[Senate Hearing 105-154]
[From the U.S. Government Publishing Office]
S. Hrg. 105-154
MEDICARE AT RISK: EMERGING FRAUD IN MEDICARE PROGRAMS
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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
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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--
--
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\1\ The prepared statement of Senator Grassley appears on page 61.
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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.
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\1\ Exhibit No. 1 appears on page 169 in the Appendix.
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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\
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\2\ Exhibit No. 2 appears on page 179 in the Appendix.
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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.
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\1\ The prepared statement of Senator Harkin appears on page 63.
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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.
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\1\ Exhibit No. 3 appears on page 180 in the Appendix.
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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.
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\1\ The prepared statement of Mr. Mangano appears on page 66.
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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\
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\1\ Exhibit No. 4 appears on page 197 in the Appendix.
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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.
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\1\ The prepared statement of Mr. Owens appears on page 77.
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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.
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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.
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\1\ The prepared statement of Ms. Aronovitz appears on page 85.
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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.
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\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\
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\1\ The GAO Report referred to as Exhibit No. 3 appears on page 180
in the Appendix.
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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.
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\1\ The prepared statement of Mr. Vladeck appears on page 154.
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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
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