accepted PDE records
with gross drug costs totaling an additional $11,656,314 for incarcerated beneficiaries.
We were not able to verify that the remaining 51 sampled beneficiaries were incarcerated in
correctional facilities on the dates listed in CMS’s database. Therefore, we did not question the
gross drug costs associated with these beneficiaries’ PDE records.
CMS inappropriately accepted PDE records submitted by sponsors for prescription drugs
provided to incarcerated beneficiaries because it had inadequate internal controls during our
review. When Part D began on January 1, 2006, Federal regulations were the principal source of
guidance to sponsors, although CMS later issued additional guidance. Additionally, CMS did
not provide sufficient and timely information to sponsors that would have allowed them to
readily and accurately verify a beneficiary’s incarceration status and dates of incarceration.
WHAT WE RECOMMEND
We recommend that CMS:
•

resolve improper Part D payments for prescription drugs provided to incarcerated
beneficiaries by reopening and revising CYs 2006 through 2010 final payment
determinations to remove gross drug costs of $325,903 for the sampled incarcerated
beneficiaries;

•

strengthen internal controls to ensure that Medicare does not pay for prescription drugs
for incarcerated beneficiaries, specifically by developing and implementing policies and
procedures that provide sponsors on a timely basis with all of the incarceration
information that is necessary for them to verify beneficiaries’ dates and status of
incarceration, including the names and contact information of correctional facilities; and

•

work with the sponsors to identify and resolve improper Part D payments made for
prescription drugs provided to incarcerated beneficiaries, which would include the
estimated $11,656,314 in additional gross drug costs identified in this report, by
reopening and revising final payment determinations for all periods before
implementation of the enhanced policies and procedures described above.
CMS COMMENTS AND OUR RESPONSE

In written comments on our draft report, CMS concurred with our first two recommendations
and described corrective actions that it planned to take. Specifically, CMS stated that it would
first address policy and system changes and would then reopen each contract year that has not
been closed to recover improper payments. CMS did not concur with our third recommendation
because, it said, there was no effective way to fully recover the improper payments in question
without first implementing the appropriate policies and procedures, including the relevant
systems changes. However, CMS also stated that once it implements regulations clarifying its
policy, it will update the applicable eligibility and enrollment systems, which will facilitate the

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

ii

appropriate changes in the PDE data. CMS added that it would then reopen each year that had
not already been closed to resolve these improper payments.
We acknowledge that CMS is developing and implementing policies and procedures that would
address enrollment of incarcerated beneficiaries and agree with its approach as long as CMS
resolves, to the maximum extent possible, the improper payments that occurred for all applicable
periods.

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

iii

TABLE OF CONTENTS

INTRODUCTION ...........................................................................................................................1
Why We Did This Review ...................................................................................................1
Objective ..............................................................................................................................1
Background ..........................................................................................................................1
Medicare Prescription Drug Coverage.....................................................................1
Sources and Flow of Incarceration Information ......................................................2
Sponsor Verification of Incarcerated Beneficiaries .................................................3
How We Conducted This Review........................................................................................3
FINDINGS .......................................................................................................................................4
Medicare Paid for Prescription Drugs for Incarcerated Beneficiaries .................................4
Federal Requirements ..............................................................................................4
Medicare Accepted Prescription Drug Event Records With Gross Drug Costs
Totaling Almost $12 Million for Incarcerated Beneficiaries ................................5
Internal Controls Did Not Prevent Improper Payments for Prescription Drugs
for Incarcerated Beneficiaries ...............................................................................5
RECOMMENDATIONS…………………………………………………… .................................6
CMS COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE ...........................7
APPENDIXES
A: Audit Scope and Methodology ......................................................................................8
B: Statistical Sampling Methodology ...............................................................................10
C: Sample Results and Estimates ......................................................................................11
D: CMS Comments ……………………………………………………………..............12

