[Senate Hearing 105-401]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-401

 
       MEDICARE FRAUD PREVENTION: THE MEDICARE ENROLLMENT PROCESS

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

                                HEARING

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 29, 1998

                               __________

      Printed for the use of the Committee on Governmental Affairs

                               ----------

                     U.S. GOVERNMENT PRINTING OFFICE
46-901 cc                    WASHINGTON : 1999

_______________________________________________________________________
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
                     Mary D. Robertson, Chief Clerk




                            C O N T E N T S

                                 ------                                
                                                                   Page
Opening statements:

    Senator Collins..............................................     1
    Senator Glenn................................................     3
    Senator Durbin...............................................     6
    Senator Levin................................................    50

                               WITNESSES
                       Thursday, January 29, 1998

Mr. Smith, a Convicted Medicare Fraud Felon......................     8
John M. Frazzini, Former Investigator, Senate Permanent 
  Subcommittee on Investigations.................................    16
John E. Hartwig, Deputy Inspector General for Investigations, 
  Office of the Inspector General, Department of Health and Human 
  Services, accompanied by Susan Frisco, Special Agent, New York 
  Field Office, Department of Health and Human Services, and 
  Cathy Colton, Assistant Regional Inspector General for 
  Investigations, Miami, Florida, Satellite Office, Department of 
  Health and Human Services......................................    19
H. Donna Dymon, Nurse Consultant, San Francisco Region IX, Health 
  Care Financing Administration (HCFA), Department of Health and 
  Human Services.................................................    38
Dewey Price, Team Leader, Operation Restore Trust, Miami, 
  Florida, Satellite Office, Health Care Financing Administration 
  (HCFA), Department of Health and Human Services................    41

                     Alphabetical List of Witnesses

Dymon, H. Donna:
    Testimony....................................................    38
Colton, Cathy:
    Testimony....................................................    19
Frazzini, John M.:
    Testimony....................................................    16
    Prepared Statement...........................................    59
Frisco, Susan:
    Testimony....................................................    19
Hartwig, John E.:
    Testimony....................................................    19
    Prepared Statement...........................................    62
Price, Dewey:
    Testimony....................................................    41
Smith Mr.:
    Testimony....................................................     8
    Prepared Statement...........................................    57

                                APPENDIX

Prepared statements of witnesses in order of appearance..........    57

                              EXHIBIT LIST

* May be found in the Files of the Subcommittee
 1. GSEALED EXHIBIT: Background material and Indictment of 
  Permanent Subcommittee on Investigations' witness, ``Mr. 
  Smith''........................................................     *

 2. GPermanent Subcommittee on Investigations Chart: Application 
  Process--Home Health Providers.................................    71

 3. GPermanent Subcommittee on Investigations Chart: Application 
  Process--DME Provider..........................................    72

 4. a. GMedicare Application showing DME business location of 
  1204 Avenue U, Suite 201, Brooklyn, New York...................    73
    b. GPhotograph of The Mail Drop located at 1204 Avenue U, 
      Brooklyn, New York.........................................    74

 5. GPhotographs of SU Launderette, the reported office location 
  of two New York physicians who submitted $690,000 in Medicare 
  claims for DME products and MRI tests..........................    75

 6. GPhotograph of Mail Box Etc., the reported location of a 
  Miami, Florida health clinic that performed diagnostic tests...    78

 7. GPhotograph of vacant store front, the reported location of a 
  Miami, Florida health clinic...................................    79

 8. GPhotograph of airport runway, the reported location of 
  fourteen (14) Miami, Florida health care companies that 
  provided DME products and services.............................    80

 9. GPhotographs of 2 of the 8 properties purchased by Ulisses 
  Martinez with $1.2 million in funds fraudulently obtained from 
  the Medicare program...........................................    81

10. GReport of the Department of Health and Human Services, 
  Office of Inspector General, Medical Equipment Suppliers: 
  Assuring Legitimacy, December 1997, June Gibbs Brown, Inspector 
  General, OEI-04-96-00240.......................................    82

11. GOperation Restore Trust, California Project, A Study of 
  Forty-four Home Health Agencies in California, H. Donna Dymon, 
  Ph.D., December 1997...........................................   106

12. GMemoranda prepared by Don Mullinax and Eric Eskew, 
  Investigators, Permanent Subcommittee on Investigations, dated 
  January 23, 1998, to Permanent Subcommittee on Investigations' 
  Membership Liaisons, regarding PSI Hearing on Medicare Fraud 
  Prevention: Improving The Enrollment Process For Medicare 
  Providers......................................................   140

13. GWashington Post, January 18, 1998, ``Officials Target 
  Equipment Fraud In Medicare: $510 Million Found In Improper 
  Billing''......................................................   203

14. GLetter to Senator Susan M. Collins, Chairman, and Senator 
  John Glenn, Ranking Minority Member, Permanent Subcommittee on 
  Investigations, dated January 28, 1998, from Nancy-Ann Min 
  DeParle, Administrator, Health Care Financial Administrations 
  (HCFA), regarding HCFA's increased effort to fight fraud.......   204

15. GLetter to The Honorable Susan M. Collins, dated December 29, 
  1997, from John E. Heye, Vice President for Finance and 
  Treasurer, Maine Medical Center, regarding health care fraud...   210

16. GStatement for the Record of Home Care Alliance of Maine, 
  Medicare Fraud and Abuse, Position Statement...................   212

17. GLetter to The Honorable Susan Collins, Chairman, Permanent 
  Subcommittee on Investigations, dated February 3, 1998, from 
  James T. Moore, Commissioner, Florida Department of Law 
  Enforcement (FDLE), regarding Medicare fraud...................   214

18. GStatement for the Record of Citizens Against Government 
  Waste (CAGW), Medicare Fraud: The Symptoms and the Cure........   219

19. GStatement for the Record of Fraud Investigator Bill Menke, 
  Pensacola, Florida, Institutionalized Medicare Fraud...........   249

20. GStatement for the Record of Attorney Mike Papantonio, 
  Pensacola, Florida, Fighting Medicare Fraud....................   251


  MEDICARE FRAUD PREVENTION: IMPROVING THE MEDICARE ENROLLMENT PROCESS

                              ----------                              


                       THURSDAY, JANUARY 29, 1998

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:33 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Subcommittee, presiding.
    Present: Senators Collins, Glenn, Levin, and Durbin.
    Staff Present: Timothy J. Shea, Chief Counsel/Staff 
Director; Mary D. Robertson, Chief Clerk; Ian T. Simmons, 
Counsel; Don Mullinax, Investigator; Eric Eskew, Investigator 
(Detailee, HHS-IG); Dennis M. McCarthy, Investigator (Detailee, 
Secret Service); Lindsey E. Ledwin, Staff Assistant; Kirk E. 
Walder, Investigator; Stephanie Smith, Investigator 
(Congressional Fellow); Linda Algar, Investigator 
(Congressional Fellow); Bill Greenwalt (Senator Thompson); 
Michael Loesch (Senator Cochran); Chris Dockery (Senator 
Cochran); Gregory Bouton (Senator Cochran); Allison Dekosky 
(Senator Specter); Steve Abbott (Senator Collins); Felicia 
Knight (Senator Collins); Priscilla Hanley (Senator Collins); 
Bob Roach, Counsel to the Minority; Leonard Weiss (Senator 
Glenn); Marianne Upton (Senator Durbin); Polly Middlestedt 
(Senator Cleland); and Myla Edwards (Senator Levin).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. The Subcommittee will please come to 
order.
    Today, the Subcommittee continues its investigation into 
fraud in the Medicare program. This is the Subcommittee's 
second hearing on this subject. At our initial hearing last 
June, we learned from the HHS Inspector General the disturbing 
fact that improper payments in the Medicare program are 
estimated to be 14 percent of total payments. That is close to 
double previous estimates. This amounts to an astronomical $23 
billion a year in improper Medicare payments.
    Medicare is too important a program to have such a 
significant financial drain on its scarce resources, resources 
that should be benefiting the millions of older and disabled 
Americans who depend on the program. About 14 percent of all 
Americans receive health care services from Medicare. In Maine, 
the percentage is even higher, as more than 200,000 people, 
representing 17 percent of our population, are enrolled in 
Medicare.
    Americans across the Nation rely on this vital program to 
maintain their health and quality of life as they grow older. 
We in Congress, therefore, have a serious responsibility to 
older Americans across the country and to our Nation's 
taxpayers to protect the Medicare program, to ensure the 
financial integrity of the Medicare Trust Fund so that the 
program continues to serve older and disabled Americans into 
the 21st century, to guard against our seniors receiving 
inferior or sub-standard health care, and to protect the 
Nation's taxpayers from career criminals whose illegal schemes 
cost us billions of dollars each year.
    We must use common sense and cost-effective solutions to 
curtail the spreading infection of fraud that threatens the 
very vitality of Medicare. This hearing is in no way intended 
to be an indictment of the vast majority of health care 
providers who are dedicated and caring professionals. In fact, 
they would be the first to agree on the need to focus on 
prevention to stop the fraud before it occurs by preventing 
career criminals, most with absolutely no health care 
experience, from ever becoming Medicare providers in the first 
place.
    We are now seeing a dangerous and growing trend in Medicare 
fraud of bogus providers entering the system with the sole and 
explicit purpose of ripping it off. The front door has been 
left wide open to criminals who simply walk in, pose as 
legitimate providers, and steal millions from the Trust Fund. 
This type of fraud raises the critical, but obvious question, 
how do they get into the system in the first place?
    These are not otherwise legitimate health care providers 
who unethically pad a bill, but who at least do provide 
services. Rather, these are completely bogus businesses, such 
as the fictitious durable medical equipment company that exists 
only on paper, or individuals who engage in extortion and pay 
off ``recruiters'' in order to obtain beneficiary numbers, or 
phony health care agencies that never deliver any services at 
all.
    Cracking down on this growing type of Medicare fraud is 
important for two reasons. First, these scams expose the 
Federal Treasury, the Nation's taxpayers, to a potentially 
greater amount of fraud. Unlike traditional health care fraud 
where services are provided, but at an inflated cost, these 
criminals commit 100 percent fraud, stealing all of the money 
they bill Medicare while providing no or inferior services to 
elderly Americans.
    Second, these criminals, most with no health care 
experience, threaten the quality of care for our elderly and 
disabled. They drive legitimate providers out of business, they 
deliver sub-standard services and equipment, and they endanger 
our elderly by not providing needed services.
    Our witnesses today will provide the Subcommittee with an 
understanding of how these criminals can enter the system and 
how the enrollment process administered by the Health Care 
Financing Administration should be improved. I want to note 
that just days before this hearing, the administration 
announced an initiative that finally recognizes the importance 
of fraud prevention. This initiative is welcome, albeit long 
overdue, and needs to be vigorously pursued.
    We in Congress are mindful that entry into Medicare should 
not be so difficult that the process deters legitimate health 
care providers. But we must have enough of a deterrent so that 
the truly unscrupulous cannot enter the system. The fact is it 
is far easier to obtain a Medicare provider number than to 
obtain a Maine driver's license. The current philosophy, the 
current process, makes it far too easy for criminals to exploit 
a system that seems based on a philosophy of pay now, ask 
questions later.
    Why do we have a system that paid $117,000 to a Medicare 
provider who rendered no services and whose address is actually 
a laundromat in Brooklyn? Why did Medicare pay $300,000 for 
medical tests never performed and sent the checks to a Mail 
Boxes Etc. location in Miami? Why did Medicare pay $6 million 
to several DME companies that provided no services, when their 
fictitious location was in the middle of a runway at the Miami 
International Airport? Simply put, why do HCFA and its 
contractors write checks first and ask questions later?
    These are important questions that I intend to pursue 
vigorously with my colleagues as this investigation continues 
and as we strive to protect the integrity of the Medicare 
program. The elderly in this country deserve no less. It is 
difficult for me to justify to my constituents in Maine why we 
need to slow the growth of Medicare when waste, fraud and abuse 
are rampant in this program.
    Before recognizing the Ranking Minority Member and Senator 
Durbin for their comments, I want to stress one important point 
about Medicare providers. Perhaps it goes without saying, but 
it deserves repeating here today. The vast majority of Medicare 
providers are caring, dedicated health care professionals whose 
top priority is the welfare of their patients. This hearing is 
not about those health care professionals, nor is it about 
honest mistakes or billing errors. It is about career criminals 
who waltz into the Medicare program without being questioned 
and who steal hundreds of millions of dollars from the Trust 
Fund. We must crack down on bogus providers who have no 
business participating in a program vital to 38 million 
Americans.
    At this time, I am pleased to recognize the ranking 
minority member of the Subcommittee, the distinguished Senator 
from Ohio, John Glenn, for his statement.

