Program Review and Investigations Committee



<MeetMDY1> December 13, 2007


The<MeetNo2> Program Review and Investigations Committee met on<Day> Thursday,<MeetMDY2> December 13, 2007, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Rick G. Nelson, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Rick G. Nelson, Co-Chair; Senators Brett Guthrie, Vernie McGaha, R. J. Palmer II, Joey Pendleton, Dan Seum, and Katie Stine; Representatives Sheldon E. Baugh, Dwight D. Butler, Leslie Combs, Charlie Hoffman, Ruth Ann Palumbo, and Arnold Simpson.


Guests: †From the Cabinet for Health and Family Services: Deputy Commissioner Carrie Banahan and Zach Ramsey, Department of Medicaid Services; Inspector General Steven Davis. From the Office of the Attorney General: Michael Wright, Attorney Manager, Medicaid Fraud and Abuse Control Division; Dan Gibbons, Branch Manager, Kentucky Bureau of Investigation.


LRC Staff:† Greg Hager, Committee Staff Administrator; Rick Graycarek; Jim Guinn; Christopher Hall; Margaret Hurst; Colleen Kennedy; Van Knowles; Rkia Rhrib; Tara Rose; Cindy Upton; and Marlene Rutherford, Committee Assistant.


Minutes of the November 8, 2007, meeting were approved, without objection, upon motion made by Sen. Pendleton and seconded by Rep. Simpson.


Van Knowles presented the report Medicaid Prescription Drug Fraud, Abuse, and Cost Management.


Mr. Knowles summarized the reportís 11 major conclusions: 1) It is not possible to make a good estimate of the amounts lost to fraud and abuse. 2) The greatest opportunity for savings lies in aggressive management of the Medicaid prescription benefit to reduce costs while ensuring quality health care. KyHealth Choices benefit plans and the pharmacy benefit administrator have made strides in several areas. Some programs have yet to be implemented and there remains potential for significant additional savings. 3) The cost of the prescription drug benefit should not be expected to decline. The challenge for all insurers, including Medicaid, is to address every area of waste, abuse, and fraud to minimize the increase while providing quality health care. Medicaidís success in this area should be measured against comparable programs over time. 4) Within fraud and abuse, probably the greatest opportunity for returns is drug pricing and marketing fraud. The likely next greatest opportunity is nonfraudulent overpayments to pharmacies, including agency errors. 5) Aggressive fraud and abuse prevention systems achieve significant savings, but accounting systems are not designed to credit cost avoidance to the budget. 6) Fraud probably does not represent the greatest cost, but combating fraud usually returns more dollars than are invested. Prosecuting fraud can create a deterrent effect. 7) Many states placed little emphasis on fighting Medicaid fraud and abuse until it became a federal priority in 2006. 8) Kentuckyís Department for Medicaid Services (DMS) has performed minimal provider fraud detection for many years and has not actively sought abuse by pharmacies since 2003, but has developed a commendable request for proposals for a program integrity vendor. 9) DMS continued a traditional process for identifying recipient fraud and abuse until May 2007 and plans to resume soon. The Cabinet for Health and Family Services (CHFS) has implemented a commendable recipient eligibility fraud prevention program. 10) Several agencies conduct fraud and abuse prevention and detection for DMS. Some activities of these agencies are poorly coordinated, sometimes overlapping and sometimes leaving gaps. DMS has not taken an assertive role in overseeing and planning program integrity functions for the Medicaid program. †11) In the past four years, DMS has experienced an unusually heavy workload, which is unlikely to decrease much in the near future. Turnover in many key positions has made program management difficult and contributed to a lack of documentation.


Mr. Knowles provided contextual information for and summarized the reportís 29 recommendations (the recommendation numbers correspond to the numbering in the report):

1.1) The General Assembly may wish to consider passage of a state false claims act† to qualify for the federal incentive in combating Medicaid fraud.

1.2) DMS should develop a process that ensures the documentation of policies and procedures is comprehensive and kept up-to-date. The department should work with all vendors to ensure that they also maintain comprehensive and up-to-date documentation of their policies and procedures.

1.3) DMS should ensure that an adequate staffing resource plan is developed and maintained. To the extent possible, such planning also should be implemented by the departmentís vendors. CHFS should present an adequate staffing plan in its budget proposals to the governor and the General Assembly.

1.4) DMS should ensure that a comprehensive Medicaid program integrity plan is developed, maintained, and followed.

1.5) DMS should explore ways to implement concurrent fraud, abuse, and overpayment detection within the pharmacy point of sale system as well as the medical claims processing system.

1.6) The General Assembly may wish to consider a resolution asking Congress to assist the Kentucky Medicaid program in seeking more favorable federal laws on recovery of overpayments and on the impact of federal audit and review programs.