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iv

INTRODUCTION
WHY WE DID THIS REVIEW
Individuals who are incarcerated in correctional facilities (incarcerated beneficiaries) are
generally not eligible for Federal health care benefits. We are conducting a series of reviews of
Medicare payments for services provided to incarcerated beneficiaries. We previously reported
that Medicare made improper Part A and Part B payments totaling $33.6 million to health care
providers for services provided to incarcerated beneficiaries. 1 This is a review of payments
made on behalf of incarcerated beneficiaries in Medicare Part D.
OBJECTIVE
Our objective was to determine the extent to which the Centers for Medicare & Medicaid
Services (CMS) accepted prescription drug event (PDE) records submitted by sponsors for
prescription drugs provided to incarcerated beneficiaries during calendar years (CYs) 2006
through 2010.
BACKGROUND
Medicare Prescription Drug Coverage
Medicare provides health insurance for people aged 65 and over, people with disabilities, and
people with permanent kidney disease (Title XVIII of the Social Security Act (the Act)). Under
Medicare Part D, which began January 1, 2006, 2 individuals entitled to Medicare benefits under
Part A or enrolled in Part B and who live in the service area of a Part D plan may obtain
prescription drug coverage. CMS, which administers Medicare, contracts with private
prescription drug plans to offer prescription drug benefits to eligible individuals. Two types of
private prescription drug plans provide Part D coverage. Medicare Advantage prescription drug
plans cover a variety of medical services, including prescription drugs, while stand-alone
prescription drug plans cover only prescription drugs. We limited our review to stand-alone
prescription drug plans and, in this report, we refer to entities that administer these plans as
“sponsors.”
As a condition of payment, every time a Medicare beneficiary fills a prescription covered under
Part D, the sponsor must submit a PDE record to CMS. 3 PDE records (which are collectively
referred to as “PDE data”) include drug cost and payment information that enables CMS to

1

Medicare Improperly Paid Providers Millions of Dollars for Incarcerated Beneficiaries Who Received Services
During 2009 Through 2011 (A-07-12-01113, January 23, 2013).

2

Title I of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. No. 108-173 § 101)
amended Title XVIII of the Act (§ 1860D-1(a); 42 U.S.C. § 1395w-101(a)) to establish the Voluntary Prescription
Drug Benefit Program, known as Medicare Part D.

3

The Act, §§ 1860D-15(c)(1)(C) and (d)(2); 42 CFR § 423.322.

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

1

administer the Part D benefit. Sponsors must submit final PDE data to CMS within 6 months
after the end of the coverage year (42 CFR § 423.343(c)(1)).
For CYs 2006 through 2010, sponsors submitted final PDE data to CMS with gross drug costs
totaling approximately $256 billion.4
CMS pays sponsors for Part D benefits prospectively. 5 These prospective payments are based on
information in the sponsors’ approved annual bids. After the close of the coverage year, CMS
reconciles the prospective payments with the actual costs incurred by sponsors and determines
the amount that each sponsor will owe to or receive from Medicare for the plan year. CMS’s
reconciliations are based on sponsors’ final PDE data. CMS uses these data to make payments to
drug sponsors and administer the Part D benefit. 6
Incarcerated beneficiaries are not eligible to receive prescription drug benefits under Part D.
Sources and Flow of Incarceration Information
Chapter 3 of CMS’s Medicare Prescription Drug Benefit Manual—Eligibility, Enrollment and
Disenrollment (the Manual) uses the term “incarceration” to refer to the status of an individual
who is confined to a correctional facility, such as a jail or a prison. According to the Manual, an
individual who is incarcerated is considered to be living outside of any Part D plan’s service area
for the purposes of eligibility, even if the correctional facility is located within a plan’s service
area.
The Social Security Administration (SSA) is CMS’s primary source of information about
incarcerated beneficiaries. Generally, SSA collects information, such as the names of Medicare
beneficiaries and the dates on which beneficiaries begin periods of incarceration, directly from
penal authorities. SSA also collects incarceration end dates from beneficiaries’ requests for
reinstatement of Social Security benefits.
To identify the incarcerated beneficiaries, CMS’s Enrollment Database interfaces with SSA’s
systems. Each month CMS receives a file, known as the Prison Reply Data file, from SSA. This
file includes information about each incarcerated beneficiary, the incarceration start date and end
date (if applicable), and the name and contact information of the correctional facility. CMS then
records the dates of incarceration onto the Common Medicare Eligibility tables, which ultimately
update the Medicare Advantage Prescription Drug (MARx) system.