               OPENING STATEMENT OF SENATOR GLENN

    Senator Glenn. Thank you, Madam Chairman, and I want to 
commend you and your staff for the fine job you have done in 
putting this hearing together. As you said, it is long overdue 
that we get into this because Medicare is a valuable program. 
Over the years, it has improved the health and quality of life 
for tens of millions of Americans and has a commendable record.
    But the size of the program and its decentralized nature 
mean that any regulatory or management weakness leaves the 
program highly vulnerable--vulnerable to fraud resulting in the 
potential loss of billions of dollars, as we will have 
illustrated here today. Unscrupulous actors are always looking 
for a way to take advantage of the system, and their actions 
can threaten the health and lives of Americans and waste 
billions of taxpayer dollars and undermine the credibility of 
an essentially good and successful program. That is why it is 
so important for us to continually monitor the program and 
correct the weak areas.
    Today's hearing addresses an area of high vulnerability--
the process for enrolling health care providers and suppliers 
in the Medicare program. Let me add that this is on the GAO's 
high-risk list. We worked with the General Accounting Office 
back some years ago. It was approved in 1990 that they assess 
across all the different departments and agencies of government 
where the greatest risks to the taxpayers were, where was money 
likely to be wasted.
    And they put out a list in 1992, 1995, and 1997, and in 
1995 and 1997 the area we are talking about today was one of 
the risks that they warned about. So we haven't had adequate 
action taken within a couple of administrations here to really 
get to the bottom of this thing and really correct it.
    The current qualifications standards are far too weak, and 
even those are ineffectively enforced. As a result, con artists 
with no medical background or experience whose sole purpose is 
to rip off the taxpayers gain access to the Medicare 
reimbursement system. This result is quite apparent in two of 
the categories we will focus on today--durable medical 
equipment, DME, suppliers, and home health agencies, HHA's.
    Just a month ago, the HHS Inspector General came to the 
chilling conclusion that, and I quote, ``Presently, HCFA and 
the National Supplier Clearinghouse are approving many 
inexperienced, unqualified, and unethical people as 
suppliers,'' end of quote. Is it any wonder, then, that a 
recent HHS IG inspection of 420 enrolled DME suppliers and 35 
new applicants revealed that 40 percent of the enrollees and 41 
percent of the applicants failed to meet at least one Medicare 
requirement for DME suppliers, and that a government review of 
$6.5 billion in DME billings last year concluded that 16 
percent, nearly $510 million, were improper?
    Similar problems afflict HHA's. Last month, the General 
Accounting Office issued a review of the certification process 
for HHA's and reported that Medicare's initial certification 
process does not provide a sound basis for judging whether an 
HHA does or will provide quality care in accordance with 
Medicare's conditions of participation. As a result, GAO 
concluded that State surveyors and HCFA do not have sufficient, 
adequate information to verify that the HHA is capable of 
furnishing quality care for all its services or is in 
compliance with all the conditions of participation.
    Similarly, 6 months ago, the HHS IG reported that 25 
percent of the 2,700 certified HHA's in five of the largest 
Medicare States were problem providers with significant or 
multiple problems, and they received almost 45 percent of all 
Medicare expenditures in those States. They concluded that 
current program requirements are woefully inadequate to prevent 
financially irresponsible or fraudulent home health agencies 
from becoming Medicare providers.
    On the same day it issued that finding, the IG also 
reported that in four of the largest Medicare States, 40 
percent of the payments for home health care over the past 15 
months should not have been made, resulting in losses of 
approximately $2.6 billion. It should be no surprise, then, 
that in September of last year the administration imposed a 
moratorium on the enrollment of new HHA's, and that freeze was 
just lifted on January 13th of this year, after new regulations 
were implemented. But there needs to be far more follow-up to 
go along with that.
    Obviously, the enrollment process is in terrible shape. 
Yet, it could, and should be our first line of defense against 
Medicare fraud. If we can deny unscrupulous firms and 
individuals access to the system, we can stop a lot of fraud 
before it even starts, and that is a more efficient and 
effective way to safeguard programs, resources, and quality 
than to try and catch perpetrators after the fraud is 
committed.
    It is encouraging to note that both Congress and the Health 
Care Financing Administration, HCFA, have already taken some 
initial steps toward reform of the enrollment process. The 
Balanced Budget Act of 1997 included a number of initiatives 
that will strengthen the enrollment process. HCFA recently 
promulgated a flurry of reforms, including requirements for DME 
and HHA applicants to provide more information and post surety 
bonds, and I hope we get a chance to hear about the changes it 
has implemented.
    However, while the reforms have great potential to improve 
the enrollment process, we must see how effectively they are 
implemented and enforced. There is a lot more to do and there 
are some obvious reforms that have not been taken.
    Let me just add, I think we need to look in the mirror here 
in Congress for the source of some of the problems addressed 
here today. We have been on a big emphasis on requiring 
privatization and putting everything, as far as we can, out of 
government, getting it out and privatizing it. Well, we didn't 
put enough safeguards in here when we did some of this and so 
we find people getting too easily into the whole system.
    When we have tried to make some changes in the past, they 
haven't gotten through the Congress because some people were 
afraid that we were impinging on their small businesses back 
home to get into some of these areas. So there have been 
problems right here, too. Protecting small businesses and 
making easy access for them to get into this system, which is 
admirable in its intent, meant that crooks got in, also. And we 
set some of the pricing here so that there couldn't be 
competitive bidding. We need to correct things like that right 
here in Congress as part of this clean-up of the whole system. 
So we need to do some things right here, too.
    It is good to say that we are putting it out here and it is 
going to be competitive. Yet, it should be competitive once we 
get it out there and it is not now. Anybody gets in and they 
can charge anything they want, and so on, and it makes no 
difference to a crook if the service is not being provided. His 
or her bill may look like it is in line with what the going 
rate is in a certain area, but the service isn't even provided, 
so that is a complete rip-off, a complete fraud.
    So we need to correct some of the things that right now are 
permitted in law. We don't require competitive bidding in some 
of these areas. I had a meeting this morning with the 
Administrator of HCFA, and there are some areas that we need to 
look into here, also. I am not trying to excuse them at all, 
because some of the things that have happened are inexcusable.
    The testimony today will dramatically show something as 
simple as performing an on-site visit to an applicant's 
reported place of business could identify many scam artists. As 
the Chairwoman pointed out just a moment ago here, when you are 
talking about a provider that is on the sixth floor of a five-
story building, it doesn't take a big scientist to tell us we 
have got a problem.
    Another important reform to consider is granting HCFA 
authority to charge applicants a fee to defray the cost of an 
improved application review process that does include site 
visits. At least we know there is a business there. HCFA 
projected that such a fee would be about $100. It doesn't seem 
to me that is too far out of line.
    By way of comparison, the State Department currently 
charges individuals $65 for a passport, and if a citizen can be 
required to pay $65 in order to exercise their right to travel, 
it seems reasonable to require Medicare providers and suppliers 
to pay a fee for the right to enroll in a program which affords 
lucrative financial returns.
    So I am looking forward to exploring these ideas and other 
possible reforms during today's hearing. Surely, this is an 
area where an ounce of prevention is well worth a pound of 
cure. It is long overdue for curing and it is up to us to work 
with HCFA to make sure this gets done.
    Thank you, Madam Chairman.
    Senator Collins. Thank you very much, Senator Glenn.
    I would now like to recognize another Senator who has been 
a leader in the fight against Medicare fraud, Senator Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thank you, Senator Collins. We are 
discussing exploitation here, and it is pretty obvious from the 
figures which have been produced that there is an exploitation 
of taxpayers and the Treasury, some suggest to the tune of $23 
billion a year in Medicare fraud. But it is also an 
exploitation of senior citizens, many of whom, because they are 
alone are confused by the mountain of bureaucratic language 
that is thrown in their direction, really don't know what their 
rights are and end up signing forms which give people a license 
to basically scam the Treasury. They don't get the kind of care 
and services that they deserve and the taxpayers pay the bill.
    Now, we have taken a close look at some of these and one of 
the operations that I think we should continue to encourage is 
Operation Restore Trust, which is an effort to try to weed out 
this Medicare fraud. It has been conducted in my home State of 
Illinois and four other States to target this problem. For 
every dollar that we have spent in this effort, we have brought 
back $23 to the Federal Treasury. I was pleased that last May, 
President Clinton expanded this program to 12 additional 
States.
    Let me also say that there is a hotline that I think most 
people are aware of through the Department of Health and Human 
Services to allow people to call in. It is 1-800-HHS-TIPS, and 
if you think that you know of some Medicare fraud, give it a 
call. Direct action resulting from some 5,500 complaints to 
that hotline has resulted in approximately $6.4 million in 
recoveries.
    I really want to close by commending Senator Collins for 
her initiative in this investigation. This is not the first 
hearing we have had on this subject. I am sure it won't be the 
last either. Both she and Senator Glenn understand, as was said 
in their opening statements, that if we are being called on to 
tighten the belt in the Medicare program, the first place we 
are going to turn is the elimination of this kind of fraud. 
This can be done. And for those of you who have talked to 
senior citizens, who have been to town meetings, they usually 
come armed with a handful of bills and examples to tell their 
elected officials that there are obvious abuses that need 
correcting.
    The one sad part of this and one thing that we have to 
think about is that the largest complaints against the 
government, in general, are paperwork and too many employees. 
How do you police a system? Well, historically, we have policed 
it with more forms to make sure that anybody who wants to get 
into this field has to fill out more forms, make more 
disclosures, swear to the truth of this, that and the other 
thing. So as we try to reduce paperwork, on one hand, we have 
to be taking care that we aren't reducing the safeguards that 
are necessary to keep the bad actors out of this.
    And, secondly, of course, we need good people who are 
taking a look at these Medicare providers and making certain 
that, as has been said repeatedly, you don't have some business 
supposedly working off of the sixth floor of a five-story 
building. So these things are at odds with our efforts to 
reduce paperwork and reduce Federal employment, but they are 
absolutely essential if we are going to make certain that the 
taxpayers are not ripped off.
    I thank the Senator for this hearing. I am looking forward 
to it.
    Senator Collins. Thank you, Senator Durbin.
    Without objection, and for the convenience of all Senators, 
the exhibits marked and previously made available will be made 
part of the hearing record.
    In addition, Senator Glenn and I each received late last 
night a letter from HCFA outlining the steps that the 
administration is taking and the letter will be made part of 
the record as well.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 14 which appears in the Appendix on page 204.
---------------------------------------------------------------------------
    Senator Glenn. So move.
    Senator Collins. Thank you.
    Our first witness this morning is a former Miami nightclub 
owner who is currently serving time in Federal prison for 
Medicare fraud. We will refer to this witness today as ``Mr. 
Smith.'' \2\
---------------------------------------------------------------------------
    \2\ Sealed Exhibit labeled as Exhibit 1 is retained in the files of 
the Subcommittee.
---------------------------------------------------------------------------
    For the record, I would note that the witness has requested 
that his face be concealed from public view due to concerns 
about his safety. Under the circumstances, I believe this is an 
eminently reasonable request, and if there is no objection from 
the Subcommittee members, it is ordered pursuant to the 
Subcommittee's Rule 11.
    I would note for the record that the witness, as is 
obvious, will be testifying behind an opaque screen. No cameras 
will be allowed to photograph this witness from the area in 
front of the screen. It is also my understanding that members 
of the media have already been advised of the ground rules and 
the locations where cameras will and will not be allowed during 
Mr. Smith's testimony in order to maintain security.
    Mr. Smith will describe for us today the nature of his 
Medicare fraud and how he was able to milk some $32 million 
from the Medicare program. I would also note that Mr. Smith is 
accompanied by an interpreter from the State Department, since 
English is not his native language. Although his English is 
good, just to ensure that there is no misinterpretation of the 
questions, the interpreter will translate the questions and 
assist to ensure that Mr. Smith understands all the questions 
posed to him.
    Pursuant to Rule 6, all witnesses who testify before the 
Subcommittee are required to be sworn. We usually ask the 
witness to stand, but for obvious reasons, we will ask today 
for the witness to remain seated, but to raise your right hand.
    Do you swear that the testimony that you will give before 
the Subcommittee will be the truth, the whole truth and nothing 
but the truth, so help you, God?
    Mr. Smith. I do.
    Senator Collins. Thank you very much. Mr. Smith, you may 
proceed.

 TESTIMONY OF MR. SMITH,\1\ A CONVICTED MEDICARE FRAUD FELON, 
         ACCOMPANIED BY LILLIAN NIGAGLIONI, INTERPRETER

    Mr. Smith. Madam Chairman and Members of the Subcommittee, 
at your request I am here today to testify about my activities 
to steal from the Medicare program. Before I begin my 
testimony, I want to thank you and this Subcommittee for 
respecting my request to keep my identity protected during this 
hearing. This is a dangerous world and I sincerely fear for my 
safety. Thank you again.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Smith appears in the Appendix on 
page 57.
---------------------------------------------------------------------------
    My professional training is as an electrical engineer, and 
at the time when I started billing Medicare, I was the owner of 
a nightclub in the Miami, Florida, area. Before purchasing a 
medical supply company in 1988, I had no experience or training 
in health care services. I also had no idea how the medical 
supply business worked or anything about the Medicare billing 
process. Without this experience and with no knowledge of the 
Medicare program, I purchased a business and started billing 
Medicare.
    It was very easy for me to get approval from Medicare to 
become a provider. I simply filled out an application and sent 
it to Medicare. They gave me a provider number over the phone. 
No one from the government or anywhere else ever came to me or 
my place of business to check any information on the 
application. No one ever checked my credentials or asked if I 
was qualified to operate a medical supply business.
    My primary business was supplying nutritional milk to older 
people in southern Florida. As I understand it, this program 
was designed to provide the supply kits, like feeding tubes and 
food such as milk, to old people who were too sick to eat this 
food without assistance. They were supposed to be so sick that 
they could not swallow whole food. I ended up billing Medicare 
for patients who were eating steaks and other solid foods.
    At first, in order to start billing the government, I 
bought milk and offered it to elderly people in the Miami area 
in exchange for their Medicare beneficiary numbers. I hired 
people to tell the elderly that this was free milk from the 
government and that they only needed to have a Medicare number 
to qualify. These recruiters went to community centers and 
apartment buildings where large numbers of senior citizens were 
present to get new patients for my companies. Several doctors 
were also paid to sign Medicare forms certifying that the 
patients needed this nutritional milk. They were paid about 
$100 for each form signed.
    In the beginning, I bought the milk in case government 
investigators came to look at my business. I thought I needed 
to show them that I bought the milk in order to bill the 
government. I used these numbers to bill Medicare over and over 
again for high-cost nutritional services when I just gave them 
some cheap free milk.
    Later, I realized that I did not even need to buy the milk. 
No one from the government ever came to question my billings, 
and so I just paid recruiters to get Medicare beneficiary 
numbers. I used these numbers to bill Medicare month after 
month. I provided no services and just received checks from the 
government. I usually received between $180,000 and $280,000 
per month from Medicare. In 1 month, I billed Medicare over 
$500,000 and no services were provided. This program was a gold 
mine. I know of no other business where I could make the same 
money without any risk.
    The government actually made it easy for me to steal. I was 
not required to produce any documents in support of the claims 
I made to Medicare for any of my companies. I became rich very 
fast billing the Medicare program. My biggest mistake in this 
fraud scheme was buying the milk. I would have made more money 
if I did not spend any money on the milk.
    By the time I was arrested in 1994, I owned seven medical 
supply companies and employed approximately 20 people for the 
sole purpose of billing Medicare. I started new companies so 
that the government would not discover the large number of 
claims being paid to any one company. I ran these seven 
companies out of the same office, using the same people and 
with the same computers. I was billing Medicare for over 2,000 
patients. I provided no services for the claims submitted. In 
the end, I estimate that my companies billed Medicare about a 
total of $32 million, and most of this was fraud.
    I was indicted in Federal court for my Medicare fraud 
scheme and charged with several felony violations of the law. I 
admitted my involvement with this illegal activity and I 
willingly cooperated with the government. I pleaded guilty to 
17 felony charges, including fraud against the United States, 
false claims, and paying kickbacks. I am now serving 10 years 
in Federal prison for these crimes.
    That concludes my statement and I will try to answer any 
questions that you may have.
    Senator Collins. Thank you very much, Mr. Smith. I 
appreciate your candor in describing the fraud scheme that you 
perpetrated. I want to emphasize a couple of points of your 
testimony before asking you some further questions.
    First of all, you had absolutely no background in health 
care, either as a health care professional or in the business 
end of the health care provider, is that correct?
    Mr. Smith. That's correct.
    Senator Collins. In fact, your training--I think you said 
you were an electrical engineer, is that right?
    Mr. Smith. Yes.
    Senator Collins. I want to follow up on a point that 
Senator Durbin made and that I made in my opening statement, 
and that is the impact of actions like yours on people who 
really need services. You mentioned that in some cases, you 
provided the milk in the initial stages of your scam to people 
who didn't need it, who were able to eat solid food, like 
steak, is that correct?
    Mr. Smith. That's correct.
    Senator Collins. But you also didn't provide services, such 
as the feeding kits that accompanied the nutritional milk, to 
people who really needed the service, is that right?
    Mr. Smith. That's correct.
    Senator Collins. That is one of the concerns about this 
kind of fraud--is it not only rips off the Trust Fund, but it 
hurts the quality of care that we are providing to our senior 
citizens.
    You mentioned that you fraudulently billed the Medicare 
program for about $32 million. Could you tell us what you used 
the money for?
    Mr. Smith. Many ways; nice house, boat, car, other 
business, traveled a lot.
    Senator Collins. Did you buy some luxury cars with the 
money?
    Mr. Smith. Yes, I bought luxury cars, houses, and traveled.
    Senator Collins. Did you buy a Mercedes?
    Mr. Smith. Yes.
    Senator Collins. Did you do a lot of traveling with the 
money?
    Mr. Smith. Yes.
    Senator Collins. Could you give us some idea of where you 
went with the money?
    Mr. Smith. All over the world, and 14 times to Rio de 
Janeiro in 1 year.
    Senator Collins. Did you also invest in a couple of 
nightclubs in Mexico?
    Mr. Smith. Yes.
    Senator Collins. And it is my understanding you also bought 
two boats and a home in Miami and an apartment in Mexico City, 
is that correct?
    Mr. Smith. That's correct.
    Senator Collins. So, certainly, Medicare provided you with 
the good life, I guess you would say, for a while?
    Mr. Smith. Yes.
    Senator Collins. You worked with others to cheat Medicare, 
as you mentioned in your statement, but what was your role in 
the scheme?
    Mr. Smith. I provided the financial support for buying the 
provider company, and I paid the recruiters.
    Senator Collins. So the recruiter brought you the Medicare 
beneficiary numbers which allowed you to bill the government 
for services that you never provided, is that correct?
    Mr. Smith. Yes, that's correct.
    Senator Collins. And no one from the government, until you 
were caught, ever came to visit you or ask you about the 
information that you provided on your application to become a 
provider?
    Mr. Smith. Never.
    Senator Collins. No one from the government ever visited 
your place of business or attempted to verify the information 
that you gave on the application?
    Mr. Smith. No, only when they come and arrest me.
    Senator Collins. How did you get caught?
    Mr. Smith. Somebody who was working with me got caught for 
other reasons and started to cooperate.
    Senator Collins. So one of your associates essentially 
turned you in, is that correct?
    Mr. Smith. Yes, that's correct.
    Senator Collins. If you hadn't been turned in by one of 
your associates, do you think that the fraud would have gone on 
and on and you would still be billing Medicare today?
    Mr. Smith. Oh, yes, for sure, but I was thinking about 
retiring in 2 years.
    Senator Collins. You were planning to keep going for a 
couple of years and then retire, is that correct?
    Mr. Smith. That's correct.
    Senator Collins. So, in summary, just tell us how easy was 
it for you to become a certified Medicare provider.
    Mr. Smith. Filled out the paper, sent to Blue Cross and 
Blue Shield, and they gave me the provider number over the 
phone.
    Senator Collins. You got the provider number over the 
telephone?
    Mr. Smith. Yes, that's right, and started billing.
    Senator Collins. My final question to you is what do you 
think the government should do to prevent people from cheating 
the Medicare system? What would have deterred you? What would 
have caused you to think twice before getting into Medicare 
fraud?
    Mr. Smith. I think the government needs to put pressure on 
the insurance company because the insurance company is the 
broker between the government and the provider. The insurance 
company pays the money and the insurance company doesn't have 
any kind of surveillance to prevent the fraud.
    Senator Collins. So, by insurance companies, you are 
talking about the contractors that the Federal Government uses 
to administer the program and pay claims, right?
    Mr. Smith. Yes.
    Senator Collins. Thank you.
    Senator Glenn.
    Senator Glenn. Thank you very much, Madam Chairman.
    You say you got about $32 million, most of it illegal, from 
the government. How much did the government recover----
    Mr. Smith. That's gross.
    Senator Glenn. OK, I have been quickly briefed here and I 
understand I should not ask that question for other reasons. So 
I will withdraw that particular question.
    How did you get this idea to begin with? Did you know 
somebody that was doing this?
    Mr. Smith. Yes. One person sold me the business, gave me 
training on billing and how to do the business.
    Senator Glenn. You bought the business, then, where they 
were doing the same thing?
    Mr. Smith. Yes.
    Senator Glenn. Are there other businesses doing this now 
that you know of?
    Mr. Smith. Yes.
    Senator Glenn. Have you told the government about these 
other people?
    Mr. Smith. Yes.
    Senator Glenn. OK. There have been a number of things 
talked about that might help this situation, such as posting a 
bond, having to provide a Social Security number, looking into 
previous criminal history, or insisting that each business file 
a business plan. Would those have prevented you from doing what 
you did?
    Mr. Smith. Yes.
    Senator Glenn. They probably would have?
    Mr. Smith. Yes.
    Senator Glenn. OK. You said you had several companies; I 
think you said seven at one time. Were they all registered in 
your name?
    Mr. Smith. No, not all of them.
    Senator Glenn. Did you have businesses that had to register 
with the State to do business?
    Mr. Smith. Yes.
    Senator Glenn. You did, OK, and when you made application, 
there was no check, then, from the State either, as well as 
from Federal authorities?
    Mr. Smith. No.
    Senator Glenn. OK. You mentioned that several doctors 
participated in this. Did you have any trouble recruiting 
doctors? I think in your testimony you indicated that doctors 
were paid $100 for each form they certified, is that correct?
    Mr. Smith. Yes. Several doctors offer their service.
    Senator Glenn. They what? I am sorry.
    Ms. Nigaglioni. They offered their services. Several 
doctors offered their services.
    Senator Glenn. They offered; didn't even have to go recruit 
them, is that right? They were coming to you?
    Mr. Smith. Yes.
    Senator Glenn. So much for the medics in Miami, OK. No. I 
retract that last statement.
    Mr. Smith. Not everybody.
    Senator Glenn. I don't mean to impugn the medical----
    Mr. Smith. Not everybody.
    Ms. Nigaglioni. Not everybody.
    Senator Glenn. Not everybody, OK. But you didn't have any 
trouble getting doctors to certify this, apparently.
    Mr. Smith. No.
    Senator Glenn. Do you think if we did something just like a 
site check to see that there is an actual business at a certain 
address, would that be a major step toward helping eliminate 
this?
    Mr. Smith. That's correct.
    Senator Glenn. Because we have examples where people gave 
Miami Airport and fictitious buildings and laundromats and all 
sorts of places as their place of business.
    Mr. Smith. If you do a background check and ask for a bond 
that would be very important because it will be very hard to 
get into the system.
    Senator Glenn. Well, the bond idea is one that I--I am not 
quite sure I know how a bond would work because you could have 
a bond and still be just as fictitious as you were.
    Mr. Smith. No, with the background check and the other 
measures.
    Ms. Nigaglioni. With background check and other measures.
    Senator Glenn. Oh, background, yes, and an on-site visit to 
your business place?
    Mr. Smith. That's very important, to see what happened. 
That's very important.
    Senator Glenn. All right, but let us say that I set up a 
business and they come see my business and I have wheelchairs 
and I have all sorts of equipment there and I am running a 
legitimate business. But if I wanted to extend that legitimate 
business and make false claims, I could have a part legitimate 
business and one that is many times over not a legitimate 
business. Would there be any problem with somebody doing that?
    Mr. Smith. No problem.
    Senator Glenn. Do you think that is being done?
    Mr. Smith. I do.
    Senator Glenn. I would think a front for something like 
this, that that would be the way a lot of this would occur, 
would be someone would have a small legitimate business and 
over-bill to the skies. And unless somebody started actually 
checking the actual bills, we would never know it.
    You didn't even have the overhead of a small legitimate 
business.
    Mr. Smith. No.
    Senator Glenn. Well, we could go on all day here talking 
about the different parts of this thing, and I compliment you 
again, Madam Chairman. I have to leave shortly here because I 
have some Armed Services Committee things I am involved with 
this morning, and I hate to do that because this is very, very 
important. But I will try and get back a little later if I 
possibly can.
    Thank you.
    Senator Collins. Thank you, Senator Glenn.
    Senator Durbin.
    Senator Durbin. Mr. Smith, when did you start your 
business? When did you get the provider number, what year?
    Mr. Smith. December 1988.
    Senator Durbin. And you continued billing the Federal 
Government until when?
    Mr. Smith. Until 1992.
    Senator Durbin. So 1988 to 1992?
    Mr. Smith. Yes.
    Senator Durbin. Now, I thought it was interesting that you 
made reference to the insurance company. Which insurance 
company administered your payments?
    Mr. Smith. Blue Cross and Blue Shield.
    Senator Durbin. And I understand that there are some 70 
different companies like Blue Cross-Blue Shield that, in fact, 
have taken over the responsibility of paying providers like 
you. I think they contract with the Federal Government to do 
that, and in your situation your direct contact with the 
Federal Government--let me restate that.
    I am trying to determine the extent of your contact with 
the Federal Government. You first contacted the department to 
get your provider number and then you worked with the insurance 
company from that point forward, is that correct? Could you 
explain the role there?
    Mr. Smith. I think the provider number is issued from the 
insurance company.
    Senator Durbin. The provider number came from the insurance 
company?
    Mr. Smith. Yes.
    Senator Durbin. So all of your contact--I don't want to put 
words in your mouth. Was the billing process that you used--did 
it involve Blue Cross-Blue Shield throughout the length of your 
business?
    Mr. Smith. Yes.
    Senator Durbin. It did, all right. Madam Chairman, that 
raises another interesting question here because as we 
privatize these things and create some opportunities for 
employment in private industry, it clearly is important that 
the Federal Government, which ultimately pays the bill, makes 
certain that this surveillance takes place.
    One of the points that Senator Glenn raised which I think 
is important was the question of site visits. It is my 
understand that the Department of Health and Human Services, in 
a letter they have just provided us, indicated the President 
announced site visits for the suppliers nationwide to stop the 
scam artists. And of nearly 2,000 suppliers visited last year, 
one-third were either ejected or rejected by Medicare--a third 
of those who were providing health care services and equipment. 
That is an incredibly high number, and it really strikes me 
that we are just scratching the surface of what the problems 
are in this situation.
    Let me ask you, too--we have talked a lot about the senior 
citizens who were involved in this. Did any of them ever 
complain to you about having turned over their number and not 
receiving benefits or not receiving the nutrition that you were 
supposed to supply?
    Mr. Smith. Many times.
    Senator Durbin. Many times?
    Mr. Smith. Yes.
    Senator Durbin. And obviously that complaint didn't create 
a problem because you kept doing business until one of your 
employees basically ratted on you?
    Mr. Smith. Yes and no. The problem is the older people 
received a statement with the payment from the insurance 
company, and when they received the statement, they read it and 
saw, $300, or $200. They said, for what? They started calling.
    Senator Durbin. So the senior citizen whose Medicare number 
you have picked up from doctors or from other sources and whose 
name is being fraudulently billed ends up getting this 
statement back from the government and calls and says, ``What 
is this all about? I didn't get $600 worth of nutritional 
supplements.'' But it didn't result in anything. It didn't 
result in anybody coming to take a look at your business, did 
it?
    Mr. Smith. No.
    Senator Durbin. No?
    Mr. Smith. No.
    Senator Durbin. Well, going back to what the Chairman has 
said about this situation, it is bad enough that we have lost 
so many millions of dollars, and billions overall. But to have 
this exploitation of the seniors who are blowing the whistle 
and nobody is listening, that is the part that really disturbs 
me as well. We are getting involved in that.
    I thank you very much for your testimony. You are paying a 
price for what you have done, and I hope that the fact that you 
have come forward today and this hearing will give us some 
momentum to try to discourage others who are exploiting the 
system.
    Senator Collins. Thank you, Senator Durbin.
    Mr. Smith, I do thank you for your testimony.
    Prior to receiving testimony from our next panel of 
witnesses, I would ask that everyone remain seated while Mr. 
Smith exits the room. I will ask that any video or still-camera 
people please refrain from taking any pictures until the 
witness has left the room. So with the assistance of the 
marshals, please proceed.
    I also want to thank our State Department interpreter for 
her assistance here this morning. Thank you.
    Senator Collins. Our next panel of witnesses today includes 
people who will tell us about their experiences on the front 
line of our national effort to combat health care fraud. This 
panel includes John Frazzini, a former HHS IG special agent who 
was detailed to this Subcommittee until last December and was 
very instrumental in the investigation that produced this 
hearing.
    Mr. Frazzini actively participated in health care fraud 
investigations over the past several years as a special agent 
at the Office of Inspector General. He will describe the 
findings and observations of the PSI investigators. I should 
note for the record that John has now moved on in his law 
enforcement career and is now a U.S. Secret Service agent in 
training.
    We are also pleased to have with us this morning three 
witnesses from the Health and Human Services Office of 
Inspector General--John E. Hartwig, the Deputy Inspector 
General for Investigations; Susan Frisco, a special agent 
assigned to the New York field office; and Cathy Colton, an 
Assistant Inspector General for Investigations assigned to the 
Atlanta field office, Miami sub-office.
    All of these law enforcement professionals are truly on the 
front lines in this battle. Mr. Hartwig has been in the HHS 
Inspector General's office for the last 20 years and has a 
wealth of information. In his capacity of Deputy Inspector 
General for Investigations, he oversees all the criminal 
investigations conducted by the Office of Investigations. I 
want to compliment these witnesses and the other hard-working 
professionals in the Inspector General's office for their work 
in protecting the integrity of the Medicare program.
    Pursuant to Rule 6, all witnesses who testify before the 
Subcommittee are required to be sworn. At this time, I would 
ask that you all stand and raise your right hands.
    Do you swear that the testimony you are about to give 
before the Subcommittee will be the truth, the whole truth and 
nothing but the truth, so help you, God?
    Mr. Frazzini. I do.
    Mr. Hartwig. I do.
    Ms. Frisco. I do.
    Ms. Colton. I do.
    Senator Collins. Thank you.
    Mr. Frazzini, I am going to ask that you proceed first, and 
then we will hear from Mr. Hartwig. It is my understanding that 
Ms. Frisco and Ms. Colton do not have separate statements, but 
are available to answer any questions after we have heard from 
both of the witnesses who will be presenting oral statements.
    Mr. Frazzini, you may proceed.

