[Senate Hearing 105-154]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-154

 
         MEDICARE AT RISK: EMERGING FRAUD IN MEDICARE PROGRAMS

=======================================================================

                                HEARING

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 26, 1997

                               __________

      Printed for the use of the Committee on Governmental Affairs

                               ----------

                      U.S. GOVERNMENT PRINTING OFFICE
                              WASHINGTON : 1997
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
         U.S. Government Printing Office, Washington, DC 20402




                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
SUSAN M. COLLINS, Maine              JOHN GLENN, Ohio
SAM BROWNBACK, Kansas                CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico         JOSEPH I. LIEBERMAN, Connecticut
THAD COCHRAN, Mississippi            DANIEL K. AKAKA, Hawaii
DON NICKLES, Oklahoma                RICHARD J. DURBIN, Illinois
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI,
BOB SMITH, New Hampshire               New Jersey
ROBERT F. BENNETT, Utah              MAX CLELAND, Georgia
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                    Michal Sue Prosser, Chief Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                     SUSAN M. COLLINS, Maine, Chair
SAM BROWNBACK, Kansas                JOHN GLENN, Ohio
PETE V. DOMENICI, New Mexico         CARL LEVIN, Michigan
THAD COCHRAN, Mississippi            JOSEPH I. LIEBERMAN, Connecticut
DON NICKLES, Oklahoma                DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
BOB SMITH, New Hampshire             ROBERT G. TORRICELLI, New Jersey
ROBERT F. BENNETT, Utah              MAX CLELAND, Georgia
           Timothy J. Shea, Chief Counsel and Staff Director
           Jefrrey S. Robbins, Chief Counsel to the Minority
                     Mary D. Robertson, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Glenn................................................     4
    Senator Durbin...............................................    21

                               WITNESSES
                        Thursday, June 26, 1997

Hon. Charles E. Grassley, a U.S. Senator from the State of Iowa, 
  and Chairman, Senate Special Committee on Aging................     6
Hon. Tom Harkin, a U.S. Senator from the State of Iowa, and 
  Ranking Minority Member, Subcommittee on Labor, Health and 
  Human Services, Education and Related Agencies, Senate 
  Committee on Appropriations....................................     9
Michael F. Mangano, Principal Deputy Inspector General, U.S. 
  Department of Health and Human Services........................    14
Charles L. Owens, Chief, Financial Crimes Section, Federal Bureau 
  of Investigation...............................................    18
Leslie G. Aronovitz, Associate Director, Health Financing and 
  Systems Issues, Health, Education and Human Services Division, 
  U.S. General Accounting Office.................................    34
Pamela H. Bucy, Bainbridge Professor of Law, University of 
  Alabama Law School.............................................    37
Bruce C. Vladeck, Administrator, Health Care Financing 
  Administration, U.S. Department of Health and Human Services...    50

                     Alphabetical List of Witnesses

Aronovitz, Leslie G.:
    Testimony....................................................    33
    Prepared Statement...........................................    85
Bucy, Pamela H.:
    Testimony....................................................    37
    Prepared Statement...........................................   107
Grassley, Hon. Charles E.:
    Testimony....................................................     6
    Prepared Statement...........................................    61
Harkin, Hon. Tom:
    Testimony....................................................     9
    Prepared Statement...........................................    63
Mangano, Michael F.:
    Testimony....................................................    14
    Prepared Statement...........................................    66
Owens, Charles L.:
    Testimony....................................................    18
    Prepared Statement...........................................    77
Vladeck, Bruce C.:
    Testimony....................................................    50
    Prepared Statement...........................................   154

                                APPENDIX

Prepared statements of witnesses in order of appearance..........    61

                              EXHIBIT LIST

* May Be Found In The Files of the Subcommittee

                                                                   Page

 1. GLetter from William J. Scanlon, Director, Health Financing 
  and Systems Issues, General Accounting Office, dated June 17, 
  1997, to The Honorable Charles E. Grassley, Chairman, Senate 
  Special Committee on Aging, regarding Medicare: Problems 
  Affecting HCFA's Ability to Set Appropriate Reimbursement Rates 
  for Medicare Equipment and Supplies, GAO/HEHS-97-157R..........   169

 2. GChart, Foley Latex Catheters Billed Under Medicare HCPCs 
  Code A4338, submitted by Senator Charles E. Grassley...........   179

 3. GGAO Report prepared for Senator Tom Harkin, Ranking Minority 
  Member, Subcommittee on Labor, Health and Human Services, 
  Education, and Related Agencies, Senate Committee on 
  Appropriations, Medicare: Need to Hold Home Health Agencies 
  More Accountable for Inappropriate Billings, June 1997 GAO/
  HEHS-97-108....................................................   180

 4. GChart, Home Health Agency Claims Procedures, submitted by 
  Michael F. Mangano, Principal Deputy inspector General, 
  Department of Health and Human Services........................   197

 5. GCharts submitted by Charles L. Owens, Chief, Financial 
  Crimes Section, Federal Bureau of Investigation:
    a. GFederal Bureau of Investigation: Designed Health Care 
      Squads.....................................................   200
    b. GResource Utilization: Health Care Fraud..................   201
    c. GPending Caseload: Health Care Fraud......................   202
    d. GConvictions: Health Care Fraud...........................   203
    e. GHealth Care Expenditures for 1996 in the United States: 
      $1 Trillion................................................   204

 6. GCharts prepared by the Permanent Subcommittee on 
  Investigations:
    a. GThe Home Health Care Industry............................   205
    b. GLos Angeles Medicare HMOs' Annual Disenrollment Rates, 
      1995.......................................................   206
    c. GHome Health: Rapid Growth of Medicare Expenditures.......   207

 7. GMemoranda prepared by Ian Simmons, Counsel, and Don 
  Mullinax, Investigator, Permanent Subcommittee on 
  Investigations, dated June 19, 1997, to Permanent Subcommittee 
  on Investigations' Membership Liaisons.........................   208

 8.  a. GStatement of June Gibbs Brown, Inspector General, 
  Department of Health and Human Services, before the House 
  Committee on Ways and Means, Subcommittee on Health, regarding 
  Report of Department of Health and Human Services, Office of 
  Inspector General, Report on the Financial Statement Audit of 
  the Health Care Financing Administration for Fiscal Year 1996..   242
     b. GReport of the Department of Health and Human Services, 
      Office of Inspector General, Report on the Financial 
      Statement Audit of the Health Care Financing Administration 
      for Fiscal Year 1996, July 1997 (A-17-95-00096)............   255

 9. GGAO High-Risk Series, Medicare, February 1997, GAO/HR-97-10.     *

10. GGAO Report, Medicare: Excessive Payments for Medical 
  Supplies Continue Despite Improvements, August 1995, GAO/HEHS-
  95-171.........................................................     *

11. GGAO Report, Fraud and Abuse: Providers Target Medicare 
  Patients in Nursing Facilities, January 1996, GAO/HEHS-96-18...     *

12. GGAO Report, Medicare: Home Health Utilization Expands While 
  Program Controls Deteriorate, March 1996, GAO/HEHS-96-16.......     *

13. GGAO Report, Medicare: HCFA Should Release Data to Aid 
  Consumers, Prompt Better HMO Performance, October 1996, GAO/
  HEHS-97-23.....................................................     *

14. GGAO Report, Medicaid Fraud and Abuse: Stronger Action Needed 
  to Remove Excluded Providers From Federal Health Programs, 
  March 1997, GAO/HEHS-97-63.....................................     *

15. GLetter from Leslie G. Aronovitz, Associate Director, Health 
  Financing and Systems Issues, General Accounting Office, dated 
  March 3, 1997, to The Honorable John R. Kasich, Chairman, House 
  Committee on the Budget, regarding Medicaid: Graduate Medical 
  Education Payments, GAO/HEHS-97-77R............................     *

16. GGAO Testimony before the Special Committee on Aging, U.S. 
  Senate, dated November 2, 1995, regarding Fraud and Abuse: 
  Medicare Continues to Be Vulnerable to Exploitation by 
  Unscrupulous Providers, GAO/T-HEHS-96-7........................     *

17. GGAO Testimony before the Subcommittee on Human Resources and 
  Intergovernmental Relations, Committee on Government Reform and 
  Oversight, U.S. House of Representatives, dated September 5, 
  1996, regarding Fraud and Abuse: Providers Excluded From 
  Medicaid Continue to Participate in Federal Health Programs, 
  GAO/T-HEHS-96-205..............................................     *

18. GGAO Testimony before the Special Committee on Aging, U.S. 
  Senate, dated April 10, 1997, regarding Medicare Managed Care: 
  HCFA Missing Opportunities to Provide Consumer Information, 
  GAO/T-HEHS-97-109..............................................     *

19. GGAO Testimony before the Subcommittee on Human Resources, 
  Committee on Government Reform and Oversight, U.S. House of 
  Representatives, dated April 16, 1997, regarding Nursing Homes: 
  Too Early to Assess New Efforts to Control Fraud and Abuse, 
  GAO/T-HEHS-97-114 *............................................

20. GThe Health Care Financing Administration's Fraud and Abuse 
  Activities, April 1996.........................................     *

21. GOffice of Inspector General Semiannual Report, April 1, 
  1996-September 30, 1996........................................     *

22. GDefense Criminal Investigative Service Health Care Fraud 
  Program, undated...............................................     *

23. GTranscript of June 13, 1997, ABC News 20/20 television 
  program segment regarding Medicare.............................   293

24. GWall Street Journal, June 11, 1997, ``Estimate of Improper 
  Medicare Costs Soar''..........................................   296

25. GWall Street Journal, May 6, 1997, ``Surgical Strike--A New 
  Brand of Crime Now Stirs the Feds: Health-Care Fraud''.........     *

26. GWall Street Journal, May 30, 1997, ``Intensive Care--Ex-
  Manager Describes The Profit-Driven Life Inside Columbia/HCA''.     *

27. GWall Street Journal, June 17, 1997, ``Los Alamos Lab Is 
  Attacking Medicare Fraud''.....................................     *

28. GThe White Paper, March/April 1997 (Vol. II, No. 2), ``Home-
  Care Fraud: The Emerging Epidemic''............................     *

29. GHealth Care Financing Review, Fall 1996 (Volume 18, No. 1), 
  ``National Health Expenditures, 1995''.........................     *

30. GReport of the Permanent Subcommittee on Investigations of 
  the Committee on Governmental Affairs, Home Health Care Fraud 
  And Abuse, October 1991, S. Rept. 97-210.......................     *

31. GStatement for the Record submitted by the Association of 
  American Physicians and Surgeons...............................   297

32. GSupplemental Questions for the Record of Michael F. Mangano, 
  Principal Deputy Inspector General, Department of Health and 
  Human Services.................................................   308

33. GSupplemental Questions for the Record of Bruce C. Vladeck, 
  Administrator, Health Care Financing Administration (HCFA), 
  Department of Health and Human Services........................   317

 
         MEDICARE AT RISK: EMERGING FRAUD IN MEDICARE PROGRAMS

                              ----------                              


                        THURSDAY, JUNE 26, 1997

                                   U.S. Senate,    
              Permanent Subcommittee on Investigations,    
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:03 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairwoman of the Subcommittee, presiding.
    Present: Senators Collins, Glenn and Durbin.
    Staff Present: Timothy J. Shea, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Ian T. Simmons, 
Counsel; Rena M. Johnson, Counsel; Don Mullinax, Investigator, 
John Frazzini, HHS-IG Detailee; Lindsey Ledwin, Staff 
Assistant; Andrew MacDonald, Intern; Jeffrey S. Robbins, 
Minority Chief Counsel, and Rachael Sullivan, Staff Assistant.
    Other Staff Present: Andrew Weiss (Senator Thompson); Anne 
Rehfuss (Senator Cochran); Len Weiss (Senator Glenn); Gale 
Perkins (Senator Levin); Chris Stanek, Marianne Upton, and 
Rebecca Yee (Senator Durbin); and Kevin Franks (Senator 
Cleland).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. The Subcommittee will please come to 
order.
    Good morning. This is the first hearing in the 105th 
Congress of the Permanent Subcommittee on Investigations and 
the first hearing that I have called since being appointed 
Chairwoman earlier this year. Let me say at the outset that it 
is an honor and a privilege to serve as Chairwoman of this 
Subcommittee--a panel with a long and distinguished history.
    PSI was first authorized by the Senate almost 50 years ago, 
in January of 1948. It was established as a permanent Senate 
Subcommittee as a result of the work of the famous ``Truman 
Committee.'' During World War II, then-Senator Truman used this 
Subcommittee to ferret out waste, fraud and abuse in the 
National Defense Program.
    Continuing this tradition, PSI has exposed problems in 
numerous government activities, including military procurement, 
health and welfare programs and Federal student aid programs. 
Exposing and eliminating waste, fraud and abuse will continue 
to be the Subcommittee's priority during the 105th Congress.
    The American people deserve honest and effective 
government. By shining a spotlight on mismanaged programs, 
corrupt practices and wasteful policies, PSI can help prevent 
the theft and misuse of taxpayers' hard-earned money.
    This morning, we launch a new health care initiative 
focusing first on the Medicare program. Medicare reaches 
virtually every American family. Approximately 38 million older 
Americans are enrolled in this program, which costs taxpayers 
almost $200 billion each year. In fact, about 14 percent of all 
Americans receive health care services from Medicare. In my 
home State of Maine, the percentage is even higher--
approximately 17 percent of the State population was enrolled 
in Medicare in 1995.
    As the baby boomer generation reaches retirement age, the 
cost of and the population served by Medicare will only 
explode. It is appropriate, therefore, that PSI begins its work 
in the 105th Congress with an investigation of this critical 
health care program.
    Today's hearing is the beginning of a new effort to expose 
emerging fraud and abuse in Medicare, with the twin goals of 
protecting the taxpayer from unscrupulous individuals who steal 
literally billions of dollars from Medicare and of protecting 
elderly and disabled Americans who rely on this important 
program for their health care needs.
    As the General Accounting Office, from which we will hear 
later today, has repeatedly warned, Medicare is a high-risk 
program, especially vulnerable to waste, fraud, abuse and 
mismanagement. According to several reports and audits, between 
5 and 10 percent of Medicare spending is lost each year to 
waste, fraud and abuse.
    In a program funded at about $200 billion, that means 
between $10 billion and $20 billion is bilked each year from 
Medicare. And even that startling estimate may actually be too 
low. We have seen recent newspaper reports that an unpublished 
audit by the Department of Health and Human Services indicates 
that the amount of improper payment is much higher than 
previously thought. HHS told our staff during a closed briefing 
that the unpublished audit indicates that an estimated 14 
percent of Medicare spending is the result of improper 
payments. That amounts to an astronomical $23 billion. And, 
even more troubling, that is only the mid-range estimate. HHS 
told the Subcommittee that the high range was 17 percent, or 
$27 billion annually, in improper payments.
    Unfortunately, as those of us who have recently been 
through the debate on the budget know, there is no line item in 
the budget entitled, ``Medicare Waste, Fraud and Abuse'' that 
we can simply strike to eliminate this problem. The task of 
ferreting out wasteful and fraudulent spending is a difficult 
one made more complicated by the ingenuity of scam artists, 
coupled with our limited enforcement resources.
    The Subcommittee's preliminary review indicates that no 
part of Medicare is immune from waste, fraud and abuse. There 
are far too many instances of fraud and wasteful spending in 
home health care, for example, leaving the elderly with 
inferior or nonexistent services as unscrupulous providers get 
rich picking the taxpayers' pockets.
    Home health care is designed to give the elderly the 
opportunity to receive health care at home instead of in a 
hospital or a nursing home. It is a compassionate and preferred 
alternative for many elderly Americans, and it makes good 
fiscal sense as well. But far too often, this wonderful idea is 
abused by unscrupulous health care bandits who abuse the home 
health care program to raid the Federal Treasury and to steal 
billions through improper billings.
    Let me just give you a couple of examples of the audacious 
schemes to defraud Medicare. For example, one Florida home 
health care agency billed Medicare for $84,000 for gourmet 
popcorn, $140,000 for an airplane, $14,000 in company logo 
emery boards, and $5,000 to lease a BMW for the owner's son. In 
another case, the chief executive officer of ABC Home Health 
Services, Inc., one of the Nation's largest home health care 
chains, was convicted of billing Medicare for more than $14 
million in false expenses, including jewelry and a luxury beach 
house.
    Similar fraud can occur in the nursing home setting as 
well, where unscrupulous providers have access to patients who 
each have valuable Medicare beneficiary numbers. These numbers 
are as good as gold and can be used to fraudulently bill 
Medicare. Individuals with access to these numbers can open the 
floodgates for Medicare payments, illegally draining the 
Treasury of billions of dollars each year.
    Fraud in the nursing home setting, as you will hear today, 
can take several forms. Some simply charge for services never 
rendered or equipment not provided. Others charge Medicare for 
expensive medical equipment while providing the elderly with 
inferior products. This fraud not only shortchanges the 
taxpayer, but it also hurts our most vulnerable senior 
citizens, who are not given quality services and equipment paid 
for by Medicare.
    Today's hearing will also examine the problem of up-coding, 
fraud in the durable medical equipment industry, marketing 
abuses in the HMO sector, and the adequacy of current civil and 
criminal enforcement measures. I realize that is a very tall 
order to explore all of these issues, but the intent of this 
hearing is to be an overview hearing which will establish a 
framework for the Subcommittee's ongoing investigation into the 
Medicare program.
    The Subcommittee is very pleased to first hear this morning 
from our Senate colleagues. We are going to begin with Senator 
Grassley, the Chairman of the Special Select Committee on Aging 
who, as I understand it, will be submitting a new GAO report on 
durable medical equipment; as well as from Senator Harkin, who 
has a longstanding interest and expertise in this area.
    We will then hear from a panel of law enforcement witnesses 
as well as a final panel that will give the Subcommittee an 
overall assessment of the fraud problem in the administration 
of the Medicare program.
    This hearing is the Subcommittee's first step in shedding 
light on Medicare fraud, an epidemic that poses a serious risk 
to the program's fiscal integrity. I am determined to 
investigate and expose fraud and abuse in this critical 
program, and I am confident that our investigation will help 
lay the groundwork for legislative and administrative reforms. 
Our senior citizens, and indeed all taxpayers, deserve no less.
    Finally, let me emphasize one important and perhaps obvious 
point. The vast majority of health care professionals are 
caring, dedicated providers whose top priority is the welfare 
of their patients. They, too, are appalled at the unscrupulous 
providers who take advantage of weaknesses in Medicare to bleed 
billions of dollars from the program.
    I look forward to working on this important investigation 
with the Ranking Minority Member of this Subcommittee, who is 
also the Ranking Member and former Chairman of the full 
Committee, the distinguished Senator from Ohio, John Glenn. 
Senator Glenn has had a long history of working very hard to 
improve the efficiency of all government programs and to 
eliminate waste, fraud and abuse in Federal programs and 
services.
    It is now my distinct honor to recognize Senator Glenn for 
any statement that he may wish to make at this time.

               OPENING STATEMENT OF SENATOR GLENN

    Senator Glenn. Thank you very much, Madam Chairwoman. I 
want to commend you and your staff for the fine job you have 
done in organizing this overview hearing.
    We want to apologize not only to the audience that was here 
yesterday, or was planning to be here yesterday, and to our 
witnesses because we got caught in a marathon voting session 
yesterday, and it just did not work out that we could have a 
hearing at the same time. We may get into some of the same 
problems today. The last word I had was that we might even be 
starting votes as early as 9:40 this morning--I have not yet 
heard.
    Senator Collins. That may be the case.
    Senator Glenn. So we may have to be shuffling back and 
forth to keep the hearing going today.
    As you say, we have had a long history on this Committee, 
going way, way back, and even in the time I have been on the 
Committee, we have focused on health care and health care 
problems dating back to 1981, so the Committee does not come at 
this as a complete novice.
    We have pointed out ways in which unscrupulous health care 
providers and institutions have bilked the Medicare system to 
the detriment of patients or taxpayers, or both at the same 
time, and reports of this Subcommittee following those hearings 
have over the past 16 years contained recommendations for both 
the Executive and Legislative Branches on how fraud and abuse 
afflicting our health care systems could be deterred, detected, 
or targeted for prosecution.
    Some of those recommendations have been taken. One of our 
witnesses this morning, Ms. Bucy, points out in her written 
statement that some of the recommendations that we have made 
have been taken, and some have not yet been adopted for reasons 
that are not always clear. What is clear is that in the case of 
Medicare fraud, Chairwoman Collins has not overstated matters 
in calling this hearing ``Medicare at Risk.'' I think it is 
that serious.
    We have now reached a point where of the approximately $200 
billion paid out last year under Medicare, approximately $25 
billion--I think your figures were $27 billion, but it is in 
the same general area--$25 billion to $27 billion of taxpayer 
money was washed down the drain--or, to pick a more precise 
metaphor, was diverted into the wallets of Medicare system 
participants guilty of fraud and abuse.
    According to a recent report of The Wall Street Journal 
about an internal audit at HHS, the best evidence is that not 5 
percent or 10 percent, but now up to 12 percent of all Medicare 
dollars are lost to fraud and abuse. The Chairwoman mentioned 
the high-risk list. That originated in this Subcommittee, the 
request for GAO and the administration to get together and set 
up a list of those areas in our government expenditures that 
are at the highest risk of fraud, abuse and mismanagement. And 
this is certainly on that list, and those are brought up-to-
date for every Congress, and there are about 10 pamphlets that 
GAO has put out that are very, very good. This is one of the 
areas that has continually been on the high-risk list, and we 
just cannot continue that way.
    In the face of the evidence that the problem of Medicare 
fraud is worsening and not improving, it is not enough to say, 
as one HCFA was quoted as saying just 2 weeks ago, that the 
Federal Government is making good progress in the battle 
against Medicare fraud, because the best evidence is that we 
are not. And I do not single out the Executive Branch to the 
exclusion of Congress. Clearly, there is enough blame to go 
around.
    It is an enormous problem. We have some 822 million claims 
filed with Medicare each year. There are about 34 million 
Americans on Medicare and I think that figures out very roughly 
to about a claim from each Medicare recipient every 2\1/2\ 
weeks. That is an enormous job just to keep up with that, and I 
think included in that are individual prescriptions, so if 
somebody has a prescription filled ever 2 or 3 weeks, that 
would be one claim, so maybe it is not quite as big as it would 
appear at first blush. But it is an enormous job, and only a 
fraction of these claims are being subjected to any kind of 
meaningful review to determine if services were in fact 
provided as represented or provided in a way that was 
appropriate.
    It surprises no one that the Medicare program is on that 
high-risk list I mentioned a moment ago as being ``highly 
vulnerable to waste, fraud, abuse and mismanagement.''
    No wonder, where the review is so inadequate, the risk of 
being caught and punished so negligible, that as the 
administrator of HCFA recently told a House Subcommittee, fully 
one-fourth of home health claims may be spurious. That is, as 
many as one-fourth of home health claims may be spurious.
    No wonder, when so little meaningful scrutiny is given to 
nursing home treatment and billing practices, the GAO recently 
found that fraudulent and abusive billing practices, such as 
billing Medicare for unnecessary or undelivered services or 
misrepresenting services to obtain reimbursement, are 
``frequent and widespread,'' to use their words.
    It is no wonder that the Inspector General admitted in 
September of 1996 that the durable medical equipment, or DME, 
industry, another section of the Medicare system we are going 
to speak about today, ``has consistently suffered from waves of 
fraudulent schemes in which Medicare is billed for equipment 
never delivered, totally unnecessary equipment or supplies, or 
equipment delivered in a different State than billed in order 
to obtain higher reimbursement.''
    Put simply, despite the fact that we have known about this 
problem for a long time, the Federal Government continues to do 
a poor job of protecting our elderly citizens and the American 
taxpayers from those who fraud and abuse the Medicare system.
    This hearing, initiated by the Permanent Subcommittee on 
Investigations and the Chairwoman, is an extremely important 
and timely tool for pressing the Federal Government into the 
kind of intelligent and focused attack on Medicare fraud that 
has been too slow in coming. I know we will be able to point 
out many instances of fraud and abuse that should never occur.
    I am also interested in these hearings, though, to find out 
what we can do about it, and for our witnesses and anyone who 
wants to contact the Subcommittee, to give us a better handle 
on this. Can we use whistleblowers, since we cannot get in and 
inspect everything that happens with every claim; people who 
see a lot of fraud within the system themselves and people who 
do not want to see taxpayers' dollars wasted can be of valuable 
help to the Committee in pointing out some of these things for 
us.
    Should we get into asset forfeiture as we have done with 
some of the drug cases, and seize property, and can we put some 
of that asset forfeiture money back into more investigation to 
cut out more fraud, things like that? Can we contract outside 
and allow outside contractors to go in and find some of this 
fraud and abuse? Can we expand the role of the IG? The IGs have 
been a real success story. That is another one that was started 
by this Committee. As a result of the expansion a few years 
ago, we now have IGs in 61 different agencies and departments 
of government, doing a good job. Can we expand the IG role 
internally to find some of these things?
    I think these are some of the things that we would like to 
have in addition to pointing out all the horror stories that I 
am sure we are going to hear.
    Madam Chairwoman, that is a little longer statement than I 
had planned to make, but thank you very much.
    Senator Collins. Thank you very much.
    I am delighted that our first panel of witnesses, our 
colleagues Senator Grassley and Senator Harkin, could rearrange 
their schedules in view of the postponement yesterday; I know 
that it is a sign of your deep commitment and interest in this 
area, and we look forward to taking advantage of your 
expertise.
    Senator Grassley, if you will proceed.