4

CMS defines “gross drug costs” as the sum of the following PDE payment fields: covered plan paid amount,
noncovered plan paid amount, patient pay amount, low-income cost-sharing payment, other true out-of-pocket costs,
and patient liability reduction as a result of another payer amount (Instructions: Requirements for Submitting
Prescription Drug Event Data, § 7.2.3).
5

The Act, §§ 1860D-14 and 15; 42 CFR §§ 423.315 and 423.329.

6

42 CFR §§ 423.329 and 423.343.

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2

CMS uses the information from the MARx system to notify sponsors of incarceration
information using monthly Transaction Reply Reports (TRRs). The TRR includes the
beneficiary’s name, Health Insurance Claim Number (HICN), and the beginning date of
incarceration. 7
Sponsor Verification of Incarcerated Beneficiaries
The Manual instructs sponsors to disenroll beneficiaries who are currently incarcerated and to
disregard past periods of incarceration when the beneficiary is not incarcerated at the time that
the sponsor verifies the incarceration status. The Manual also instructs sponsors to verify a
beneficiary’s incarceration status either by contacting the beneficiary or by using public
resources, such as public Web sites.
If the sponsor is able to verify the beneficiary’s incarceration status and start date, the sponsor
retroactively disenrolls the beneficiary beginning the first day of the month following the
beginning month of incarceration, and sponsors retroactively adjust the PDE records associated
with that beneficiary. The Manual specifies that in any instances when the sponsor can verify
only that the beneficiary is incarcerated but cannot verify the start date, the sponsor disenrolls the
beneficiary on the first of the month following the month that the sponsor verified the
incarceration. When a sponsor is unable to verify a beneficiary’s incarceration status or current
location, the sponsor disenrolls the beneficiary after 6 months.
HOW WE CONDUCTED THIS REVIEW
We reviewed a stratified random sample of 100 beneficiaries. We selected this sample from
23,049 beneficiaries who were listed as being incarcerated in CMS’s Enrollment Database and
whose incarceration periods began and ended during CYs 2006 through 2010 (unless they were
still incarcerated on the as-of date (November 1, 2011) of the CMS Prison Reply Data file that
we used; see Appendix A). Sponsors submitted 301,398 PDE records with gross drug costs
totaling $33,736,925 on behalf of these 23,049 beneficiaries. For each sampled beneficiary, we
obtained information on periods of incarceration from CMS’s Prison Reply Data file, verified the
incarceration periods by contacting each correctional facility, and then reviewed the PDE records
associated with these sampled beneficiaries.
We conducted this performance audit 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.
Appendix A contains details of our audit scope and methodology, Appendix B contains the
details of our sample design and methodology, and Appendix C contains our sample results and
estimates.

7

CMS does not give sponsors TRRs that include incarceration end dates.

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

3

FINDINGS
CMS inappropriately accepted PDE records submitted by sponsors for prescription drugs
provided to incarcerated beneficiaries and used those records to make its final payment
determinations. Specifically, for 49 of 100 sampled beneficiaries, CMS accepted 1,298 PDE
records submitted by sponsors for prescription drugs provided to incarcerated beneficiaries. The
gross drug costs associated with these 1,298 accepted PDE records totaled $325,903. On the
basis of our sample results, we estimated that CMS accepted PDE records with gross drug costs
totaling an additional $11,656,314 for incarcerated beneficiaries. 8
We were not able to verify that the remaining 51 sampled beneficiaries were incarcerated in
correctional facilities on the dates listed in CMS’s database. Therefore, we did not question the
gross drug costs associated with these beneficiaries’ PDE records.
CMS inappropriately accepted PDE records submitted by sponsors for prescription drugs
provided to incarcerated beneficiaries because it had inadequate internal controls during our
review. When Part D began on January 1, 2006, Federal regulations were the principal source of
guidance to sponsors, although CMS later issued additional guidance. Additionally, CMS did
not provide sufficient and timely information to sponsors that would have allowed them to
readily and accurately verify a beneficiary’s incarceration status and dates of incarceration.
MEDICARE PAID FOR PRESCRIPTION DRUGS FOR
INCARCERATED BENEFICIARIES
Federal Requirements
An individual is eligible for Part D benefits if he or she is entitled to Medicare benefits under
Part A or enrolled in Part B and lives in the service area of a Part D plan (42 CFR
§ 423.30(a)(1)(i-ii)). Facilities in which individuals are incarcerated are not to be regarded as
being within service areas for purposes of Part D coverage (42 CFR § 423.4).
The Manual instructs sponsors to disenroll beneficiaries who are currently incarcerated and to
disregard past periods of incarceration when the beneficiary is not incarcerated at the time that
the sponsor verifies the incarceration status (§ 50.2). 9 The Manual also instructs sponsors to use
public resources, such as Web sites, to verify a beneficiary’s incarceration status (§ 50.2.1.3).