  TESTIMONY OF JOHN FRAZZINI,\1\ FORMER INVESTIGATOR, SENATE 
            PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

    Mr. Frazzini. Madam Chairman and Members of the 
Subcommittee, since PSI's June 1997 hearing on emerging fraud 
in Medicare programs, the Subcommittee has uncovered several 
weaknesses in the procedures used to enroll Medicare providers. 
These weaknesses have allowed full-time con artists with little 
or no experience as health care providers to enter the Medicare 
program and to defraud millions of dollars from the Nation's 
taxpayers.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Frazzini appears in the Appendix 
on page 59.
---------------------------------------------------------------------------
    In 1996, the Health Care Financing Administration, or HCFA, 
standardized the enrollment form when it mandated use of the 
HCFA 855 form, an application form entitled ``Medicare General 
Enrollment, Health Care Provider/Supplier Application.'' Using 
durable medical equipment, or DME, and home health care as 
examples, I want to briefly show the flow of the HCFA 855 form 
from preparation to approval.
    As these two charts show,\2\ the application process for 
DME and home health care applicants can be divided into four 
phases. As you can see, there is the submission part of the 
process, the review, the site visit or verification process, 
and the approval process, and those are consistent generally 
with both of these two industries, home health care and DME.
---------------------------------------------------------------------------
    \2\ See Exhibits 2 and 3 which appear in the Appendix on pages 71 
and 72 respectively.
---------------------------------------------------------------------------
    The focus of PSI's investigation was on the adequacy of the 
third phase of the process, which is the verification of data 
provided by the applicants on the HCFA 855 forms. As I stated 
earlier, the HCFA 855 form standardized the Medicare enrollment 
process with respect to the manner in which information was 
gathered. However, it did not expand or increase the 
verification activities related to the information submitted by 
applicants.
    The HCFA 855 form, for example, requires that a prospective 
provider include its business location on the form. Preparation 
instructions for the HCFA 855 form specify that this address 
cannot be a post office box or a mail drop. HCFA, however, does 
not ensure that physical verifications are performed on a 
nationwide basis to determine whether prospective providers are 
using actual business addresses.
    PSI's investigation has revealed that many DME companies 
have used mail drops that appear on the enrollment form to be 
legitimate street addresses. As an example, here is a copy of 
one provider's Medicare application which shows that the 
business location is 1204 Avenue U, Suite 201, in Brooklyn, New 
York.\1\ Here is the physical location of 1204 Avenue U, Suite 
201, a mail drop.\2\ If you look closely at the advertisement 
in the window, you can see on the little--the white board right 
in the center of the window, it states that there is a summer 
special, 12-month post office box rentals, $60 per year, $5 per 
month, one-time only. It is a great deal for the bad guys!
---------------------------------------------------------------------------
    \1\ See Exhibit 4a. which appears in the Appendix on page 73.
    \2\ See Exhibit 4b. which appears in the Appendix on page 74.
---------------------------------------------------------------------------
    As shown by this example, it is difficult to determine from 
just reading applications whether Medicare providers are using 
mail boxes or if the addresses are actually physical locations. 
This makes physical verification even more essential. Before I 
continue, I would like to point out that this mail drop was the 
reported location of two New York companies that provided DME 
products and MRI tests. These companies submitted Medicare 
claims totaling $3.4 million and received payments of about 
$500,000. But as you might expect, no services were rendered in 
this particular case.
    PSI investigators traveled to New York and Miami to see 
firsthand the weaknesses in the enrollment process and to meet 
with special agents from HHS' Office of Inspector General, 
special agents from the FBI, Federal and State Medicare and 
Medicaid officials, and two convicted felons. During the PSI 
visits, we photographed several locations, like the one shown 
earlier where DME companies and other providers had operated 
out of mail drops and bogus store fronts.
    I would like to show the Subcommittee a few other locations 
photographed by PSI investigators. The first photographs are 
the reported office location of two physicians who provided DME 
products and MRI tests.\3\ As you can see, this is a 
launderette. As we walked through the door, we saw the usual 
washers and dryers. However, when we reached the back of the 
launderette, we found several mail boxes which is where the two 
physicians received Medicare payments of approximately 
$117,000. These two physicians billed Medicare for claims 
totaling over $690,000. But, again, like the other example, no 
products or services were ever rendered in this case.
---------------------------------------------------------------------------
    \3\ See Exhibit 5 which appears in the Appendix on page 75.
---------------------------------------------------------------------------
    The next photograph is the reported location of a Miami 
health clinic that performed diagnostic tests. As you see, this 
is a Mail Boxes Etc.\4\ Medicare paid at least $300,000 for 
tests at this location, but again no tests were ever performed.
---------------------------------------------------------------------------
    \4\ See Exhibit 6 which appears in the Appendix on page 78.
---------------------------------------------------------------------------
    The next photograph is the reported location of a Miami 
health clinic, Miami, Florida.\1\ As you can see, this is a 
vacant store front. Medicare paid this clinic, if you want to 
call it that, approximately $2 million. But, again, like the 
other examples, no services or products were ever rendered.
---------------------------------------------------------------------------
    \1\ See Exhibit 7 which appears in the Appendix on page 79.
---------------------------------------------------------------------------
    The final photograph is the reported location of 14 Miami 
health care companies that provided DME products and services. 
As you can see, this is an airport runway.\2\ Medicare paid at 
least $6 million for claims submitted by these companies. But, 
again, like the other examples, no services were rendered.
---------------------------------------------------------------------------
    \2\ See Exhibit 8 which appears in the Appendix on page 80.
---------------------------------------------------------------------------
    Senator Collins. Mr. Frazzini, could you please explain how 
an address was given that turns out to be a runway at the Miami 
International Airport?
    Mr. Frazzini. Yes, it is kind of magical, really. Actually, 
what happened in this particular case, as it was explained to 
me by the HHS special agent who was involved with the case, 
when he went out to verify the location submitted on the 
application form, he drove around, I think he told me, for 
about an hour or so to try to find the address. When he 
couldn't find it, he went to his map that he had in his car and 
he looked on the grid and found the street name. The street 
name existed near the airport.
    And what he did is he just--he couldn't find the actual 
address because it didn't exist on the map either. He just 
expanded the street to where the address would have been if it 
actually existed and he found himself at the Miami Airport.
    Senator Collins. Thank you.
    Mr. Frazzini. So the address never actually existed in the 
first place.
    So as these photographs show, had HCFA officials required 
site visits of these companies prior to issuing provider 
numbers, especially in this particular case where the address 
didn't even exist, Medicare would not have paid these bogus 
providers $9 million, just by simply going out, and the airport 
is a classic example of that.
    While in Miami, PSI investigators also visited an office 
complex comprised of three buildings that are known to rent 
office space to DME suppliers. This particular office complex 
had housed 45 DME suppliers over the past 4 years. These 
companies billed the Medicare program over $20 million during 
this period of time. Of these 45 suppliers, only two had not 
been under revocation, suspension, or in violation of the 
supplier standards relevant to DME companies.
    Upon physical inspection of one building, PSI investigators 
found that only one of the offices was open for business, which 
seemed strange, since it was only 3:30 in the afternoon. Posing 
as entrepreneurs, PSI investigators questioned the one owner 
about his business. The owner's office was scantily furnished 
with a desk, filing cabinet, and a telephone. This DME owner 
told us that the medical supply business is a lucrative 
business. He told us that he makes about $4,000 a month, but he 
knows of other owners who make approximately $20,000 a month.
    The owner told us that Medicare has investigated his 
company several times, three times to be exact, and because of 
the problems that come with these investigations, he is 
planning on expanding his business to Orlando and is organizing 
a consortium of 37 DME suppliers so that when one supplier is 
investigated by Medicare, the cash flow won't dry up. PSI 
investigators found that this particular provider had submitted 
Medicare claims for $500,000 and was paid approximately 
$200,000 for DME supplies.
    In conversations with Medicare investigators in Miami, 
setups such as the one used by this particular supplier are 
very common amongst fraudulent DME suppliers. These 
investigators told us that they found hundreds of DME companies 
that were nothing but mail drops, grimy auto shops, or empty 
warehouses.
    For example, one office had a lady sitting in a room with 
four desks. Each desk represented a different company. There 
was a telephone on each desk, along with a different script for 
the lady to read when answering telephone calls for the several 
different companies that were housed in the office.
    Throughout PSI's investigation, the common theme among the 
health care experts was that the government must do a better 
job preventing these con artists from obtaining Medicare 
provider numbers or law enforcement officials will not be able 
to weed out the unscrupulous providers fast enough.
    That concludes my testimony and I would be glad to answer 
any questions that the Subcommittee may have.
    Senator Collins. Thank you, Mr. Frazzini.
    Before we turn to questions, I want to hear Mr. Hartwig's 
testimony and then we will question the whole panel.
    Mr. Hartwig, please proceed, and welcome.