 TESTIMONY OF HON. CHARLES E. GRASSLEY,\1\ A U.S. SENATOR FROM 
 THE STATE OF IOWA, AND CHAIRMAN, SENATE SPECIAL COMMITTEE ON 
                             AGING

    Senator Grassley. Senator Harkin and I do not claim that 
you have to be from Iowa to know about health care fraud, but--
--
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Grassley appears on page 61.
---------------------------------------------------------------------------
    Senator Collins. It helps.
    Senator Glenn. It does not hurt.
    Senator Grassley [continuing]. He has been active in it a 
very long time--not active in fraud, but active in ferreting 
out fraud--and I appreciate very much being invited to testify 
as Chairman of the Special Committee on Aging and appreciate 
your membership on that Committee as well, Senator Collins.
    Thank you for holding this hearing and, more importantly, 
using this very important Subcommittee, which has the name of 
``Permanent Subcommittee on Investigations,'' but I call it the 
``Subcommittee on Good Government'' because of its decades of 
history of keeping government responsible and making sure we 
get our taxpayers' dollars' worth. And the fight that you are 
launching today is going to continue in that tradition, I know.
    I also apologize that after my short statement, I have 
another engagement, so I would beg to answer questions in 
writing if you have any questions that you want to follow up on 
with me.
    Fraud, waste and abuse are, of course, enemies of our 
health care system. It is a disease that is taking health care 
services from our children, our spouses and our elderly 
parents, but most importantly, it is going to deprive future 
generations of the social safety net that we have had for our 
seniors if we do not do something about it very quickly. It is 
costing us unnecessary millions of dollars, money that could 
and should be put to better use.
    As Chairwoman of the Special Committee on Aging, it is a 
pleasure to bring to your attention the findings of a General 
Accounting Office (GAO) report \1\ that you have already 
referred to that was released to me just a few days ago. This 
is a report regarding the prices that we taxpayers pay for 
medical equipment and supplies, as well as the fact that 
Medicare often overpays large-volume suppliers--just exactly 
the type of people you would think we would not be overpaying 
if they were doing that much business with the government and 
could get the special rates.
---------------------------------------------------------------------------
    \1\ Exhibit No. 1 appears on page 169 in the Appendix.
---------------------------------------------------------------------------
    In 1996, the Medicare system paid out about $4.3 billion 
for medical equipment and supplies used in 1996--that is $4.3 
billion. I brought a few examples of the medical equipment and 
supplies, and you know, there are thousands of these items, but 
we have brought a walker, we have catheters, we have glucose 
strips.\2\
---------------------------------------------------------------------------
    \2\ Exhibit No. 2 appears on page 179 in the Appendix.
---------------------------------------------------------------------------
    What the GAO had to say in its most recent report, of 
course, is alarming and troubling to all of us. Specifically, 
the GAO said that the Health Care Financing Administration, 
which we know as HCFA, does not know specifically--now, get 
this--does not know specifically what products it is paying for 
when it pays for medical equipment and supplies.
    Could you ever imagine paying someone for supplies that 
they are delivering to your patients, clients or agents, and 
not knowing exactly what you are paying for? If that were a 
private business, I would presume you would not be in business 
for a very long period of time.
    It is interesting. This situation reminds me of the 
unmatched disbursements of the Department of Defense, which you 
have heard me talk about for the last several months on the 
floor of the Senate, where the Department of Defense does not 
want to do accounting work as a transaction occurs, like other 
businesses do.
    Of course, the very next question one would ask after 
learning that HCFA does not know exactly what medical equipment 
or supplies it pays for is, Why doesn't it know that? The 
reason is that HCFA does not require suppliers to identify 
specific products on their Medicare claims. Instead, suppliers 
use HCFA billing codes that usually cover a broad range of 
products of different types, quality, and market prices. 
Because Medicare pays suppliers the same amount for all the 
products covered by a single billing code, the supplier has a 
financial incentive to provide the cheapest product covered by 
that billing code.
    Perhaps an example would be helpful, and that is why I have 
three different types of catheters with me as an example. For 
the long-term one, you have a price of $17.90; for a medium-
term one, a price of $5.19; and for the short-term, a price of 
$1.09.
    Well, let us say that I am a supplier of these catheters, 
and I have a catheter that costs $1, and I have some that go 
all the way up to $17. But what does HCFA pay? Well, as you can 
see there, it pays between $9.95 and $11.70, so about $10 is 
what they pay under that billing code that covers all 
catheters. So that if you are a supplier, you are crazy to 
supply the expensive catheters when you could supply the 
cheaper ones, and it means a great deal if you are a supplier. 
But what a bad deal it is if you are one of the millions of 
taxpayers who pays into the Medicare system, and you are 
getting the cheap one, and you are paying for at least the 
medium price one or even more than that, as an example.
    This example of the catheters demonstrates vividly to me 
that the $4.3 million that we are spending annually for medical 
equipment and supplies is higher than it need be. It also tells 
me, like it or not, that we have a payment system here that is 
``just plain broke.''
    I would like to shift for a moment to what can we do about 
something like this, that is ``just plain broke.'' We all as 
legislators, as parents, as taxpayers, have a responsibility 
and a commitment and a duty toward improving this situation.
    In its report, the GAO said that the billing code system 
that HCFA uses provides insufficient information for properly 
identifying and paying for products billed to Medicare, and 
this need not be the case. It is very simple.
    The Department of Defense, for example, and some health 
care purchasing groups are beginning to require their suppliers 
to use product-specific codes called universal product numbers, 
not different from what you find on your grocery supplies that 
you buy at the supermarket. Here is an example, just use the 
specific ones, like on this glucose box.
    These universal product numbers identify the individual 
product. In this manner, you get what you pay for, plain and 
simple--not you pay for what you do not get.
    I say that HCFA should be required to do the same, and in 
that vein, I will introduce legislation that I hope Senator 
Collins and the other Senators here today will join me in 
introducing, to ensure that HCFA immediately begins an 
intensive effort to initiate universal billing codes for 
medical equipment and supplies that are billed to the Medicare 
program.
    In this way, we will dramatically improve the system. Then 
we can redirect those savings to other areas in need of 
attention.
    In closing, I would be remiss if I did not say that 
citizens have an involvement in this as well, maybe following 
on what Senator Glenn said. We want to get people to be a part 
of this system; we want the average citizen to see himself or 
herself as a policeman of this system or even as a prosecutor 
of this system. So I would bring to your attention some 
legislation that I got passed 10 years ago for the False Claims 
Act. Qui tam was passed because of the problems in the 
Department of Defense, but it is now being used more in health 
care than any place else, and I would ask that in this legal, 
whistleblower-type action, where a citizen can file a civil 
claim on behalf of himself or herself and the government for 
violation of a statute that provides a specific penalty for 
wrongdoing. If the case works out, the individual may keep part 
of any resulting penalties.
    So I thank you for this opportunity to bring this GAO 
report and the coding system to your attention, and hopefully 
we can turn some of this around.
    Thank you very much.
    Senator Collins. Thank you very much, Senator Grassley, for 
your excellent testimony. Your full statement and any reports 
or anything else you would like to submit will be published in 
our hearing record.
    Senator Harkin, we look forward to hearing from you.

TESTIMONY OF HON. TOM HARKIN,\1\ A U.S. SENATOR FROM THE STATE 
 OF IOWA, AND RANKING MINORITY MEMBER, SUBCOMMITTEE ON LABOR, 
  HEALTH AND HUMAN SERVICES, EDUCATION AND RELATED AGENCIES, 
               SENATE COMMITTEE ON APPROPRIATIONS

    Senator Harkin. Thank you, Madam Chairwoman, and I thank my 
colleague Senator Grassley for his work in this area. We have 
worked together very closely in trying to ferret as much of 
this waste and abuse as possible, and I thank him very much for 
his work in this area.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Harkin appears on page 63.
---------------------------------------------------------------------------
    Several years ago, a woman by the name of Shirley Pollack, 
from Atlantic, IA, wrote to me. It turned out that her mother-
in-law had been in a nursing home, and she had received a 
statement after she got out for bandages. The statement said 
that Medicare had reimbursed the supplier $5,000 for bandages 
for 3 weeks.
    Shirley said, ``This is impossible. I know my mother-in-law 
did not use that many bandages.'' So she went back to the 
nursing home, and she was told, ``This is not a bill. Your 
statement says `This is not a bill.' '' And she was told, ``Do 
not worry about it; you do not have to pay it anyway.''
    She said, ``Well, somebody has got to pay it.'' So she 
started going around to different places, and came to my 
office, and we looked into it and found, of course, that 
indeed, her mother-in-law had not received $5,000 worth of 
bandages in 3 weeks, but that is what Medicare had paid for 
because of the types of billing problems that they have that 
Senator Grassley just spoke about.
    I started having hearings when I was Chairman of the 
Subcommittee on Appropriations for HHS. In 1989 I had my first 
hearing, and we have been having them ever since. Here are all 
the reports that we have right here--reports from GAO, HHS, IG, 
and all of our hearing records.
    Now, Senator Glenn, you want an answer to what we can do 
about it. I have been advocating for years that only one thing 
is going to solve this--good old free enterprise competitive 
bidding.
    I was shocked to learn that under Medicare, going clear 
back to the beginning of Medicare, pays on a fee basis that was 
set up years ago and is adjusted for inflation. And it just 
goes on year after year after year after year, and nothing is 
done about it.
    So we started comparing--I do not know if you can see my 
chart over there, Madam Chairwoman--what the Veterans 
Administration was paying compared to Medicare. For instance, 
for this little syringe, Medicare was paying $2.93; the 
Veterans Administration paid $1.89 for exactly the same 
syringe. For that walker that Senator Grassley was talking 
about, Medicare paid $75, and the VA paid $25--for exactly the 
same walker. For a commode chair--which I do not have here, 
obviously, but I do have a picture of it right here--a simple 
device--Medicare paid $99.35, and the Veterans Administration 
for the same commode chair--I am not talking about different 
things; the same one--paid $24.12.
    This is saline solution--Medicare paid $7.90; the Veterans 
Administration paid $2.38--and on and on and on. These are 
items that we looked at just about 2 years ago, and the 
potential savings that could come from them.
    Why is it that Veterans Administration pays that much for 
the same item, and Medicare pays that much more? The Veterans 
Administration engages in competitive bidding. They put it out 
and say: If you want to supply it, give us a bid.
    That is the answer to it. Now, why haven't we gotten it? 
Well, you said it, Madam Chairwoman--$23 billion they estimated 
last year--it was higher than what we had thought before. We 
had thought it was more like $18 billion a year. If you take 
$23 billion a year, and you look at the budget, where we are 
trying to make all these cuts in Medicare to save the Medicare 
system, if you could just reduce the waste and the abuse--
forget about the fraud--the waste and abuse by 50 percent, you 
would go a long way toward saving the Medicare system without 
making all the cuts and doing all the things we think we have 
to do around here.
    Why don't we do it? There is only one answer--powerful 
lobbies.
    Look at oxygen, for example. I have been on this oxygen 
kick for several years--I am not taking it--but on going after 
the reimbursement for oxygen. We found--and these are round 
figures--that the Veterans Administration was paying $120 per 
month, and Medicare was paying $270 per month.
    So we had hearings on this. We had the oxygen people in and 
the Medicare people in. The oxygen supply people said, ``Well, 
there is a difference, you know. We supply all these services 
and all these things that add up to more money than what the 
Veterans Administration paid for.''
    Fine. I asked GAO to do an investigation into this and find 
out what was going on.\1\ Do you know what they found? No. 1, 
the same city, the same group of people, one veteran, one 
Medicare, Medicare paying over 2\1/2\ times as much, and 
actually, the veterans were getting better service than what 
Medicare was doing--better--at that price.
---------------------------------------------------------------------------
    \1\ Exhibit No. 3 appears on page 180 in the Appendix.
---------------------------------------------------------------------------
    So this argument that somehow they were providing better 
service for Medicare is nonsense. Well, we did take a step to 
solve it in this budget we passed. As you know, there is going 
to be a cut in reimbursement for oxygen by 37.5 percent. My 
question is why does it take 2 years? The first year is a cut 
of 20 percent, and the next year, another 17.5 percent. My 
observations are: First, that it should have been done in 1 
year. There is no reason to wait 2 years. It could have been 
done in 1 year. And second, why only 37.5 percent? It should 
have been a lot more than that. I think it should have been up 
in the 50 percent range, as a matter of fact. From all the 
evidence that we have heard, why isn't it cut more than that?
    So we are just throwing money away. We are throwing it 
away, and there are people out there making a lot of money on 
this system. What I have found is that most of it is not fraud; 
most of it is simply a lax system out there that invites this 
kind of abuse. It is abuse. Competitive bidding will do it. If 
we had competitive bidding, look at the money we could save.
    In this chart, Madam Chairwoman, last year, we reviewed 18 
items. How many items is Medicare reimbursed for? Tens of 
thousands. But we looked at 18 items. Medicare just this year 
alone, if they had competitive bidding--if they paid the same 
as the Veterans Administration--could have saved $236 million 
this year--in 1 year--$1.6 billion over the next 7 years, if 
they had just paid what the Veterans Administration paid. That 
is for just 18 items.
    As a matter fact, we went out and found out what the retail 
prices were. Those are not on there--well, yes, we do have some 
retail prices on there. We have wholesale and retail prices. We 
found out that if Medicare just went down to the local 
drugstore and bought retail, they could have saved $371 million 
over the next 7 years just by paying retail for them.
    So again, I do not need to go through all of these, but 
again, a big part of the answer is competitive bidding. Well, 
good news, bad news. And finally, we got Medicare, about 3 
years ago, to testify that by gosh, in fact, they could use 
competitive bidding. They fought it for a long time, but they 
finally admitted that, yes, they could use it, and yes, it 
would save money, after we got all this evidence and 
documentation on it.
    The good news is that, in the bill that we passed 
yesterday, the budget reconciliation act, we are ``permitting'' 
HCFA to engage in competitive bidding. We ``permit'' them to do 
it. I think we should have mandated them to do it as we do the 
Veterans Administration. But we permit it.
    And hopefully, Madam Chairwoman, with your strong support--
and again, I thank you for having your first hearing on this 
issue, because I do not think there is a more important issue 
than Medicare, no more important issue than getting a handle on 
this--with your strong support, we can really hold HCFA's feet 
to the fire and get them to engage in competitive bidding right 
away, not down the road.
    Just a couple of other things. On the itemization that 
Senator Grassley talked about, this always astounded me, too, 
because someplace, they do keep an itemized list, obviously. 
Then they put it all together, they bundle it and pass it on.
    Several years ago, we asked about the differences between 
commercial technology and what the technology was at HCFA. HCFA 
was using outdated computers and outdated systems to look at 
these billings codes. I invite your attention to this GAO 
report that came out in May of 1995, which basically said that 
if HCFA just used commercial software that was out on the 
market, that was being used by Blue Cross, Aetna, Prudential, 
and all these other companies, they would save in the first 
year over $600 million, just catching these kinds of billing 
codes. Try to get them to do it--you talk about pushing on a 
mountain and not getting anywhere.
    Well, now, finally, they are changing. But I invite your 
attention and also your staff to look into this because HCFA 
really is not moving ahead aggressively and adopting the kind 
of commercial technology that will catch these kinds of billing 
errors that Senator Grassley talked about. If you want more, I 
can get you more information on that.
    Finally, back to the Shirley Pollack example. I know you go 
to senior citizens, as we all do. We go to congregate meal 
sites, senior citizen centers. Any time you go into one of 
these centers just ask: Has anyone here who has gone to the 
doctor or been in the hospital or received a treatment ever 
received a statement where there were things on there that you 
thought maybe should not have been on there or that you had 
questions about? Watch the hands go up.
    The fact is that when they get it, it says ``This is not a 
bill,'' so human nature being what it is, when it says ``This 
is not a bill,'' you do not pay much attention to it. Plus, it 
is not itemized. So if an elderly person gets this, and it 
looks like it is too much, first of all, it says, ``This is not 
a bill,'' and you do not even know what is in there--what can 
they do about it?
    There are two things. There is an amendment that I offered 
that is in the reconciliation bill yesterday, and I hope it 
stays, that requires first of all that the statements include 
the toll-free hotline. There is a toll-free hotline for seniors 
to use to make sure this is put on the statement. And second, 
if an elderly person gets a statement and wants an itemized 
list, they can call that hotline, ask for an itemized list, and 
they have to receive that itemized list within 30 days. That 
will tend to start putting a damper on this stuff.
    The other thing that we did, that we funded last year, and 
it is starting this year, under the Appropriations Committee, 
we put a couple million dollars into what we call a ``Medicare 
Waste Patrol.'' There are a lot of retired people out there, 
Madam Chairwoman, who are retired doctors, nurses, accountants, 
lawyers, teachers, and professional people who could be very 
helpful in this. There are 12 pilot projects going on around 
the country--I do not know exactly what States they are in--to 
enlist the aid of the elderly in helping to ferret out this 
kind of waste using their expertise so that they can look at 
these statements. They can go to congregate meal sites and 
senior citizen centers to start to work with the elderly to 
help them get a handle on these bills. And that is just taking 
place this year, as I said, in 12 sites around the country.
    Again, I am not going to go through any more of these 
examples; you have hundreds of thousands of them. All I will 
say is that I just hope that, first, we can continue to push on 
competitive bidding, and I ask for your help in doing that and 
for this Subcommittee's help. Second, to make sure we get the 
kind of commercial technology at HCFA that will help them catch 
these fraudulent--not fraudulent--abusive practices; more often 
than not, abusive practices, rather than fraudulent. And third, 
to ensure that the oxygen cuts at least go into effect, and if 
we can collapse it, I would hope we could do it in less than 2 
years.
    Thank you very much, Madam Chairwoman.
    Senator Collins. Thank you very much, Senator Harkin. We 
admire your commitment to this issue and the expertise that you 
have developed, and we appreciate your willingness to share it 
with the Subcommittee.
    Senator Harkin. Thank you very much, Madam Chairwoman.
    Senator Glenn. Could I ask a question, Madam Chairwoman?
    Senator Collins. Yes.
    Senator Glenn. Tom, is competitive bidding somehow 
discouraged in the law now? Is it actually forbidden?
    Senator Harkin. Oh, it is forbidden. The law forbids HCFA 
from engaging in competitive bidding. That is true. It is 
amazing. It is the craziest thing you have ever seen.
    Senator Glenn. So it is actually in the law that they 
cannot go out on competitive bid to get cheaper prices?
    Senator Harkin. They have to do it on the established fee 
basis adjusted for inflation every year, and if new items come 
on, they look at what the market is like out there for these 
items, they set up a basis for that, and they plug that in; and 
they cannot engage in competitive bidding. I think that is 
right--yes, my staff says that is right. They are absolutely 
forbidden from engaging in competitive bidding.
    Senator Glenn. Well, that is something we are going to want 
to ask about in a little while and see what we can do on that 
one, too.
    Senator Harkin. What you will hear is that--here is what 
you will hear, because I have heard it so many times, and you 
have got to be prepared for it. They are going to say, well, 
you see, if you get engaged in competitive bidding, you will 
not get the quality.
    Well, as you know, I have been a strong advocate of 
disability policy, and there are a lot of people with 
disabilities who get wheelchairs and things like that who will 
say, ``We will get an inferior product.''
    Well, my response to that is that what HCFA can do is set 
up quality standards. That is what the Veterans Administration 
does. They set up a quality standard, and they say, OK, here 
are the standards you have to meet for durable medical 
equipment, supplies and other things--now competitively bid for 
it.
    Senator Glenn. Is the billing code issue that Senator 
Grassley asked about a major problem, too, in that they lump 
things together? That sounds to me like you pay for a Lincoln 
Continental, and you get the cheapest Ford.
    Senator Harkin. Yes. You have got to read this report, 
John. It is incredible. We have all kinds of examples. Here is 
an example of unbundling, where a physician was paid for two x-
ray exams on the same date of service--he is showing being paid 
for one--HCFA allowed $98, when they should only have allowed 
$75--$23 less.
    Here is an example of fragmentation; an example of mutually 
exclusive procedures, and on and on and on and on--every one of 
them because of the problem that Senator Grassley spoke about 
in catching these.
    Senator Glenn. Thank you.
    Senator Collins. Thank you very much.
    Senator Harkin. Thank you very much, Madam Chairwoman.
    Senator Collins. Our second panel is a panel of law 
enforcement witnesses. The first witness is Michael Mangano, 
who is the principal deputy for the Office of Inspector General 
at the Department of Health and Human Services. In that 
capacity, he directs the day-to-day operations of the Office of 
the Inspector General and oversees reviews that provide the 
Secretary with independent findings and recommendations.
    The second witness on this panel is Charles Owens, who is 
chief of the Financial Crimes Section for the Federal Bureau of 
Investigation. As chief of the Financial Crimes Section, Mr. 
Owens has the national management responsibility for all types 
of financial crimes investigations, including health care 
fraud, financial institutions fraud, and insurance fraud. He 
also serves as the national program manager for the White 
Collar Crime Program, the FBI's largest investigative program.
    Pursuant to PSI Rule 6, all witnesses who testify before 
the Subcommittee are required to be sworn, so I would ask that 
you stand and take the oath at this time. Please raise your 
right hand.
    Do you swear that the testimony that you will give before 
this Subcommittee is the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Mangano. Yes.
    Mr. Owens. I do.
    Senator Collins. I want to thank our witnesses for 
accommodating the Subcommittee's need to change the hearing 
from yesterday to today. I appreciate your willingness to 
accommodate us and assist us in this problem area.
    I am going to ask you in the interest of time to confine 
your oral testimony to 10 minutes each. The lights will cue 
you. At 8 minutes, the yellow light will go on, telling you 
that you have 2 minutes remaining, and when the red light comes 
on, we will ask you to wrap up so there will be time for 
questions.
    I want to emphasize that your full testimony will be 
included in the record as well as any other materials that you 
want to provide.
    Mr. Mangano, we will proceed with you at this time. Thank 
you.