8

We estimated that CMS accepted PDE records with gross drug costs totaling $11,982,217 by using the point
estimate (Appendix C). This amount included the $325,903 in gross drug costs that we identified in our sample and
that we are already questioning. We therefore report $11,656,314 ($11,982,217 - $325,903) as the estimated amount
of additional gross drug costs associated with prescription drugs provided to incarcerated beneficiaries.

9

References in this report to the Manual are made to the current version of the Manual when the provisions are the
same as those in the Manual in effect during the period of the audit or the same as CMS practice at that time. To the
extent that the provisions differ, reference is made to the July 16, 2008, Manual version.

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

4

If the sponsor verifies the beneficiary’s incarceration status and start date, the sponsor then
retroactively disenrolls the beneficiary beginning the first day of the month following the
beginning month of incarceration (the Manual, § 50.2.1.3). 10 Sponsors retroactively adjust the
PDE records associated with that beneficiary. The Manual also specifies that in any instances in
which the sponsor can verify only that the beneficiary is incarcerated but cannot verify the start
date, the sponsor will disenroll the beneficiary on the first of the month following the month that
the sponsor verified the incarceration (§ 50.2.1.3).
Furthermore, when a sponsor is unable to verify a beneficiary’s incarceration status or current
location, the beneficiary is disenrolled after 6 months (the Manual, § 40.2.1.2).
Medicare Accepted Prescription Drug Event Records With Gross Drug Costs
Totaling Almost $12 Million for Incarcerated Beneficiaries
Contrary to Federal requirements, for 49 of the 100 sampled beneficiaries, CMS accepted 1,298
PDE records submitted by sponsors for prescription drugs provided to incarcerated beneficiaries.
The gross drug costs associated with these 1,298 accepted PDE records totaled $325,903. On the
basis of our sample results, we estimated that CMS accepted PDE records with gross drug costs
totaling an additional $11,656,314 for incarcerated beneficiaries. CMS used these PDE records
to adjust annual Part D payments to sponsors. 11
We were not able to verify that the remaining 51 sampled beneficiaries were incarcerated in
correctional facilities on the dates listed on CMS’s Prison Reply Data file. The Manual states
that for a beneficiary to be disenrolled, the sponsor must verify the beneficiary’s incarceration
status, either by contacting the beneficiary or by using public resources such as Web sites. We
attempted to verify the incarceration status of these 51 beneficiaries but because we were unable
to do so, we did not question the gross drug costs associated with these beneficiaries’ PDE
records.
Internal Controls Did Not Prevent Improper Payments for Prescription Drugs
for Incarcerated Beneficiaries
CMS improperly accepted PDE records submitted by sponsors for prescription drugs provided to
incarcerated beneficiaries because it had inadequate internal controls during the period of our
10

The Manual is updated yearly with changes. Editions of the Manual from the first 3 years of our audit period
(i.e., CYs 2006, 2007, and 2008) informed sponsors (in Chapter 3) that incarcerated individuals were not eligible for
Part D and directed the sponsors to disenroll those individuals. CMS officials told us that although the Manual did
not specifically address the required effective dates of disenrollment, CMS had always required the sponsors to
disenroll their incarcerated beneficiaries beginning the first day of the month following the beginning month of
incarceration.
11

As stated in “Background,” CMS is responsible, after the close of a coverage year, for reconciling the prospective
payments with the actual costs incurred by sponsors and for determining the amount that each sponsor will owe to or
receive from Medicare for the plan year. According to the Congressional Budget Office, beneficiaries’ premium
payments cover about one-quarter of the overall costs of the basic Part D benefit, and Federal payments to sponsors
cover the other three-quarters of these costs. Because Part D is funded in this way, the estimated $11,982,217 in
inappropriately accepted PDE records that this report has identified was not funded in its entirety by the Federal
Government.