 TESTIMONY OF JOHN E. HARTWIG,\1\ DEPUTY INSPECTOR GENERAL FOR 
INVESTIGATIONS, OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF 
HEALTH AND HUMAN SERVICES, ACCOMPANIED BY SUSAN FRISCO, SPECIAL 
 AGENT, NEW YORK FIELD OFFICE, DEPARTMENT OF HEALTH AND HUMAN 
   SERVICES, AND CATHY COLTON, ASSISTANT REGIONAL INSPECTOR 
 GENERAL FOR INVESTIGATIONS, MIAMI, FLORIDA, SATELLITE OFFICE, 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Hartwig. Thank you. Good morning. We are pleased to 
appear before you today to describe our experiences with high-
risk individuals who have gained access into the Medicare 
program.
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    \1\ The prepared statement of Mr. Hartwig appears in the Appendix 
on page 62.
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    I believe the appropriate descriptors of today's health 
care crimes are complexity, high dollar amount, and 
sophistication. Currently, the program outlays exceed $200 
billion and multiple-subject cases are commonplace. We see 
millions of dollars stolen in a single scheme, and with today's 
technology, fraudulent providers can bill the system 
electronically, make quick hits for large amounts of money, and 
move on before they can be detected.
    Today's criminals know where the Medicare radar is and how 
to fly under it. Let me elaborate briefly. Today's health care 
providers are typically highly networked through parent 
companies and subsidiaries with branches all over the country. 
Where we used to have fraud by a single provider affecting 
billings in only one or two States, it is now common to find 
billings by provider groups flowing through 30 or 40 States.
    Something that may appear on the surface to be a local scam 
can unfold into a complex, organized fraud with systematic and 
sometimes nationwide implications. We sometimes find fairly 
complex operators who can perpetrate their scheme quickly in an 
area, close down, and move on to a new locale to evade 
detection.
    When the OIG audited a statistical sample of Medicare's 
$168.6 billion in fee-for-service benefit payments reported for 
fiscal year 1996, we projected a mid-point figure of $23.2 
billion that was paid improperly. Our auditors did not set out 
to quantify how much of that could be fraud, but our sense is 
that some of the improper payments more than likely were in the 
realm of intentional misrepresentation.
    An entitlement program that has grown to huge proportions, 
Medicare provides criminals with a large target. Years ago, 
Willie Sutton said he robbed banks because that is where the 
money is. Today, Medicare is where the money is, and today's 
Willie Suttons are lined up to get what they can. That is why 
sound program oversight by HCFA and aggressive, well-organized 
law enforcement are necessary.
    Medicare has 38 million beneficiaries, processes and pays 
800 million claims annually, contains complex rules, and has a 
decentralized operation. The Medicare computer system 
accomplishes its missions of paying claims quickly, but 
sometimes fails to detect conditions indicative of fraud. The 
Medicare program was built on a system of trust, trust that 
medically necessary services, equipment and supplies would be 
provided appropriately to those who are entitled to them, and 
that claims for reimbursement would fairly reflect whatever was 
provided.
    This hearing deals with the extreme end of the health care 
scale; that is, those individuals who single-handedly or as 
part of a conspiracy set out to rob the Medicare program while 
providing little, if any, services to beneficiaries. We are 
talking about people who should never have been allowed to 
participate in the program and how to keep others like them 
out. Unfortunately, even a small number of bad individuals can 
wreak enormous damage on the program.
    We found that some benefit categories are more vulnerable 
than others to participation by criminal elements. For example, 
the durable medical equipment supply industry has been a high-
risk provider group for years. In 1995--and Senator Durbin had 
mentioned Operation Restore Trust--we initiated Operation 
Restore Trust as a Department initiative which targeted 
Medicaid and Medicare fraud and abuse, and one of the targets 
of that operation was durable medical equipment.
    Although some major improvements have been made in HCFA's 
management of the benefit, DME continues to be fraud-prone and 
a major concern. Medicare paid more than $6 billion in 1997 for 
medical equipment and supplies. Despite current safeguards, 
HCFA has reported that in a sample of 36 new DME applicants in 
Miami, Florida, 32 were not bona fide businesses.
    Our office recently sampled suppliers and applicants for 
DME in 12 large metropolitan areas. We found that 1 out of 14 
current suppliers and 1 out of every nine new applicants did 
not have a physical address. A physical address is required for 
suppliers because it allows beneficiaries a place where they 
can reach suppliers about DME needs and problems. Also, a 
physical address provides a place where beneficiary and 
financial records should be kept for oversight purposes.
    We found that businesses had closed, had questionable 
presence at the address to begin with. Some addresses, as you 
have seen, are mail drop locations or non-existent at all, a 
classic example certainly being where you are on a runway of 
Miami Airport, not a place where I would want to set up 
business.
    Problems with physical addresses such as we have described 
often indicate potentially non-legitimate businesses. A classic 
example is a case we uncovered in the Miami, Florida, area. The 
Miami investigation began in 1994 when a private citizen in 
Miami forwarded to us dozens of Medicare explanation of medical 
benefit forms which she had mistakenly received in the mail. 
The forms showed that multiple beneficiaries were each provided 
liquid nutrition by six different DME companies. All of the 
companies billing were paid by Medicare for supplies and 
services supposedly provided.
    We and the FBI initiated an investigation, contacting the 
beneficiaries. All denied receiving services. We then visited 
several of the business addresses which these companies 
reported to Medicare and found that none had an actual office 
or business location. Instead, all were located at mail drop 
boxes. Through the use of interviews, surveillance, and other 
investigative techniques, we found that what we initially 
believed to be six or so fraudulent companies operating 
independently were instead part of a larger crime ring that 
defrauded the Medicare program of over $6 million.
    The ring leader in this operation was Ulisses Martinez, who 
lived in the Miami area. We found that Martinez had entered the 
United States illegally some years before through use of a 
forged Panamanian passport. In 1992, Martinez and some of his 
associates began buying the names and Medicare numbers of 
beneficiaries which would provide the fuel for his scheme.
    He purchased most of the names and numbers from two 
different sources. The first was from secretaries in doctors' 
offices who had easy access to patient information and 
physicians' Medicare billing numbers; and, second, from 
recruiters. As we have heard, recruiters are persons who 
canvass nursing homes, adult living facilities, and private 
neighborhoods for the sole purpose of finding Medicare 
beneficiaries.
    In exchange for the beneficiaries' names and addresses and 
Medicare numbers, the recruiter typically offers free 
groceries, free rides to visit friends or relatives, or even 
cash. Martinez paid his recruiters $100 per name and Medicare 
number, and knew he could make his money back 100-fold from the 
Medicare program. Martinez sought out other persons to help him 
run his fraudulent Medicare business and thereby provide a 
layer of fall guys, in case the scheme was uncovered by law 
enforcement.
    Ultimately, we found 18 fraudulent health care companies 
linked directly to Martinez, all of which followed a pattern of 
using similar mail drop locations, billing for services not 
rendered, and fronted by third parties, while Martinez 
controlled the fraudulent proceeds. We uncovered that Martinez 
purchased 8 properties in Miami, using $1.2 million in funds he 
fraudulently obtained from the Medicare program, and we have 
today pictures of two of those properties.\1\
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    \1\ See Exhibit 9 which appears in the Appendix on page 81.
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    We were able to successfully locate and prosecute nine 
conspirators for their part in helping Martinez run his DME 
companies. Eight of the conspirators pled guilty to Medicare 
fraud charges; a ninth chose a trial by jury. During the trial, 
the man confidently passed out cigars labeled ``compliments of 
Ulisses Martinez'' in the Federal courtroom during his trial. 
Despite his generosity, he was convicted on all counts.
    As of this date, Martinez is a fugitive. Martinez is an 
example of a criminal who gained access to Medicare and billed 
the system without any intention of actually providing any 
services, equipment, supplies for which he billed.
    We have investigated a similar case in New York. This time, 
the investigation began with beneficiary complaints to the 
Medicare carrier that Medicare was being billed for orthotic 
supplies the beneficiaries never received. The complaint 
centered on five durable medical equipment supply companies 
that all proved to be non-existent.
    In expanding our review, we found that Russian criminal 
elements were billing Medicare under the provider numbers of 
totally fictitious or inactive companies for supplies and 
services that were never actually provided. Within a year, our 
investigation revealed 20 provider numbers that were involved 
in the billing scheme. None of the provider numbers were 
representative of a legitimate company that was actually or 
actively in the business of providing services. In addition to 
orthotic supplies, the Medicare program was billed for magnetic 
resonance imaging services and ear implants.
    Our investigation of the activities behind the numbers 
revealed another common scenario by the perpetrators. They used 
front people in the Medicare provider application process, 
obtained inactive provider numbers and used them to bill the 
program, and used mail box drop locations to receive payments 
for services never rendered. These provider numbers were used 
to bill the Medicare program for millions of dollars in 
fraudulent claims.
    After interviewing beneficiaries, our agent conducted 
interviews with mail box rental establishments and confirmed 
that several mail box drops were being opened by the same 
individual using five different Russian passports. Our 
interviews with bank officials revealed that the same 
individual renting the mail boxes also was opening bank 
accounts. The cooperation of the banks and the mail box store 
owners in this investigation was invaluable.
    A bank employee recognized the man when he attempted to 
withdraw $35,000. The individual was arrested. We were able to 
have the carrier stop payment on checks totaling $325,000. The 
true identity of this individual was only revealed through 
fingerprint analysis. The man, Yury Bizayko, was recently 
sentenced to 30 months' imprisonment and was ordered to pay 
restitution in excess of $1.5 million. A second individual in 
this investigation has also pled guilty.
    I want to take time to emphasize here that the Medicare 
carriers did a good job in setting up controls and limiting 
losses during the investigation. Although over $27 million was 
billed under this scheme, a little over $1.5 million was 
actually paid out. This investigation is continuing today. 
Other subjects are currently under investigation, and we have 
found new fictitious companies are being incorporated in other 
States and that the criminal interests in this investigation 
are finding new ways to game the system.
    In conclusion, we firmly believe that the criminal elements 
in health care fraud are not isolated to schemes discussed in 
my testimony. Unfortunately, for true criminals, the only 
effective safeguards are tough-minded prevention measures and a 
strong law enforcement presence with equally tough penalties.
    This concludes my testimony and my colleagues and I welcome 
your questions.
    Senator Collins. Thank you very much, Mr. Hartwig.
    Mr. Frazzini, I first want to welcome you back to the 
Subcommittee. We really enjoyed having you work with us last 
year on this investigation.
    I want to go back to the issue of where PSI did site visits 
itself, and you mentioned that in doing one site visit, you 
found that the Medicare provider's address, or physical 
location, turned out to be a launderette and another was a Mail 
Boxes Etc. location. This suggests to me that on-site visits 
are a very cost-effective and relatively easy way of preventing 
a great deal of fraud from occurring. Is that your impression? 
Was it difficult to conduct these site visits, or costly to 
conduct them?
    Mr. Frazzini. First of all, glad to be back and it was a 
pleasure working here last year.
    To get to your question, the answer is it was very 
inexpensive and it took us a rather limited amount of time. I 
think we traveled--an HHS investigator, an agent from the New 
York field office, myself, and another PSI investigator went to 
approximately five or six of these locations, these two being 
two of the ones that we visited. And I think it took us 
approximately 45 minutes, tops, to do that, to come up with 
this type of information.
    So the investigative techniques that we employed to unravel 
this type of scenario was really rather limited. We really 
didn't have to do much at all and it didn't take us any time, 
and it wouldn't have taken us more than a few dollars in gas, I 
think, to get over to Brooklyn and back.
    Senator Collins. A pretty straightforward way to prevent 
millions of dollars of fraud if, in fact, site visits had been 
conducted up front before the Medicare provider number was 
given to people who could then start billing, is that correct?
    Mr. Frazzini. Certainly, and in these particular cases, as 
you can see, there is a high dollar amount associated with 
these addresses.
    Senator Collins. Would you agree with that, Mr. Hartwig, 
that on-site visits, which I understand are being expanded, 
would have prevented a lot of this very blatant fraud where 
there are no services being provided at all?
    Mr. Hartwig. It would have prevented much of it and at 
least made it more difficult to carry out.
    Senator Collins. I would like to ask all four of you the 
same question, and that is, is this a growing trend, a new kind 
of fraud where we have completely bogus businesses coming into 
the Medicare system?
    It seems to me that traditionally we always thought of 
health care fraud as being a case where an otherwise legitimate 
provider of medical services was over-billing the government. 
And, clearly, that is deplorable, but it seems to me we are 
into a whole different kind of fraud that is much more serious 
because no services are being provided at all.
    I will start with you, Ms. Colton. Would you agree this is 
a growing trend?
    Ms. Colton. Yes, I would, and the reason that I would say 
that is because what we have found is that it is not just in 
the DME area that this is occurring in. Now, what we see is 
that it is expanded into the home health agency where they bill 
for home health visits that have never occurred. We have seen 
it expanding into community mental health centers where they 
are billing for either group or individual therapy that has 
never been provided, as well as we have also seen medical 
centers where they have billed for diagnostic tests which have 
never been rendered.
    Senator Collins. Ms. Frisco.
    Ms. Frisco. In the 2 years that I have been with the 
agency, I have noticed that more and more individuals are 
getting into the program that have really no right to be there. 
I also see that greed has really played a large role in my 
investigation, and the individuals that I have been in contact 
with during this investigation have not been in any way 
deterred by the criminal prosecutions that have taken place so 
far.
    Senator Collins. Thank you.
    Mr. Hartwig.
    Mr. Hartwig. I have been investigating health care fraud 
for almost a quarter of a century and I have seen a great 
change in the type of schemes that are out there. And it 
started, as you said, Madam Chairman, with individual providers 
who were in the program and just went bad. Twenty years ago, 
Medicare was a $22 billion program, and over the years I have 
seen a great increase in people who just target the program to 
steal from it. It is not a recent occurrence, but it is 
certainly one that has been growing as individuals have 
adjusted to the Medicare radar, have learned the system, and 
have understood that you can send in claims and get paid. We 
see more and more individuals, organized criminal rings, that 
set up for the sole purpose of defrauding the Medicare program 
out of millions of dollars.
    Senator Collins. Your observations are very consistent with 
our first witness today, who described Medicare as a gold mine 
and said it was relatively risk-free--if he hadn't been turned 
in by one of his employees, he would still be billing falsely 
today--and that it was a lot easier than the other illegal 
activities he has been involved in over his lifetime.
    Mr. Frazzini, you talked to law enforcement investigators 
in several parts of the country. Do they see this as a growing 
trend?
    Mr. Frazzini. Yes, they do. We met with members of the FBI 
in New York, as well as HHS investigators in New York, HHS 
investigators in Miami, and the underlying consensus was that 
there are individuals getting involved in health care fraud 
with no background in providing health care services.
    But one of the things that seemed to be reoccurring was the 
fact that a lot of these individuals were involved in certain 
types of criminal activity. So they weren't just a guy who is 
working on the street corner. I mean, these are people that 
know how to commit crimes.
    Senator Collins. They are people who are already engaged in 
criminal activity?
    Mr. Frazzini. Other criminal activity, sure, and that 
really has escalated the danger level for conducting this type 
of investigation. That is one of the things that I think was 
consistent throughout what I found throughout this 
investigation, in speaking to other agents. So, yes, law 
enforcement in the places we went to certainly would agree with 
Mr. Hartwig's statements.
    Senator Collins. Thank you.
    Ms. Frisco, in the testimony that you provided for our 
hearing record, you talked about how certain Russian co-
conspirators had defrauded Medicare of millions of dollars with 
what appeared to me to be a truly egregious scheme of creating 
20 different fictitious DME and MRI companies. Could you just 
briefly describe for the Subcommittee how the scheme worked?
    Ms. Frisco. The scheme initially started with five DME 
companies that billed for orthotic supplies, and they initially 
were billing the DME regional carriers. Once they were detected 
by those carriers, they adjusted their scheme to bill the local 
carriers for MRI services that were never rendered. Once the 
local carriers began to detect those companies, they moved on 
to bill for ear implants. So I guess the bottom line is they 
have always adjusted their scheme throughout the entire 
investigation to avoid detection.
    Senator Collins. Ms. Colton, you also described in your 
written submission another outrageous example of outright 
fraud. Could you explain to us what one of your investigations 
uncovered?
    Ms. Colton. Certainly. What we found was that Ulisses 
Martinez conspired with friends and relatives to have them 
apply for the provider number, as well as open up mail box 
drops which were allegedly where the companies were located. 
And then he, in turn, had those individuals also open up the 
bank accounts, so that he would use a billing service to bill 
for the products that he was allegedly supplying. The payments 
for those claims would then be delivered to the mail boxes. 
Then those Medicare payments would be picked up and deposited 
into the bank accounts, all done without his name appearing on 
any of the documents. That is how he was able to insulate 
himself from the system identifying him as owning or truly 
controlling these 18 different companies.
    Senator Collins. How was this illegal scam uncovered? What 
brought it to your attention?
    Ms. Colton. A private individual received a number of 
EOMB's, explanation of medical benefits, at his residence, and 
he turned them over to us. And what we noticed and identified 
was that there was approximately 20 EOMB's, and each had 
different beneficiaries' names. There was the commonality of 
six DME companies that were listed as the providing companies 
on the EOMB's.
    Senator Collins. So in this case, but for an alert senior 
citizen who received all these explanations of benefits that 
didn't make sense and contacted your office, this fraud might 
never have been uncovered?
    Ms. Colton. That's correct. The system did what the system 
is designed to do, which is to pay claims when they are 
completed properly. And in this case, those claims were 
completed properly. Therefore, a Medicare check was cut.
    Senator Collins. Ms. Frisco, what about the case you 
described? How was that uncovered?
    Ms. Frisco. The case came to my office as a result of 
beneficiaries making complaints to the local carrier stating 
that they didn't receive the services that were billed under 
their number.
    Senator Collins. Mr. Hartwig, you do have almost a quarter 
of a century of experience in investigating and pursuing health 
care fraud. What should we be doing? How can we stop this? How 
can we curb the ease with which criminals are now getting into 
the system? What would you recommend to us?
    Mr. Hartwig. Well, there are a few things. First of all, 
you can curb the ease with which criminals can get into the 
system, such as with the use of site visits and surety bonds, 
which were previously mentioned. Our office has recommended 
charging application fees for a Medicare provider numbers so 
that the program can take some steps to investigate whether the 
applicant is a good provider or not. So I think we can make 
some giant strides in just stopping them from getting into the 
program in the first place. These activities are a good way of 
accomplishing this.
    I think we can do a better job of program payment 
safeguards by looking at the claims that are coming in and 
making sure that the program is paying claims that should 
reasonably be paid. From a law enforcement perspective, I think 