TESTIMONY OF MICHAEL F. MANGANO,\1\ PRINCIPAL DEPUTY INSPECTOR 
     GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Mangano. Thank you very much, Madam Chairwoman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Mangano appears on page 66.
---------------------------------------------------------------------------
    I am very pleased to be here with you this morning to talk 
about some of the work that we have been carrying out in the 
Medicare area. Medicare no doubt is one of the most important 
social and health programs in this country. With expenditures 
exceeding $190 billion this year, it is no wonder that it is an 
inviting target for those who want to unfairly abuse that 
system for their own profit.
    As evidence of that, so far this year, we have completed 
700 criminal and civil investigations that will return about $1 
billion to the Medicare Trust Fund from those who have abused 
the program. We have also excluded about 980 health care 
providers who have been committing fraudulent or abusive 
practices in the program. In my testimony, I identify eight 
program areas that we think are most commonly abused today and 
a couple of management vulnerabilities that we think need to be 
closed off. But I will confine my remarks here this morning to 
four program areas that the Subcommittee seems to be most 
interested in with this hearing--home health, nursing homes, 
durable medical equipment, and hospital double billing.
    With regard to home health services, this is probably one 
of the fastest growing areas of the Medicare program today, 
doubling the number of visits per episode per beneficiary in 
the last 6 years. From 1990 to 1996, the program increased from 
36 visits per beneficiary to 76. Medicare paid for about 250 
million visits by home health aides in the last year. The 
program's financial costs have really been sky-rocketing, from 
$3.5 billion in 1990 to almost $17 billion last year. The 
Congressional Budget office estimates that if we do not do 
anything to put the brakes on this program, it will be a $31 
billion program by the year 2002. So action is clearly 
warranted.
    We believe some of this increase reflects the aging of the 
population and technology increases. But unfortunately, I have 
to tell you here this morning that fraud and abuse are also 
clear culprits in some of the increases going on with this 
program.
    In audits that we have conducted across many of the States 
of this country, we found individual home health agencies 
guilty of violations of the law with 19 to 64 percent being the 
range of ineligible services that have been billed to Medicare. 
In reviews we have done on a statewide basis in four of the 
largest States in the country, we have found that the rate of 
improper payment tends to be around 40 percent. I think that 
was mentioned by either Senator Grassley or Senator Harkin. 
That is a very disturbing result.
    We think the vulnerabilities of the program are fourfold. 
One is the service is delivered at home; so there is very 
little supervision of this service. Two, there is no limit to 
the number of home health visits that a beneficiary can 
receive. Three, there is no beneficiary copayment, so there is 
not that natural break by the beneficiary to question the 
provider about whether additional home visits are really 
needed. And finally, I have to harken back to a Committee 
report here that was done in 1981, which focused on the cost-
based nature of this benefit, which really prevents the home 
health agency from having any incentive to reduce their costs.
    I want to give you an example of a recent case that we had 
in the District of Columbia that will give you a quick glimpse 
of what this process is like. The chart here on the right was 
used before a jury to explain how home health care visits were 
paid for. You have a couple of handouts which are copies of 
that chart as well as a blow-up of the first two notices on the 
left. Basically, what happens is the home health care nurse 
goes out and delivers the service at site, come back and fills 
out, in this case, a time slip that goes back into their 
accounting office which pays that nurse for that visit. The 
form at the bottom is called a ``Skilled Nursing Visit 
Report,'' and it gives the details on what was wrong with the 
patient, who he went to, all the details of it.\1\
---------------------------------------------------------------------------
    \1\ Exhibit No. 4 appears on page 197 in the Appendix.
---------------------------------------------------------------------------
    Now, if this is a Medicare bill, those forms will go to the 
Medicare agency. The contractor for the District of Columbia 
was Independence Blue Cross. The contractor will pay that bill. 
If it is Medicaid, it goes into the Medicaid agency for the 
District, which was First Health Services Corporation. Then the 
District pays that bill.
    What we found in this particular case was that over 1,400 
home visits lacked any documentation that a visit was made. 
That is, those first two sheets were not completed. You might 
be surprised to find out that some of those visits were to 
beneficiaries who were in hospitals, which would clearly be 
illegal. That home health care owner was fined $100,000 in 
restitution to the program and sent to jail for 2 years; his 
co-owner has fled sentencing.
    The key here, we think, in home health is with the 
physician. The physician is really the gatekeeper of the 
system. Some of our audits have found that the physicians 
ordered home health care visits without even knowing the 
patients or examining those patients.
    We think there are a few solutions to this problem. In 
order to protect the benefit and seal it off from some of these 
abusive practices, we think a couple of things have to happen. 
One, the law needs to be changed so the physician must be 
required to actually examine the patient and then do so on a 
periodic basis thereafter to ensure that the patient really 
needs those home health care benefits.
    The second solution is very much in concert with the report 
that was completed by this Subcommittee in 1981. That is, we 
should increase focused reviews by the Medicare contractors to 
zero in on those providers that we think are most abusive, and 
we should do more periodic audits of their records.
    And finally, a move to the prospective payment system will, 
we think, put some brakes on this process.
    Nursing homes are also a fairly growing segment of the 
Medicare and Medicaid budgets, last year accounting for about 
$46 billion. Our chief concern here is a growing movement to 
cost-shift from Part A, which most people consider the nursing 
home bill, to Part B--that is, having service providers and 
product providers like durable medical equipment salesmen 
coming into the nursing homes and billing the Medicare program 
directly, not through the nursing home.
    One of the consequences of this is that the beneficiary 
then has to pay a copayment. Just as a couple of examples of 
that, we found $17 million in mental health services being 
billed to the Medicare program that were inappropriate; that is 
24 percent of all mental health services in a nursing home 
setting. We found psychological services being billed as group 
therapy when in fact they are really social events.
    In this area, we think a prospective payment system is 
needed for Medicare Part A, and for those bills that fall 
outside of Part A, we think a consolidated bill ought to be put 
together and sent from the nursing home, not from the disparate 
service and equipment suppliers.
    A lot of discussion occurred in the last panel on durable 
medical equipment. This really has become a nagging problem 
that consistently harms the Medicare program--services not 
delivered; products charged that were more expensive than the 
services that were provided; unbundling, that is, taking a 
piece of equipment apart and billing it separately so that the 
reimbursement is at a much higher rate; unnecessary services; 
excessive prices--you name it.
    Whenever we see a big spike-up in a particular product, 
that causes us to say something may be going wrong here; that 
causes us to get involved with doing our audits and 
investigations. Some of those products that we have spent a lot 
of time with over the years deal with incontinence supplies, 
lymphoedema pumps, power-operated vehicles, seatlift chairs, 
orthotic body jackets, and the list goes on and on. This is a 
high-profit industry for a number of reasons, including ease of 
entry, and the safeguards are really not as strong as they need 
to be.
    I want to give you one example of an abuse that really has 
sort of a happy ending that shows what we can do when we really 
put our effort to it. We have testified a number of times on 
incontinence supplies. These are supplies dealing with persons 
who have incontinence problems. In 1994, Medicare paid $260 
million for these incontinence supplies. We found abuses in two 
areas--one, where persons were billing for urinary collection 
pouches at about $7.38 apiece, but actually delivering 33-cent 
diapers, which are never reimbursable in the Medicare program. 
We also found devices that were being billed that were not 
being billed in concert with a prosthetic device, like a 
catheter, and that is not covered by the Medicare program. So 
$260 million was billed in 1994.
    Because of the reviews that we did, the investigations, 
which have brought back about $45 million--and I have to say 
the very prompt action of HCFA in instructing their carriers to 
pay a great deal more attention to those bills--we were able to 
reduce the incontinence bill that Medicare pays by $100 million 
in just 1 year. That is a dramatic drop, but it shows you the 
abuse that was going on in that system.
    We think that one of the things that we can do to clean up 
this industry is to require surety bonds on the part of the 
salespersons. We think that there ought to be onsite visits at 
the beginning when suppliers apply to bill the Medicare 
program. We think that there ought to be some more generalized 
recommendations to deal with some of the systemic problems. We 
clearly endorse the recommendation of Senator Harkin that there 
ought to be more competitive bidding here and to increase the 
ability of Medicare to reduce a price when it becomes 
inherently unreasonable, when they are clearly paying too much 
money.
    The last area I want to mention is the hospital double-
billing. Medicare reimburses for inpatient care on the basis of 
the diagnosis of the patient. That is the prospective payment 
system. All the services that are delivered to that patient for 
that inpatient stay are supposed to be included in that. One of 
the regulations they have is that any related nonphysician 
service delivered within 72 hours of that visit ought to be 
encompassed by that.
    What we have found, though, is that a number of hospitals 
have been billing outside of that 3-day (72-hour) window, 
primarily for nonphysician outpatient services, and typically, 
laboratory services that get billed. In our reviews, we found 
about 4,600 hospitals that were billing this extra or duplicate 
bill for that. This is a problem that equated to about $100 
million. We are now doing our fifth review. After the fourth 
review, we went back and told the industry that this billing 
practice was abusive, and even after Medicare had collected 
about $100 million, they were still doing it. We engaged with 
the Department of Justice and are pursuing these cases under 
the Civil False Claims Act. We believe we will recover about 
$100 million there.
    Madam Chairwoman, I thank you for the opportunity once 
again, and I would be happy to answer any of your questions.
    Senator Collins. Thank you very much.
    I want to welcome Senator Durbin, who has joined us. I also 
want to explain that unfortunately, we are going to have votes 
all morning. Senator Glenn and I are going to switch off voting 
to try to keep the hearing going, since it is likely to be a 
busy day.
    I am going to ask Mr. Owens to proceed now, and then we 
will question the whole panel after your testimony.