1.7) †DMS should implement a comprehensive program to evaluate the performance and outcomes of Medicaid as a whole and of each vendor and each benefit program.

1.8) CHFS should reconstitute the Drug Management Review Advisory Board and ensure that it fulfills its duties under federal and Kentucky law. If the cabinet believes that the boardís duties and those of the Pharmacy and Therapeutics Committee could be combined, it should propose to the General Assembly legislation that is consistent with federal law.

1.9) DMS should ensure that the annual drug use review report is prepared and sent to the federal government. The department should provide copies of the last five such annual reports and all future reports to the Health and Welfare Committee and the Medicaid Oversight and Advisory Committee of the General Assembly.

1.10) The General Assembly may wish to consider changes to more fully empower the CHFS Office of Inspector General (OIG) to combat Medicaid fraud and abuse as embodied in Senate Bill 223 of the 2005 Session.

2.1) DMS should review Medicaid eligibility procedures and the Department for Community Based Services (DCBS) should ensure that all caseworkers understand and follow the procedures for verifying an applicantís statements. If DMS considers it desirable that caseworkers ask adult Medicaid applicants for information about expenses and attempt to balance income, resources, and expenses, the departments should develop such a procedure and incorporate it into caseworker training.

2.2) DMS, OIG, and DCBS should develop a plan to expand the Determining Eligibility Through Extensive Review program to additional local offices.

2.3) DCBS should ensure that referrals for suspected fraud in adult Medicaid cases are being made correctly to OIG. The department should implement procedures to reduce the error rate in adult Medicaid cases.

2.4) DCBS should determine a staffing level adequate to ensure quality results in the Division of Family Support. The department should include any needed resources in its budget requests.

3.1) Recognizing that the Recipient Utilization Review Committee does not exist, the General Assembly may wish to consider amending KRS 205.8455 and 205.8459(2) to remove references to the committee and make other changes it deems desirable. If the statute is not so modified, the Department for Medicaid Services should operate the committee as defined in the law.

3.2) DMS and OIG should work with the licensing boards for prescribers and pharmacists and their professional associations to determine whether fair and reasonable limitations could be placed on filling phone-in prescriptions.

3.3) The General Assembly may wish to consider options to remove potential conflicts among KRS 218A.020-130, related administrative regulations, and the federal controlled substance schedule.

3.4) CHFS should consider making tramadol (Ultram) a scheduled drug and should review other drugs for more restrictive scheduling.

3.5) To clarify the permitted and prohibited uses of data in the Kentucky All-Schedule Electronic Reporting system, the General Assembly may wish to consider amending KRS 218A.202 and 218A.240 to remove possible ambiguities and inconsistencies.

3.6) DMS should reissue a program integrity procurement substantially similar to the one cancelled in October 2007 and award a contract as soon as it is prudent to do so. The new vendor and program integrity staff should implement as soon as possible a review of all Medicaid claims with special priority on prescription claims submitted since June 2003.

3.7) DMS should institute a program of both regular and targeted pharmacy desk and field audits and develop an ongoing cost-benefit analysis of the program. The department should modify the program over time to optimize costs and benefits.

3.8) To make the Kentucky Medicaid fraud hotline statute consistent with federal regulation 42 CFR 455.14, the General Assembly may wish to consider amending KRS 205.8483(2) to allow OIG to conduct a preliminary investigation to determine if a sufficient basis exists for a full investigation prior to referring the case to the Office of Attorney General.

3.9) DMS should work with OIG and the Office of the Attorney General to establish a protocol for preliminary investigation of all potential provider fraud cases by OIG and for timely referral for full investigation to the Office of Attorney General, consistent with federal regulations.

3.10) The Office of the Attorney General should develop a budget request for an amount of state funding that will cover the costs of investigating and prosecuting all the anticipated criminal Medicaid fraud cases referred as well as performing the other duties of the Medicaid fraud control unit.

4.1) DMS should estimate the amount by which the Medicare Part D clawback payments might exceed the cost of Medicare-Medicaid dual eligible recipients if they were still in the Medicaid prescription drug benefit. The department should report its estimate to the Program Review and Investigations Committee by September 2008.

4.2) When measuring and reporting the performance of the Medicaid prescription drug program, DMS and its vendors should consider the effects of Medicare Part D and the clawback.

4.3) DMS should conduct a complete cost-benefit analysis of the behavioral health drug use review program and ensure that a tracking system is in place to monitor results of the program. The department should report to the Program Review and Investigations Committee the cost-benefit analysis by September 2008 and the results after the two-year program.

4.4) DMS and OIG should work with the licensing boards for prescribers and pharmacists and their professional associations to determine effective and acceptable education regarding best practices for prescribing and dispensing.