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review. When Part D began on January 1, 2006, Federal regulations served as the principal
source of guidance to sponsors. Although CMS later issued additional guidance, two of the three
sponsors with which we discussed these issues did not have policies and procedures in place
regarding prescription drugs provided to incarcerated beneficiaries until at least 4 years after the
start of the Part D program. Other inadequate controls involved the completeness and timeliness
of information provided to sponsors:
•

Despite having received incarceration information (the Prison Reply Data file) from SSA,
CMS did not provide sponsors with the names or contact information of correctional
facilities, which sponsors needed to readily verify beneficiaries’ dates and status of
incarceration. Sponsors told us that, without this information, they relied on public Web
sites. Sponsors said that it was difficult to locate the correct Web site to find the
incarceration information and added that, even when they accessed the correct Web site,
the incarceration information was not always available.

•

Further, sponsors did not always receive incarceration information from CMS in a timely
manner. Incarceration information received by the sponsors was often outdated—by the
time the sponsors were notified of a beneficiary’s incarceration, the beneficiary may no
longer have been incarcerated. For the period of our review, there was an average of 10
months between the date on which a beneficiary became incarcerated and the date that
the sponsor received the incarceration information for that beneficiary.
RECOMMENDATIONS

We recommend that CMS:
•

resolve improper Part D payments for prescription drugs provided to incarcerated
beneficiaries by reopening and revising CYs 2006 through 2010 final payment
determinations to remove gross drug costs of $325,903 for the sampled incarcerated
beneficiaries;

•

strengthen internal controls to ensure that Medicare does not pay for prescription drugs
for incarcerated beneficiaries, specifically by developing and implementing policies and
procedures that provide sponsors on a timely basis with all of the incarceration
information that is necessary for them to verify beneficiaries’ dates and status of
incarceration, including the names and contact information of correctional facilities; and

•

work with the sponsors to identify and resolve improper Part D payments made for
prescription drugs provided to incarcerated beneficiaries, which would include the
estimated $11,656,314 in additional gross drug costs identified in this report, by
reopening and revising final payment determinations for all periods before
implementation of the enhanced policies and procedures described above.

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6

CMS COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE
In written comments on our draft report, CMS concurred with our first two recommendations
and described corrective actions that it planned to take. Specifically, CMS stated that it would
first address policy and system changes and would then reopen each contract year that has not
been closed to recover improper payments. CMS did not concur with our third recommendation
because, it said, there was no effective way to fully recover the improper payments in question
without first implementing the appropriate policies and procedures, including the relevant
systems changes. However, CMS also stated that once it implements regulations clarifying its
policy, it will update the applicable eligibility and enrollment systems, which will facilitate the
appropriate changes in the PDE data. CMS added that it would then reopen each year that had
not already been closed to resolve these improper payments.
CMS also provided technical comments regarding two of the legal criteria pertaining to
disenrollment timeframes.
CMS’s comments are included in their entirety as Appendix D.
We acknowledge that CMS is developing and implementing policies and procedures that would
address enrollment of incarcerated beneficiaries and agree with its approach as long as CMS
resolves, to the maximum extent possible, the improper payments that occurred for all applicable
periods.
With respect to CMS’s technical comments involving the 6-month disenrollment timeframe
mentioned several times in this report, we note that the regulation and Manual provision
specifying disenrollment after 12 months did not become effective until after our audit period.
For our response to CMS’s comment regarding one of the Manual citations, see the explanation
in footnote 9.

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APPENDIX A: AUDIT SCOPE AND METHODOLOGY
SCOPE
Our audit covered approximately $256 billion in gross drug costs reflected in sponsors’ final
PDE records for CYs 2006 through 2010. We did not review CMS’s overall internal control
structure because our objective did not require us to do so. We reviewed only the internal
controls directly related to our objective.
We performed fieldwork from November 2011 through July 2012.
METHODOLOGY
To accomplish our objective, we
•

reviewed applicable Federal laws, regulations, and guidance;

•

interviewed CMS officials and officials from selected sponsors to gain an understanding
of their internal controls related to incarcerated beneficiaries;

•

interviewed SSA officials to gain an understanding of SSA’s systems and processes for
obtaining data on incarcerated individuals;

•

obtained CMS’s Prison Reply Data file (received monthly from SSA) to identify (as of
November 1, 2011) the correctional facility where each beneficiary was housed;