the program could do a better job of pricing. That is a 
difficult issue, but I think some of the basic problems with 
the program are some of these services are over-priced and 
somewhat ill-defined, if you understand that we pay large 
amounts of money for these ill-defined services. And then the 
last part, for some of these people, the only deterrence that 
many of them understand is very effective and very aggressive 
prosecution.
    Senator Collins. I am going to yield to Senator Durbin for 
some questions. I do have additional questions for you.
    Senator Durbin.
    Senator Durbin. Thank you, Senator Collins.
    Could you put two charts back up again, Mr. Frazzini, that 
talk about the application process for DME providers, as well 
as for the home health providers? \1\
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    \1\ See Exhibits 2 and 3 which appears in the Appendix on pages 71 
and 72 respectively.
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    Mr. Frazzini. Certainly.
    Senator Durbin. I would like to ask you a question or two. 
First, thank you for coming, and thanks to the entire panel.
    But as these charts are brought back up here, I am trying 
to understand this process a little better. What I gather is 
that when it comes to the home health care that there are two 
agencies involved in establishing whether or not someone will 
be an approved provider--the State agency, which might be in my 
State, for example, the Illinois Department of Public Health or 
Department of Public Aid, which determines whether or not 
someone who wants to provide home health care is, in fact, 
certified to do so, and then the so-called fiscal intermediary.
    Now, in that case, for example, would that be this NSC? Is 
that the fiscal intermediary for home health providers?
    Mr. Frazzini. What the NSC is--the National Supplier 
Clearinghouse relates to durable medical equipment suppliers.
    Senator Durbin. I see.
    Mr. Frazzini. And that is something separate and different 
than the home health care process.
    Senator Durbin. So home health under Part A, I suppose, 
goes through some other one of 70 different agencies that 
review these?
    Mr. Frazzini. Yes. It is less than----
    Senator Durbin. Private companies?
    Mr. Frazzini. Yes, the contractors. That's correct. I am 
not sure if it is 70, but that's correct.
    Senator Durbin. OK, so when you are a home health provider, 
or desire to be one, you apply to the Federal Government to get 
on this train. You are at least going to have to pass through 
two reviews before that happens, the State agency as well as 
the fiscal intermediary?
    Mr. Frazzini. Well, that's essentially correct, although 
the fiscal intermediary--from my understanding, it is more of a 
paper review as opposed to an on-site review.
    Senator Durbin. Now, let us take a look at the DME 
provider. In that case, we are talking about the National 
Supplier Clearinghouse, which is part of Palmetto Government 
Benefits Administrators in Columbia, South Carolina?
    Mr. Frazzini. Blue Cross and Blue Shield of South Carolina, 
correct.
    Senator Durbin. OK. Am I correct that this company was 
contracted with in 1993? Was that when they started their 
responsibilities?
    Mr. Frazzini. Well, Blue Cross and Blue Shield of South 
Carolina, I think, has been a contractor with the government 
for several years. I am not sure on the specific date. I know 
the National Supplier Clearinghouse--it is my understanding it 
was either 1992 or 1993 that they started with a more uniform 
system which is now known as the National Supplier 
Clearinghouse, and Blue Cross and Blue Shield of South Carolina 
was awarded that contract.
    Senator Durbin. So before the contract was awarded, how 
were these DME providers reviewed?
    Mr. Frazzini. As far as on-site visits, they weren't.
    Senator Durbin. Was there any other type of review?
    Mr. Frazzini. In speaking with a couple National Supplier 
Clearinghouse investigators, I asked that exact question, what 
was done prior to then, and they said other than submitting an 
application and possibly doing some paper checks to make sure 
the i's are dotted and the t's are crossed on the application, 
nothing was done.
    Senator Durbin. OK. Mr. Hartwig, you and Ms. Frisco and Ms. 
Colton, I take it, are all Federal employees, is that correct?
    Mr. Hartwig. Yes.
    Senator Durbin. How many people are working in the Federal 
Government in your area of work reviewing for Medicare fraud? 
How many Federal employees are involved in that?
    Mr. Hartwig. The Office of Inspector General now has 
somewhat over 1,000, of which about 300 are in the law 
enforcement area. You would also have to include here that the 
FBI has made a greater, increased effort in health care fraud 
over the last few years, as well as the Department of Justice, 
and the Kennedy-Kassebaum legislation that was passed. I thank 
the Members of Congress for passing it.
    Senator Durbin. We weren't here, but we sure liked it. I 
voted for it in the House.
    Mr. Hartwig. I thank you for not repealing it, then, I 
guess.
    Senator Collins. I endorsed it.
    Senator Durbin. Good.
    Mr. Hartwig. It certainly has gone a long way in increasing 
the resources available to go out, detect, and chase these 
criminals. I think the Health Care Financing Administration has 
some funding under that as well.
    Senator Durbin. Now, let me ask you this. Since you have 
been in this field for 25 years, you have seen a lot of 
changes, I am sure, but this decision in 1992 or 1993 to create 
this National Supplier Clearinghouse--was that ostensibly to 
contract out part of this responsibility?
    Mr. Hartwig. The problem of issuing provider numbers has 
been an issue that has been around for a long time, and is one 
that the Inspector General's office and HCFA have worked 
closely on. I believe at one time, provider numbers were issued 
by individual carriers throughout the country. So a DME 
supplier in New York would apply to the Medicare contractors in 
that area.
    Given our experience with durable medical equipment 
especially over the years, there was an effort made to control 
the issuing of DME supplier numbers. The Health Care Financing 
Administration then went to four regional DME contractors that 
handle all the DME claims in the United States, and, with that, 
they combined the issuance of DME provider numbers to one 
contractor, where in the past a DME company could get a number 
from any carrier. That system was put into place to centralize 
that provider number issuance.
    Senator Durbin. So they centralized it in an effort to try 
to reduce the fraud and they contracted out with this National 
Supplier Clearinghouse, asking them to issue the numbers, and I 
suppose at some point to review and approve the applications. 
Is that correct?
    Mr. Hartwig. Yes, I believe so.
    Senator Durbin. How much money does the Federal Government 
pay the National Supplier Clearinghouse?
    Mr. Hartwig. I have no--I am sorry. I don't know. HCFA 
actually contracts with the National Supplier Clearinghouse and 
I am unfamiliar with the actual amount of money that they would 
receive.
    Senator Durbin. Do you know how many analysts they have 
working on these applications?
    Mr. Frazzini. What I do know--this might get to your 
question. I know as of last year, they only had one 
investigator to do on-site visits, a field investigator who is 
stationed in Miami.
    Senator Durbin. One investigator for on-site visits 
nationwide?
    Mr. Frazzini. For the whole country, yes, sir.
    Senator Durbin. And how many applications would the 
National Supplier Clearinghouse receive in a year?
    Mr. Frazzini. I am not exactly sure on the exact number, 
but it is several thousand, I think.
    Senator Durbin. The number I have is 16,000.
    Mr. Frazzini. Yes, that would be consistent with what you 
have been talking about. I can say that the National Supplier 
Clearinghouse is starting to contract out with----
    Senator Durbin. Choice Point.
    Mr. Frazzini [continuing]. Choice Point, whereas they are 
starting to delegate through a contract the responsibility of 
on-site visits. But, again, that is something that has only 
occurred within the last 6 months or so.
    Senator Durbin. I don't know. Mr. Hartwig, maybe you could 
add something.
    Mr. Hartwig. I was just going to add that I think there are 
about 118,000 DME provider numbers throughout the United States 
issued by the National Supplier Clearinghouse. I think I read a 
statistic where 18,000 of those are denied each year.
    Senator Durbin. That is a little different than what I 
have. Here is what I have been told, and I don't know if this 
is accurate or not, but 16,000 applications a year for new DME 
provider numbers go through this National Supplier 
Clearinghouse. A year ago, they had 19 analysts, people who 
looked at these applications. That is about 800 per person. I 
don't know how you can do much of a review. You certainly can't 
do an on-site visit.
    I now understand that the number is up to 40, so you have 
400 applications per employee, per year, going through this 
National Supplier Clearinghouse. It would be physically 
impossible to do even a fraction of those numbers in terms of 
site visits. And yet we are paying this company, are we not, to 
do just that, to review these applications? And they have some 
criteria, do they not, that these applicants are supposed to 
meet before they are given a number?
    Mr. Hartwig. Yes. I believe there are 11 criteria that a 
DME company is supposed to meet before they are allowed in the 
Medicare program.
    Senator Durbin. How could this be physically possible for 
them to even--let us assume you are one employee and you are 
working 250 days a year. You have 400 applications coming in 
for you to analyze each year. So each day, you have to do 1.5 
applications, roughly. You have to establish 11 different 
criteria. It is impossible to consider a site visit, let alone 
go through each of the applications and make sure that the 
standards are met.
    Mr. Hartwig. Our office, the OIG, has a number of reviews 
and we have pointed out some of these similar problems. That is 
why we have aggressively called for site visits and surety bond 
requirements, just as a way of trying to stop abuse. We have 
talked about requiring providers to supply Social Security 
numbers or EIN's just as a way of stopping the problem. But I 
think on-site inspection of these providers is absolutely 
necessary.
    Senator Durbin. Last year, 1997, 16,184 DME applications to 
the National Supplier Clearinghouse, site visits for 282, 1.7 
percent. And we are paying these people to review these 
applications. I can't imagine what they are doing, other than 
just entering information into some computer database and 
issuing numbers. It doesn't strike me that we are getting our 
money's worth, whatever we are paying them, and I hope that one 
of our follow-up hearings will bring people in from the 
National Supplier Clearinghouse to answer some of these 
questions directly.
    Let me ask you this question. In some States--Illinois is 
one of them--the durable medical equipment providers are 
licensed. Is there any indication that there is less fraud in 
those States than in others?
    Mr. Hartwig. I am not aware that there is less DME fraud in 
Illinois than----
    Senator Durbin. We certainly have our problems, but I just 
wondered, in the scheme of things, whether State licensure adds 
anything to this.
    Mr. Hartwig. I think any licensing, any checks, will add to 
the controls in the program. Any area--we have generally found, 
where a State has an aggressive licensing system, it will 
generally stop these kinds of fraudulent providers from 
entering. I will also say, in 25 years, we also understand how 
the criminal element can study the system and circumvent the 
system.
    Senator Durbin. We have a hot case in Illinois--many of 
them--involving a fellow and the question of whether or not $28 
million in assets are subject to forfeiture. Is this common for 
us to demand forfeiture if, in fact, people are found guilty, 
so that Mr. Smith's luxury cars and the other things become the 
property of the Federal Government?
    Mr. Hartwig. We are trying to make it more common, and the 
Kennedy-Kassebaum legislation added some criminal forfeiture 
proceedings in health care fraud that we certainly look at as a 
deterrent. Where we can take the money back from an individual 
and can seize property, we think that that has a very visible 
deterrence to other people that want to cheat.
    Senator Durbin. I would like to ask Ms. Frisco or Ms. 
Colton and, in fact, anyone on the panel, but to them in 
particular, what kind of incentives are there for 
whistleblowers?
    Let us start with the basics. I am a senior citizen who 
just got a bill from Mr. Smith's company saying he provided me 
$600 in services or $600 in equipment. I never heard of him, I 
didn't get anything, so I get on the hotline and call. Let us 
assume I do that. What kind of reward is in the process for me 
if, in fact, Mr. Smith is ultimately prosecuted?
    Ms. Frisco. I don't personally know the answer to that.
    Senator Durbin. Do you know? Other than satisfaction in 
knowing that I have stopped somebody from cheating the 
government, is there anything in this for me? Can I get $1,000, 
or more, or something?
    Ms. Colton. There is the ability to file a qui tam suit, 
which is different than what you have indicated, which would be 
to contact the hotline and report, although I would----
    Senator Durbin. Excuse me. That is an action in Federal 
court, is it not, or at least Federal agencies----
    Ms. Colton. Correct.
    Senator Durbin [continuing]. That few senior citizens are 
likely to want to get involved in, correct?
    Mr. Hartwig. In the Health Insurance Portability and 
Accountability Act, the Kennedy-Kassebaum legislation, there is 
a section that allows the Department to pay beneficiaries a 
reward for turning in not just criminal providers, but where 
there is an overpayment. There is a section that does allow the 
government the flexibility to pay a beneficiary for reporting.
    Senator Durbin. Do you know how frequently that happens, 
how frequently we have paid people for----
    Mr. Hartwig. I don't know that we have paid anyone under 
that provision. I don't know if that has actually been 
implemented as I sit here today, but there is a provision that 
would allow that to happen.
    Senator Durbin. Well, I will tell you something. If we are 
talking about $20 or $30 billion being wasted in this program 
each year, one of the things that I would like to suggest is 
that we really create a whistleblower opportunity here so that 
not only senior citizens, but people working in medical offices 
for doctors who are peddling Medicare identification numbers 
and all the others who would come into this system would know 
that a phone call might end up in a reward if, in fact, they 
have uncovered serious Medicare fraud.
    I don't know if that sounds like a reasonable suggestion 
from where you are sitting, but it sounds to me like in the two 
cases you have described, someone stepping forward and talking 
about it made all the difference in the world and that may be 
what we need in this system to let folks know that people are 
watching to make sure they are obeying the law.
    The second thing that comes up is this whole question about 
an application fee. Is there no application fee now for a 
person to receive a provider number?
    Mr. Hartwig. I don't believe there is.
    Senator Durbin. Free, for nothing?
    Mr. Hartwig. Yes.
    Senator Durbin. That is great. And so assuming for a minute 
that the National Supplier Clearinghouse is doing something for 
what they are being paid, the question is whether we ought to 
be charging the providers an application fee that would cover 
on-site visits, someone actually going through the application, 
and maybe--and here is a wild suggestion--a follow-up on-site 
visit, something like that in the course of a year to see if 
they are still there or whether, in fact, we have washers and 
dryers tumbling instead of wheelchairs being----
    Mr. Frazzini. On-site visits, I think, are essential, and I 
think the fees associated with them are--I cannot see any 
reason why you wouldn't do that. An analogy that keeps up 
throughout this investigation is the one of licensing somebody 
to fly in this country. It costs you a lot of money to get your 
license to fly a plane. Yet, you can go in and start taking 
care of elderly people in this country without paying a dime. 
The obvious purpose is to protect the well-being of others by 
having a pilot licensed. Why don't you do it for home health 
care, regardless of the fraud perspective?
    Senator Durbin. Well, if the on-site visits result in a 
third of them being ejected, it strikes me that it is money 
well spent, and if these people making the application paid for 
the actual on-site visit, it is a good thing for the taxpayers 
and the elderly people.
    Thank you, Madam Chair.
    Senator Collins. Thank you, Senator Durbin.
    Mr. Hartwig, I want to go back to the issue of the on-site 
visits. I notice that the Inspector General put out a December 
report urging on-site visits, but is this an issue that the 
Inspector General's office has been urging for some time that 
HCFA conduct on-site visits or is it only lately that you have 
come to the conclusion that these need to be done?
    Mr. Hartwig. We have been studying the provider enrollment 
process for a long time. I think the actual recommendations for 
on-site inspections has been a recent one. I don't know when we 
first proposed it. And, actually, the recommendation came to 
light as we conducted some of the recent investigations that 
you have heard about today where we find totally fictitious 
addresses.
    Senator Collins. And this reflects my conclusion that this 
is a new and insidious kind of fraud because it isn't a 
legitimate provider involved. It is a totally bogus business, 
is that correct?
    Mr. Hartwig. It is clearly the targeting of the health care 
program solely for greed and solely to steal from it. We find 
out that the foundation of the program is the ability to obtain 
provider numbers, making it much more difficult to investigate. 
We have had cases where once we identify a provider as being 
aberrant--and I think Special Agent Frisco mentioned that--the 
company then shuts down. They just take another provider 
number. Then we have to go track them down again.
    One of the difficulties in the New York case was that we 
didn't even know the real name of the individual doing it. We 
had to actually arrest him and get his fingerprints before we 
could actually find out who, in reality, he was.
    Senator Collins. Mr. Frazzini, Senator Durbin raised the 
issue of whether the National Clearinghouse is doing enough, 
and clearly it looks like there needs to be more resources and 
more emphasis on fraud prevention. But, ultimately, the 
responsibility for this program is HCFA's. Is HCFA doing 
enough, the Health Care Financing Administration, in requiring 
its contractors to make fraud prevention a priority?
    Mr. Frazzini. The frank answer to that is, no, I don't 
think so. If they were doing their job, then why do we have the 
problem that we have right now? From my perspective, it is 
their responsibility to assure that things that we are talking 
about here today don't exist. Yet, they exist, so who is 
looking over this money?
    Senator Collins. Ultimately, it is the Federal Government 
that is responsible for preventing this fraud, whether Federal 
employees are doing it directly or carrying out the functions 
directly, or whether the function is being contracted out.
    Mr. Frazzini. Yes. I think blaming the insurance companies 
or the contractors is looking at the wrong place. I mean, they 
have a contract to do business with the government and they are 
doing what the government tells them to do. If the government 
wants them to do more, then the government can tell them to do 
more and can pay them more to do that, and I don't think you 
will have a problem.
    I have seen insurance companies and fraud units and various 
contractors that do a really good job. So I really do believe 
that it is a lack of oversight on HCFA's part to direct these 
insurance companies to do what they want them to do. You can't 
just have the insurance companies say, OK, we are responsible 
for health care fraud in this particular part of the country, 
and expect them to be able to do the job properly. They are 
getting paid to do what they are told to do, so I think HCFA 
needs to be on top of that.
    Senator Collins. Thank you. I want to go back to the issue 
of the use of recruiters. This was something that was described 
by our preceding witness that struck me again as an another 
insidious trend.
    Ms. Colton, I would like to start with you. It is my 
understanding that the ring leader of the fraud in the Martinez 
case began buying the names and Medicare numbers of 
beneficiaries from secretaries in doctors' offices and from 
recruiters who canvassed nursing homes, adult living 
facilities, and private neighborhoods to get the Medicare 
beneficiaries' numbers. And you also noted that in exchange for 
the Medicare beneficiaries' names and addresses and numbers 
that the recruiters provided some incentives.
    In some cases, undoubtedly, the senior citizens--in most 
cases, I suspect, were tricked out of their numbers or had no 
idea that someone else was giving out their numbers. But did 
you find some cases where the beneficiaries were also 
unfortunately involved in the fraud or were given inducements 
to give their numbers?
    Ms. Colton. Yes, we have. As a matter of fact, we have 
found that the recruiters know that there are beneficiaries out 
there that are very aggressive and more than willing to sell 
their Medicare number in order to receive some inducement for 
it, and they target those beneficiaries, as well as the other 
ones that you described.
    We, along with the FBI, have actually finally influenced 
the U.S. Attorney's office in the southern judicial district to 
prosecute some of these beneficiaries that we deem as, 
``professional beneficiaries'' that actively seek to sell their 
Medicare number and demand money in exchange for doing so.
    Senator Collins. In other cases, the beneficiaries were 
totally innocent victims whose numbers had been given out by 
others, is that correct?
    Ms. Colton. That's correct. It is possible for recruiters 
to pay an inducement to a secretary or a nurse sitting at a 
medical facility, and the beneficiary would have no knowledge 
that that individual had sold their number to that recruiter. 
Moreover, if the unscrupulous provider that is creating this 
cottage industry is savvy enough