   TESTIMONY OF CHARLES L. OWENS,\1\ CHIEF, FINANCIAL CRIMES 
            SECTION, FEDERAL BUREAU OF INVESTIGATION

    Mr. Owens. Thank you. I appreciate the opportunity to be 
here today representing the FBI in this important hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Owens appears on page 77.
---------------------------------------------------------------------------
    As the Subcommittee is well aware, the FBI has identified 
health care fraud as a top priority in recent years and is 
increasingly devoting more resources to it and conducting more 
investigations. The Health Insurance Portability and 
Accountability Act of 1996, with dedicated funding for several 
years, a Federal health care offense, and other provisions was 
a shot in the arm to this effort. Federal law enforcement is in 
a better position to combat this serious financial crime 
problem today, and we greatly appreciate the support of 
Congress with the passage of this Act.
    This appears to be chart day, and we too have brought some 
charts, although I think ours are the only ones that have a 
purple background. I would like to refer to them very briefly, 
and there is a total of five. I think they will give you a good 
summary of what the FBI is doing in our efforts to combat 
health care fraud.
    The first chart, which is the one on the left, reflects the 
commitment of our agents to health care fraud 
investigations.\2\ Our real emphasis in this area began in 
1992, at which time we were using approximately 112 agents to 
investigate health care fraud matters. And you can see that 
incrementally, we have increased that effort to the point 
where, at the end of the second quarter of this fiscal year, we 
were using in excess of 350 agents to combat health care fraud. 
We are now close to the end of the third quarter, and that 
number is up in the range of 370 agents. And of course, with 
the funding that is provided from the HIPAA, that will continue 
to increase over the next several years.
---------------------------------------------------------------------------
    \2\ Exhibit No. 5 includes charts (a) through (e) appears on pages 
200-204 in the Appendix.
---------------------------------------------------------------------------
    The second chart reflects the caseload that we have had 
during the same time period. Again in 1992, we had 591 
investigations open at the end of that fiscal year, and that 
number as of the second quarter has increased to in excess of 
2,300 investigations, about a 290 percent increase during that 
period of time. And frankly, that is an extremely high number 
of investigations. These are very complex investigations, and 
although our commitment of agents may continue to go up, I 
would expect that our caseload would not increase dramatically 
from that level because of the complexity of the investigation.
    The next chart reflects the number of convictions that have 
been obtained. Many of these are from multi-agency 
investigations--from 116 convictions of both individuals and 
corporations in 1992, as of the end of the second quarter this 
year, we have achieved 284 convictions, and if you annualize 
that, you can see that at the end of this year, we should 
achieve well over 500 convictions in the health care fraud 
investigations.
    The fourth chart reflects the breakdown of the total health 
care expenditure, which is about $1 trillion, and of course, 
the FBI investigates not only frauds against Medicare and 
Medicaid and the other Federal programs, but frauds against the 
private payers as well. That breakdown reflects 56 percent of 
the costs are with private payers, 44 percent with government 
programs. But the inset in the left corner reflects that of the 
2,300-plus cases we are investigating, 60 percent of them 
involve fraud against some Federal program. And again, we tend 
to classify our cases either as private or Federal, and many 
times the unscrupulous individuals are defrauding both the 
private payers as well as the Federal programs, and in the 
instance where the Federal programs are defrauded, we would 
classify it that way.
    The final chart which we will put up here I think shows the 
direct impact of the HIPAA legislation and the funding 
associated with that. Our emphasis in our larger field offices 
that are experiencing the greatest problems has been to try to 
get dedicated squads, full squads, to investigate health care 
fraud, so the agents are not diverted to a multitude of white 
collar crimes but can concentrate just on health care fraud. 
And of course, it is a very complex area that requires a lot of 
training of our agents to make them competent to investigate 
these areas.
    Prior to the enactment of HIPAA, we had dedicated squads in 
a number of field offices reflected in the chart here--Boston, 
Chicago, Dallas, Miami, Newark, New Haven, New York, and WFO. 
As a result of the additional funding and the additional agents 
we were able to apply to this, we have added squads in 
Cleveland, Los Angeles--in Miami, we have added another squad, 
so we actually have three squads investigating health care 
fraud in Miami now--as well as New Orleans, New York to a 
second squad, Phoenix and Tampa.
    I think that shows the direct impact of the legislation 
that has better enabled us to fulfill our responsibilities in 
this area.
    As a result of FBI investigations and our assessment of the 
vulnerability of the health care system to fraud, as has been 
stated here previously, no segment of the health care system is 
immune to fraud. In my statement, I have summarized a number of 
significant accomplishments in areas such as laboratory 
billings, home health care and durable medical equipment, and 
many of these accomplishments resulted from joint and multi-
agency investigations, which I think are really important that 
we do in this area.
    Much has been said about the substantial penalties levied 
against several large corporations operating independent 
clinical laboratories, and this is only one area of health care 
fraud. But in the Midwest, five individuals defrauded Medicare 
of more than $25 million in marketing durable medical equipment 
to nursing homes and were charged in that case with the RICO 
statute, which I think is an important development and a 
statute that we can continue to utilize to make more 
significant impact in health care fraud.
    And in another case, a Pennsylvania man who established 
bogus companies not only in Pennsylvania but also in Florida 
and Texas obtained a provider number and caused losses to 
Medicare of over $12 million by billing for noninvasive 
laboratory services when in fact his company had no employees 
and no one was ever tested. He and two others have pled guilty 
and are scheduled to be sentenced in the month of July.
    Health care fraud is causing a serious financial drain on 
this country, and we must continue our collective efforts to 
combat it. The FBI is working closely with the Inspector 
General of the Department of Health and Human Services, the 
Defense Criminal Investigative Service, and other Inspectors 
General, the Health Care Financing Administration, State 
Medicaid Fraud Control Units, and the United States Attorneys 
throughout the country, often in task forces, to address this 
problem. We are using the full array of investigative 
techniques including undercover operations and are increasingly 
using civil as well as criminal remedies in this effort. We are 
hopeful that through our continued collaborative efforts, we 
can begin to reduce the level of health care fraud.
    That concludes my initial statement, and I will be happy to 
answer any questions.
    Senator Collins. Thank you very much, Mr. Owens.
    Mr. Mangano, I would like to go back to an example that you 
gave in your testimony about the home health care provider who 
actually billed HCFA for over 1,400 skilled nursing visits for 
which there were neither time slips nor nurses' notes 
documenting that the visits were made. Could you tell us more 
about this individual, what was his background, and how easy is 
it for someone to become a home health care provider?
    Mr. Mangano. I do not have information on that particular 
provider, but it is fairly easy to become a provider in this 
program, and that is why we and HCFA together believe we ought 
to do some things to make it harder to become a home health 
services provider in this area.
    One of the problems with this benefit is that under current 
law, a home health agency could actually provide one service, 
like bathing a home-bound patient, and subcontract everything 
else out. Then you get into problems with abusive 
subcontractors.
    I will give you one example that occurred in Florida which 
I think really gets to your question. In Florida, the Medicaid 
agency asked providers to resubmit their applications because 
they thought people were doing abusive things both in the 
durable medical equipment area and I believe in the home health 
area. Only half of the providers resubmitted applications. So 
we think there is a lot of abuse here. People get into this 
program easily. We had one case where a person who was an ex-
felon applied to be a home health provider. He had a friend who 
was a nurse who really became the front for the organization. 
As soon as the person got his provider number, the nurse left, 
but he had the business.
    One of the legislative fixes that we are supporting is for 
Medicare to have the opportunity to exclude people from ever 
entering into the program if they have prior criminal 
convictions. We think that will go a long way toward excluding 
some of these nefarious persons.
    Senator Collins. I would note that the staff has informed 
me that the person you cited in your testimony had no 
background in home health care, and indeed had been a D.C. cab 
driver before getting into home health care; so I think that 
does suggest that perhaps we do need more screens in that area.
    I am going to have to leave to vote, and I do not know 
whether Senator Durbin wishes to go and vote now also. We have 
4 minutes remaining.
    Senator Durbin. Could I ask a question before we leave?
    Senator Collins. That would be great, and Senator Glenn 
will Chair the hearing until I get back.
    Thank you.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. I will only be able to stay for a few 
minutes, but I wanted to ask a question. I read over the 
testimony from Mr. Mangano and Mr. Owens, and it seems like the 
problem in home health care is that there are no onsite visits 
and reviews of records, and there are not a lot of 
whistleblowers out there. I can understand if a person is frail 
and elderly, they are not watching every move made by a home 
health care provider carefully auditing the equipment that is 
being delivered against what is being charged. That is probably 
more than we can ask.
    I believe in home health care. You can look at it in terms 
of cost and where people would like to be to receive their 
care, and it seems like something we should move toward. How do 
we build into this system some safeguards to avoid the kinds of 
abuses that you are all reporting today?
    Mr. Mangano. Well, I think one of the problems is that with 
home health services, since the beneficiary does not have a 
copayment, the Medicare program does not send them an 
explanation of medical benefits. If a beneficiary could see 
that explanation of medical benefits, it would indicate the 
services that they have received.
    One of the problems we have found is that services that are 
being billed are not actually being provided, so a beneficiary 
would see that they did not get that service on that particular 
date.
    Senator Durbin. What is to stop that statement from being 
sent whether or not there is a copayment--I mean, the copayment 
we are talking about is $5.
    Mr. Mangano. OK, yes. Medicare right now is doing an 
experimental program where they are actually sending the 
explanation of medical benefits. We expect to hear the results 
of that fairly shortly. I believe they are doing that in 
Florida, and we think that will prove to be efficacious for the 
program. We think that it then ought to be mandated across the 
entire program.
    Senator Durbin. Let me tell you what we did this week. We 
just voted in the Senate to raise the eligibility age for 
Medicare from 65 to 67. It is estimated that over 5 years, that 
will save us $10 billion. It is very controversial because it 
means that some 7 million Americans at age 65 have got to have 
their own health insurance when this is fully implemented and 
that Medicare will not cover them. I opposed it and had an 
amendment which lost in an effort to stop it.
    But I look at this, and we have a situation where we are 
reporting up to $18 billion a year that we are losing in 
Medicare fraud and waste, and I am thinking to myself, we are 
going to toss 7 million people out of Medicare eligibility and 
tell them: Go and find your own health insurance because 
Medicare cannot afford you anymore. And we have $18 billion--do 
you think that is a fair estimate, Mr. Mangano, of the amount 
of waste and abuse each year in Medicare?
    Mr. Mangano. Well, the $23 billion figure that was 
mentioned a little earlier was for improper payment. That 
included everything from fraud, waste and abuse to mistakes 
that providers made. However, it did not look at the entire 
range of fraud and abuse.
    So there is clearly fraud, waste and abuse in the system, 
and we have to do a better job at trying to find it. If I could 
go on just a little bit with home health services, we took a 
look in one of our other reviews at what the cost of home 
health services was in Medicare risk HMOs. The HMOs actually 
have to provide their own home health benefits, and most of 
them do it on a contract basis. They were paying about one-
fourth of what the fee-for-service Medicare program was paying. 
The reason that was so much less is they had somebody managing 
the benefit; so there was somebody determining whether the 
beneficiary should actually receive the services or not. The 
HMO is a prudent purchaser of those services. When it is left 
primarily to the home health agency to determine or to affect 
the number of visits, you have this dramatic increase. Many of 
the old line home health agencies, the ones that we all 
remember from our youth, were averaging about 33 visits per 
beneficiary in the time that we reviewed it. But the newer, 
unaffiliated for-profits are averaging about 102 visits. I 
think that says a lot.
    Senator Durbin. I am sorry to have to leave. I am told I 
have 12 seconds to get to the floor. So we will have a brief 
recess at this point until Senator Glenn returns.
    Thank you very much for your patience.
    [Recess.]
    Senator Glenn [presiding]. The hearing will be in order.
    I apologize for the truncated nature of things here, but it 
is beyond our control. We have votes on the floor, and they are 
going to be running about every 20 to 25 minutes or something 
like that, I am afraid. So that is just the way it goes.
    According to this past February's High-Risk Report on 
Medicare, fewer than 1 percent of all Medicare-certified home 
health agencies received on-site, comprehensive reviews. That 
was as of 1994. Now, it is difficult to detect something if it 
is not going to get checked often and on a bigger percentage 
than that, of course, to really get into this thing.
    The GAO's quote in their report was: ``Comprehensive 
medical reviews are an essential component of post-payment 
reviews of home health agencies.'' Mr. Mangano, is that 1 
percent rate of on-site inspections still about the rate today, 
do you know?
    Mr. Mangano. I think it is somewhere between 1 and 3 
percent that actually get reviewed. Now, these are full audits 
of the benefit. This would involve somebody taking a look at 
the medical record and determining whether the beneficiary 
needed the service, what physician ordered them, and so on.
    But it points out a problem with the program. Back around 
the mid-eighties, they were doing reviews of about 60 percent 
of the claims in home health. Home health has grown from a $3.5 
billion program in 1990 to just under $17 billion last year.
    The Medicare program is just inundated with so many 
claims--over 800 million claims for all services across the 
program--that they are really unable to spend enough time with 
any individual claim.
    For Medicare program safeguard activities--these are the 
kinds of things that would be included in audits and more 
detailed looks at providers--from about 1988 to just last year, 
they have only increased that budget by about 11 percent; but 
the number of claims has increased probably 70 percent in that 
time frame. Last year, under the leadership of persons like 
yourself, with the Kassebaum-Kennedy bill, you turned that 
around and are now giving HCFA a more definite increase in 
program safeguard activities. This year, they will have about 
$440 million.
    As they get more money to do that, we think they will be 
more effective, but the bottom line problem is they did not 
have the money; they did not do the reviews; and if they do not 
do the reviews, people will abuse the program.
    Senator Glenn. Mr. Owens, is the FBI geared up to take this 
on? Do you have enough manpower to get into this thing? What I 
mean is that, as Mr. Mangano points out, we have had an 
explosion over the past 5 years in this area, and I do not 
think that our number of people have kept up with it. Are we 
able to really monitor this in a meaningful way?
    Mr. Owens. I think the criminal matters that have come to 
our attention--we have shown in the charts that we have 
submitted a dramatic increase in both the number of agents 
committed to it and the number of cases. But we are having to 
be selective in the cases that we work, to try to work the most 
egregious cases where we can make the most impact.
    Senator Glenn. I will ask you both about this. How much of 
this is just pure, old fraud, crooked dealing, crooked billing, 
as opposed to systemic problems as billing codes and things 
like that that Senator Grassley mentioned a little while ago? 
Is the billing code thing a major problem?
    Mr. Mangano. It is a major problem in some areas, 
particularly in the durable medical equipment area, where some 
of the codes are broader than they should be. They encompass 
several different kinds of pieces of equipment that fit that 
code. When people decide to abuse the program--and I have to 
emphasize it is their decision to abuse it--they know what they 
are doing. When they supply something that is less expensive--
when they do that, it is very difficult to catch.
    We find coding problems also in other areas of the 
program--hospital admissions, for example, where we find some 
evidence of hospitals charging for a higher diagnosis code than 
was actually delivered. In physician offices, we find those 
problems as well.
    I have to echo what the Chairwoman said earlier this 
morning, that most providers are honest, decent people, who 
play by the rules in this program, but there are others who do 
not do that, and they want to enrich themselves at the expense 
of this program
    Senator Glenn. Is your IG staff adequate to take all this 
on? I am a big supporter of the IGs; it was my legislation that 
expanded the IGs here, so I have worked very closely with the 
IGs, and I think that in general, they do an excellent job. I 
think it is one of the real success stories in government. But 
do you have enough people to get into this, and could you 
really make a major dent if you had more people or more 
resources?
    Mr. Mangano. Clearly, we could do far better with more 
resources. That is why last year, the Kassebaum-Kennedy bill 
was such a welcome addition for us in that it will give us 
increases over the next 7 years and will help us do our job far 
better.
    Let me give you one statistic which I think may get to your 
question. Our office is made up of evaluators, investigators 
and auditors by and large, in addition to some of our legal 
staff. We now have about one investigator for every $1 billion 
in Medicare expenditures. Now, we are going to be growing over 
the next few years, and we are going to do a better job, but it 
shows you where we are starting from.
    Senator Glenn. Has asset forfeiture ever been applied in 
this area like it is in some other criminal areas, Mr. Owens?
    Mr. Owens. Certainly.
    Senator Glenn. Is that an effective tool?
    Mr. Owens. I believe it is, sir, yes. We attempt to use 
that as a remedy in this area to the full extent that we can.
    Senator Glenn. Are there any cases you can tell us about 
where that has worked, where you really went after people and 
got a lot of money back on asset forfeiture?
    Mr. Mangano. I can give you one example.
    Senator Glenn. Good. Mr. Mangano, go ahead.
    Mr. Mangano. Down in Florida, we had a durable medical 
equipment salesman who had stolen $70 million from the program. 
We were able to attach his assets and get back about $34 
million that, under other circumstances, if we had not had 
asset forfeiture, may have been very difficult to get.
    Mr. Owens. I am told that in the one example I cited of the 
Pennsylvania man who created a company that virtually had no 
employees and did no testing that we did apply asset forfeiture 
there, and that we are going to recover in the range of $1 
million in that particular case, too.
    Senator Glenn. Good. And the asset forfeiture laws do apply 
in this area as well as other areas, I gather; is that 
correct--we do not need additional legislation, then?
    Mr. Mangano. That is correct, and one of the provisions of 
the Health Insurance Portability and Accountability Act last 
year was that the asset forfeiture seizures would be returned 
to the Medicare Trust Fund. So I think it will help improve 
that situation.
    Senator Glenn. Senator Harkin says he thinks competitive 
bidding is going to solve much of this problem. In your view of 
this, having worked up close with it, do you think that is a 
correct analysis?
    Mr. Mangano. Absolutely. We have done any number of 
reviews. We and the General Accounting Office have looked at 
this oxygen issue for the last 5 years, and it just proves so 
clearly that competitive bidding would help. In all the durable 
medical equipment areas, competitive bidding will help.
    Now, it is going to be a little different than what the 
Veterans Administration does, because the VA will competitively 
bid for all of its business across the country, or bid for 
regions of the country. Since Medicare is dealing with 
individual beneficiaries, the competitive bidding process has 
got to be a little different. But they can do more localized 
competitive bidding, allowing companies to bid for contracts on 
those products for those areas. It clearly will bring the price 
down.
    Senator Glenn. Mr. Owens.
    Mr. Owens. Yes, I would agree. I think one of the problems 
that is occurring here is that the profit potential is so great 
for these companies that it encourages people to come in and 
bilk the system, and if the profit levels were brought down 
with competitive bidding, I think that would discourage a lot 
of people from coming into the business.
    Senator Glenn. Do you get much help from whistleblowers, 
from people who feel the bill they have gotten is not correct, 
and they let you know about it, or other people who work in the 
system somewhere, in HMOs or in doctors' offices or equipment 
suppliers or whatever, who see these things happening and, just 
out of plain good citizenship let you know? How often does that 
occur? Do we need more hotlines, fewer hotlines, more 
encouragement in that area? Would that help?
    Mr. Mangano. We do have a hotline, and we have been 
operating it in its current mode for about the last 2 years. In 
that time frame, we have been able to recover just under $8 
million. These tend to be very small claims--individuals 
looking at their bills and finding problems with them. So we 
have found it to be useful in that it has brought that kind of 
money back.
    There are also a number of cases that we are doing right 
now that we have not completed which could bring substantially 
larger amounts of money back to the Medicare program.
    There is also another activity called the qui tam 
provision, which is really for whistleblowers who file with the 
Department of Justice. In the last 3 years, we have had an 
explosion in the number of qui tam suits. Private citizens 
bring suit against a provider for abusing the program and ask 
the Department of Justice to join that suit.
    Three years ago, we investigated 40 of those cases. This 
year, we will probably do 200. So I think that shows you the 
explosion in that area. We have already brought back well over 
a quarter billion dollars through qui tam suits over the last 5 
years.
    Senator Glenn. Has the Department tried any outside 
contracting with people who would do the policing, in effect, 
and would do the analysis of billing and so on, and bring those 
cases to you? Has that ever been done?
    Mr. Mangano. Well, the one project that Senator Harkin 
talked about that was put into legislation just this past year 
creates a system of senior citizens who will work in their 
local communities as educators and resources. They will work 
with senior citizens at local places, senior centers and the 
like, to help them understand what is fraud and abuse and how 
to report it. That has just been created. I think the grants 
that were given out are being managed by the Administration on 
Aging, and we are working with them in that. Over the next 
year, we will have an opportunity to see how that works.
    Senator Glenn. That is one direction, but what I was 
thinking more about was some private group that would be like a 
private investigator that would investigate these things and 
bring them to your attention. Has that ever been done on a 
full-time basis? In other words, they would be somewhat the 
same thing you do in your shop, I guess, except by contract 
outside.
    Mr. Mangano. Well, over the last several years, the qui tam 
provision has enabled a number of law firms to start hiring 
private investigators. That is one of the reasons we are seeing 
such an explosion in the qui tam suits.
    Mr. Owens. Senator, if I could just comment briefly on your 
question about cooperating individuals, while we have not seen 
a lot of individual beneficiaries come forward with relatively 
small individual claims, we have a number of cooperating 
individuals who are people operating within the health care 
industry who have been extremely helpful to us. I mentioned 
that we have several ongoing undercover operations, and we have 
used this technique in the past to address areas of fraud here, 
and a number of people operating in the industry have worked 
with us and are assisting us in this effort.
    Senator Glenn. Our end of this whole thing is to make sure 
that the legislation end of it is taken care of, that we have 
the proper laws on the books that will address this and then go 
for enforcement on it.
    Do we need any additional laws, or is it adequate out there 
right now?
    Mr. Mangano. Well, we are endorsing a few of them. One of 
them is not to apply the bankruptcy provisions to persons who 
defraud the Medicare program or other health care programs and 
try to immediately declare bankruptcy.
    We have in a number of situations had small firms that have 
defrauded our program. Once we find out about them and realize 
that this could be a substantial fine and penalty for them, 
they declare bankruptcy. Under the bankruptcy laws, we cannot 
then get that money back. We are asking that bankruptcy 
protections not be applied to the Medicare and Medicaid 
programs. At some point in the future when that provider has 
the money, we want to be able to get that money back.
    We also find some scams like, once we get on their trail, 
they will give the business to a family member or to a close 
friend who will operate it, and they actually stay in the 
business themselves. We think that is important. Most 
important, we are asking Congress to allow the Medicare program 
to collect Social Security numbers for the health care 
providers. This will enable us to track them over time. When 
somebody gets in trouble with us one time, if we have the 
Social Security number, and they get involved with the business 
somewhere else, we can track them more easily.
    Senator Glenn. Does the Privacy Act prevent that now?
    Mr. Mangano. Yes. We believe that there are problems with 
being able to collect it right now, and that is why HCFA and we 
are asking for a legislative change. We think that if a State 
can get the Social Security number for our driver's license, 
Medicare ought to be able to get it for its health care 
providers.
    Senator Glenn. Yes, I tend to agree with you.
    Mr. Owens. Senator, in that area also, if I might, both the 
Department of Justice and the FBI recognize a few areas where 
we think there could be some improvement. One is that under the 
Federal Rules of Criminal Procedure for the grand jury 
proceedings, currently, we can only use information gathered 
pursuant to grand jury subpoena in criminal cases. We have 
increasingly begun to work more and more civil cases in this 
arena, and it would be helpful to us if we could use 
information gathered in the grand jury process in civil 
proceedings.
    In another area, the kickback statute currently applies 
only to the public-sponsored programs. It would be helpful to 
us if there were a kickback provision which applied to the 
private insurers as well.
    The third area would be that pursuant to the Kassebaum-
Kennedy Act, the Department of Justice was given the authority 
to issue investigative demands to obtain records, and that 
process is only useful now--we can only apply it in criminal 
cases. That also would be appropriate, we believe, in civil 
cases, and that would be helpful.
    Senator Glenn. All right, good. With the Chairwoman's 
permission, we might want to have staff work with you on the 
proposals that you think we should be making here to strengthen 
what you are able to do. I think that would be a good idea and 
that is something positive that could come out of this.
    Mr. Owens. We would be happy to do that.
    Senator Glenn. Madam Chairwoman, if I might just ask one 
more question. We have some 822 million claims a year. That is 
an enormous job. And just to separate it down into one area, it 
is only 1 percent within home health care, let alone the whole 
822 million, where there is enormous possibility for fraud and 
abuse.
    Now, you have coming online eventually the MTS, or Medicare 
Transaction System, but there are still problems with that, and 
I will tell you, like the old job, it is ``deja vu all over 
again''--we have been through this with tax system 
modernization on this Committee with the IRS, where we have 
about $3.5 billion in computers and so on over there now, and 
the system has just never come together yet.
    I have a couple of questions--first, your opinion of this, 
and is it going to work, will it help you if it really comes 
on? And a second question is are you working with IRS to make 
sure that some of the same mistakes are not made here that were 
made over there? They have an even larger problem over there 
with the hundreds of millions, or trillions, or whatever it is, 
of pieces of information they have to process every year. But 
in this 822 million claims you have, it would seem to me that 
some sort of an information system like this is going to be 
critical to really getting control over this; but you have to 
make sure you do not make some of the mistakes they made over 
there.
    I guess that is a statement as much as a question, but 
would you comment on that?
    Mr. Mangano. Sure, and I think that is probably a question 
that would most properly be dealt with by the HCFA 
representative, who will be testifying a little later. But I do 
know that they are working within the Department and looking at 
examples of other organizations that have put systems up.
    Eventually, when the MTS system is in place, I think it is 
going to be a great help in this area, because it is going to 
be able to consolidate bills across Part A and Part B, so they 
can see where the glitches are. It is awfully important to find 
out all the bills that providers are issuing for an individual 
beneficiary, and the same thing for the beneficiary side. We 
really need to know how this thing works.
    I know the Health Care Financing Administration is also 
spending a lot of time these days on developing information 
systems that will help them in the fraud area. For example, 
they contracted a year ago with Los Alamos Labs to develop some 
logic systems that will help them to identify aberrances that 
would cause them to then get involved in and to take a more 
detailed look at it. They are developing a number of 
information systems that will help them do a better job in this 
area.
    Senator Glenn. Thank you.
    Thank you, Madam Chairwoman.
    Senator Collins [presiding]. Thank you very much, Senator 
Glenn, for your questions and for presiding.
    Mr. Owens, I would like to turn to the issue of how much 
penetration there is by organized crime in the area of Medicare 
fraud. Last fall, the Miami Herald reported that health care 
fraud was not only growing, but that it was becoming 
increasingly violent and organized; and indeed, one of the 
local FBI agents in Florida, speaking at a fraud seminar, said 
that seven local kidnappings and 14 homicides had been linked 
to health care fraud. Similarly, the article in the Miami 
Herald went on to report that the growing payoffs and violent 
punishments are just two signs that medical fraud is 
increasingly controlled by well-organized rings headed by 
kingpins experienced in directing criminal enterprises. And he 
went on to say that there were actually cases where drug 
traffickers had gotten out of that illegal enterprise because 
they found health care fraud to be more lucrative and easier to 
commit.
    To what extent has violent and organized crime entered the 
world of health care fraud? How much of a problem do you think 
this is? Is it growing, or was this just an isolated incident?
    Mr. Owens. I think we should break it down into two 
categories. There has been some discussion in the past about 
the level of traditional organized crime elements involved in 
health care, and I think that is fairly limited. We have had 
just a handful of instances where that has occurred. When it 
does occur, we certainly give it priority.
    On the incidents referred to in Miami, we spoke at length 
with our supervisor there, and he insists he was misquoted as 
to specific numbers, but I think the underlying theme there is 
true--there have been a number of incidents of violent crime in 
the Miami area involving health care industry participants, and 
that has caused us some concern. There is a Violent Crime Task 
Force in Miami that has worked a number of these cases, and 
they have prosecuted a number of people for it. But that is a 
trend that we have seen there, and we are looking at it.
    To the extent that we could ever identify organized rings 
involved in health care fraud as well as violent crime, such as 
kidnappings or murder or extortions, we would be very 
aggressive in attempting to apply the RICO statute there. We 
have had discussions with the U.S. Attorney's office in Miami 
and the Department of Justice about doing that very thing.
    But at this point in time, we really have not been able to 
develop a tremendously close link there, although there are 
incidents where a number of violent criminals have infiltrated 
the health care industry. And in some instances, as the article 
indicates, we know that prior convicted drug felons have 
entered the industry.
    So it is a problem, and we are looking at it, but I think 
it is fairly isolated. We have not seen it to a large extent in 
other areas of the country. We see ethnic groups involved in 
systemic types of fraud in the industry, but we have not seen 
the violence associated with it in other areas as much as we 
have in the Miami area.
    Senator Collins. Why is Miami such a center for Medicare 
fraud? I noticed the concentration of your FBI health care 
squads in that area. Is it just that the percentage of elderly 
people living in Florida makes it a tempting target? Is it tied 
to the drug trade? Why the problems in Southern Florida?
    Mr. Owens. It is probably a combination of things. One of 
the things we did when we started to allocate the additional 
resource that we got from last year's legislation was that we 
looked at the expenditures of Medicare and Medicaid around the 
country, and we determined, I believe, that 10 percent of the 
expenditures are in just Dade and Broward Counties, obviously 
because of the elderly population there. But there has been a 
tremendous explosion in the number of health care providers 
that have located in that area, and as I said, we do have 
instances of other criminals infiltrating the industry there. 
So I think it is really a combination of factors. And we have 
three full squads dedicated to health care fraud, probably 30 
to 35 agents investigating health care fraud in Miami.
    Senator Collins. In view of the magnitude and scope of the 
fraud, abuse, wasteful practices, the combination of the 
factors we have been talking about, I want to follow up on the 
questions that Senator Glenn has asked you previously: What can 
we do about fraud in the Medicare program? To understand what 
remedy is most appropriate, we have to understand more about 
the vulnerabilities of the system, and I would be interested in 
having both of you identify the primary weak link in the 
Medicare chain, that is, what is the primary reason why the 
system is so vulnerable to the kinds of abuses that we have 
talked about today?
    If we could start with you, Mr. Mangano.
    Mr. Mangano. Well, it really differs by the service area 
itself. In the home health area, the specific vulnerabilities 
are that it is a cost-based system, there are no limits on the 
benefits, there is no requirement that a physician actually see 
a patient and diagnose the patient for the plan of care. The 
physician has to write the plan of care but does not have to 
see patients or diagnose them.
    Those are some very powerful vulnerabilities in this 
system, and we have to reverse that. We have to have the 
physician playing a more important role, like requiring the 
physician to actually see the patient and diagnose the patient 
before he writes the plan of care.
    We think that the cost-based system is just plain wrong. 
There ought to be an incentive on the provider's part to keep 
costs reasonable. Moving toward a prospective payment system, a 
cap on the number of services, or a cap on the dollars of 
services would all be good methods.
    In the nursing home area, we have this split between 
Medicare Part A and Medicare Part B. Medicare Part A is a cost-
based system, where the nursing home determines what its costs 
are and then bills the Medicare program for that. Then they 
start to split out services that they can bill under the 
Medicare Part B program. But the nursing home is not actually 
billing it themselves. You will have service providers come in 
from the outside and say, ``We can take care of your patients' 
psychological problem; we will come in three times a week and 
visit your patients.'' Now, from that outside provider's point 
of view, this is wonderful, because they have a captive 
audience of a lot of people whom they can bill for.
    The same thing happens with durable medical equipment 
suppliers. They will come in and see this vast array of 
potential persons they can bill against. Well, the nursing home 
never even sees those bills, so there is nobody in charge of 
really seeing what the total cost of care is for that 
beneficiary.
    We think we need to go to prospective payment here to cover 
all the Medicare Part A costs and really fold it together with 
Medicaid and then, for the Part B side, have one consolidated 
bill that comes from the nursing home, not from the durable 
medical equipment suppliers or the other persons who deliver 
services in that setting.
    With the hospital problem of double billing under Part A 
and Part B, we think a solution here is to implement compliance 
programs. One of the things that we are spending a lot of time 
on these days is to develop a voluntary compliance program for 
each industry that we are working with. We released in February 
a voluntary compliance plan for the laboratory industry. The 
lab industry in the last 3 to 4 years has been subject to over 
$800 million in recoveries in the Medicare and Medicaid 
programs because of abuses that they have perpetrated out there 
in their community.
    So what we have basically done is say, ``Here are the 
things that we think you ought to do as an industry to stay in 
compliance. You have to do things like give somebody in your 
organization responsibility for fraud and abuse, train your 
staff, have periodic audits to make sure that you are billing 
properly, and reporting billing abuses to appropriate 
authorities when they are discovered, and so on.''
    We work with the industry to develop that; so it is a 
cooperative arrangement. We are now moving into the hospital 
area, and we will be moving through each of the major 
industries. We think industry has just as much at stake in 
coming up with effective compliance programs.
    Senator Collins. Mr. Owens.
    Mr. Owens. Just very briefly, obviously, there are a number 
of factors that play into it, but certainly, the growth in the 
amount of expenditures in the program as well as the growth in 
the number of claims have made it very difficult, I am sure, 
for HCFA to keep up with that.
    But I think one of the primary problems is the level of 
controls that can be instituted into the system, from the way 
provider numbers are obtained to systems of looking for 
aberrant payment patterns, things of this type.
    This is a little bit beyond our area, of course, because we 
just do investigations, but what I think is important and plays 
into the effort here is that whenever we complete an 
investigation and convictions are obtained, we disseminate a 
memorandum to the Department of Health and Human Services as 
well as the U.S. Attorney's offices, indicating what our 
investigation uncovered, and hopefully, those serve to help 
them identify areas where they might want to make improvements.
    Senator Collins. I have a few more questions. First, I 
would like to know how each of you would evaluate the 
performance--and perhaps this is really more of a question for 
you, Mr. Mangano--of the fiscal intermediaries with which 
Medicare contracts? How effective are they in protecting the 
Medicare program against fraud and abuse, particularly in the 
home health care industry? You have given us disturbing 
statistics based on your audits and investigations for a number 
of questionable claims or improper payments. That suggests to 
me that somebody is not watching the store very well, that 
someone is not doing an effective job of checking.
    Mr. Mangano. Well, I think I have to answer it in this way. 
The Medicare contractors get paid on the basis of the number of 
claims they process and on how quickly they process them. There 
is a cost per claim that I believe is under $1 or $2 for each 
claim they review. So we have to think about what is possible 
to review with less than $2 per claim. That means that you are 
going to be doing a very cursory review to see if the services 
were provided.
    Unfortunately, those claims will merely state the service 
that was delivered. The contractors do not receive the medical 
record that goes with that to determine whether the service was 
needed, how it was delivered by a physician, and so on.
    On the program safeguard side, the amount of money that has 
been given to the contractors has really been stagnant since 
1988, except for the big change that occurred in last year's 
legislation. We think they will do a better job in the future 
because they will have more money to spend on those kinds of 
activities. As they do that, their job will get better.
    They also need better edits. When they see claims, there 
ought to be ways to institute edits on the basis of the 
investigations that the FBI and ourselves have undertaken and 
on things that HCFA knows about the kinds of abuses that are 
being perpetrated. If we can spot some characteristics, some 
profiles of abusers, we can institute those as edits in the 
system. Now, some of them exist already, and where they are 
used, that is very useful; but we need more.
    Senator Collins. Are repeat offenders a problem in this 
program? Is it easy for an individual to simply go out of 
business in one State and show up in another State as a home 
health care provider, for example?
    Mr. Mangano. Once a provider is convicted of something 
criminally, we will exclude them not only from Medicare, but 
from all other Federal health care programs. They have to spend 
at least 5 years outside the program depending on the period of 
time that we exclude them. Then they can come back into the 
program, and there is no prohibition against them.
    Even though people have been excluded, we have found 
instances where they actually have come back into the system in 
another State, and maybe the Medicaid agency in a new State did 
not realize that these persons have been excluded.
    I mentioned earlier the problem we have when people get in 
trouble with us, then transfer the business to a relative or a 
friend, but actually, they are still running the business. 
Those are the kinds of problems that exist out there.
    Senator Collins. One final question for you, Mr. Mangano, 
and it deals with the unpublished audit that several of us have 
referred to and that was reported in The Wall Street Journal.
    In the staff briefing, the Inspector General's office 
indicated, as I mentioned in my opening statement, improper 
payments are higher than expected--perhaps 14 percent, or $23 
billion--a really staggering figure. All of us in the Senate 
this week have been debating fundamental changes in Medicare 
program in order to restore the fiscal solvency of the program. 
It is very disturbing for us to make tough decisions to, for 
example, means-test the premiums paid by elderly beneficiaries 
when we are losing $23 billion a year in waste, fraud or abuse.
    Could you tell us, first of all, what you mean by improper 
payments? How is that term defined? Also, when this new audit 
will be publicly available?
    Mr. Mangano. In answer to the last question, we will 
complete the review probably around the middle of July and 
actually issue a final report.
    What we are talking about in that $23 billion is anything 
from mistakes of the provider in terms of how they billed the 
product all the way up to fraud and abuse. But every one of 
these claims should not have been paid. Where there is an 
underpayment, we take that into account, along with 
overpayments.
    These are the net results of improper payments. This could 
be like a physician who billed for something by mistake but 
actually did not provide it. When we went back to check the 
record, the physician realized he made a mistake and said, 
``No, I should not have submitted the bill.''
    For our sample, Medicare is going back and collecting the 
money that was misspent during this time frame. It is 
everything from mistakes all the way through fraud and abuse.
    Senator Collins. It is, in any event, a staggering 
estimate, and we look forward to working with both of you as 
our investigation continues. We are trying to get a handle on 
not only the scope of this problem but, as Senator Glenn and 
others have stressed, the solutions for it.
    I want to thank you very much for your testimony and 
cooperation with us this morning.
    I will now ask our next panel to come forward. The next 
panel of witnesses includes Leslie Aronovitz, who is currently 
the manager of GAO's Chicago field office and Dayton sub-
office. With a combined staff of 120 evaluators, these offices 
conduct studies in a variety of civilian and defense programs. 
Ms. Aronovitz also serves as the associate director in the 
health financing and systems issues area, where she directs 
research on a variety of health issues. That is obviously of 
particular interest to the Subcommittee.
    We will also be hearing today from Professor Pamela Bucy, 
who is the Bainbridge Professor of Law at the University of 
Alabama Law School, and who has written a number of articles on 
health care fraud. Prior to joining the world of academia, 
Professor Bucy was an Assistant U.S. Attorney for the Eastern 
District of Missouri, where she established and served as 
coordinator of the Health Care Fraud Task Force.
    We are particularly pleased that both of you were able to 
juggle your schedules and accommodate the Subcommittee's need 
to postpone the hearing yesterday.
    Again, pursuant to Rule 6, I am going to ask you to stand 
and be sworn in. Do you swear that the testimony you will give 
to the Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Ms. Aronovitz. I do.
    Ms. Bucy. I do.
    Senator Collins. Thank you.
    Again, because of the time restrictions, I am going to ask 
each of you to limit your oral testimony to 10 minutes, but I 
will assure you that your testimony, which in both cases is 
excellent and extensive, will be made part of the Subcommittee 
record.
    We will start with you, Ms. Aronovitz, please.

