HHS OIG Report Finds Part D Private Insurers Overcharged for Billions, Lack of CMS Oversight

According to a recent report by the Department of Health & Human Services, Office of Inspector General, private insurance companies that operate plans under the Medicare prescription drug benefit have overcharged Medicare beneficiaries and the program by several billion dollars since the program began in 2006.

According to the report, 80% of health insurers that operate plans under the Medicare prescription drug benefit overcharged the program by about $4.4 billion in 2006 alone. In addition, The McClatchy/Raleigh News & Observer reports that the Centers for Medicare & Medicaid Services (CMS) remains unaware of the total impact of the practice because of its failure to perform required audits.

The prescription drug benefit was established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Under the MMA, CMS contracts with private insurance companies to provide drug coverage to Medicare beneficiaries. Each insurer offers a bid, which represents the company's estimate of the average monthly revenue it would need to provide the basic prescription drug benefit to each beneficiary.

CMS is required to complete financial audits of at least a third of all the insurance companies that offer the prescription drug benefit to determine how they set their prices. For 2006, CMS was required to perform 165 audits. However, according to the report, the Inspector General found that, as of April, CMS had begun only seven, or 4 percent.

According to the report, there are 158 other audits from 2006 remaining to be done and audits for 2007 and 2008 waiting in the wings. It is estimated that problems found in the first year of the program aren't likely to be fixed before 2010.

In response to the Inspector General's findings, the News & Observer reports that Sen. Claire McCaskill, a Missouri Democrat, said:

"It shows a mind-set that could care less about wasting taxpayer money, that has no problem with padding profits of drug companies with hard-earned taxpayer dollars."

The Inspector General's report comes as Congressional Democrats last week introduced a bill that would allow Original Medicare to establish one or more plans to compete with private Medicare drug plans.