to direct those EOMB's to go to a particular address other than 
the Medicare beneficiary, the beneficiary is going to have no 
idea that services are being billed under their provider 
number.
    Senator Collins. That was going to be my next question. In 
every case, is there an explanation of benefits sent to the 
supposed beneficiary?
    Ms. Colton. There is supposed to be, but as we have seen, 
obviously, there isn't because the provider can switch the 
beneficiary's address in order to have it go somewhere other 
than where it should go.
    Senator Collins. And the more sophisticated criminal is 
clearly going to do that so that he is not tipping off the 
beneficiary that his or her number is being illegally used?
    Ms. Colton. Correct.
    Senator Collins. Mr. Hartwig, how prevalent is the use of 
recruiters? Is this just a regional phenomenon or do you think 
it is something that is growing nationwide?
    Mr. Hartwig. I obviously think it is growing, and the 
obtaining of Medicare numbers is a scheme that has--again, 
changed over the years. At one time, the fraudulent providers 
used to sell them to each other. We then saw stages where 
individuals would set up free blood screening or free blood 
pressure and say just fill out this questionnaire and give us 
your name and your address and your beneficiary billing number.
    I think the use of recruiters is the next step in that 
process. We have seen it localized in some of the larger areas. 
Certainly, we see it very active in Florida. I think on the 
West Coast, we have seen some activity. I don't know if it is a 
nationwide scheme. As I sit here, I would say that if it works, 
it will certainly spread.
    Senator Collins. Mr. Hartwig, I would like to turn to a 
different issue now with you, and that is we have noticed in 
our investigation a pattern where an illegal business will be 
set up. The individual running the business will scam Medicare 
for hundreds of thousands of dollars, spend all the money, and 
then declare bankruptcy. What happens when that occurs, and do 
you think we need any legislative reforms in the bankruptcy law 
so that the claims that the Medicare has on the remaining 
assets are eventually honored in some way?
    Mr. Hartwig. We believe, and we have recommended, that 
Medicare overpayments not be excused through the bankruptcy 
proceedings. Some of these criminals are 100 percent Medicare; 
that is all they bill. So if the Medicare program finds out 
about improper claims and they stop paying, the provider has 
now lost 100 percent of their income, and they declare 
bankruptcy. By declaring bankruptcy, they then argue that the 
government, by cutting off benefits, impeded the provider's 
ability to repay.
    They use the bankruptcy laws to protect themselves. 
Especially if it is a scam business, they then get away with 
not having to pay back the overpayment by declaring bankruptcy. 
And, again, the criminal element tends to study and understand 
the Medicare billing system. They understand the Medicare 
radar, and they start to use the bankruptcy system as a way of 
keeping that money. We think that one of the reforms that could 
be made is not allowing these kind of Medicare cheats to use 
bankruptcy to hide behind paying back improper reimbursements.
    Senator Collins. I think that is an excellent suggestion 
and one that the members of this panel should pursue. It is 
likely that the Congress may well take up bankruptcy reform 
legislation this year and that is an issue that we would like 
to work further with you on. I know it is an area where Senator 
Durbin has been active, as well.
    I have one final question that I would like to ask each of 
you. If we want to focus more on preventing the fraud up front, 
preventing it from the first place, what one or two 
recommendations would you have for us that would do the most 
good to try to stop the fraud from occurring in the first 
place?
    Mr. Frazzini.
    Mr. Frazzini. Application fees, on-site visits, and 
scrutinizing the veracity of the information provided on the 
application form. That is essential. If you don't do that, all 
bets are off. You have to make sure who you are doing business 
with, and right now I don't think in a lot of cases the 
government, through HCFA, knows who they are doing business 
with and that is a problem.
    Senator Collins. Thank you.
    Mr. Hartwig.
    Mr. Hartwig. I certainly agree with Mr. Frazzini; 
aggressive on-site visits, stopping them before they get in. 
The Department now has the ability not to allow convicted 
felons in the system, and I think we should ensure that we 
don't allow those convicted felons in the system. I think the 
use of surety bonds and on-site visits, and aggressively 
checking out a provider before we give them a number, should 
ensure that what we are dealing with is a legitimate provider. 
It goes not just for DME, it goes for all the laboratories, 
ambulance companies, all those.
    I also think that the carriers can do a better job of 
screening inactive numbers. We have found that many of the 
people, when they come in the system, will apply for 20 
provider numbers up front and then will just use them as they 
need them, so they might have 18 that are inactive. And I think 
we can do a much better job where a number is not used for a 
period of time; and I would make it a very short period of 
time. Before somebody gets to use that number, make them go 
through that application process all over again.
    Senator Collins. Thank you.
    Ms. Frisco.
    Ms. Frisco. I agree with all the things that were said so 
far. Verifying the information on the provider applications and 
conducting on-site visits, I think, are essential.
    Senator Collins. Thank you.
    Ms. Colton.
    Ms. Colton. I would agree, as well, and moreover I would 
take an aggressive approach toward interviewing those people 
that are representing themselves to be the owners and/or 
operators of these companies. I think what we have found is 
that when you actually get in there and start to interview 
these people, they don't have any idea as to what kind of 
services they are providing. They don't have any idea how many 
beneficiaries they are seeing, etc.; and it is very indicative 
of the fact that there is a problem with that particular 
provider.
    Senator Collins. Do we need to do more to educate our 
senior citizens, as well, to make them be a little more careful 
about giving out their numbers, and also perhaps publicizing 
more the 1-800 number or in some way encouraging them to come 
forward?
    Ms. Colton. We take advantage of opportunities when we are 
asked to come and speak to beneficiary groups or senior citizen 
groups. At those times we try to educate them that it is 
important for beneficiaries to review their explanation of 
Medicare benefits. If they don't think that they have seen that 
provider or they don't think that they have had the service 
rendered as it appears on their EOMB, they should contact the 
number that is on the bottom and report it.
    We also encourage beneficiaries not to sell their Medicare 
number if they are approached and to report that and to report 
suspicious activity like people coming to pick up large numbers 
of their fellow citizens in unmarked vans and transporting them 
at odd times of the day.
    Senator Collins. Thank you.
    Senator Durbin, do you have further questions for the 
panel?
    Senator Durbin. I just have one last question. As vexing as 
this problem is, we may be talking about the easiest part of 
it, the durable medical equipment, because you can literally 
visit the site and determine whether or not it is an empty 
building or a runway or a laundromat, whatever it happens to 
be. But the whole area of home health care is one that I am not 
quite sure how we get our hands on because I am a strong 
advocate of it and I believe it is cost-effective when it is 
done right and it gives to seniors just what they want, the 
ability to stay in their own homes for a much longer period of 
time before they even consider other types of care.
    But this is a one-on-one deal. There are very few people 
involved in it, looking over their shoulders to make sure that 
the services they have said are actually rendered. And I was 
curious as to whether, in this area on which we haven't spent a 
lot of time, there are any safeguards you can think of that 
might ensure that when someone bills the Federal Government and 
says, I visited this lady, I helped her with her insulin shots, 
I did the following, that, in fact, it did occur, that those 
services were rendered. Are there any ideas along those lines?
    Mr. Hartwig. I think as you look at home health care, 
again, I can't stress enough the importance of not letting some 
of these companies in in the first place. A confirmation should 
be sent out to the beneficiary asking them if they received 
these services. In home care, I don't know that a beneficiary 
receives an EOMB like they may on durable medical equipment. We 
need a procedure where the beneficiary is asked if they were 
visited by a nurse; and a greater auditing of the services is 
needed. We have also recommended that physicians take a much 
greater role in certifying the type and quality of care that a 
home health agency should provide or is authorized to provide.
    Senator Durbin. That is interesting on that statement of 
services, and having been through it with my mother recently, I 
think also you might want to require that it be sent to some 
member of the family. Perhaps the elderly person may not have 
the memory or the understanding to realize what they are 
receiving, but if some other member of the family sees it and 
says, wait a minute, nobody visited mom last week, this is 
bogus, that might also lead to some verification.
    Mr. Hartwig. And the contractor wouldn't have to do it for 
every claim as long as they are doing it for a sample. And, 
again, it is just making it more difficult to defraud Medicare. 
That is what we are really looking to do.
    Senator Durbin. Thank you.
    Senator Collins. I want to thank you all very much for your 
extremely valuable testimony today. I also want to thank you 
for the work that you are doing out there on the front lines. 
As a member of the baby-boomer generation, I have a great 
interest in ensuring that the Medicare system is financial 
solvent. As a United States Senator, I want to make sure that 
this program is protected from fraud and abuse.
    You are the ones who are doing the battle on the front 
line, and I hope that you will share any further thoughts or 
recommendations that you might have with us on how we can help 
you be more effective. So thank you very much for your time and 
your testimony.
    Our final panel this morning includes witnesses from the 
Health Care Financing Administration, the agency charged with 
managing the Medicare program. Our witness are Donna Dymon, a 
nurse consultant detailed from the U.S. Public Health Service 
to HCFA's Region IX office in San Francisco, and Dewey Price, a 
team leader for Operation Restore Trust in HCFA's Miami 
satellite office.
    These two witnesses will describe specific weaknesses in 
the enrollment process for potential Medicare providers and how 
these weaknesses allow unscrupulous individuals to steal 
millions of dollars from the Medicare program. They will also 
provide us with information on another very important part of 
this problem, and that is the impact of unscrupulous providers 
on the quality of care provided to elderly citizens in this 
country.
    Pursuant to Rule 6, as you have heard me say repeatedly 
this morning, all witnesses who testify are required to be 
sworn in. So I will ask that you stand and raise your right 
hand.
    Do you swear that the testimony you are about to give to 
the Subcommittee is the truth, the whole truth and nothing but 
the truth, so help you, God?
    Ms. Dymon. I do.
    Mr. Price. I do.
    Senator Collins. Thank you.
    Dr. Dymon, I am going to ask that we start with you this 
morning. I would ask that you limit your oral testimony to 
about 10 minutes in order to allow us time for questions, but 
your full statement will be made part of the record.
    Thank you.