TESTIMONY OF LESLIE G. ARONOVITZ,\1\ ASSOCIATE DIRECTOR, HEALTH 
   FINANCING AND SYSTEMS ISSUES, HEALTH, EDUCATION AND HUMAN 
       SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE

    Ms. Aronovitz. Thank you, Madam Chairwoman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Aronovitz appears on page 85.
---------------------------------------------------------------------------
    I am pleased to be here today to discuss the problem of 
fraud and abuse in the Medicare program. At the risk of 
repeating points from other witnesses, I will try to be brief 
and highlight a few important issues.
    Medicare is an inherently high-risk program because of its 
size, complexity and rapid growth. In addition, HCFA's efforts 
to fight Medicare fraud and abuse have not been adequate to 
prevent substantial losses because the tools available over the 
years have been underutilized or not deployed as effectively as 
possible.
    Let me discuss a few examples which illustrate my point. 
First, I am going to talk about funding for program safeguards. 
Due to budget constraints, the number of reviews of claims both 
on the Part A and Part B side have dwindled significantly.
    Let me focus your attention on our first graphic showing 
the declining rate of claims reviewed since 1989. As you can 
see, while the volume of claims has increased to over 800 
million in 1996, the actual number of claims reviewed has 
stayed relatively stable, so the effect is that the percentage 
of claims being reviewed is now down to about 9 percent as 
compared with 1989 when about 17 percent of claims were 
reviewed.
    As others have indicated, the deterioration of Medicare's 
controls over home health payments also exemplifies the effect 
of the inadequate funding of payment safeguards. As noted on 
our second graphic, between 1988 and 1996, Medicare spending 
for home health grew from $2.1 billion to $18 billion, and by 
the year 2000 is projected to exceed $21 billion. Along with 
increasing expenditures, the number of home health agencies has 
also increased from about 5,800 to over 9,000. However, as we 
reported in 1996, Medicare's review of home health claims 
plummeted from 62 percent in 1987 to 3 percent or less in 1996, 
despite the dramatic rise in home health care expenditures.
    Independent of the question of adequate funding is the 
issue of whether available safeguard dollars are being used as 
effectively as possible. HCFA has not taken full advantage of 
the controls contractors could use to screen for inappropriate 
claims. One chronic problem is that HCFA has not coordinated 
contractors' payment safeguard activities, and as a result, the 
opportunity to avoid significant Medicare expenditures has been 
lost.
    Let me focus on my third graphic, which shows that many 
contractors do not screen claims for costly services. In 1996, 
we reported that of the 29 contractors processing Part B claims 
in 1994, 17 of them--only 17--could give us information 
identifying their medical policies and the pre-payment screens 
they used to ferret out obviously inaccurate claims.
    Of the 17 contractors, only 41 percent screened for 
echocardiograms, despite the fact that Medicare spent $850 
million that year for that one test. If you look down the list, 
less than 50 percent of the contractors that we studied had 
prepayment screens for Medicare's most common and costly 
services.
    Let me give you an example for an eye exam claim. If a 
contractor had a medical policy explaining under what 
conditions an eye exam would be acceptable, a claim would come 
in, and the diagnosis should match or in some way justify that 
particular claim. We found cases where a claim for an eye exam 
was justified by a diagnosis of indigestion or something that 
silly. So there is a tremendous opportunity for contractors to 
better screen the claims and develop medical policy, because 
until you develop a medical policy, you cannot enforce it with 
a prepayment screen.
    In addition to HCFA's management of its claims processing 
controls, its automated information systems have been 
unsatisfactory. As a result, Medicare's information systems and 
the staff monitoring claims have been less than effective at 
spotting indicators of potential fraud, such as suspiciously 
large increases in reimbursements over short periods of time, 
improbable quantities of services claimed, like the $5,000 
claimed for bandages for a 3-week period of time for one 
nursing home resident, or duplicate bills submitted to 
different contractors for the same service or supply.
    The system that HCFA is trying to develop would combine 
Part A and Part B and, as Mr. Mangano said, a very important 
feature would be that all the claims submitted on behalf of a 
particular beneficiary would be in one place, and it would be a 
little bit easier to be able to determine whether those claims 
were justified.
    However, because of acknowledged system weaknesses, HCFA is 
in the process of acquiring this new, multi-million-dollar 
automated system, which is intended to replace Medicare's 
multiple automated systems and enhance significantly its fraud 
and abuse detection capabilities. However, HCFA has not 
effectively managed the process for acquiring this system. Now, 
schedule delays and growing cost projections from a $151 
million estimate in 1992 to about a $1 billion estimate this 
year have forced HCFA to halt much of system's development 
while the agency reassesses its acquisition plans.
    Finally, less than adequate oversight has also resulted in 
little meaningful action taken against Medicare HMOs found to 
be out of compliance with Federal law and regulations. This is 
an important area that I would like to talk about a little bit, 
because it has not really been mentioned heretofore.
    Many people feel that the problems associated with fee-for-
service claims are ameliorated when you go to HMOs. However, 
HMOs in the risk contract program brings its own set of 
vulnerabilities and concerns that we have done some work on and 
are very concerned about.
    Other than requiring corrective action plans, HCFA has not 
sanctioned poorly performing HMOs using the tools it already 
has. These include excluding noncompliant HMOs from the 
program, prohibiting continued enrollment until deficiencies 
are corrected, or even notifying beneficiaries of the HMOs 
cited for violations.
    Accumulated evidence of in-home sales abuses coupled with 
the high rates of rapid disenrollment for certain HMOs also 
indicates that some beneficiaries are confused or are being 
misled when they enroll and are dissatisfied once they become 
plan members.
    In addition, consumer information that could help 
beneficiaries distinguish the good plans from the poor 
performers is not made publicly available.
    Senator Collins. Excuse me. I am going to have to interrupt 
you so we can take a very brief recess until Senator Glenn 
returns; then he will resume the hearing, and I will return 
from the Senate floor as quickly as I can. There are only 4 
minutes remaining for the vote.
    I apologize for having to interrupt, but I am sure Senator 
Glenn will be back shortly, and he will preside until I return.
    Thank you.
    [Recess.]
    Senator Collins. The Subcommittee will come back to order.
    We will catch our breath while Ms. Aronovitz completes her 
statement. Thank you.
    Ms. Aronovitz. Thank you.
    I was talking about the chart that you see here, although I 
know it is very tough for you to see, and I will try to 
describe it.
    It shows that in 1995, the disenrollment rates--and we are 
talking about HMOs in the Medicare program risk contracts--the 
disenrollment rates of Medicare beneficiaries in various HMOs 
in Miami. As you can see, the percent of members disenrolling 
in a single year, 1995, ranged from about one in ten to about 
one in three for different HMOs within the same market. 
Although there may be several explanations for this, this type 
of information would certainly be valuable to beneficiaries in 
their ability to make more informed choices about competing 
plans. That information is not routinely disseminated to 
beneficiaries, and instead, they have to on their own obtain 
information from all the plans, try to see if they can get some 
consistency in the plans, and try to compare on their own. It 
is a very arduous and long and involved process.
    You have heard about recent proposed legislation, chiefly, 
the Kassebaum-Kennedy legislation and the budget reconciliation 
legislation currently being considered by the Congress, that 
would refocus attention on various aspects of Medicare fraud 
and abuse. The implementation of the enacted provisions, such 
as the additional funding for special anti-fraud initiatives 
and the promise of proposed legislation such as the authority 
to prevent all convicted felons from being Medicare providers, 
offer the potential to reduce Medicare losses attributable to 
unwarranted payments.
    But there must be judicious changes in Medicare's day-to-
day operations involved HCFA's improved oversight and 
leadership, the mitigation of system acquisition risks and 
HCFA's appropriate application of new anti-fraud and abuse 
funds to reduce substantial future losses.
    Moreover, as Medicare's managed care enrollment grows, HCFA 
must work to ensure that beneficiaries receive sufficient 
information about HMOs to make informed choices and that the 
agency's authority to enforce HMO compliance with Federal 
standards is used. To adequately safeguard the Medicare 
program, HCFA needs to meet these important challenges 
promptly.
    How HCFA will use the funding and authority provided under 
the Kassebaum-Kennedy Act to improve its vigilance over 
Medicare has not yet been determined. The outcome is largely 
dependent on how promptly and effectively HCFA implements the 
Act's provisions.
    As we have highlighted today, weak monitoring, poor 
coordination and delays have characterized HCFA's past efforts 
to oversee fee-for-service contractors, the system acquisition 
process, and Medicare managed care plans. Thus, even with the 
promise of the Kassebaum-Kennedy Act and the potential 
enactment of additional legislation, the prospects for HCFA's 
success in combatting Medicare fraud and abuse remain 
uncertain.
    Madam Chairwoman and Senator Glenn, this concludes my 
prepared remarks, and I would be happy to answer any questions.
    Senator Collins. Thank you very much.
    Professor Bucy.