4.5) DMS should consider whether to implement counter-detailing to provide unbiased prescribing information to physicians and other prescribers. The department also should consider Medication Therapy Management by pharmacists as a means of improving care and reducing cost. If either program appears to be effective and feasible, the department should request any necessary enabling legislation and should implement the program.


Rep. Hoffman asked what the difference is between the terms abuse and overuse.


Mr. Knowles said that overuse is a type of unintentional abuse. Going to the emergency room when unnecessary is an example.


Rep. Hoffman asked what the typical whistleblower is like.


Mr. Knowles replied that based on looking at cases, particularly federal, the typical whistleblower works for a provider or drug manufacturer and has evidence of false claims.


Rep. Hoffman asked whether protections for whistleblowers are sufficient.


Mr. Knowles said that he could not say, but that the subject may merit further study.


Rep. Nelson noted that Appendix B of the report provides many specific examples of ways that fraud and abuse may be committed.


Sen. Seum said that the presentation seemed to indicate that Kentucky would have to pay the federal government before money is collected and that this is a significant disincentive.


Mr. Knowles noted that in criminal cases, official discovery starts with the verdict, but that the state still only has 60 days to collect before reimbursing funds to the federal government.


Sen. Seum asked what the penalties are for fraud.


Mr. Knowles said that he would have to defer to others on criminal penalties, but that the court determines the amount of financial restitution.


Sen. Seum asked whether anyone is banned from being a Medicaid provider.


Mr. Knowles said that providers convicted of fraud go on the Medicare-Medicaid exclusion list.


Sen. Pendleton asked about the table on page 187 of the report that seems to indicate that there were 480 hotline complaints in 2005, but only 2 preliminary reviews that year.


Mr. Knowles responded that he was not certain how preliminary reviews were defined in this table.


Rep. Palumbo asked about the possible contradiction between the reportís conclusion 8, which says that Kentucky Medicaid has performed minimal fraud detection for many years, and conclusion 9, which says that Medicaid used a traditional process for identifying recipient fraud and abuse until May 2007 and plans to resume soon.


Mr. Knowles said that conclusion 8 applies to providers and conclusion 9 applies to recipients.


Rep. Palumbo asked what happened to the Drug Management Review Advisory Board that was created by state law.


Mr. Knowles said that it appears that it ceased to function, but that the cabinet should explain what happened.


Rep. Baugh noted that the report indicated that Kentucky ranks high in the use of prescription drugs. He asked why this is the case.


Mr. Knowles replied that some people interviewed for the study said there is a prescription drug culture in Kentucky, which means that Kentuckians expected to receive prescription drugs, perhaps more so than in other states.


Rep. Baugh ask for confirmation that a pharmacist is required to fill a valid prescription.


Mr. Knowles said that this was correct.


Responding to the report, Ms. Banahan noted that staff had received the report too recently to complete a thorough review and could not make commitments at this committee meeting on behalf of CHFS.


Sen. Pendleton repeated the question as to whether only 2 of the 480 hotline complaints in 2005 were reviewed.


Mr. Ramsey said that all 480 hotline complaints by law were forwarded to the Office of Attorney General. Preliminary reviews are separate fraud investigations conducted within OIG that may deal with Medicaid provider fraud. He added that the two preliminary reviews in question may not have originated from the hotline.


Sen. Pendleton noted that the bottom line is that there were only two investigations that year.


Mr. Ramsey agreed that this was a low number, which is why the office began the process of procuring a vendor to supplement the resources of the office.


Sen. McGaha asked what happens if no one from the Office of the Attorney General, State Police, or federal or local agencies will accept a complaint referred by OIG.


Mr. Ramsey replied that if no one accepts a case for criminal investigation, the office may pursue the complaint administratively and try to get financial recovery from Medicaid providers. He noted that it is much more difficult to pursue a complaint involving a Medicaid recipient without a prosecution.


Sen. McGaha asked for confirmation that the ability to go after providers is much greater than for recipients.


Mr. Ramsey answered that more administrative and law enforcement tools are available for pursuing providers.


Sen. McGaha said that whatever the Inspector Generalís office could do to improve results and go after recipients more effectively would be appreciated.


Rep. Palumbo asked why the figures in the table showing hotline complaints and preliminary investigations only covered up to 2005.


Mr. Ramsey said that this table was from a federal report, but that numbers could be provided by the cabinet for 2006 and 2007.


Rep. Palumbo noted that according to the presentation, the department dropped plans for a comprehensive KyHealth Choices evaluation. She asked why this occurred.


Ms. Banahan said that they would have to follow up with that information and also about what happened to the Drug Management Review Advisory Board. She said the information could be provided the week after this committee meeting.