•

obtained CMS’s Enrollment Database as of June 25, 2011, to identify incarcerated
beneficiaries who were associated with 455,758 PDE records (with gross drug costs
totaling $50,319,074), and limited those claims we reviewed by examining only those
whose incarceration periods began and ended during CYs 2006 through 2010 (unless they
were still incarcerated according to the CMS Prison Reply Data file as of November 1,
2011);

•

modified our population by:
o removing all duplicate PDE records,
o removing all PDE records for “non-covered” drugs (e.g., over-the-counter drugs),
o removing all PDE records that were submitted by Medicare Advantage
prescription drug plans, and
o removing all PDE records that did not have sufficient facility information in
CMS’s Prison Reply Data file to allow us to verify the incarceration status of the
beneficiary;

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

8

•

selected a stratified random sample of 100 beneficiaries (Appendix B);

•

contacted each correctional facility to verify the incarceration dates of each sampled
beneficiary to determine the allowability of the PDE records;

•

identified the unallowable PDE records as of the first day of the month following the
initial month of incarceration through the end of the confirmed incarceration period;

•

projected the total gross drug costs associated with the unallowable PDE records
(Appendix C); and

•

discussed the results of our review with CMS officials on November 20, 2012.

We conducted this performance audit 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.

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APPENDIX B: STATISTICAL SAMPLING METHODOLOGY
POPULATION
The population consisted of PDE records associated with incarcerated beneficiaries whose
incarceration periods began and ended during CYs 2006 through 2010 (unless they were still
incarcerated on the as-of date (November 1, 2011) of the CMS Prison Reply Data file that we
used).
SAMPLING FRAME
The sampling frame consists of 301,398 PDE records with gross drug costs totaling $33,736,925
that were paid for prescription drugs provided to 23,049 incarcerated beneficiaries under Part D
during CYs 2006 through 2010. In the data, each beneficiary was identified by an HICN.
SAMPLE UNIT
The sampling unit is one HICN.
SAMPLE DESIGN
We used a stratified random sample:
Stratum
1
2
Total

Gross Drug Cost per HICN
$10,000 or more
$.01 - $9,999.99

Number of HICNs
630
22,419
23,049

Gross Drug Cost
$13,133,366
$20,603,559
$33,736,925

SAMPLE SIZE
The sample size consisted of 100 HICNs; we selected 50 HICNs from each stratum.
SOURCE OF RANDOM NUMBERS
We generated the random numbers with the Office of Inspector General, Office of Audit
Services, statistical software (RATS-STATS).
ESTIMATION METHODOLOGY
We used RAT-STATS to estimate the gross drug costs that were inappropriately paid for
prescription drugs that were provided to incarcerated beneficiaries during our audit period.

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APPENDIX C: SAMPLE RESULTS AND ESTIMATES
Table 1: Sample Results
Stratum
(Number
of HICNs)

Stratum Range
(Gross Drug Cost per
HICN)

Frame
Size
(Number
of HICNs)

Frame
Value
(Gross Drug
Cost)

1
2
Totals

$10,000 or more
Less than $10,000

630
22,419
23,049

$13,133,366
20,603,559
$33,736,925

Sample
Size
(Number
of
HICNs)
50
50
100

Value of
Sample
(Gross
Drug
Cost)
$307,830
18,073
$325,903

Sample
Errors

23
26
49

Table 2: Estimates of Inappropriate Part D Payments
(Limits Calculated for a 90-Percent Confidence Interval)

Point estimate
Lower limit
Upper limit

Total Gross Drug
Cost
$11,982,217
$8,386,717
$15,577,718

Medicare Part D Payments for Incarcerated Beneficiaries (A-07-12-06035)

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APPENDIX D: CMS COMMENTS

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DEPARTMENT OF HEALTH & HUMAN SERVICES

Centers tor Medicare & Medicaid Services

Administrator
Washington, DC 20201

DATE:

TO:

OCT 30 2013
Daniel R. Levinson
Inspe~tor General

FROM:

SUBJECT:

Office oflnspector General (OIG) Draft Report: Medicare Improperly Paid
Millions of Dollars for Prescription Drugs Provided to Incarcerated Beneficiaries
During 2006 Through 2010 (A-07-12-06035)