 TESTIMONY OF PAMELA H. BUCY,\1\ BAINBRIDGE PROFESSOR OF LAW, 
              UNIVERSITY OF ALABAMA SCHOOL OF LAW

    Ms. Bucy. Madam Chairwoman, Senator Glenn, I appreciate the 
opportunity to be here, and I applaud this Subcommittee's 
attention to the issue of health care fraud in the Medicare 
program.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Bucy appears on page 107.
---------------------------------------------------------------------------
    I would like to touch on three themes, two of which have 
been discussed somewhat here. The first is that if we really 
want to do something about health care fraud, we must make 
systemic changes in the payment system. That is really the 
major way to affect health care fraud.
    The second theme I would like to address is privatizing the 
fraud cops; how do you marshal the private resources that are 
out there to detect fraud.
    The third thing that has not yet been mentioned but I would 
like to touch on is the danger of overcriminalization.
    Last, if I have time, I would like to touch on fraud that 
will occur as we move more toward a managed care reimbursement 
system.
    First, systemic changes in the payment system. As a 
prosecutor I often felt like indicting HCFA. It was difficult 
to understand why the payment system worked as it did. There 
have been very, very good suggestions here, and I would echo a 
couple of those.
    First, the billing system has to be simplified. Subtitle F 
of the Health Insurance Portability and Accountability Act 
(HIPAA) actually directs HCFA to do this, but it gives HCFA 18 
months to do it. That is not realistic. Nor should HCFA be 
allowed to take the 16 years that it has apparently taken on a 
recommendation made by this Subcommittee in 1981. But that 
would be the primary thing that could be done to affect the 
amount of fraud and abuse that is going on.
    Second, we should have stronger credentialing of health 
care providers. There are horror stories about the quality of 
some of the providers entering the health care field. Some are 
in the written statements by witnesses today. Three things 
ought to be examined in credentialing health care providers. 
First, the training of the people who are providing the 
services. Second, the fiscal viability of the entity that is 
providing the service, to make sure it is not going to go belly 
up or that it is not on shaky ground. Often, a legitimate 
provider can turn to fraud because it just does not have the 
financial resources to do what it has undertaken. Third, every 
health care provider ought to demonstrate that it has a plan in 
effect to monitor the fraud internally; a compliance plan.
    The third systemic suggestion I have to ensure that the new 
army of ``fraud cops'' are adequately trained. As I think both 
of the gentlemen on the last panel testified, there are 
tremendous resources going into health care fraud prosecution. 
I have two stories about cases with which I have been involved 
that demonstrate why it is essential that we adequately train 
the army of health care fraud investigators and prosecutors 
that HIPAA has mobilized.
    The first case is one that I was involved with when I was a 
prosecutor in St. Louis. It involved an obstetrician who was 
also a cocaine addict, who had cash flow problems. When he was 
running out of money, he would go through his patient files and 
see who was a few weeks, maybe 5 or 6 weeks away from her 
delivery date. He would call them up and say, ``I have been 
reviewing your file, I see some complications, and you need to 
come on in and let me deliver that baby.'' None of it was true; 
there were no complications.
    Well, we prosecuted him and convicted him for felonies. Not 
only was he hurting his patients, but he was doing every kind 
of billing fraud you could imagine. He was upcoding, he was 
billing for services that he was not providing, and he was 
billing for unnecessary services.
    He was convicted of felonies, he was excluded from the 
program, and he lost his medical license. And now, with the 
asset forfeiture, all the eligible assets he had could be 
forfeited. That is exactly the kind of case that ought to be 
criminally prosecuted.
    The other case that I would like to tell you about is one 
that involves a physician in upstate New York whose name is 
Naveed Siddiqi. He is 60 years old. He is board-certified in 
internal medicine, oncology and hematology. In 1989, HHS opened 
an investigation on him. In 1991, he was convicted of five 
felony counts of Medicare fraud. He was acquitted on 72 counts. 
He was excluded from Medicare for 5 years. He went before the 
New York Licensing Board. He ended up with only a reprimand; he 
did not lose his license.
    Prior to his conviction, he was making about $825,000 a 
year as an oncologist. After his conviction, he secured a job 
at the VA, worked full-time and earned about $80,000--still a 
good salary, but obviously substantially less than he was 
making.
    In 1996, on Halloween of last year, the Second Circuit on 
Dr. Siddiqi's habeas corpus petition, set aside his conviction. 
The court said that his trial had been a ``trial by ambush''; 
the Court said that it was setting aside his conviction because 
it had been a miscarriage of justice. Dr. Siddiqi had billed 
for two patients who received chemotherapy while he was out of 
the country. Now, that looks like pretty blatant fraud. I can 
tell you as a prosecutor that I would have looked at that, and 
I would have thought: This is pretty blatant fraud.
    Dr. Siddiqi submitted a billing code of 96500. Code 96500 
allows billing for ``supervising the administration of 
chemotherapy.'' And as the Second Circuit went through in its 
opinion, the prosecution never understood what 96500 meant. The 
prosecution constantly changed its theory of the case as the 
trial went on. The prosecutor said that Dr. Siddiqi had billed 
for administration of chemotherapy when he did not provide it. 
The prosecutor said that Dr. Siddiqi had double-billed. 
Finally, the prosecutor argued, well, he did bill for 
supervision, but he did not supervise.
    Part of what the Siddiqi case demonstrate is why we need to 
have simplified billing--there were eight different sources of 
what 96500 could mean. The Second Circuit concluded that it was 
very clear that 96500 was ambiguous. It also concluded that was 
probably OK for Dr. Siddiqi to bill as he did--that was all 
they could say--because he set the dosage amount before he went 
out of town. These were patients who had to have their 
chemotherapy while Dr. Siddiqi was out of the country. I am not 
an oncologist, but from what I understand, to set the dosage 
amount of chemotherapy requires extensive testing of the 
patient and calibrating the amount of toxin that you are going 
to give to the patient. Dr. Siddiqi set that amount after 
evaluating the patients, and he arranged for a physician to 
cover for him and gave the physician directions for what to do. 
So in fact, if that is supervision, then he had supervised.
    I think these two cases show two things. First, there are 
bad health care providers out there, and when we find them, we 
need to throw the book at them--the obstetrician in the first 
case is exactly the kind we should vigorously prosecute.
    The other thing that these cases show is that health care 
fraud is very difficult to prosecute. Something that looks like 
blatant fraud may not be. It takes a tremendous amount of 
understanding about billing codes and a good sense of what is 
criminal and what is not, to distinguish a crime from an error.
    The cost of the Siddiqi case is not just the cost to Dr. 
Siddiqi, but it is the cost of wasted resources. The 
prosecution and judicial resources that went into prosecuting 
Dr. Siddiqi should have gone to something else, and they did 
not; they were wasted.
    Also, an unfair prosecution hurts the criminal justice 
system. People look at it and ask, what has gone on here--are 
the prosecutors nuts? It cheapens the entire criminal justice 
system to have a prosecution of non-criminal acts.
    Thus, the third suggestion I have, in terms of just 
systemic change is to train our new army of prosecutors and 
investigators so they know what is fraud and what is not.
    Now, in terms of privatizing the effort against health 
fraud, privatizing has tremendous advantages. Obviously, it 
does not take government resources; it does not cost the 
government anything. The qui tam provisions which were 
tremendously enhanced in 1986 have had a very interesting 
development; they have created a group of expert private fraud 
cops. There are law firms out there that have outstanding 
talent to ferret out fraud and prove it. There are accounting 
firms that are able to do that. Those resources ought to be 
marshalled better in the fight against health care fraud. I 
have a couple of suggestions on how to do that.
    First, there has already been discussion of the role of the 
carriers and the intermediaries. In my opinion, carriers and 
intermediaries have no business being fraud cops; they should 
not have the responsibility of examining their claims for 
fraud. They get paid for the number of claims they process. If 
they do a very good job of processing their claims, they are 
not going to be able to look for fraud. For this reason, they 
have an inherent conflict of interest.
    Second, when carriers and intermediaries do find fraud, 
look what it tells us about how they have been processing their 
claims--that they are doing a poor job of it. Furthermore, the 
more fraud they find, the more obvious it is that they have 
been doing a bad job of processing their claims.
    The third thing is that for carriers and intermediaries to 
have their contracts renewed as carriers and intermediaries, 
they have to show that they have a viable fraud detection 
program. Well, when they want to cover up the fact that they do 
not have a fraud program, you have more fraud. Blue Cross/Blue 
Shield of Michigan, for example, just paid a $27.6 million 
settlement because it concealed its bad efforts in detecting 
fraud.
    In summary, my first suggestion of privatizing the fight 
against health care fraud is to take away the fraud detection 
obligation from the carriers and intermediaries and give it to 
private entities which are qualified to do it.
    Now, the Health Insurance Portability and Accountability 
Act, (HIPAA), which just passed, provided that HCFA can 
contract with eligible entities to provide this fraud detection 
services, but it also provided that the carriers and 
intermediaries are deemed to be eligible entities to do this. I 
think the presumption ought to be opposite--that carriers and 
intermediaries are deemed to be ineligible entities because of 
this conflict of interest.
    I see that my time is about up, so I will touch on one of 
my remaining suggestions quickly. RICO ought to be amended to 
include the new criminal offenses that are in HIPAA so that 
they will be RICO predicate acts. This will permit greater use 
of civil RICO for class actions. That is a good way to mobilize 
the private bar.
    My written materials cover the rest of my suggestions.
    Senator Collins. Thank you very much. Both of your 
testimonies were very helpful to the Subcommittee.
    Ms. Aronovitz, I want to follow up on something the 
professor just said. She said that the fiscal intermediaries 
have ``no business being the fraud cops, that there is an 
inherent conflict.'' First of all, do you agree with that 
statement, and if you do, who should have this responsibility, 
and how can we get a handle on this?
    I was very concerned about the chart that you showed where 
the number of claims filed is over 800 million, and the 
percentage review has dropped, I believe, 9 percent. It has 
dropped substantially. So whose job is it? Who can most 
effectively do this job?
    Ms. Aronovitz. I think that whomever can do it needs to do 
it. Mr. Mangano was talking earlier about the fact that right 
now, contractors have to do many things, and they get paid to 
do many things, but their most important responsibility is to 
process claims and do it quickly.
    Once they do that, they also have responsibilities to do 
safeguard activities, and there is a lot of discussion about 
their ability to do that well. And I think some contractors 
that we visited do a wonderful job in certain areas, so in our 
opinion, it is not across the board that they should be 
excluded except for the fact that they do not have the same 
incentive right now or, admittedly, the same expertise as they 
do in their first job, which is to process claims, to do 
safeguard activities.
    I think the Kassebaum-Kennedy Act, which gives HCFA the 
authority to contract with separate utilization review 
companies for safeguard activities is a really good step. I 
think Professor Bucy would say that fiscal intermediaries and 
carriers should not even be qualified to be able to do that. I 
do not particularly have an opinion on that except that if they 
did get that separate contract, they would have to prove to 
HCFA that they had the expertise and the will to do a good job. 
Currently, the funding for safeguard activities has gone down 
per claim. They have a lot less money now per claim to do 
safeguard activities, and it has taken the back burner to their 
claims processing activities.
    Senator Collins. Professor Bucy, I appreciate the fact that 
you gave us two examples in your testimony, one of clearly 
fraudulent activity and the other where it was eventually found 
that it was not a case of fraud.
    One of the issues that I was discussing with Senator Glenn 
on the way back from the last vote is that we have this massive 
number of improper payments made each year, amounting to $23 
billion. We are trying to determine if some of these improper 
payments are being made by providers who are honest but who do 
not understand the regulations or the paperwork. In other 
words, are there some honest errors that are being included in 
this figure?
    Based on your experience, could you comment--and actually, 
I would like to hear from both of you on this issue--on how 
much of a problem you think can be attributed to a lack of 
understanding by providers, or to the complexity of the 
regulations? Or do you think the problem is mainly one of true 
waste, fraud and abuse?
    Ms. Bucy. I think there is an awful lot of 
misunderstanding. I think some of the national initiatives, 
like the 72-hour DRG initiative and the PATH initiative, are 
running into that problem, that basically, what they are 
calling ``abuse'' has been done by everybody, based upon fairly 
ambiguous regulations. So how can you say that is fraud?
    So yes, there is a lot of honest misunderstandings, even 
sloppiness; not all billing errors are fraud. I do think that 
if Subtitle F of HIPAA goes into effect, and there is 
administrative simplification, a lot of the misunderstandings 
will wash out of the system, and we will no longer have to have 
this debate about how much is just an honest misunderstanding 
because of ambiguous regulations. And I hope that will be done 
because that ought to be out of the debate.
    Senator Collins. Ms. Aronovitz.
    Mr. Aronovitz. I think there is a lot of discussion about 
the complexity of program rules, and that is absolutely true--
they are very complex, and depending upon how you bill and 
under what conditions you are supplying a service, it could get 
somewhat confusing in terms of how you could properly bill.
    There is a lot of discussion that these program rules 
inhibit more aggressive enforcement because you have that exact 
excuse, that I made an honest mistake, I had no intention of 
hurting or ripping off the system. However, it is very, very 
frustrating to find providers who repeatedly, over and over 
again, commit the same billing errors and the same ``mistakes'' 
without ever having to answer to any kind of justification.
    We have seen, for instance, in the home health program, 
when the regional home health intermediaries asked for 
documentation to support a particular claim or set of claims, 
that very often the home health agency will not even submit the 
documentation because in their minds--I do not know exactly 
what is in their minds--but what we see is that it is probably 
cost-effective for them to have those particular claims 
disallowed as they continue to bill the program for additional 
and future claims.
    So if you have repeated billing problems of the same type, 
and you have a total lack of fear about anything happening to 
you in this program, it is very, very hard to imagine that this 
is totally an accidental mistake. So we do worry about this a 
lot.
    Also, one thing that we have been thinking a lot about to 
remedy this is that providers should be held responsible for 
subsequent mistakes that they make. So that if you could manage 
to measure the cumulative problems that somebody has, if in 
fact they make a mistake the first time, and let us say 2 or 3 
percent of their claims that you looked at were bad, but then 
this continues to happen, and their cumulative mistakes add up, 
then you could say, look, you are no longer exempt because you 
say you are confused; you clearly have been educated, and now 
it is time to do something to either exclude you or to take 
more drastic action. And that is not typically done at all.
    Senator Collins. Thank you.
    I am, unfortunately, going to have to go vote again, but 
Senator Glenn should be back in just one moment. Let me give 
you a question to think about during the brief recess. With 
Medicare moving more from a fee-for-service system to a managed 
care system, some have said that will reduce the ability of 
providers to engage in wasteful practices or outright fraud 
because of the incentives in managed programs. Others have said 
it will just create new opportunities. And while I go to vote, 
I would like you both to think about that question so that we 
can pursue it when I return.
    Thank you. We will take a brief recess.
    [Recess.]
    Senator Glenn [presiding]. We will reconvene the hearing, 
and I apologize for the inconvenience.
    You say there has been pretty good progress made in 
improving Medicare integrity--or that is one of the statements 
that has been made--yet we see that the estimate of the 
Medicare payments procured through fraud and abuse has gone 
from about 10 percent up to 12 percent, and that comes to about 
$23 or $24 billion worth of money here. How are we measuring 
this? Are we measuring better so the fraud is going up, or are 
we really making progress? We cannot be making progress and 
still have the percentages going up. What is your estimate on 
that?
    Ms. Aronovitz. We have been estimating that from 3 to 10 
percent would be attributable to fraud and abuse in the health 
care system, and you could then extrapolate that to Medicare. 
That is an estimate.
    I am not that familiar with the OIG report since it has not 
been issued yet, but from the articles that I have read, I have 
noticed that their methodology includes amounts or claims that 
in fact should not have been paid. But the reason why those 
claims should not have been paid has not been actually 
identified, so in fact some of those could be mistakes or 
unintentional errors or lack of documentation where, if 
documentation could be obtained, then there would be--so it is 
hard to really compare those two numbers until we know more 
about what the OIG study says.
    Senator Glenn. The Health Insurance Portability and 
Accountability Act that was passed last year is a rather 
complex thing in some ways--Jeff, you have done a lot of work 
on that, so go ahead and ask a question on that.
    Mr. Robbins. The Department of Justice Health Care Fraud 
and Abuse Control Program and Guidelines which were approved in 
January of 1997 by Secretary Shalala and the Attorney General 
set forth a series of relatively uncontroversial goals for a 
coordinated health care fraud and abuse program, and among the 
goals with which nobody can take issue are ``coordinating 
Federal, State and local law enforcement efforts, conducting 
investigations, audits, evaluations,'' and so forth, 
``facilitating the enforcement of all criminal, civil and 
administrative statutes, providing industry guidelines, and 
establishing a national databank.''
    So the question that occurs is where the problem of massive 
waste, fraud and abuse is not a new one, these would not seem 
to necessarily represent fresh new ideas however laudable they 
are.
    What, therefore, I wonder if you can tell us, is the 
substantive difference that you expect under the HIPAA-mandated 
program, and what is the difference between what has been 
mandated under that program and what has been tried before 
without apparently making a significant dent in the amount of 
health care money lost to fraud and abuse. And second, I think 
in the GAO statement at page 8, there is a reference to an 
annual evaluation of the program's effectiveness. I wonder if 
there is in place a set of specific, concrete, meaningful 
measuring tools that you expect of the GAO to hold the program 
up to every 12 months or so in order to test in a meaningful 
way whether the program is achieving real results. If so, what 
are those measuring tools?
    Ms. Aronovitz. We are in the process--actually, we have 
been mandated by Congress to evaluate the implementation of 
HIPAA by all the parties, and we are in the process of 
developing a methodology to do that. So we are not yet in a 
position to be able to state exactly how we are going to go 
about measuring that. But one thing that we are very concerned 
about, which gets to your first question, is the actual 
implementation of some of the programs that are now being 
discussed.
    In Operation Restore Trust, which you are all probably very 
familiar with, the OIG and HCFA and the Department of Justice 
and others have talked a lot about some of the successes in 
that program and how they were able in five States to do a very 
focused effort to try to look at fraud in the DME, nursing home 
and home health areas.
    But what has been interesting is that one of the biggest 
things that comes from ORT is the fact that up until that 
point, there was not a lot of coordination between different 
law enforcement entities, so that in fact even though it might 
sound very strange, there was not a lot of coordination between 
what was happening in the OIG and also in the Department of 
Justice, where they would get together and share information 
and work on cases together. The State is asked in the home 
health program to certify home health agencies; they typically 
look at the conditions of participation, which deal very 
strongly with quality issues. However, the certification people 
were not that well-trained to be able to identify potential 
overpayments or billing errors or coverage problems or 
whatever, and now they are beginning to learn how to do that, 
so they will then be able to go back to the home health 
intermediaries and say, you know, we went out on the 
certification, and we have a concern about this home health 
agency; you might want to look at it from a fiscal standpoint.
    So one of the things that is very interesting is that some 
of these efforts that are being announced have not been all 
that well done in the past, and now, hopefully, because it is 
considered to be a project that is well-funded, and we will be 
evaluating it, we are hoping that some of these projects will 
get implemented more completely--and that pertains to some of 
the other projects that you mentioned also.
    Mr. Robbins. Ms. Bucy.
    Ms. Bucy. I do not think HIPAA goes far enough. I can give 
you several examples. First of all, HIPAA does give HCFA the 
authority to contract with ``eligible entities'' to serve as 
fraud cops on the Medicare claims, but it also ``deems'' the 
carriers and intermediaries to be eligible entities. So I would 
change that presumption so they are deemed to be ineligible 
entities.
    Second, I do not think the forfeiture provision that was 
added to the criminal provisions goes far enough. Section 249 
allows for forfeiture of proceeds of the fraud and property 
that has been involved in the fraud. It does not allow for 
forfeiture of property that has facilitated the fraud, which 
some of the forfeiture statutes do.
    In addition, the new criminal offenses that were created 
are not made predicate acts under RICO. I think this is a 
serious omission which limits RICO's use by private attorneys 
in class actions or other civil RICO lawsuits.
    Lastly, qui tam provisions should be expanded to include 
the anti-kickback statute, and that was not added.
    So I do not know that there is everything that ought to be 
in HIPAA.
    Senator Glenn. Thank you.
    Professor Bucy, you have written--and I gather you have 
written this in a number of Law Review articles also--you make 
some interesting recommendations. One of them is to require 
Medicare providers and Medicaid providers as well to certify 
that they have provided all necessary services. In other words, 
they have certain responsibilities, and I guess it is your 
feeling or your experience that they have not lived up to these 
things and that they should be prosecutable as well for not 
living up to this. This is particularly important as we move 
into more of a managed care thing, with HMOs and so on. Is this 
a major problem now that they are making their money, or is 
fraud just by under-providing and saving money and not 
providing services--I would think that would be much harder to 
define and to get at than just mispricing of certain pieces of 
equipment.
    Ms. Bucy. You are exactly right, it will be hard to 
prosecute. My suggestion is to make prosecution easier when it 
is appropriate. And again, I have concerns about 
overcriminalization. But as we move to managed care, which uses 
a capitation type of payment, providers lose money if they 
provide too many services. So that obviously, there is a 
financial incentive to underprovide services.
    If there is a certification, say, annually--I think the 
best way to do it would be annually, at the end of the year--by 
HMOs, whether they are Medicare, whether they are private pay, 
whatever--that certifies that the HMO has provided all 
necessary services, a prosecutor can go back, show a sufficient 
pattern of underutilization. The certification becomes the 
false statement that the HMO can be prosecuted for.
    Certification, may of course, remind providers of their 
obligation, but it also will make prosecution of appropriate 
cases easier, because then you have a false statement.
    Senator Glenn. Do you need additional legislation, or do 
current laws cover that?
    Ms. Bucy. Current laws would certainly allow for 
prosecution once you show a pattern of underutilization; that 
would be a scheme or artifice to defraud to fail to provide the 
services that as HMO is contracted to provide. But it is 
difficult to prosecute as an implicit obligation. It is much 
easier if a prosecutor can go in, present a piece of paper that 
says, ``I certify this,'' and that is signed by somebody. So it 
would make the prosecution easier in those egregious cases, and 
I think it should be reserved for the egregious cases. That is 
why I think a certification would be helpful.
    Senator Glenn. I would think that would be covered now. 
Most of these places have to be licensed, anyway. I guess 
everybody has to be licensed by the State, do they not?
    Ms. Bucy. The HMO providers do, but the licensing is not 
standard, and to my knowledge, there is not a certification 
when you are qualified, say, as a Medicare HMO, that says we 
have provided all necessary services.
    Senator Glenn. But there would not be a presumption that 
just because people are in that particular business that they 
would have the responsibility to provide the minimum services 
of that business?
    Ms. Bucy. There would be that implicit presumption, but 
what I am saying is that to prosecute somebody, it will be 
helpful to have an explicit certification. It would be exactly 
like the Form 1500 where providers certify that they have 
provided all medically necessary services.
    Senator Glenn. It is my understanding that since 1994, HCFA 
has revoked approximately 1,500 billing numbers for providers. 
Is that a tough process? Is that very difficult to do?
    Ms. Bucy. I think HCFA would be able to tell you that 
better than I.
    Senator Glenn. OK. Have you looked into that, Ms. 
Aronovitz?
    Ms. Aronovitz. Yes. We have done some work where we have 
looked at the process that HCFA would have to go through to 
exclude a provider, and it is a very arduous process, and it is 
also one that the OIG has a major role in and needs to do a 
much better job. A lot of it has to do with obtaining 
information from the States about Medicaid providers that have 
been excluded by the States and even taking that information 
and passing it along to the HCFA regional offices and then to 
headquarters, so that action can be taken on those same 
providers.
    What we found in our last study was that very often, a 
provider could be excluded from the Medicaid program and still 
be billing Medicare, because there was not good enough 
communication, and the program was not working well enough. 
When you are excluded from any Federal health program, you are 
excluded from all of them, and that communication is something 
that is very tricky and was not very well done, and it is 
something that we are still concerned about and will continue 
to look at.
    Senator Glenn. Just one additional question, Madam 
Chairwoman, if I could. Across the board, do we need to do 
anything in legislation to help get into this area? Is it 
mainly a matter of money and putting more money into 
enforcement and so on? Do we have all the laws on the books 
that would enable us to really get at this thing, or do we need 
some additional legislation?
    Go ahead, Ms. Aronovitz.
    Ms. Aronovitz. I think there are always aspects of 
legislation that could be useful. As a matter of fact, I am 
thinking of one particular situation that would require 
congressional consideration, and it has to do with the home 
health agencies. It was a report that we issued to Senator 
Harkin last week about ways that you could assess home health 
agencies once they have proven that they are abusive billers to 
have to pay or contribute to the cost of doing a more 
comprehensive study on those agencies if they want to stay in 
the program.\1\
---------------------------------------------------------------------------
    \1\ The GAO Report referred to as Exhibit No. 3 appears on page 180 
in the Appendix.
---------------------------------------------------------------------------
    There is legislation that we could talk to you about that 
would help, but what I always get back to and what is very 
disconcerting to me is that we feel that there is still a lot 
that HCFA could do within the money they already have and 
within the regulations and law that already exists.
    And I think that until we get to a point where HCFA takes 
the opportunity and shows the leadership to assure that there 
is a comprehensive strategy for monitoring claims processing, 
that HCFA makes sure that its acquisition system is properly 
obtained and built and designed, and that other kinds of 
actions are taken, that they use the tools of enforcement that 
they already have to enforce some of the problems that we have 
noted over and over again, it is hard for me to assume that 
more money and more legislation would be the answer.
    Senator Glenn. OK. We might want to have staff work with 
you, and you ideas might help in some legislation in this area.
    Ms. Aronovitz. Certainly.
    Senator Glenn. Ms. Bucy.
    Ms. Bucy. I would echo what Ms. Avonoritz has said, that 
right now, there are more than enough resources, and we just 
need HCFA to do a better job with the resources. In addition to 
the comments that I have already made about increasing the 
forfeiture authority, adding the HIPAA new offenses as 
predicate acts to RICO, adding qui tam to the anti-kickback 
statute, and making sure that carriers and intermediaries 
cannot serve as ``fraud cops'' claim they process, I would 
suggest that the qui tam False Claims Act provisions be amended 
so that government employees are not eligible to serve as 
relators when the fraud deals with their particular duties. I 
think that is an issue that has been brought up numerous times 
before Congress.
    I would suggest that the standard for corporate criminal 
liability needs to be addressed by Congress. It has been 
formulated by the courts. It is much too broad. I think it is a 
good example of allowing overcriminalization. We need to be 
able to prosecute corporations, but under a more reasonable 
standard.
    I suggest that main justice should be required to approve 
all investigations of publicly held companies. This would be 
across the board, whether for health care fraud or any white 
collar crime. The experience with Columbia HCA, whose stock 
plummeting with the recent investigation in Texas--and the 
investigation may be completely warranted, and I am not getting 
into that--but just in the instances where that may not be the 
case, I think that shareholders deserve that kind of 
protection.
    The last thing--and I believe there is some leadership from 
this Committee on this already--is to make sure that we have 
ways of monitoring the quality of HMOs. This is where we will 
see abuse and fraud in the future. We need enlightened 
taxpayers who are able to judge the quality of HMOs. This will 
be increasingly important as we switch more to a managed care 
system.
    Senator Glenn. Thank you, and we hope that maybe you would 
be willing to work with staff on this if they contact you for 
your ideas in this area. We would appreciate it very much.
    Thank you, Madam Chairwoman.
    Senator Collins [presiding]. Thank you, Senator Glenn.
    Your final statement, Professor, brings us full circle back 
to the issue I raised before I had to go vote. I would like 
each of you to comment briefly on whether you do see a 
potential for different kinds of fraud or increase fraud as we 
move from a fee-for-service environment in Medicare to greater 
use of HMOs.
    Professor, perhaps you would like to expand a little bit on 
what you were just saying.
    Ms. Bucy. There will continue to be fraud in health care. 
There will be different kinds of fraud because the financial 
incentives for the types of fraud will change as the method of 
payment changes. But I think we are fortunate in the sense that 
some of the States have had experience with managed care 
already including experience with fraud. Some of these States 
have already developed, on a smaller basis, the systems that 
will work as managed care expands nationwide.
    For example, there will be an incentive to enroll 
fictitious employees once we have managed care, and Arizona, in 
particular, has developed some good methods for handling this 
problem. Medicare could use Arizona's model.
    False cost reporting is another example. This type of fraud 
will be an issue in managed care. As long as we set capitation 
rates based on cost, there will be an incentive to falsely 
inflate costs. To counteract this, I would suggest that all 
cost reporting entities be required to hire independent ``fraud 
cops.'' Certification of accurate cost reporting by an 
independent auditor who is familiar with health care fraud 
would go a long way in deferring and detecting false cost 
reporting. False cost reporting is one of the most difficult 
types of fraud to detect and prosecute, so to try to prevent it 
up front by having a good audit done by outside folks would be 
helpful.
    Also, with managed care marketing scams are going to 
increase. There is current authority to prosecute these scams, 
but the ``pay and chase'' approach is not helpful. What we 
really need are preventive measures. Further education of 
Americans will help prevent marketing scams as will collecting 
and publicizing quality control information on HMOs.
    There have been instances, especially out in California, of 
``kiting patients,'' where Medicaid patients are assigned to an 
HMO; the HMO delays reporting the patient to the primary care 
provider. The HMO thereby basically gets a 30-day float where 
it does not have to pay the primary care provider for taking 
care of this patient. If the patient needs something in the 30 
days, they just kind of get ``lost in the shuffle''; otherwise 
nobody knows the difference, and the HMO gets to keep the 
amount.
    What they found in California is that when the 30 days was 
up, the HMO would reassign the patient to another primary care 
provider and get another 30-day float. One HMO had 24 percent 
of its patients at any one time not registered with a primary 
care provider.
    I think some very simple things could be done to prevent 
this kind of fraud, such as a certified letter going to the 
patient indicating that they have been referred to the primary 
care provider. This would be a copy of the letter that goes to 
the primary care provider.
    To conclude, there will be fraud in managed care. Some of 
the States, notably Maryland, Tennessee, and Arizona have had a 
fair amount of experience with managed care and have worked out 
systems to prevent some of these problems. Consulting their 
Medicaid Fraud Control Units for guidance would be helpful.
    Senator Collins. Ms. Aronovitz, in addition to addressing 
that generally, since this will be my last question, could you 
also comment on the disenrollment rates, that is whether they 
are an indicator of where HCFA should look for trouble? I am 
astonished by a disenrollment rate of more than 35 percent in 1 
year. To me, that is a real red flag indicating that there is 
either a quality or a service or some other problem with the 
HMO. Please comment on that as well?
    Ms. Aronovitz. Absolutely, and what you say is exactly 
correct, and it raises eyebrows to the extent that we feel that 
something has got to be done to look at those.
    In fact, some of the work that we have done--reporting 
these disenrollment rates, we did have evidence to show that 
HCFA had a lot of information about violations or quality 
problems that were occurring in some of the HMOs that have high 
disenrollment rates. So we think there could be a very close 
correlation between people getting in and getting disenchanted 
for some reason, and then getting out.
    But to get back to your basic question, clearly, there will 
be another whole set of incentives, as Professor Bucy said, 
when you have a capitation-type set-up. Actually, the 
temptation could be even greater, because in a provider's case, 
when they provide an individual service, they might get a 
certain amount of money for providing an office visit or 
whatever, but in an HMO, it is so competitive to try to get as 
many beneficiaries as possible, because for each one you get, 
you get several hundred dollars from HCFA to cover all the care 
of that particular beneficiary, and if you do not do a very 
good job, then you could make a lot of money every month on 
having these people enrolled.
    We have done a lot of work, and I think it is way too 
complex at this point or at this time in the hearing to talk 
about it at length, but we would be happy to come and talk to 
you later, about looking at resetting the proper payment rate 
for HMOs. Right now, we believe they are receiving too high a 
capitation rate, and the formula that HCFA uses to try to 
decide or figure out how much to pay HMOs is too high in terms 
of what we think the elements of the formula should be; so that 
needs to be adjusted.
    There is definitely a strong incentive to underserve. It 
would extend to individual physicians who take on some of the 
risk, who would be paid by the HMO to take on some of the risk 
and serve a patient. So patients are very vulnerable under this 
system, and there need to be very strong protections, quality 
assurance systems that need to be looked at, not just on paper, 
but actually, people need to go out into the field and make 
sure that the quality assurance systems and also the process by 
which people could appeal a denial of coverage or other types 
of complaints--all those types of issues certainly need to be 
investigated much more closely, especially when you have 
information that is occurring.
    So there are tremendous vulnerabilities in this approach, 
and they have got to be dealt with.
    The last thing I want to say is that very often, the 
marketing abuses that we find really come when beneficiaries 
have no basis to make a selection about what HMO to get into. 
And right now, HCFA collects a lot of information that would be 
extraordinarily helpful to a beneficiary to decide what plan to 
go into.
    On this chart, if you wanted to choose a plan just based on 
this one piece of information in 1995, I think you would 
probably want to choose one of those with a lower disenrollment 
rate, just because, without even knowing why, you would think 
maybe it is a little safer because fewer people are leaving.
    So it is those kinds of questions that I think HCFA needs 
to be more aggressive in helping the beneficiaries work out.
    Senator Collins. Thank you very much.
    I want to thank you both for your testimony and 
cooperation. We look forward to working with you further on 
this important issue.
    Ms. Bucy. Thank you.
    Ms. Aronovitz. Thank you.
    Senator Collins. Our final witness today is Bruce Vladeck, 
Administrator of the Health Care Financing Administration, or 
HCFA, which is the agency charged with managing the Medicare 
program. Since his appointment by the President in 1993, Mr. 
Vladeck has been responsible for the delivery of health care 
services to 70 million Americans who are served by the Medicare 
and Medicaid programs.
    We very much appreciate your being here today. I know it 
took considerable juggling of your schedule, and we appreciate 
your efforts.
    Pursuant to Rule 6, requiring all witnesses who testify 
before the Subcommittee are required to be sworn, I would ask 
that you please stand and raise your right hand.
    Do you swear that the testimony that you are about to give 
to the Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Vladeck. I do.
    Senator Collins. Thank you.
    If you would proceed, we would ask that you attempt to 
limit your oral testimony to 10 minutes.

