Medicare paid $5.6 billion to 2,600 pharmacies with questionable billings, including a Kansas drugstore that submitted more than 1,000 prescriptions each for two patients in just one year, government investigators have found.
The new report by the inspector general of the Health and Human Services department finds the corner drugstore is vulnerable to fraud, partly because Medicare does not require the private insurers that deliver prescription benefits to seniors to report suspicious billing patterns.
"While some pharmacies may be billing extremely high amounts for legitimate reasons, all warrant further scrutiny," said the report being issued Thursday.
The analysis broke new ground by scrutinizing every claim submitted by the nation's 59,000 retail pharmacies during 2009 — more than 1 billion prescriptions. Using statistical analysis, investigators were able to reveal contrasts between normal business practices and potential criminal behavior.
"The findings call for a strong response to improve (program) oversight," the report said.
In written comments, Medicare administrator Marilyn Tavenner said the agency mostly agrees with the inspector general's call to action. But she suggested that requiring private insurers to monitor and report suspicious activity could place a burden on the companies and may flood government officials with leads that turn out to be useless.
Medicare also said it has anti-fraud contractors that are already keeping close tabs on the program.
"We believe it is important to note that (the inspector general's) report identified what appeared to be questionable billing based on its own data analysis but did not determine any actual fraud committed by the pharmacies," Tavenner wrote.
The inspector general's office says its findings aren't just smoke.
"What we are seeing in the data is extremely concerning," said Jodi Nudelman, a regional inspector general in New York who directed the research.
Her team will turn over the names of the 2,637 pharmacies it identified for follow-up. They are "extreme billers, when you look at their peers and compare them," added Nudelman.
Overall, only a small fraction of retail pharmacies — 4.4 percent — were found to have telltale patterns of questionable billings. But in some parts of the country, the share was much higher, reaching nearly 20 percent of pharmacies in Miami, an area known as an incubator for Medicare fraud.
In Los Angeles, where 12 percent of pharmacies had questionable billings, one drugstore in a suburban strip mall billed Medicare more than $8.4 million, nine times the national average. That worked out to an average of 116 prescriptions per beneficiary.
At pharmacies in Baltimore, Detroit and Tampa, the problem was different: powerful painkillers classified as controlled substances accounted for an abnormally high share of total prescriptions billed. No pharmacies were named in the report.
New York also stuck out, with 9 percent of pharmacies filing high numbers of questionable claims. Nationally, independent pharmacies were more likely to have problems than chain drugstores.
Investigators identified eight major indicators of potential fraud. Some, like billing hundreds of prescriptions for a single Medicare beneficiary, are fairly obvious. Others are not.
For example, a drugstore whose claims reflect an extremely high share of brand-name drugs may be dispensing generic medications and billing them at the higher rate for pricey brands.
And a drugstore whose billings show an unusually high share of refilled prescriptions might be billing for refills that patients didn't ask for and won't pick up. Usually the drugs are just restocked on the shelves, and the scheme continues.
Medicare's prescription benefit has proven popular with seniors since its inception in 2006 under President George W. Bush, and academic researchers have found indications that it is saving taxpayers money by keeping beneficiaries healthier.
Recently, President Barack Obama's health care overhaul law addressed one of the program's major remaining shortcomings, gradually closing a coverage gap called the "doughnut hole," dreaded by millions of seniors with high prescription costs.
The inspector general's report concluded that the program left the door open to fraud from the beginning.
Medicare says it has been using computer analysis to look for evidence of suspicious activity by providers, but the new analysis was apparently the first such template for the $53 billion program as a whole. Previously, there were no comprehensive data about pharmacies' typical billing patterns, or types of questionable billings.
"The program has limited safeguards in place and is vulnerable to fraud, waste and abuse," the report said.
For example, the private insurers who serve as program middlemen are encouraged to report fraud, but they are not required to do so.
"Because (insurers) are on the front lines of detecting fraud, waste and abuse ... a significant vulnerability exists when (they) are not required to report this information," the report found.
It urged Medicare to develop a fraud risk rating for each individual pharmacy.