 TESTIMONY OF H. DONNA DYMON, NURSE CONSULTANT, SAN FRANCISCO 
REGION IX, HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

    Ms. Dymon. Thank you. Madam Chairman and Members of the 
Subcommittee, I am a career commissioned officer with over 21 
years as a health care officer with the U.S. Public Health 
Service. I hold two master's degrees, one in nursing, and a 
Ph.D. in business. Currently, I am detailed to the Health Care 
Financing Administration, HCFA's regional office in San 
Francisco, California.
    My responsibilities include training for home health agency 
providers, as well as State agency surveyors; working to assess 
compliance with the Federal regulations; and detecting abuses 
and curious activity within the home health and hospice 
programs. I have participated in approximately 100 surveys of 
home health agencies and hospices.
    I am sure this Subcommittee is aware of the Operation 
Restore Trust project. This was a national initiative to 
identify and eliminate fraud, waste and abuse in the Medicare 
program. ORT allowed HCFA's regional offices to focus on 
specific segments of the Medicare program. In Region IX, we 
targeted home health agencies and hospices, primarily because 
between 1993 and 1995, HCFA certified 321 new home health 
agencies in California. This was a 70-percent increase.
    Today, I am going to discuss the results of Region IX's 
review of these 44 home health agencies in California, as well 
as other problems detected in conjunction with this review. The 
results of this review are contained in a report which I have 
provided the Subcommittee copies of.\1\
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    \1\ See Exhibit 11 which appears in the Appendix on page 106.
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    The previous witness focused primarily on DME suppliers and 
the industry, where site visits are rare. Today, I will discuss 
the home health industry, where site visits are mandatory. 
These are called surveys. In some cases, the mandatory surveys 
could be classified as nothing more than a drive-by. HCFA is 
charged with ensuring that home health agencies meet conditions 
of participation in the Medicare program that are adequate to 
protect the health and safety of our beneficiaries.
    Medicare has 12 conditions of participation covering all 
areas of administration, as well as patient care. Most 
conditions include detailed standards and elements that further 
define the responsibilities of home health agencies. Of the 44 
home health agencies reviewed, 36, or 82 percent, failed to 
meet compliance with the conditions of participation, and 23, 
or 52 percent, were terminated from the program. In addition, 
we found that some home health providers charged $13,216 per 
patient, while the national average was only $4,141.
    The current survey process which is used is not adequate to 
effectively assess home health agencies. The standard survey 
process contributes to nothing more than cake walk for allowing 
anyone to establish a certified Medicare home health agency. 
This is not my own professional opinion, but also the 
conclusion of the General Accounting Office, who recently 
reported, ``Rarely are new home health agencies found to fill 
Medicare certification requirements.''
    GAO further reported that home health agencies self-certify 
their financial solvency, agree to comply with the provisions 
of the Civil Rights Act, and undergo a very limited survey, and 
few fail.
    On January 1, 1998, new requirements went into effect as a 
result of the Balanced Budget Act of 1997, such as use of a 
surety bond, requiring home health agencies to treat a minimum 
of 10 patients, and issuing a new enrollment application. These 
are great first steps, but we need a lot more.
    Opening a home health agency is a get-rich-quick 
opportunity. As reported in a recent Region IX newspaper 
article, new home health agencies can make $1 million after the 
first year. In fact, there have been allegations that foreign 
countries are offering training courses on how to start a home 
health agency in the United States.
    There are no provisions that specify the setting in which 
someone must provide home health services. There is no 
requirement that the setting be a professional location. State 
surveyors have found home health agencies being run out of 
basements, garages, kitchens, dining rooms, a janitorial supply 
service, and even a pawn shop. One survey of a home health 
agency was conducted in an owner's residence while the father 
cooked odorous sausages on the stove, the mother vacuumed the 
living room rug, and dogs jumped at the surveyor's feet.
    The standard survey process is an easy walk-through 
process, often called a drive-by survey. A potential provider 
only needs to complete a few forms without any validation of 
information by HCFA or State agency. Prior to Region IX's 
institution of a strict review process, we allowed convicted 
felons into the Medicare program, and one felon falsified 
clinical records, credentials, and defrauded the Medicare 
program to over $2.5 million.
    The new enrollment application, the HCFA 855, requires that 
fiscal intermediaries review and approve information. However, 
there is no provision that sharing this information with other 
agencies, and especially the regional office, is completed. The 
new enrollment application provides a vehicle for collection of 
critical information which the region needs in processing new 
providers into the system. We need to have region-based systems 
that unite the application information, survey information, 
surety bond history, and claims information to the fiscal 
intermediaries, State agencies, and regional offices so that we 
can extract this vital information at our fingertips when 
processing initial applications, changes in ownership, or 
recertifications.
    Home health agencies have falsified clinical and billing 
records submitted to substantiate their positions while 
surveyors have questioned patient care. I have personally 
witnessed a young nurse confessing to falsifying clinical 
records at the direction of the management of the home health 
agency. We have found home health agencies that participate in 
altering documents in an attempt to pass certification 
standards.
    A survey of one home health agency was completed on a 
Friday. The surveyors documented non-compliance and started 
termination procedures. On the Monday following that survey, 
the agency was completely disbanded and the rental space was 
vacated. There was no mechanism in place to recoup any of the 
overpayment.
    Earlier, I mentioned the standard survey process. This is 
an abbreviated examination of only 5 of the 12 conditions of 
participation. For example, the standard survey does not even 
include review of the skilled nursing regulations which is 
basic to the definition of a home health agency. The extended 
survey process is used by Region IX and all initial and 
targeted providers. We have found that the agencies may provide 
services as directed under a plan of care that would be 
surveyed by the standard process, but these same agencies fail 
to have the administrative underpinnings that are needed to 
support and sustain the system to provide quality care.
    Using the extended process, we have identified such 
organizations that are truly registries or temp agencies that 
want to only bill Medicare for their services. The ORT project 
identified numerous Medicare-certified registries largely 
because there were no administrative practices in place that 
were reviewed at the time of the survey.
    Currently, HCFA is requiring 10 patients for all new home 
health agencies to have enrolled under their care prior to the 
initial survey. Region IX began this practice in April of 1996. 
We learned, however, it was not enough to just have the 10 
patients and verify that these 10 patients were solely under 
the direction of a new applicant. To pass the initial survey, 
we required State agencies to submit documentation of these 10 
patients, and we ran these numbers with our computer systems to 
be sure that these patients were not being borrowed from a 
certified agency.
    Why are these safeguards important? Well, to prevent the 
poor care and abuses, such as excessive services and curious 
activity, that threaten the health and safety of the 
beneficiaries. I would like to discuss just a few points.
    One Medicare beneficiary lost her leg due to improper care 
by the home health agency. The home health agency had 
documented that the beneficiary had a pressure ulcer of the 
left knee. At the time of admission to the home health agency, 
the patient was infection-free. About 1 month following 
admission, the nurse detected a foul odor with a greenish-
yellow drainage. The nurse obtained a wound culture and sent it 
to the medical laboratory for testing. The lab report showed no 
infection. About 7 days later, the patient was admitted to the 
hospital for an above-knee amputation. After questioning the 
agency staff, we learned that the nurse had taken a wound 
culture from the wrong knee.
    During a home visit, surveyors noted a patient was 
disoriented, agitated, fed with a gastrostomy tube, was an 
insulin-dependent, diabetic, had congestive heart failure, and 
used a Foley catheter for bladder drainage. The surveyors 
learned during the visit that the caregiver was instructed by 
the agency staff to use ordinary tap water to irrigate a Foley 
catheter. The standard practice is to use sterile solutions 
into the bladder.
    Nurses fail to check all medications patients take, as 
required by the regulations. Often, patients took doses that 
were higher than recommended, and patients exhibited side 
effects without agency staff notifying physicians. For example, 
one patient was given four times the recommended dose of an 
anti-depressant. The patient's daughter reported that she 
didn't like her father sleeping all the time. The agency staff 
failed to alert the physician that the dosage level or the 
patient's behavior was abnormal.
    We also have found that some agencies bill services for 
homebound patients who are, in fact, not really homebound. For 
example, a home health agency billed Medicare for services when 
a homebound patient was actually visiting Las Vegas, Nevada. 
Another agency billed Medicare when a homebound patient 
attended the Summer Olympics. In addition, we have found 
countless examples of beneficiaries who were supposedly 
homebound and unable to walk a few feet who routinely dined out 
at restaurants, conducted their own shopping, and went to the 
movies.
    Recommendations, if I may. Greater emphasis is needed to 
control the entrance of unqualified and unscrupulous 
individuals into the home health industry. This is needed 
because once these types of individuals get their provider 
numbers, they have only a 98-percent [sic] chance of being 
caught. Medicare contractors review only 2 percent of the home 
health claims.
    I want to close my testimony by discussing some 
recommendations. I believe that our report will improve the 
quality of care for our Medicare beneficiaries. First, require 
the extended survey process for all new applicants and 
alternative years for certified agencies. Require a thorough 
verification of information submitted by new applicants, 
including reviewing the 10 patients required by new home health 
agencies. Aggressively train surveyors, to include a thorough 
review of the regulations, review of home health program 
requirements; teach the surveyors about curious activity and 
requirements made by the fiscal intermediaries.
    Require an application fee by all new applicants. Issue the 
new applicant a provisional certification only. After a one-
year period, with surveyed compliance, a permanent 
certification would be granted. Develop a computer-based 
tracking system, as prototyped by Region IX, which would track 
certified home health agencies and providers. And, last, ban 
terminated agencies and applicants who fail the initial survey 
from reentering the Medicare program for at least 1 year.
    That concludes my testimony and I would be glad to answer 
any questions the Subcommittee may have.
    Senator Collins. Thank you, Dr. Dymon. You are very 
eloquent in helping us understand that this fraud not only 
costs us a lot of money, but it leads to just terrible health 
consequences when inferior or substandard care is provided to 
some of our most vulnerable citizens.
    Before we go to questions, I want to call on Mr. Price and 
to tell you that we very much appreciate your being here with 
us today as well. If you will please proceed?