Thank you for the opportunity to review and comment on this OIG draft report aimed at
determining the extent to which the Centers for Medicare & Medicaid Services (CMS) accepted
prescription drug event (PDE) records submitted by sponsors on behalf of individuals who are
incarcerated. Individuals may enroll in Part D plans if they meet the eligibility requirements,
which include residing within the plan' s service area. Consistent with this policy, an individual
who is incarcerated does not reside in a plan service area.
The CMS supports some of the report' s recommendations to strengthen internal controls to help
ensure that payments for Medicare Part D services comply with federal requirements to the
extent that information is available to do so. Accordingly, we agree that in cases where the
information indicates an individual is incarcerated, that individual is determined to no longer
reside in the plan's service area and should be disenrolled.
The lack of a more robust set of CMS internal processes regarding access to services under the
Medicare Part D program has been a concern to CMS. CMS is taking steps to address this issue
and ensure that this requirement is executed in accordance with the information we receive from
the correctional facilities and the Social Security Administration.
Below is the CMS response to the OIG recommendations in the final report.
OIG Recommendation

The OIG recommends CMS resolve improper Part D payments for prescription drugs provided
to incarcerated beneficiaries by reopening and revising CYs 2006 through 2010 final payment
determinations to remove gross drug costs of$325,903 for the sampled incarcerated
beneficiaries.

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Page 2- Daniel R. Levinson

CMS Response
The CMS concurs with this recommendation. After implementing regulations clarifying the
relevant policy, CMS will update the applicable eligibility and enrollment systems. This, in turn,
will facilitate the appropriate changes to the POE data. CMS will conduct a reopening on each
year that has not already been closed to resolve improper payments. When CMS conducts a
reopening on a contract year, the improper payment issues will be resolved for that contract
year.

OIG Recommendation
The OIG recommends CMS strengthen internal controls to ensure that Medicare does not pay for
prescription drugs for incarcerated beneficiaries, specifically by developing and implementing
policies and procedures that provide sponsors on a timely basis with all of the incarceration
information that is necessary for them to verify beneficiaries' dates and status of incarceration,
including the names and contact information of correctional facilities.

CMS Response
The CMS concurs with this recommendation to prevent improper payments of Part D services to
incarcerated individuals. CMS will seek to codify the eligibility requirements in regulations and
establish an operational mechanism to relay confirmed incarceration status to plans for their use
in determining eligibility for new and/or continued enrollment and receipt of Medicare covered
services. Upon disenrollment from a Medicare prescription drug plan sponsor, CMS will no
longer pay for services rendered to the individual.
The CMS will continue to investigate means to provide the correctional facility contact
information to the plan; however, receipt of such information in a timely manner is dependent
upon the federal, state and local penal facilities reporting the data. Thus, CMS is not able to
guarantee that all the information regarding the correctional facility will be available for the
sponsor to verify beneficiaries' dates and status of incarceration. In cases where incomplete data
are received, CMS will continue sharing this information with sponsors as an indicator of
possible ineligibility for the sponsor to investigate further.

OIG Recommendation
The OIG recommends CMS work with the sponsors to identify and resolve improper Part D
payments made for prescription drugs provided to incarcerated beneficiaries, which would
include the estimated $11 ,656,314 in additional gross drug costs identified in this report, by
reopening and revising final payment determinations for all periods before implementation of the
enhanced policies and procedures described above.

CMS Response
The CMS non-concurs with this recommendation. There is no effective way of fully recovering
these payments without first implementing the appropriate policies and procedures, including the

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Page 3- Daniel R. Levinson
relevant systems changes. After implementing regulations clarifying the relevant policy, CMS
will update the applicable eligibility and enrollment systems. This, in turn, will facilitate the
appropriate changes to the POE data. When CMS conducts a reopening on a contract year, the
improper payment issues will be resolved for that contract year. CMS will conduct a reopening
on each year that has not already been closed to resolve improper payments.
Other Comments

The CMS would also like to provide the fo llowing comments on the report: On pages 3 and 5,
the beneficiary is disenrolled after 12 months, not 6 months per 42 CFR 423.44(d)(5)(ii). In
addition, on page 5, the manual citation in the second paragraph should read section 50.2.1 .2.
Thank you again, for the opportunity to review and comment on this report. We appreciate the
time and effort that went into developing it, and look forward to continuing to work with the OIG
on this important issue.

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