A pharmacy in Kansas billed Medicare for more than 1,000 prescriptions each for two patients in a single year, part of a pattern of questionable billings at 2,600 drugstores nationwide uncovered by federal investigators in a report Thursday.
The inspector general of the Health and Human Services department found that corner drugstores are vulnerable to billion-dollar 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. Medicare paid $5.6 billion to drugstores whose billings are being questioned.
The analysis broke new ground by scrutinizing every claim submitted by the nation's 59,000 retail pharmacies during 2009 - nearly 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.
A pharmacy trade group stressed that the vast majority of drugstores are law abiding businesses. Kevin Schweers, spokesman for the National Community Pharmacists Association, said the report "lacks sufficient detail to evaluate the medical legitimacy and appropriateness of the claims reviewed."
Overall, the inspector general found only a small fraction of retail pharmacies - 4.4 percent - 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. 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."
But the inspector general's report concluded that the $53-billion program left the door open to fraud from the beginning.
"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.