 TESTIMONY OF BRUCE C. VLADECK,\1\ ADMINISTRATOR, HEALTH CARE 
 FINANCING ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN 
                            SERVICES

    Mr. Vladeck. Thank you very much, Madam Chairwoman and 
Senator Glenn. I am pleased to be here to have the opportunity 
to talk about our efforts to fight fraud, waste and abuse in 
Medicare and Medicaid. We have a prepared statement, and I 
will, in keeping with your suggestion and the other scheduling 
difficulties we have had today, to try to keep my opening 
remarks quite brief.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Vladeck appears on page 154.
---------------------------------------------------------------------------
    We understand how important it is to our programs and to 
our beneficiaries that we do everything that we can to ensure 
the integrity of the program, to make sure that every Medicare 
and Medicaid dollar is well-spent, and that goals of efficiency 
and cost-effectiveness do not compromise the quality of health 
care.
    It is also important to emphasize that remedying a very 
significant and pervasive set of problems that have grown up 
over a period of years and suffered from years of neglect is 
necessarily a process that takes time and requires a stepwise 
set of changes. When I arrived as HCFA's administrator at the 
beginning of this administration, there was not a single senior 
official at the Health Care Financing Administration whose 
full-time job was program integrity activities. Many of the 
issues that have been identified by earlier witnesses today 
obviously involve matters that have gone back for quite a 
number of years.
    Since 1993, we have taken a number of new and aggressive 
steps regarding HCFA's internal organization, the way in which 
we conduct business, and work with our partners in the Office 
of the Inspector General, the FBI, the Department of Justice, 
and the States. Operation Restore Trust, which began in 1995, 
became the focus for a lot of our experimentation with 
development of new techniques and new approaches to detecting, 
combatting and prosecuting fraud and abuse against the 
programs. We learned a lot in that process. The provisions 
related to fraud and abuse in the HIPAA, previously the 
Kennedy-Kassebaum legislation, were largely the result of 
proposals that we had been making for several years. These 
fraud and abuse provisions provide us with very important tools 
and, perhaps most importantly, with new resources in which to 
pursue some of the problems, which we have identified. In two 
sets of legislation this year, the President's budget bill and 
his supplementary anti-fraud and abuse legislation which he 
announced in March, proposed a number of other specific policy 
changes growing out of our experience of the last several 
years. We believe that the President's proposals will 
contribute importantly to our continuing anti-fraud efforts. We 
are delighted that, as the reconciliation process has proceeded 
in both chambers a large proportion of the administration's 
recommendations and proposals have indeed been incorporated 
into the legislation, passed by the House and Senate.
    Just a few other observations, if I could make them very 
quickly. The first is that our underlying philosophy relative 
to fraud and abuse in Medicare and Medicaid should ensure that 
we need to do as much prevention as possible. This prevention 
philosophy is also applicable to health care generally. We have 
to prevent problems from arising, rather than retrospectively 
engaging in what we have come to call ``pay and chase'' after 
the fact when problems emerge.
    There are two major components to a philosophy of paying 
right the first time. The first is identifying policies or 
problems that are inherently subject to abuse or inherently 
awkward in a variety of ways. Previous witnesses have suggested 
a number of examples. The second component involves changing 
the policy to achieve a number of objectives, such as reducing 
opportunities for certain kinds of fraud and abuse.
    Therefore, this year's legislative proposals involving 
prospective payment skilled nursing facilities under Medicare 
require consolidated billing for all ancillary and other 
professional services rendered to nursing home residents. When 
implemented, the prospective payment provisions will eliminate 
a major area that has been identified by the Inspector General 
as an area of fraud and abuse. This was a subject of the GAO's 
testimony. Prospective payment for home health care will change 
very dramatically the issues involved with program integrity.
    Similarly, we need the tools, such as competitive bidding 
for durable medical equipment and other Part B services to 
drive out the excess profits built into the pricing structures 
in many parts of the Medicare program which make those services 
particularly attractive for people whose motives are less than 
entirely pure. We are delighted that the Senate reconciliation 
legislation grants HCFA the authority, which we have sought for 
many years, to use the mechanism of competitive bidding as a 
way of setting prices for Part B services rather than requiring 
HCFA to continue to follow very cumbersome payment 
determination methods that are currently established in statute 
in excruciating detail.
    Finally, I wish to emphasize the administration-wide 
commitment to anti-fraud efforts. While it may seem to most to 
be a common sensical approach, how significant a change it has 
been in the last 3 or 4 years, as one of the previous witnesses 
suggested, to find an Administration-wide commitment in anti-
fraud efforts. For instance, the Attorney General, the Director 
of the FBI, the Secretary of Health and Human Services, and the 
Inspector General of the Department of Health and Human 
Services, and the Inspectors General of a number of other 
agencies with important health care responsibilities, such as 
the Office of Personnel Management and the Department of 
Veterans Affairs, have come together on a regular basis to have 
a single administration-wide steering Committee on efforts to 
combat health care fraud and abuse. These entities are sharing 
a common database about investigations for the first time in 
history, are exchanging detailed investigative information for 
the first time, and the benefits of such cooperation have 
already begun to emerge in identifiable cases, prosecutions, 
convictions, and exclusions of fraudulent individuals from the 
program all across the country.
    Cooperation among Federal entitles was strengthened by the 
language in the Kennedy-Kassebaum legislation. This cooperative 
structure was put into place recently, and we believe that it 
is going to pay significant dividends in years to come.
    That is a very brief summary of much material, and I am 
obviously happy to answer any questions that you might have 
about any of these issues, and again, I appreciate the 
opportunity to be with you today.
    Senator Collins. Thank you very much.
    One of my major concerns, which I know Senator Glenn shares 
from a conversation we just had, is that the amount of improper 
Medicare payments are not going in the right direction. They 
seem to be going up with each new report that we get from the 
GAO or the IG's office. We now have the latest report, which 
suggests that improper payments may be as high as 17 percent, 
annually. The mid range estimate is 14 percent. First, let me 
ask you whether you agree that the problem is getting worse, 
and if you do not agree, how do you account for the findings of 
the GAO and IG?
    Mr. Vladeck. I do not agree that the problem is getting 
worse. I think we do have some evidence that it is getting less 
bad--I will not say ``better,'' but that it is getting less 
bad. The study you cite, which was reported in The Wall Street 
Journal and which will be made public in the next month or 6 
weeks represents the first ever statistically valid national 
sample audit of Medicare claims payment. There is no comparable 
data available historically with which to compare those 
findings.
    All of the other numbers that have been cited before, 
involving the numbers estimated and the documents from which 
the figures originate, are recognized to be much rougher 
estimates based on much less systematic and much less complete 
data. Therefore, the estimates that will be contained in the 
Inspector General's audit of HCFA's fiscal year 1996 financial 
statement is the first time a nationally replicable, 
statistically valid estimate on Medicare claims has ever been 
conducted.
    Senator Collins. I guess I am not comforted by that fact in 
that this new estimate of fraud is higher than the estimates 
described in previous studies. This is the first study that 
shows an improper payment rate of approximately 14 percent. We 
have a $23 billion problem on our hands.
    Mr. Vladeck. We have a very considerable problem. However, 
consideration of other indicators of changes over time, 
involving categories of billings for the Medicare program where 
HCFA has been most concerned about fraud and abuse and has 
focused its investigative and other efforts over the last 2 or 
3 years, we have found in the last 18 months or so, a 
significant reduction in the rate of growth of payments for 
durable medical equipment in Medicare. We would be happy to 
share the specifics of these findings with the Committee. There 
has been an actual reduction from 1 year to the next in the 
dollar volume of laboratory claims which HCFA has paid in 
certain parts of the country. There has also occurred a 
significant flattening in the growth of home health care 
claims. We are seeing changes in the trend line in these areas 
and jurisdictions in which HCFA has concentrated its 
investigative and prosecutorial resources. This is why we are 
seeking to expand these efforts performed over the last 2 or 3 
years.
    Senator Collins. You mentioned durable medical equipment 
and that you are seeing some progress in that area. I do not 
know whether you were here earlier when some of the witnesses 
were doing comparisons of the amount that the Veterans 
Administration was spending for the same items and citing 
competitive bidding as the reason for the difference. Has HCFA 
actually been precluded from using competitive bidding? I 
understand the reconciliation bill permits you to do so, but in 
the past have there been legal obstacles to your using 
competitive bidding to help control the costs of commonly 
available items?
    Mr. Vladeck. Let me be very careful about this because this 
is very important, and the answer is that except for the 
possible application of HCFA's demonstration authority on an 
experimental and trial basis, we have not legally been 
permitted to use competitive bidding for setting prices for 
durable medical equipment. The one time in the past in which 
HCFA publicly announced its intention to conduct a 
demonstration of competitive pricing for durable medical 
equipment, we were specifically forbidden by the Congress from 
proceeding with that demonstration.
    Senator Collins. From your answer, can I assume, now that 
Congress is giving you a green light, that you will 
aggressively pursue competitive bidding in this area?
    Mr. Vladeck. Aggressively.
    Senator Collins. Let me ask you a question about the 
automated information systems that are being used to process 
Medicare claims. It is my understanding that HCFA now is in the 
process of replacing those systems with a single, unified 
system which is referred to as the Medicare Transaction 
Systems. GAO, as I am sure you know, issued a report last month 
which concluded that the success of implementing the Medicare 
transaction system depends upon HCFA correcting very 
fundamental managerial and technical weaknesses in the program, 
and one area that I found particularly troubling was the cost 
growth in this project.
    I know that all of us who have tried to implement new 
computer systems find that it frequently costs more than we 
think, but in this case, the estimated cost had increased, I am 
told, from $151 million to $1 billion. That is a 600 percent 
increase in 5 years. Could you explain the significant growth 
in the cost estimate and also give us some update or assurances 
that these problems are under control, because clearly, if we 
cannot get an automated system that we have confidence in and 
that works well, that is going to undermine the efforts that 
you are undertaking.
    Mr. Vladeck. I am happy to respond. Let me say first that 
we have informed the GAO through our testimony presented during 
other committees in the past that we believe the GAO's 
contention indicating the costs have grown from $150 million to 
$1 billion is simply wrong. The GAO is comparing cost estimates 
that estimated two dissimilar things, and there have been 
increases in the estimated costs over the life of the project. 
The design of the project has evolved considerably.
    The fact is, Madam Chairwoman, without getting into a long 
technical argument, we are now spending approximately $1.5 
billion a year operating the current Medicare claims processing 
system. For instance, over a 10-year period, much of the cost 
of installing a new system is implementing it at the sites at 
which claims are processed. In determining the estimated costs, 
the incremental or differential cost of operating a claims 
processing system with the old system and the new system must 
be considered. This is how we obtained our billion dollar 
estimate. The $150 million estimate, that was made earlier in 
this decade, was made on an entirely different basis. 
Therefore, we simply disagree with GAO regarding their cost 
estimate comparison.
    Senator Collins. What is your estimate, then?
    Mr. Vladeck. Well, we are estimating that over the life 
cycle of the project, the total development and implementation 
costs of the program will be in the range of $1 billion.
    Senator Collins. It will be $1 billion?
    Mr. Vladeck. Yes, that is correct.
    Senator Collins. It is my understanding that is what GAO 
estimated.
    Mr. Vladeck. Well, again, we are not disagreeing with the 
estimate. We are disagreeing with GAO's use of the earlier 
figure as a comparison figure.
    Senator Collins. As the comparison.
    Mr. Vladeck. In keeping with recent Congressional 
legislation and the directive of the Office of Management and 
Budget, we have adopted, through the strategy for the 
development of the Medicare Transaction System, a so-called 
investment management strategy. The principal objective of this 
strategy is to minimize the risk to taxpayers of excessive 
costs in the development of a system or in unsuccessful 
development activities. We are proceeding on this basis, and 
that is frankly one of the reasons why the costs have 
increased. What we have done is to slow down the development of 
the system and have broken it into more incremental pieces. We 
have adopted a strategy that is much longer terms and it is 
going to take much more separate steps. The risk of wasting 
money as part of that strategy will be significantly reduced, 
but it will take us much longer to put the new system fully 
into place. Full implementation will be later in the future, at 
which point we will begin to generate the savings that a 
single, unified database will achieve. However, we are 
currently proceeding in an especially cautious and stepwise 
fashion with the system development.
    Senator Collins. One final question before I turn to 
Senator Glenn for his questions. Some of our witnesses this 
morning essentially said that HCFA now has the resources and 
the tools that it needs as a result of the Kassebaum-Kennedy 
Act and other legislation that is going to be enacted now to 
get a handle on this problem. Do you agree with that, or are 
there further legislative steps or resources that you believe 
you need in order to tackle this problem effectively?
    Mr. Vladeck. Well, again, we do believe that there are a 
number of provisions in the HIPAA when implemented which will 
be of enormous benefit. As I suggested in my opening statement, 
we have had a number of proposals as part of the budget 
reconciliation process that are quite important to us in this 
regard.
    If we can all continue to be optimistic about the 
conferencing of the budget reconciliation legislation and its 
emergence in the very near future, we would not be currently 
suggesting significant additional legislative authorities. We 
believe that we will then have most of the tools in place. It 
will be quite appropriate for HCFA to return to Congress in a 
year and a half to report on HCFA's progress in implementing 
new anti-fraud provisions contained in the HIPAA and budget 
reconciliation legislation.
    Senator Collins. Thank you. Senator Glenn.
    Senator Glenn. Thank you, Madam Chairwoman.
    I know it is getting late, and we appreciate your sticking 
with us for all this time, but we have had problems this 
morning, obviously.
    According to The Wall Street Journal, Medicare home health 
care outlays have tripled over the past 5 years and are now at 
about $22 billion and apparently are still going up. Now, that 
was by intent to some degree, because we thought that might be 
saving hospital costs and other things. Are there any studies 
that show what offset there is for this? As we have moved into 
this and gone to more home health care, have we seen the 
savings that were supposed to occur from some of this?
    Mr. Vladeck. Probably the most useful recent analysis of 
this has been the work done by the Prospective Payment 
Assessment Commission. This Commission advises the Congress on 
Medicare Part A activities. In ProPAC's June report of last 
year, the Commission considered this issue in great detail and 
suggested that not only has there not been a substitution 
effect by the growth in home health, but that in fact, the 
events over the last half dozen years have led to Medicare 
increasingly paying twice for the same service rather than 
paying somewhat less for the same services.
    Much of the legislation that we have been working on having 
to do with payment reform in Medicare, involving not only home 
health, but payment to hospitals, has been very much in 
response to ProPAC's studies.
    Senator Glenn. If I understand you correctly, then, the 
offsets that we thought might occur are just not evident yet.
    Mr. Vladeck. No; if anything, the opposite--instead of 
paying less, we are paying twice.
    Senator Glenn. The March report--this is a year-old GAO 
report now--said that controls over the Medicare home health 
benefit remain essentially nonexistent. Have you been able to 
put anything into place in the last year now to start 
monitoring that?
    Mr. Vladeck. Well, we have done a lot of monitoring. I 
think one of the things--and to pick a small quarrel with the 
GAO testimony--that has been ignored in the discussion of this 
issue in the testimony is that in the early 1980's, after the 
1981 GAO report, HCFA put into place a number of very 
aggressive controls on home health care claims. As a result of 
HCFA's controls, a coalition of consumer and provider groups 
brought a lawsuit against HCFA which was adjudicated in the 
District Court in the District of Columbia in 1988. This 
lawsuit resulted in one of the most blistering decisions which 
I have ever read attacking an administrative agency by the 
judge. Subsequent to which my predecessors entered into a 
consent decree to settle the litigation, and it largely gave 
away HCFA's ability to effectively review individual home 
health claims.
    Included in the new legislation are provisions which we 
hope will soon be enacted. These provisions provide for a 
number of changes in the underlying statute. For the first 
time, proposed changes will supersede the consent decree and 
permit HCFA to have a much better handle on many home health 
claims which we have been unable to effectively review over the 
last 7 or 8 years.
    Senator Glenn. You talked about additional legislation and 
the competitive bidding a little bit. How about this idea of 
the billing codes? I was not aware of that until this morning--
that was a new wrinkle for me--where you have certain equipment 
provided for under a billing code, and it can be either good 
stuff or poor stuff, and there is a big difference according to 
the charts we had displayed here earlier this morning, which I 
think you saw.
    Are you moving in that area--it is apparently a real 
problem, because we are paying three times in some areas what 
we should be paying, compared to what the VA is paying. Is that 
a major problem, and are we breaking those billing codes down 
in some way, or how are we taking care of that problem?
    Mr. Vladeck. I believe that the current statutory 
requirements for how we set prices for durable medical 
equipment are causing HCFA to overpay very, very significantly. 
There is no question, and we have----
    Senator Glenn. And that is required by law.
    Mr. Vladeck. That is required by law and it is specified in 
significant detail in the statute. We do believe that 
competitive bidding will often be the best approach. Expansion 
of our ``inherent reasonableness authority,'' which is also in 
the Senate legislation, would be helpful for services for which 
competitive bidding is in appropriate, involving circumstances 
where there is only one supplier in a rural community or only 
one supplier of an esoteric item.
    With respect to the narrower issue of billing codes, we 
currently require a particular item code for each durable 
medical equipment bill. The suggestion, as I understand it 
today, was that we use the uniform product identifier number 
code rather than the coding system which we have been using. I 
believe that this idea is a very intriguing and positive 
suggestion.
    In accordance with the administrative simplification 
requirements of HIPAA, we are obligated to lead a national 
public-private participative process to get agreement on 
standardization of all this kind of coding and other 
information. Standardization is very much on the agenda for 
that process.
    Senator Glenn. Professor Bucy brought up the issue of 
under-providing. Is that a problem that you are monitoring, and 
how do you monitor that?
    Mr. Vladeck. It is potentially a very serious problem. We 
have, effective this past January 1st, required all HMOs 
participating in the Medicare program to participate in the 
data and reporting system that is commonly referred to as 
HEDIS, the Health Care Employers Information Set. The National 
Committee on Quality Assurance has used HEDIS as the first 
effort to measure the actual provision of service by HMOs. All 
of our HMOs will be reporting to us on the frequency of 
mammographies and other kinds of procedures. There are 26 
different items in the HEDIS dataset, and we will have 
independent audits of the accuracy of that data as a first 
step, but by no means a complete and systematic effort to begin 
resolving this issue of under-provision.
    We will also be administering a public opinion survey to 
Medicare HMO enrollees this fall that will have a sufficiently 
large sample size to ensure a statistically representative 
sample of each plan. This survey will permit us to report on 
patient satisfaction scores involving issues like access, 
availability of physicians, and availability of procedures. 
These are the first two steps in a multi-year effort and a 
multi-year plan to address these particular concerns.
    Senator Glenn. OK. Are you doing any contracting with 
outside firms for utilization review, and what has your 
experience been in that area?
    Mr. Vladeck. We require our providers to, in many 
instances, contract with outside firms for utilization review. 
In accordance with the statute, we contract in every State with 
a peer review organization to do the basic utilization review 
for a range of identified Medicare services. These 
relationships are statutory.
    We have invested a lot of time and effort into the efforts 
of the PROs over the last several years, and we are learning 
how to do it considerably better. We are beginning to find 
measurable improvements in some areas involving patterns of 
care.
    We believe that under the new HIPAA authority, we will be 
contracting with a much broader range of organizations to 
perform specified kinds of program integrity reviews in the 
Medicare program. We are examining a number of potential 
participants in that process and involvement.
    Senator Glenn. We are talking mainly about fraud and abuse 
and all those things in the Medicare programs, but just to 
touch on one of the other problems for a moment--I do not know 
whether it is still a problem or not--but at least some time 
back, you were having problems getting a lot of doctors to sign 
up under Medicare. They did not like the paperwork; it was too 
much hassle, and they were just running in their own direction. 
So in some places, a lot of doctors were not accepting Medicare 
patients, or they preferred not to and would make a decided 
effort not to have Medicare patients. Is that still a problem?
    Mr. Vladeck. It is in some isolated pockets of the country, 
Senator Glenn. On average nationally, the proportion of all 
physicians participating in the Medicare program in 1995 is the 
highest that it has ever been. We anticipate having the 1996 
data available soon. Well more than 90 percent of all 
physicians licensed to practice in the United States are now 
participating in the Medicare program.
    The other Congressional advisory committee, the Physician 
Payment Review Commission, has identified 15 communities around 
the country in which they are concerned about problems of 
access to practitioners for Medicare beneficiaries. We are 
conducting special reviews of these communities. On average, 
the proportion of physicians in practice who do not see 
Medicare patients is at an all-time low.
    Senator Glenn. Just one other thing. You talked about the 
expense of the MTS system and how much it is going to cost. I 
am concerned that we not just go from fraud on paper to fraud 
by computer once we get there. I hope you are building some 
protections into that system, and I do not know whether 
similarities are enough between our experience with IRS and 
what you are designing that would be something you should have 
some meetings on over there.
    We have been at the tax system modernization here, and we 
are some $3.5 billion into it. I do not know how many hearings 
I have personally conducted in this room on IRS and tax system 
modernization, but it is quite a batch, as well as GAO studies 
and so on. As you move into this area, I would just implore you 
to talk to them at least about some of the problems they have 
had in trying to implement a great big system like this. You 
have 822 million claims a year, and that is fairly small 
compared to what IRS has, I think, in the number of things they 
have to process. But I hope you are talking to them over there 
so you can perhaps avoid some of the pitfalls they encountered, 
because we had a sad experience with that.
    The question is: Are you consciously building into this 
protections against fraud and abuse in some way--and I do not 
know how you do that; I am not enough of a computer whiz to 
know how you do it--but are your people considering that as 
they design this system and move into it? If not, they should 
be.
    Mr. Vladeck. I am glad you ask that, Senator, because it 
permits me to mention a computer project of which we are 
particularly proud. We have contracted with Los Alamos National 
Laboratories to apply some of the very super-computer pattern 
recognition technology which were first used in national 
defense applications as a technique for detection of patterns 
of fraud and abuse in Medicare and Medicaid billing.
    Los Alamos National Laboratories has actually already had a 
great deal of success with the commercialization of this 
technology for the protection of credit card fraud. For 
instance, anyone who has received a call from his credit card 
company lately, asking if they went to Hawaii last week or 
whatever, because the company found some unusual charges, may 
be familiar with this new technology.
    We are not waiting for the new computer system to put in 
place this kind of technology. We are pilot-testing it in two 
States already. The new system will plug into this kind of very 
highly sophisticated pattern detection fraud and abuse 
technology as well as some of the more old-fashioned kinds of 
editing processes.
    Senator Glenn. And while you are building it in, too, you 
want some of the protections against hackers getting in and 
fouling up the system, like the one that NSA has done a lot of 
work on, how to prevent things like that with people hacking 
into Pentagon codes and command circuits.
    There was a Russian--if I could digress a little bit for 30 
seconds--a Russian hacker a couple of years ago who got into 
one of the big investment house computers in New York and 
transferred a million or two out to an account of his in Los 
Angeles and some more to a bank account in Switzerland. And it 
is a new way of making warfare if you want to consider it that, 
because if you had 500 or 1,000 trained hackers to go into 
transferring Merrill Lynch accounts to the Fed and your bank 
account to the Fed and the Feds to you--and you would probably 
come out ahead on that detail--but you transfer these things 
around, and you foul up the economic system of the whole 
country. It is to that level of importance now.
    So the point is where you are setting up a brand new system 
like this, and where there has been fraud and abuse, you may 
want to contact the NSA people and have them give you some 
advice on how you can set this up to prevent people from 
getting into your system. There has been fraud and abuse in 
here, and there is going to be more as you go to computers if 
you do not do it right.
    Thank you much. That is all.
    Senator Collins. Thank you.
    Thank you very much, Mr. Vladeck. We look forward to 
working with you. This is going to be an ongoing investigation.
    I want to thank Senator Glenn for his participation in this 
hearing.
    We will have some additional questions for the record that 
we would ask your cooperation in answering.
    Mr. Vladeck. I would be delighted.
    Senator Collins. And all the charts of our witnesses will 
be made a part of the record, which will be left open for 10 
days.
    I want to thank everyone for coming today. I particularly 
want to thank my staff for an excellent job in putting together 
this hearing, led by Tim Shea, our Chief Counsel. The PSI 
staff, including Ian Simmons, Don Mullinax, John Frazzini, Mary 
Robertson and Lindsey Ledwin, worked very hard on this hearing. 
Medicare fraud is going to be an ongoing effort of the 
Subcommittee. And I want to thank Senator Glenn's staff as well 
for their cooperation.
    This hearing is now adjourned.
    [Whereupon, at 12:40 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              