Sen. Seum asked whether services could be provided legally given the complexity of federal and state regulations.


Mr. Ramsey replied that in most instances services are provided legally.


Responding to the report, Mr. Wright said that staff in the Office of the Attorney General were in the process of preparing formal remarks, which would be submitted the week after this meeting.


In response to Sen. Seumís earlier question, Mr. Wright said that penalties for Medicaid fraud can range from 5 to 10 years in penitentiary. †He said a provider found guilty can be excluded from Medicaid for 5 years. He added that it is the guilty party who is excluded, so if the provider moved to another organization, he or she would still be excluded.


Sen. Seum asked how many complaints have resulted in exclusions, indictments, and convictions.


Mr. Wright said that the Office of the Attorney General has received two pharmacy provider referrals from OIG since 2003. He added that both cases resulted in convictions and exclusions. He said that he could furnish statistics on other types of providers.


Rep. Simpson inquired about the effectiveness of a state whistleblower act.


Mr. Wright replied that the office supported House Bill 477, which proposed a state false claims act. He said that increasing protection for whistleblowers would likely result in more complaints based on experiences in other states.


Sen. Stine said that generating more complaints will only be helpful if the complaints are acted on. She asked whether hotline complaints are addressed as required by law.


Mr. Wright responded that all hotline complaints are received by the Office of Attorney General from OIG. He said that all complaints not dealing with combating fraud and abuse are returned to OIG.


Mr. Gibbons said that every complaint received from OIG is examined by a supervisor who handles fraud. If drug fraud by a recipient involves collusion with a provider, the Office of the Attorney General will further review the complaint. If not, it is referred to the Kentucky Bureau of Investigationís (KBI) narcotics unit. If it is a provider complaint, it goes to the fraud investigations support team in the Office of the Attorney General. If the team determines that there is potential for a criminal offense that merits investigation, the complaint goes back to a supervisor and is pursued.


Sen. Stine commented that it is unclear who is responsible for handling complaints. She said that, for budgeting purposes, it would be useful to know how much different fraud units can return on investment.


Mr. Wright said the law requires all complaints to be forwarded to the Office of the Attorney General and that this is being complied with. Because it receives federal funds, the Medicaid fraud unitís authority is limited to provider fraud. At one time, the Office of the Attorney General had a contract with CHFS to investigate recipient fraud. That contract was ended in the previous administration. He said his understanding is that recipient cases are still referred to local prosecutors by the cabinet.


Sen. McGaha ask for clarification that the Medicaid fraud control unit does not pursue recipient fraud.


Mr. Wright responded that recipient fraud could only be pursed if it is connected to a provider fraud case. He added that local prosecutors have pursued recipient fraud cases.


Sen. McGaha commented that pursuing these cases at the local level is difficult.


Rep. Hoffman asked whether other states have enacted legislation that would be useful models for Kentucky.


Mr. Wright said that enacting House Bill 477 would qualify Kentucky for additional federal funding, so that would be a good model.


Sen. Stine asked for an explanation of the cancellation of the contract with the Office of the Attorney General. She inquired as to whether anyone else assumed responsibility for the work covered by the contract.


Mr. Ramsey said that Medicaid recipient fraud is part of what is classified as welfare fraud. The process in OIG is to investigate within the office and then refer to local prosecutors as merited. He said that he could provide statistics on those cases.


Sen. Stine asked what percentages of the budgets of OIG and the Office of the Attorney General are allocated to discovery of fraud.


Mr. Davis said that contracts with DMS and DCBS fund most of the activities in OIG. †The DCBS contract is approximately $1 million to conduct recipient fraud investigations. The DMS contract is approximately $1.75 million for investigations.


Mr. Wright said that the budget of the Office of the Attorney Generalís fraud unit is approximately $3 million and that the unit has 31 staff members. He said that, consistent with the committeeís recommendation in an earlier report, as many resources as possible within the Office of the Attorney General have been allocated to the fraud unit before asking for additional funds.


Rep Palumbo asked why, given that a reason for the creation of KBI was to attack illegal use and sale of drugs, that the office does not pursue Medicaid recipients who sell their prescription drugs.


Mr. Wright said KBI has no authority to prosecute those cases but does investigate them.


Mr. Gibbons added that KBI has a section that investigates drug trafficking.


Sen. Stine asked what the statutory authority is for KBI to operate.


Mr. Gibbons said that he would provide that information.


Rep. Baugh made the motion to approve the report and Sen. Palmer seconded. The report Medicaid Prescription Drug Fraud, Abuse, and Cost Management was adopted without objection by roll call vote.


The meeting adjourned at 11:35 AM.