[GRAPHIC] [TIFF OMITTED] 42346.001

[GRAPHIC] [TIFF OMITTED] 42346.002

[GRAPHIC] [TIFF OMITTED] 42346.003

[GRAPHIC] [TIFF OMITTED] 42346.004

[GRAPHIC] [TIFF OMITTED] 42346.005

[GRAPHIC] [TIFF OMITTED] 42346.006

[GRAPHIC] [TIFF OMITTED] 42346.007

[GRAPHIC] [TIFF OMITTED] 42346.008

[GRAPHIC] [TIFF OMITTED] 42346.009

[GRAPHIC] [TIFF OMITTED] 42346.010

[GRAPHIC] [TIFF OMITTED] 42346.011

[GRAPHIC] [TIFF OMITTED] 42346.012

[GRAPHIC] [TIFF OMITTED] 42346.013

[GRAPHIC] [TIFF OMITTED] 42346.014

[GRAPHIC] [TIFF OMITTED] 42346.015

[GRAPHIC] [TIFF OMITTED] 42346.016

[GRAPHIC] [TIFF OMITTED] 42346.017

[GRAPHIC] [TIFF OMITTED] 42346.018

[GRAPHIC] [TIFF OMITTED] 42346.019

[GRAPHIC] [TIFF OMITTED] 42346.020

[GRAPHIC] [TIFF OMITTED] 42346.021

[GRAPHIC] [TIFF OMITTED] 42346.022

[GRAPHIC] [TIFF OMITTED] 42346.023

[GRAPHIC] [TIFF OMITTED] 42346.024

[GRAPHIC] [TIFF OMITTED] 42346.025

[GRAPHIC] [TIFF OMITTED] 42346.026

[GRAPHIC] [TIFF OMITTED] 42346.027

[GRAPHIC] [TIFF OMITTED] 42346.028

[GRAPHIC] [TIFF OMITTED] 42346.029

[GRAPHIC] [TIFF OMITTED] 42346.030

[GRAPHIC] [TIFF OMITTED] 42346.031

[GRAPHIC] [TIFF OMITTED] 42346.032

[GRAPHIC] [TIFF OMITTED] 42346.033

[GRAPHIC] [TIFF OMITTED] 42346.034

[GRAPHIC] [TIFF OMITTED] 42346.035

[GRAPHIC] [TIFF OMITTED] 42346.036

[GRAPHIC] [TIFF OMITTED] 42346.037

[GRAPHIC] [TIFF OMITTED] 42346.038

[GRAPHIC] [TIFF OMITTED] 42346.039

[GRAPHIC] [TIFF OMITTED] 42346.040

[GRAPHIC] [TIFF OMITTED] 42346.041

[GRAPHIC] [TIFF OMITTED] 42346.042

[GRAPHIC] [TIFF OMITTED] 42346.043

[GRAPHIC] [TIFF OMITTED] 42346.044

[GRAPHIC] [TIFF OMITTED] 42346.045

[GRAPHIC] [TIFF OMITTED] 42346.046

[GRAPHIC] [TIFF OMITTED] 42346.047

[GRAPHIC] [TIFF OMITTED] 42346.048

[GRAPHIC] [TIFF OMITTED] 42346.049

[GRAPHIC] [TIFF OMITTED] 42346.050

[GRAPHIC] [TIFF OMITTED] 42346.051

[GRAPHIC] [TIFF OMITTED] 42346.052

[GRAPHIC] [TIFF OMITTED] 42346.053

[GRAPHIC] [TIFF OMITTED] 42346.054

[GRAPHIC] [TIFF OMITTED] 42346.055

[GRAPHIC] [TIFF OMITTED] 42346.056

[GRAPHIC] [TIFF OMITTED] 42346.057

[GRAPHIC] [TIFF OMITTED] 42346.058

[GRAPHIC] [TIFF OMITTED] 42346.059

[GRAPHIC] [TIFF OMITTED] 42346.060

[GRAPHIC] [TIFF OMITTED] 42346.061

[GRAPHIC] [TIFF OMITTED] 42346.062

[GRAPHIC] [TIFF OMITTED] 42346.063

[GRAPHIC] [TIFF OMITTED] 42346.064

[GRAPHIC] [TIFF OMITTED] 42346.065

[GRAPHIC] [TIFF OMITTED] 42346.066

[GRAPHIC] [TIFF OMITTED] 42346.067

[GRAPHIC] [TIFF OMITTED] 42346.068

[GRAPHIC] [TIFF OMITTED] 42346.069

[GRAPHIC] [TIFF OMITTED] 42346.070

[GRAPHIC] [TIFF OMITTED] 42346.071

[GRAPHIC] [TIFF OMITTED] 42346.072

[GRAPHIC] [TIFF OMITTED] 42346.073

[GRAPHIC] [TIFF OMITTED] 42346.074

[GRAPHIC] [TIFF OMITTED] 42346.075

[GRAPHIC] [TIFF OMITTED] 42346.076

[GRAPHIC] [TIFF OMITTED] 42346.077

[GRAPHIC] [TIFF OMITTED] 42346.078

[GRAPHIC] [TIFF OMITTED] 42346.079

[GRAPHIC] [TIFF OMITTED] 42346.080

[GRAPHIC] [TIFF OMITTED] 42346.081

[GRAPHIC] [TIFF OMITTED] 42346.082

[GRAPHIC] [TIFF OMITTED] 42346.083

[GRAPHIC] [TIFF OMITTED] 42346.084

[GRAPHIC] [TIFF OMITTED] 42346.085

[GRAPHIC] [TIFF OMITTED] 42346.086

[GRAPHIC] [TIFF OMITTED] 42346.087

[GRAPHIC] [TIFF OMITTED] 42346.088

[GRAPHIC] [TIFF OMITTED] 42346.089

[GRAPHIC] [TIFF OMITTED] 42346.090

[GRAPHIC] [TIFF OMITTED] 42346.091

[GRAPHIC] [TIFF OMITTED] 42346.092

[GRAPHIC] [TIFF OMITTED] 42346.093

[GRAPHIC] [TIFF OMITTED] 42346.094

[GRAPHIC] [TIFF OMITTED] 42346.095

[GRAPHIC] [TIFF OMITTED] 42346.096

[GRAPHIC] [TIFF OMITTED] 42346.097

[GRAPHIC] [TIFF OMITTED] 42346.098

[GRAPHIC] [TIFF OMITTED] 42346.099

[GRAPHIC] [TIFF OMITTED] 42346.100

[GRAPHIC] [TIFF OMITTED] 42346.101

[GRAPHIC] [TIFF OMITTED] 42346.102

[GRAPHIC] [TIFF OMITTED] 42346.103

[GRAPHIC] [TIFF OMITTED] 42346.104

[GRAPHIC] [TIFF OMITTED] 42346.105

[GRAPHIC] [TIFF OMITTED] 42346.106

[GRAPHIC] [TIFF OMITTED] 42346.107

[GRAPHIC] [TIFF OMITTED] 42346.108

[GRAPHIC] [TIFF OMITTED] 42346.109

[GRAPHIC] [TIFF OMITTED] 42346.110

[GRAPHIC] [TIFF OMITTED] 42346.111

[GRAPHIC] [TIFF OMITTED] 42346.112

[GRAPHIC] [TIFF OMITTED] 42346.113

[GRAPHIC] [TIFF OMITTED] 42346.114

[GRAPHIC] [TIFF OMITTED] 42346.115

[GRAPHIC] [TIFF OMITTED] 42346.116

[GRAPHIC] [TIFF OMITTED] 42346.117

[GRAPHIC] [TIFF OMITTED] 42346.118

[GRAPHIC] [TIFF OMITTED] 42346.119

[GRAPHIC] [TIFF OMITTED] 42346.120

[GRAPHIC] [TIFF OMITTED] 42346.121

[GRAPHIC] [TIFF OMITTED] 42346.122

[GRAPHIC] [TIFF OMITTED] 42346.123

[GRAPHIC] [TIFF OMITTED] 42346.124

[GRAPHIC] [TIFF OMITTED] 42346.125

[GRAPHIC] [TIFF OMITTED] 42346.126

[GRAPHIC] [TIFF OMITTED] 42346.127

[GRAPHIC] [TIFF OMITTED] 42346.128

[GRAPHIC] [TIFF OMITTED] 42346.129

[GRAPHIC] [TIFF OMITTED] 42346.130

[GRAPHIC] [TIFF OMITTED] 42346.131

[GRAPHIC] [TIFF OMITTED] 42346.132

[GRAPHIC] [TIFF OMITTED] 42346.133

[GRAPHIC] [TIFF OMITTED] 42346.134

[GRAPHIC] [TIFF OMITTED] 42346.135

[GRAPHIC] [TIFF OMITTED] 42346.136

[GRAPHIC] [TIFF OMITTED] 42346.137

[GRAPHIC] [TIFF OMITTED] 42346.138

[GRAPHIC] [TIFF OMITTED] 42346.139

[GRAPHIC] [TIFF OMITTED] 42346.140

[GRAPHIC] [TIFF OMITTED] 42346.141

[GRAPHIC] [TIFF OMITTED] 42346.142

[GRAPHIC] [TIFF OMITTED] 42346.143

[GRAPHIC] [TIFF OMITTED] 42346.144

[GRAPHIC] [TIFF OMITTED] 42346.145

[GRAPHIC] [TIFF OMITTED] 42346.146

[GRAPHIC] [TIFF OMITTED] 42346.147

[GRAPHIC] [TIFF OMITTED] 42346.148

[GRAPHIC] [TIFF OMITTED] 42346.149

[GRAPHIC] [TIFF OMITTED] 42346.150

[GRAPHIC] [TIFF OMITTED] 42346.151

[GRAPHIC] [TIFF OMITTED] 42346.152

[GRAPHIC] [TIFF OMITTED] 42346.153

[GRAPHIC] [TIFF OMITTED] 42346.154

[GRAPHIC] [TIFF OMITTED] 42346.155

[GRAPHIC] [TIFF OMITTED] 42346.156

[GRAPHIC] [TIFF OMITTED] 42346.157

[GRAPHIC] [TIFF OMITTED] 42346.158

[GRAPHIC] [TIFF OMITTED] 42346.159

[GRAPHIC] [TIFF OMITTED] 42346.160

[GRAPHIC] [TIFF OMITTED] 42346.161

[GRAPHIC] [TIFF OMITTED] 42346.162

[GRAPHIC] [TIFF OMITTED] 42346.163

[GRAPHIC] [TIFF OMITTED] 42346.164

[GRAPHIC] [TIFF OMITTED] 42346.165

[GRAPHIC] [TIFF OMITTED] 42346.166

[GRAPHIC] [TIFF OMITTED] 42346.167

[GRAPHIC] [TIFF OMITTED] 42346.168

[GRAPHIC] [TIFF OMITTED] 42346.169

[GRAPHIC] [TIFF OMITTED] 42346.170

[GRAPHIC] [TIFF OMITTED] 42346.171

[GRAPHIC] [TIFF OMITTED] 42346.172

[GRAPHIC] [TIFF OMITTED] 42346.173

[GRAPHIC] [TIFF OMITTED] 42346.174

[GRAPHIC] [TIFF OMITTED] 42346.175

[GRAPHIC] [TIFF OMITTED] 42346.176

[GRAPHIC] [TIFF OMITTED] 42346.177

[GRAPHIC] [TIFF OMITTED] 42346.178

[GRAPHIC] [TIFF OMITTED] 42346.179

[GRAPHIC] [TIFF OMITTED] 42346.180

[GRAPHIC] [TIFF OMITTED] 42346.181

[GRAPHIC] [TIFF OMITTED] 42346.182

[GRAPHIC] [TIFF OMITTED] 42346.183

[GRAPHIC] [TIFF OMITTED] 42346.184

[GRAPHIC] [TIFF OMITTED] 42346.185

[GRAPHIC] [TIFF OMITTED] 42346.186

[GRAPHIC] [TIFF OMITTED] 42346.187

[GRAPHIC] [TIFF OMITTED] 42346.188

[GRAPHIC] [TIFF OMITTED] 42346.189

[GRAPHIC] [TIFF OMITTED] 42346.190

[GRAPHIC] [TIFF OMITTED] 42346.191

[GRAPHIC] [TIFF OMITTED] 42346.192

[GRAPHIC] [TIFF OMITTED] 42346.193

[GRAPHIC] [TIFF OMITTED] 42346.194

[GRAPHIC] [TIFF OMITTED] 42346.195

[GRAPHIC] [TIFF OMITTED] 42346.196

[GRAPHIC] [TIFF OMITTED] 42346.197

[GRAPHIC] [TIFF OMITTED] 42346.198

[GRAPHIC] [TIFF OMITTED] 42346.199

[GRAPHIC] [TIFF OMITTED] 42346.200

[GRAPHIC] [TIFF OMITTED] 42346.201

[GRAPHIC] [TIFF OMITTED] 42346.202

[GRAPHIC] [TIFF OMITTED] 42346.203

[GRAPHIC] [TIFF OMITTED] 42346.204

[GRAPHIC] [TIFF OMITTED] 42346.205

[GRAPHIC] [TIFF OMITTED] 42346.206

[GRAPHIC] [TIFF OMITTED] 42346.207

[GRAPHIC] [TIFF OMITTED] 42346.208

[GRAPHIC] [TIFF OMITTED] 42346.209

[GRAPHIC] [TIFF OMITTED] 42346.210

[GRAPHIC] [TIFF OMITTED] 42346.211

[GRAPHIC] [TIFF OMITTED] 42346.212

[GRAPHIC] [TIFF OMITTED] 42346.213

[GRAPHIC] [TIFF OMITTED] 42346.214

[GRAPHIC] [TIFF OMITTED] 42346.215

[GRAPHIC] [TIFF OMITTED] 42346.216

[GRAPHIC] [TIFF OMITTED] 42346.217

[GRAPHIC] [TIFF OMITTED] 42346.218

[GRAPHIC] [TIFF OMITTED] 42346.219

[GRAPHIC] [TIFF OMITTED] 42346.220

[GRAPHIC] [TIFF OMITTED] 42346.221

[GRAPHIC] [TIFF OMITTED] 42346.222

[GRAPHIC] [TIFF OMITTED] 42346.223

[GRAPHIC] [TIFF OMITTED] 42346.224

[GRAPHIC] [TIFF OMITTED] 42346.225

[GRAPHIC] [TIFF OMITTED] 42346.226

[GRAPHIC] [TIFF OMITTED] 42346.227

[GRAPHIC] [TIFF OMITTED] 42346.228

[GRAPHIC] [TIFF OMITTED] 42346.229

[GRAPHIC] [TIFF OMITTED] 42346.230

[GRAPHIC] [TIFF OMITTED] 42346.231

[GRAPHIC] [TIFF OMITTED] 42346.232

[GRAPHIC] [TIFF OMITTED] 42346.233

[GRAPHIC] [TIFF OMITTED] 42346.234

[GRAPHIC] [TIFF OMITTED] 42346.235

[GRAPHIC] [TIFF OMITTED] 42346.236

[GRAPHIC] [TIFF OMITTED] 42346.237

[GRAPHIC] [TIFF OMITTED] 42346.238

[GRAPHIC] [TIFF OMITTED] 42346.239

[GRAPHIC] [TIFF OMITTED] 42346.240

[GRAPHIC] [TIFF OMITTED] 42346.241

[GRAPHIC] [TIFF OMITTED] 42346.242

[GRAPHIC] [TIFF OMITTED] 42346.243

[GRAPHIC] [TIFF OMITTED] 42346.244

[GRAPHIC] [TIFF OMITTED] 42346.245

[GRAPHIC] [TIFF OMITTED] 42346.246

[GRAPHIC] [TIFF OMITTED] 42346.247

[GRAPHIC] [TIFF OMITTED] 42346.248

[GRAPHIC] [TIFF OMITTED] 42346.249

[GRAPHIC] [TIFF OMITTED] 42346.250

[GRAPHIC] [TIFF OMITTED] 42346.251

[GRAPHIC] [TIFF OMITTED] 42346.252

[GRAPHIC] [TIFF OMITTED] 42346.253

[GRAPHIC] [TIFF OMITTED] 42346.254

[GRAPHIC] [TIFF OMITTED] 42346.255

[GRAPHIC] [TIFF OMITTED] 42346.256

[GRAPHIC] [TIFF OMITTED] 42346.257

[GRAPHIC] [TIFF OMITTED] 42346.258

[GRAPHIC] [TIFF OMITTED] 42346.259

[GRAPHIC] [TIFF OMITTED] 42346.260

[GRAPHIC] [TIFF OMITTED] 42346.261

[GRAPHIC] [TIFF OMITTED] 42346.262

[GRAPHIC] [TIFF OMITTED] 42346.263

[GRAPHIC] [TIFF OMITTED] 42346.264

[GRAPHIC] [TIFF OMITTED] 42346.265

[GRAPHIC] [TIFF OMITTED] 42346.266