TESTIMONY OF DEWEY PRICE, TEAM LEADER, OPERATION RESTORE TRUST, 
    MIAMI, FLORIDA, SATELLITE OFFICE, HEALTH CARE FINANCING 
    ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Price. Thank you, Madam Chairman, members of the 
Subcommittee. I am an employee of HCFA. I am the team leader of 
HCFA's Miami satellite office and I have been involved full-
time in program integrity activities in Florida since the fall 
of 1994. In the old days, I was the senior program integrity 
specialist in charge of investigations in South Florida in the 
days before the inspector general was set up and took over that 
responsibility.
    In August of 1994, HCFA's regional administrator in Atlanta 
asked me to head up the South Florida task force which included 
representatives of HCFA, OIG, our Florida contractors, and 
State agency staff. This work group was to study the situation 
in Florida and make some recommendations to the HCFA 
administrator on the situation there, and recommendations of 
things that needed to be done in South Florida because of the 
special problems going on at that time.
    We did that, and in March of 1995 made a report to the HCFA 
administrator at that time, Bruce Vladeck. And shortly after 
that, Operation Restore Trust began officially and Florida was 
one of the states that was involved. And as part of Operation 
Restore Trust, HCFA opened the satellite office in Miami in 
July of 1995 and I have been involved in that since that time.
    I view our job--our primary goal in Operation Restore Trust 
in the satellite office in Miami has been to try to change the 
perception that in South Florida HCFA was not involved 
sufficiently and adequately in the war against Medicare fraud. 
We have tried to do this by getting involved in planning and 
carrying out program integrity activities with our contractors, 
State agencies, assisting law enforcement entities, and making 
recommendations to HCFA of whatever changes we thought needed 
to be made.
    This approach of direct involvement in fraud abuse 
activities has been a new role for many people in HCFA. People 
have been detailed in to help on this. We have staffed the 
office with temporary people. Really, it has been an ongoing 
effort to change the mind set, culture, and priorities of HCFA 
as it relates to program integrity activities, and I have 
viewed that as something that has come out of not only our 
work, but in Operation Restore Trust.
    The new HCFA administrator was in Miami just this past 
week. We took her to a number of provider locations similar to 
the kind of places that were discussed here. The purpose of 
this was to give her firsthand and up-to-date knowledge of the 
kind or problems we are seeing in Florida. There have been some 
changes from the kinds of overt situations, use of post office 
boxes and all that, because of some things I will talk about. 
And I wanted to make the point that in many ways, Miami is a 
window to Medicare fraud, and has been for a long time, and I 
think her visit there was a very valuable experience both for 
her and for the agency.
    Basically, we have way, way too many health care businesses 
in South Florida and this is driving, I think, much of the 
fraud and abuse. And I would note that I use the word 
``businesses,'' but not medical providers because Medicare 
fraud happens so frequently in Miami with so many of the 
entities, not just DME companies, but clinics, diagnostic kinds 
of clinics, community mental health centers, that I really 
think the problem is so pervasive that HCFA should really 
rethink and redefine who our providers are.
    We have allowed people who are literally business people 
with no medical backgrounds to get involved into Medicare as 
providers. And I think that we have got to directly control the 
issuance of provider numbers in the future based upon whatever 
direction we decide, who our providers really are and who 
should really receive the money. I think that is a key aspect 
of all this.
    HCFA has a very major role to play in fraud and abuse, and 
to be successful, I think program integrity activities is not 
something our contractors can do or the law enforcement 
entities can do. HCFA staff, I believe, have to suspend 
payments when evidence of fraud exist and misrepresentation 
exists. We have to restrict provider enrollment to legitimate 
entities. We have to ensure claims are screened and denied up 
front, when appropriate, rather than afterwards. We have to 
improve HCFA's fraud and abuse data capability. We need to pay 
reasonable amounts and we need to change policies and 
procedures, when we find them, that need to be changed.
    I will talk about four provider types that have been 
mentioned here today already to go over some of the weaknesses 
in the current enrollment processes that I see in South 
Florida. First is community mental health centers. These 
centers are paid by Medicare to provide partial hospitalization 
services to patients that would otherwise require in-patient 
psychiatric treatment. Nationally, this program has grown from 
$30 million to $265 million in 3 years, from 1993 through 1996. 
Unbelievably, $112 million of that was paid in the State of 
Florida, which is way more than 40 percent of it. The State of 
Florida has more than 250 CMHC centers, and more than 100 of 
these are in the city of Miami.
    Because of this tremendous growth, in Operation Restore 
Trust we did a study over the past 6 months in which we 
reviewed 140 beneficiaries at seven aberrant billing centers in 
1996, using their payments as a basis for picking them. We 
found overpayments of $16 million, literally all the money paid 
to these seven centers. We suspended payments to all 7. We made 
recommendations to the HCFA regional office to terminate the 
provider numbers of five of these centers who did not meet the 
basic criteria to be a community mental health center, and we 
made referral to the OIG in all seven situations.
    Moreover, in the middle of this process, the problems we 
considered so severe that we recommended immediate corrective 
action by HCFA to establish a moratorium in the State of 
Florida on giving out any more CMHC provider numbers so the 
situation could be cleaned up and so that HCFA could develop 
standards for these centers. In response, HCFA has committed 
$250,000 to employ a subcontractor to evaluate 600 of the CMHC 
centers in nine States to determine if they indeed meet the 
criteria to even be a community mental health center. This 
project has been supported by HCFA management, but we made the 
recommendation 6 months ago and it has taken that much time for 
the project to get going. I believe the first on-site review by 
this contractor is being made this week.
    To highlight the need for up-front enrollment and payment 
scrutiny of these CMHC providers, I will just mention what we 
found in three of the cases. In one of the centers, the ORT 
nurses were so concerned with the conditions in the provider 
location that a call was made to the local health and fire 
department, who made an inspection, condemned the building, and 
ordered the evacuation of all patients immediately.
    The owner of this center was also found to have set up 
several other centers in neighboring communities in the area of 
middle Florida using front owners who were really employees of 
his, but he showed them as owners. And these people then signed 
consulting and service contracts with him that paid him up to 
50 percent of their revenues.
    In another center, the auditors determined the real owner 
was a physician who had also used front people as owners who 
signed consulting and other contracts with him and members of 
his family. The auditors determined that he and people in his 
family took $1.3 million out of the center in payments that 
were made to them for consulting services. He also had set up 
two additional centers using employees, and consulting payments 
were made to him, as well, through those centers.
    In the third one, we found that the owner of the center 
also owned an assisted living facility where all the patients 
lived, and that bribes were being paid to those people who 
lived there and who would go to the CMHC for treatments. The 
nurse reviewers were told that most of these patients had 
substance abuse problems and used this extra money to purchase 
drugs.
    Given these findings, we made referrals to our 
certification staff back in Atlanta, and we recommended that 
these providers be terminated. They have been hesitant to 
terminate these centers as Medicare providers because of legal 
questions of how to go about doing that. A debate has been 
ongoing about whether we should merely terminate providers 
prospectively or whether we have the legal authority to go 
retroactive and revoke the numbers where people do not meet the 
criteria and it is determined that they never met it.
    Our on-site reviews strongly indicate that many of these 
centers do not meet, and never met the requirements, and they 
have been treating ineligible patients, rendering non-covered 
services, and have been committing massive cost report fraud. 
And we definitely want to go retroactive in these cases.
    The recommendations that we see needed in the CMHC area are 
that there should be provider enrollment standards that should 
apply to all centers; that HCFA should make audit and medical 
review money available to our contractors to review these 
centers so that the overpayments that exist are determined and 
recouped; and that HCFA should require a first-claim review of 
each beneficiary before CMHC claims are paid for beneficiaries. 
There are so few beneficiaries, we think, that meet the 
requirement for this type of service that every beneficiary 
could be reviewed 100 percent up front and a determination 
made. This would keep us out of the pay-and-chase where we pay 
claims and then ask questions later.
    Second, health clinics. These are the medical clinics that 
are owned by non-physicians. There are hundreds of these in 
Miami. They employ doctors part-time. The owners can be anyone; 
they can be people off the street. They have no history of 
medical background. They employ doctors part-time and the 
doctors basically sign forms, and patients come in full-time 
while the doctors may only be there for certain hours of the 
day. These type clinics are major players in the fraud and 
abuse that are going on in many other scam areas in Florida, 
including DME and home health, any areas where services are 
referred to other people.
    The recommendations we have for clinics are that surety 
bonds should be required of reassignees or the people who own 
these kind of clinics the same as with the people who own DME 
companies. And, secondly, we discovered that checks were often 
left at locations by the post office and the places were closed 
down, and we made a recommendation to HCFA that we should 
employ the use of ``do not forward'' envelopes on all checks so 
that the post office would not forward checks to additional 
locations or would not leave it at unoccupied locations. This 
hasn't been adopted by HCFA, but it has been tested and I 
understand millions of dollars have been saved in the test, and 
we would like to see it immediately implemented by HCFA 
nationwide.
    The other two areas I will mention just really very briefly 
is DME fraud and the HHA problem we still see in Miami. There 
are now on-site inspections of DME locations; inspections have 
been done the last year using a subcontractor, and so a lot of 
the information discussed here today--I don't believe these 
entities would be able to get a number because of the on-site 
inspections. However, the people know that we make on-site 
inspections and so they set up businesses, and who knows what 
happens a week later and who knows if they still meet the 
standards to really be a provider?
    We know there are entities who don't own any equipment and 
really are phantom providers, and we would like to see 
requirements in the standards for durable medical equipment 
suppliers strengthened to do away with businesses who are 
really nothing more than brokers. They don't own any equipment 
and don't provide service to patients.
    In the home health area, the one thing I would mention is 
that for home health agencies in South Florida--we still have a 
problem. A lot of the changes that are being made in the law 
are very good and will take care of many of the problems. 
However, there are two things that we see that still need to be 
done; and one is dealing with the use of subcontractors. In 
Florida, we only have 350 certified agencies who can bill 
Medicare, but we have 1,300 licensed home health businesses in 
Florida.
    Most of these entities, who can't bill Medicare under their 
own name, find patients, render services, and then sell the 
accounts to the certified agencies who bill Medicare. This 
drives much of the home health fraud in Florida. We think the 
rules governing the use of subcontractors need to be 
strengthened so that more of the visits are done by agency 
employees. Particularly, skilled nursing and home health aides, 
we think should always be done, and we would recommend always 
be done by agency employees, not subcontractors.
    The second area is the owners who set up home health 
agencies and who have multiple numbers. When one location is 
caught, it goes out of business and the money continues to flow 
to the others. We have entities who have done that. One entity 
had $20 million of overpayments and we can't recover it because 
those numbers have been shut down and the people have gone out 
of business. Yet, the same people own other entities who have 
Medicare provider numbers and last year received $50 million in 
payments from the Medicare program.
    This concludes my testimony and I would be glad to answer 
questions as well.
    Senator Collins. Thank you very much, Mr. Price.
    To allow us all to get questions in, I am going to put the 
time on and we will do 5-minute rounds and keep going in 
rounds.
    Mr. Price, I was struck by your comment in your testimony 
about the explosion in the growth in the number of community 
mental health centers in Miami. Now, I don't mean to be 
flippant about it, but I assume that we haven't had an influx 
into Miami of people who need community health services. 
Assuming that there hasn't been a large increase in the 
population eligible for these benefits, to what would you 
attribute the overnight growth in the number of community 
mental health centers in Miami?
    Mr. Price. There has been no change in the coverage 
requirements or expansion of the program, so the beneficiary 
population that needs this should be the same. The growth is 
attributed to the ease with which people could get into the 
business and phenomenal revenue potential that exists in that. 
So I think it is those two factors, and it became well-known in 
Florida that you could get into this business and make a lot of 
money doing it.
    Senator Collins. So the people we have been discussing all 
morning, the criminals who are getting into Medicare, see this 
as easy pickings, as just a ripe target to get into?
    Mr. Price. Yes.
    Senator Collins. You have testified that many of the 
community mental health centers do not meet the established 
criteria for a Medicare provider number. So, what is happening? 
Why is HCFA issuing these provider numbers to people who don't 
meet the standards?
    Mr. Price. The only process was that we relied upon an 
attestation, a statement that was sent in by the provider 
saying that they met the criteria that existed, which was 
basically just that they were a community mental health center 
providing the services that were required under that. And we 
did no verification of that or validation of that in the past. 
Again, we have stopped doing that in Florida, so that on-sites 
are being made to locations to make sure that they are there.
    We had community mental health centers who were post office 
boxes and vacant lots applications. In 1995 after the satellite 
office was opened up, we were on site in Miami and started 
going to some of these. So we did at least, by doing on-sites, 
prevent these kind of entities from getting numbers.
    Senator Collins. Does HCFA take action in a prompt way to 
terminate Medicare providers who have not met the certification 
and enrollment standards?
    Mr. Price. My experience has been not. The process is 
weighted towards a review in the regional office by the staff 
who traditionally have done survey and certification. And a 
review is made of the findings and we have encountered problems 
in getting prompt action and have to elevate it to the senior 
management to get the actions taken, and that has been a 
frustration.
    Senator Collins. So there has been a reluctance to move 
quickly when you do uncover this kind of problem?
    Mr. Price. Yes.
    Senator Collins. You have described that there are hundreds 
of health clinics in Miami that are owned by individuals with 
no medical experience at all, and we have heard from Dr. Dymon 
some of the consequences that she has seen. Could you describe 
for us what kind of problems have resulted because of the lack 
of health care experience of the owners of some of these 
clinics?
    Mr. Price. Yes. A lot of these locations should not even be 
open as medical providers, I don't think. I have encountered 
situations where they were unfit. They were dirty and the 
equipment that was there was not working, and the people we 
would interview would be untrained or unqualified people. So I 
think the poor quality of care, because people come there--they 
are open, they are in business, they take Medicare, and people 
expect that everything is kosher and it is OK to come there. 
And I think the quality of care is the biggest problem. There 
is also an awful lot of fraud and abuse resulting from that, 
and that is secondary, but the quality of care issues are even 
worse.
    Senator Collins. Thank you.
    Dr. Dymon, the study that you provided the Subcommittee 
contained the results of your review of 44 home health agencies 
in California, and I want to commend you and others in your 
office who assisted in the project. But one item that I found 
extremely troubling was that of the 44 agencies that you 
surveyed, I believe that 36 of them, which is 81 percent of 
those surveyed, were found to not be in compliance with HCFA's 
standards. Is that correct?
    Ms. Dymon. Yes, it is.
    Senator Collins. Even more disturbing is the fact that 23 
of the 44 agencies surveyed were terminated for providing sub-
standard care. It is good they were terminated, but it is 
disturbing that such a high percentage were providing sub-
standard care. Of the 23 agencies that were terminated as a 
result of your project, could you give us some idea of how much 
money they received from the Medicare program while they were 
certified?
    Ms. Dymon. Yes. During the fiscal years of 1994 and 1995, 
these 23 agencies were reimbursed close to $122 million.
    Senator Collins. That is a staggering amount to go to 
agencies that were subsequently found not meeting the standards 
and not providing good care.
    Ms. Dymon. I agree.
    Senator Collins. I am going to ask you just one quick 
question before we begin our rotation. Of those 23 home health 
agencies that were terminated, did all of the patients who were 
served by them transfer to another home health agency?
    Ms. Dymon. Madam Chairman, no, they did not, and this was a 
real eye-opener for us at Region IX. We did a tracking of these 
beneficiaries that were terminated from the agency to look at 
where their care was rendered after they left the terminated 
agency. We found that about a third, or 33 percent, of these 
beneficiaries were no longer being cared for by any home health 
agency.
    Senator Collins. Does this suggest to you that they didn't 
need the services in the first place or there may have been 
some bogus billing going on?
    Ms. Dymon. Yes, it does.
    Senator Collins. Thank you. I have additional questions, 
but I want to give my two colleagues an opportunity to question 
as well.
    Senator Durbin.
    Senator Durbin. Thanks, Senator Collins.
    Now, Dr. Dymon, you make several suggestions here which I 
think would move us in the right direction. You call for an 
application fee, which I think should be sufficient so that the 
people who review the application can not only establish that 
it is truthful, but also an on-site visit, not just once but 
perhaps at a later time. I also like your suggestion about 
provisional certification for 1 year, and I would suggest that 
there be a second fee paid that would cover the second on-site 
visit a year later as part of that.
    One of the things in Kennedy-Kassebaum was to allow 
whistleblower provisions for beneficiaries of Medicare. What 
would you think of the idea of extending that to anyone--a 
whistleblower provision, with a reward involved, to anyone who 
witnesses Medicare fraud, so that it goes beyond the elderly? 
It may include someone who works in a doctor's office or 
something who sees something that is clearly wrong and illegal.
    Ms. Dymon. Senator Durbin, I support that idea. Anything 
that can go out to help protect the Medicare Trust Fund and the 
health and safety of our beneficiaries I certainly support.
    Senator Durbin. Let me ask you, too, about this National 
Supplier Clearinghouse. Are you familiar with this company and 
what they do?
    Ms. Dymon. I am not familiar, Senator Durbin. That is out 
of my bailiwick.
    Senator Durbin. OK. Let me ask you, Mr. Price, are you 
familiar with what they do?
    Mr. Price. Somewhat, yes.
    Senator Durbin. What kind of job do they do? How would you 
rate them? Give them a grading, A-plus, B, C, D.
    Mr. Price. I would say C. We tried to get on-site 
inspections begun in Florida very early on when we saw the 
scope of the problems. The U.S. attorney's office was saying 
``I have got fraud cases that came about since you have been 
here. Why can't we stop this?'' And we had to literally get the 
HCFA administrator to intercede and make on-sites happen. The 
contractor--I think they indicated they were willing to do it, 
but, to me, it was not something that was a priority with them 
or a priority with HCFA.
    Senator Durbin. I hope we can bring them before this 
Committee. I would like to find out what they are being paid 
and what they are doing for the amount of money that they are 
being paid. It appears that there is enough fraud and enough 
problems in this area that we should take a look at their 
activities very carefully.
    Mr. Price, you raised something that really struck a note 
with me here. I spent the last two-and-a-half weeks visiting 
child care facilities in Illinois because I know that debate is 
coming up, and a very important one. And I ran across in two 
instances, in downstate Illinois, a care center which provided 
not only child care, child day care, but adult day care for 
seniors.
    And I asked them how much they charged for children--it was 
$20 a day--and how much they charged and reimbursed for 
seniors. It was over $40 a day. Some of these seniors were 
ambulatory, some were in wheelchairs. But when you talked about 
the community mental health centers here and the fact that that 
has turned into a day care operation, is that what I was 
seeing, people who were being diagnosed as having some mental 
problem and as a consequence get partial hospitalization and 
these day care costs defrayed by Medicare?
    Mr. Price. That is precisely what our nurse reviewers found 
was happening in the centers we did the studies in in Florida. 
The people were being brought in. They were being certified as 
needing partial hospitalization mental health benefits when, in 
fact, most of them were receiving something that was akin to 
adult day care, activities that were social in nature and 
certainly good to have if you live in an assisted living 
facility and somebody brings you to another place where you can 
interact with people and go to activities and all.
    So, that is what the nurses found was happening in most of 
the cases, and Medicare is paying a lot more than $40 when that 
happens. Medicare doesn't cover adult day care for regular 
people. We cover partial hospitalization benefits for patients 
who otherwise would require in-patient psychiatric services.
    Senator Durbin. Could it also be for physical 
rehabilitation, too? Could they get partial hospitalization for 
that?
    Mr. Price. No, that is not covered under the CMHC benefit, 
although the area of rehab services, in general, are provided 
by home health care agencies and also individuals.
    Senator Durbin. This is tough because I can certainly see 
circumstances where someone would want an elderly parent or 
grandparent to be allowed to go to a care center during the 
course of a day rather than to be alone and vulnerable. That 
sounds reasonable. But, like so many of these areas, it sounds 
like it is so open to abuse. All you need is that doctor 
certification and you are off to the races, and you have 
basically day care babysitting services for elderly people 
being paid for by Medicare. I can understand why you have 
raised that red flag.
    Could you define one term that you use in here, 
``reassignees,'' what you are talking about?
    Mr. Price. Under reassignment of benefits, this happens in 
the clinic location. We are actually paying for physician 
services in a clinic setting, and that means a doctor is 
supposed to treat the patient, and he can also do things such 
as tests and procedures that a physician would do. So under 
reassignment, what happens is a doctor says ``don't pay me'' 
and he completes a form and gives it to the Medicare contractor 
that says, ``Instead, pay the money to the person I work for, 
to this clinic or to this company or corporation.'' So the 
owner of this clinic is really receiving the money even though 
it really is for physician services.
    I think the reassignment of benefits provision is one of 
the major things that needs to be dealt with by HCFA and maybe 
by the Congress because it creates a legal loophole because we 
have problems holding the doctor accountable. If he billed 
under his own name and got the money, we could hold him 
accountable. But because he works for a clinic and the money is 
reassigned and paid to someone else, we have a problem 
establishing an overpayment and holding the doctor accountable.
    And these businesses, when they are investigated and have 
overpayments, just like with DME's, they just go out of 
business, or like home health agencies they can file 
bankruptcy. And the program is just left hanging with no 
recourse, even though the doctor may still be in business and 
working in another clinic at this point in time.
    Senator Durbin. I want to thank you both for your 
testimony. What we have heard today--and I thank Senator 
Collins for calling this hearing--has been not only sad, but 
disgraceful. And I hope that when we get serious about 
guaranteeing the long-term solvency of Medicare that our first 
stop is on Medicare fraud. We have done a lot. We clearly have 
not done nearly enough. I think there should be zero tolerance 
in this area and we ought to know that people who are 
exploiting seniors and taxpayers through this type of activity 
will be subjected to the harshest penalties.
    Thank you.
    Senator Collins. Thank you, Senator Durbin.
    Senator Levin, welcome.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Madam Chairman. Let me thank our 
witnesses here today, and also thank our Chairman for her 
initiative. It is a very important one and I think the Nation 
and all of the people who rely on Medicare and on home health 
care are in her debt for her initiative in convening us.
    What I would like to do--and I think previous witnesses 
have been asked these kinds of questions--is to try to focus on 
the responsibility, the accountability. But, first, on 
responsibility, you have both listed a whole series of abuses, 
studies which have been undertaken to identify these abuses. 
You have both been involved in these studies. We have heard a 
lot about fraud. We have heard a lot about lack of regulatory 
discipline. We have heard a lot about loopholes. There is a 
whole lack of resources, lack of certification requirements. 
There is just a whole menu of problems, some of which are the 
result of criminal activities, others of which are the result 
of lack of regulation or lack of accountability, and I would 
like to try to prioritize this a little bit and try to get a 
better feel for where the problems are.
    Are most of the abuses which you have identified, both of 
you, the result of fraudulent activity, illegal activity, 
violations of regulations, or sloppy or missing regulation? I 
know it is both. There are different ones that apply in 
different categories. In terms of giving us a feel of what we 
have to focus on, give our greatest emphasis, I will start with 
you, Dr. Dymon. In your judgment, are the activities and abuses 
which you have described mainly the result of violations of 
regulation and law or mainly the result of a lack of 
effective--or the absence of regulation or enforcement?
    Ms. Dymon. Senator Levin, I believe that the regulations 
can adequately meet the needs of protecting the health and 
safety of our beneficiaries. But I think it is partly due to 
the lack of the survey process that is being used throughout 
the country to detect the problems we are seeing in home health 
care. In addition----
    Senator Levin. Let me just interrupt you there. Detect the 
problems that we are seeing. I want to identify whether the 
major source of those problems are criminal activities, 
violations of law, or activities which are currently legal but 
which should be made illegal, because there are a lot of things 
you have mentioned and some fall under both those categories, 
but I would like to try to allocate to one or the other.
    Are these problems, these activities, most of them, you 
believe, already illegal, in violation of regulations, or not 
yet illegal, not yet a violation of regulation, but which 
should be made so?
    Ms. Dymon. I believe the latter, that we need regulations 
to identify and better resource the problems that we are 
seeing.
    Senator Levin. That are not now criminal?
    Ms. Dymon. Correct.
    Senator Levin. OK. Now, let me go to Mr. Price. Would you 
give me a feel on that?
    Mr. Price. The things I was talking about, I believe, are 
pretty much covered under current laws and regulations, and we 
have made referrals, because of that, in all of these kinds 
situations to the Office of the Inspector General to deal with 
these specific kinds of provider situations.
    Senator Levin. Where they are already a violation of 
regulation or law, but it is a matter of trying to identify 
them and to enforce existing regulations against those 
activities? I am not saying it is either/or. I am asking is 
that the major part of the current problem, in your judgment?
    Mr. Price. Right.
    Senator Levin. OK. On the accountability side, let us talk 
about the certification of existing clinics, for instance. Are 
these lack of certifications because the persons that we have 
designated to do the certifications are not doing them 
adequately, or have we failed to assign responsibility for the 
certifications? Let me start this time perhaps with Mr. Price. 
Just talk about certification of community mental health 
clinics. Whose responsibility is it?
    Mr. Price. Clearly, it is HCFA's.
    Senator Levin. Well, that is the ultimate responsibility, 
but does HCFA assign this to States or to private contractors, 
or do HCFA employees have the responsibility of making sure 
that those certifications are there?
    Mr. Price. We didn't do any assignment to the State 
agencies in the case of community mental health centers. We, 
instead of doing that, relied upon the attestation that the 
providers would send in with their application. So, in effect, 
no survey or no on-site inspection was done.
    Senator Levin. So there is no certification on those 
clinics at all, no requirement?
    Mr. Price. Other than this attestation statement that 
accompanies an application.
    Senator Levin. OK. Now, in terms of the other providers 
that we--for instance, there was one study where there were, 
what, 4,000 providers that were certified? Let me go to your 
testimony. You indicate that HCFA has certified in this case 
350 agencies who can bill Medicare, but the State of Florida 
has licensed 1,340 home health agencies. Now, in this case, the 
providers are licensed by the State. Is that what we rely on 
for licensing, the States?
    Mr. Price. Correct.
    Senator Levin. And what we do under Medicare is say, if a 
State has licensed a home health agency, that satisfies our 
licensing requirements. Is that it?
    Mr. Price. Yes, and so most of these people have just 
chosen not to go through the certification process and get 
their own number. They function as subcontractors and they make 
visits and all that.
    Senator Levin. But are they still licensed?
    Mr. Price. Yes, they are.
    Senator Levin. And we rely on State licensing for that, is 
that correct?
    Mr. Price. Right.
    Senator Levin. Should we rely on State licensing for those 
or not? Should we have our own licensing requirements and 
enforce them or should we continue to rely on the States?
    Mr. Price. I think we should do one or the other. I think 
the certification process--since most of the visits are being 
done by these other entities, the certification process becomes 
a sham. Three hundred and fifty of the agencies are certified, 
and yet most of the visits are being done by this other 1,000 
that are just licensed and have not gone through the 
certification process. So either we ought to just stop doing 
certification for all of them or we ought to require all of 
them to be certified by Medicare if they are going to render 
services that Medicare is going to pay for.
    Senator Levin. OK, but I just want to be real clear. Under 
current regulations, if a home health agency is licensed by a 
State, then that person can act as a subcontractor, is that 
correct?
    Mr. Price. Yes.
    Senator Levin. Now, do we want these agencies to be owned 
by doctors, or is there not a conflict situation that is 
created in that situation? You have a problem of doctors 
referring patients to themselves.
    Mr. Price. Right.
    Senator Levin. Now, is that an issue here?
    Mr. Price. I think that is the question. If the doctor was 
doing the certification for those patients and he was also the 
owner, then I think that would be the problem, not his 
ownership, per se, if he owned stock in the company or 
something, but didn't do the certification.
    Senator Levin. So if we don't permit people to be licensed 
who are not medically trained, we would then have to have some 
provision to make sure that people are referring folks to 
entities that they have no interest in. We have that conflict 
problem, is that correct?
    Mr. Price. That is correct, and that gets into the need to 
have good ownership information and honest reporting by 
providers of who their owners are.
    Senator Levin. I don't know how we are handling time. Could 
I ask just one more question and then I will be done?
    Senator Collins. Sure, absolutely.
    Senator Levin. I am sorry, Madam Chairman.
    Senator Collins. No. That is quite all right.
    Senator Levin. The recommendations which you have both made 
to agencies--I would like to know the response. You both have 
been part of an effort by the administration, by HCFA, to get 
at fraud and needed changes in the Medicare area.
    Dr. Dymon, first, you have made a whole series of 
recommendations. What has been the response of the agencies to 
whom your report has been made to those recommendations, or is 
it too early to know?
    Ms. Dymon. I think it is probably too early, Senator. Some 
of these recommendations have been filtered to our central 
office in Baltimore at HCFA, but I have not yet seen any action 
on the recommendations.
    Senator Levin. Mr. Price.
    Mr. Price. I think it has taken too much effort to get a 
lot of the priority established and more aggressive action 
within HCFA, and I have raised that as a problem. However, I 
have seen a lot of progress in Miami. The on-site reviews began 
more than a year ago. The number of applications for DME 
suppliers in Miami in 1997 for the whole year was down 74 
percent from 1996. The number of DME suppliers is actually down 
by more than 100 in Miami, even though it is up in the rest of 
the State. And I think people have moved out of Miami into 
other parts of the State and into other parts of the country.
    So, what is being done in Miami I have encouraged be done 
nationwide with suppliers and clinics and all. So I think it is 
sort of a mixed bag. It is tough to get the priority 
established for things when there is so much going on in a 
bureaucracy as big as HCFA and Medicare is.
    Senator Levin. Madam Chairman, I was unable to be here 
earlier this morning. You may have already covered this, but if 
not, I would ask the Chair to refer this testimony and the 
specific recommendations made this morning either by these 
witnesses or others to HCFA for their specific response. The 
provision of home health care, for instance, is just simply too 
important to be undermined or tarnished by fraud, abuse, waste, 
or lax administration of the regulations. People count on home 
health care; it makes a difference in people's lives. It is an 
important alternative to a nursing home.
    And when we run into the situations which you have 
described and other witnesses have described this morning about 
violations and abuse and waste, we are jeopardizing a very 
important program. We cannot allow this program to be destroyed 
or tarnished or undermined by waste and by abuse and by fraud. 
We have got to go after the fraud and the waste and the abuse. 
I have seen too many instances with my own eyes of just how 
important home health care is, for instance, to human beings, 
to live-in folks in my own State whom I have visited in their 
homes. It makes a difference in their lives, and so people who 
abuse it are not only cheating the taxpayers, they are also 
undermining a very significant program which makes a huge 
contribution to the well-being of so many citizens.
    So, again, I want to thank our Chair for what she has done 
here and ask, if it hasn't already been done, that this 
testimony be referred to HCFA, along with other testimony this 
morning, for their response in a prompt way to the very 
specific proposals which have been made by our witnesses.
    Thank you, Madam Chairman.
    Senator Collins. The Senator's suggestion is an excellent 
one, and therefore you might be interested in my next question 
to Mr. Price, which is we are aware that HCFA has just recently 
instituted a requirement for a surety bond. But it is my 
understanding that the South Florida task force nearly 3 years 
ago, in March of 1995, recommended to HCFA management that 
suppliers of durable medical equipment be bonded. Is that 
correct? Was it back in 1995 that that recommendation was made?
    Mr. Price. Yes, it was.
    Senator Collins. I think that points out a very important 
issue that the Senator has just touched on that frequently 
those who are on the front lines, as these two individuals are, 
are the ones who know best how we can tackle this problem in an 
effective way.
    I only have a couple more questions that I want to raise. 
One, Mr. Price, in your conversations with our staff you 
described a situation where I think it may have been one of the 
community mental health centers was actually teaching people 
the macarena and billing the Federal Government. Is that 
correct?
    Mr. Price. Yes, that is correct. The particular session 
that was observed by the ORT nurse reviewers--that is what they 
were doing. It was considered dance therapy and the people were 
standing up and going through the motions with the music and 
all. So, that is what was observed at one of the sessions that 
was supposedly the mental health therapy that was being 
provided.
    Senator Collins. And how much was the center billing for 
teaching people to do the macarena?
    Mr. Price. That facility was being paid $200 a day for each 
patient. That was the amount of money, and you are talking 15 
to 20 people, normally, in each center, each day, was typical, 
so you can see how much money is involved.
    Senator Collins. An expensive dance lesson, I would say. 
Would you agree?
    Mr. Price. Yes, ma'am.
    Senator Collins. My final question to both of you is 
whether HCFA management is devoting enough resources to 
training the staff at HCFA in program integrity activities. Do 
you think that enough emphasis and enough resources are going 
for that purpose, Dr. Dymon?
    Ms. Dymon. In Region IX, we have devoted an abundant 
resource pool to educating surveyors at the State level in all 
four States. Recently, HCFA has given approval for Region IX to 
train Region X, which is the Seattle region, and at the end of 
next month the State of Idaho surveyors will be trained in home 
health survey techniques, as well as in detecting curious 
activity.
    I soundly support HCFA's resources be directed toward 
developing the State agency surveyor, a thorough training 
course in not only the regulations, but also the Medicare 
program requirements for home health agencies. A well-trained 
surveyor can detect fraud and abuse if they know what the 
program requires and when they see that the program is not 
being supplied.
    Senator Collins. Thank you.
    Mr. Price, do you think that it is enough of a priority and 
has enough resources and people are trained adequately?
    Mr. Price. No, ma'am, I don't think so. I would say 
particularly the program integrity aspects and safeguard 
aspects that should be emphasized, I don't think are enough, 
and that is true for HCFA staff, but also for the contractors 
and State agency folks. So often, we only know whatever they 
choose to tell us and I don't feel like there has been enough 
training and work to get information and data that we need to 
know from them either. I think that this is all part of the 
area of program integrity, is being able to get good 
information and all.
    And I just think it is a lack of priority among management, 
and that gets back to the emphasis that is placed on it; the 
corrective actions that come from it in backing and supporting 
and working with the people. We have had very good experience 
working with contractor and State agency staff in Florida in 
the reviews we have done and with the IG audit people and all. 
And so, working together, you can certainly do more 
effectively, but it is really a matter of commitment and 
support by the management to take corrective actions when they 
are found. Otherwise, people get beat down real easily.
    Senator Collins. Thank you. I want to thank both of you not 
only for coming forward and giving us your testimony today, but 
for the valuable work that you are both doing. I am very proud 
to have you both working for the Federal Government and I 
appreciate all your efforts.
    It is evident to me, based on the testimony that we have 
heard today, that if we are ever going to get control of the 
fraud infecting the Medicare program, we must stress fraud 
prevention. That has to be our emphasis. There is simply no way 
that law enforcement efforts alone will be able to curtail the 
massive amount of fraud that we are seeing.
    In 1997, only 363 defendants were convicted in Federal 
court for health care fraud, and that includes all kinds of 
health care fraud, not just Medicare fraud. Law enforcement 
certainly plays an important role, but it seems to me that in 
combatting this kind of illegal activity that we have to do 
better at preventing it up front. When you look at the number 
of existing Medicare providers and compare that to the number 
entering the system each month, if we don't do more to screen 
effectively up front, we will never get a handle on this 
problem.
    There are almost 1 million providers that bill Medicare. In 
fact, since 1993, there were over 100,000 billing numbers 
issued just for DME companies nationwide. To police this 
system, there are only 219 HHS criminal investigators 
nationwide. Clearly, the resources are disproportionate to the 
problem. If the strategy is to rely on law enforcement alone to 
solve the problem, then what I fear is that we simply aren't 
going to make much progress. We can't afford to continue to 
certify people so easily, to write those checks, and then ask 
the tough questions later. It reminds me of trying to bail out 
the Titanic with a plastic bucket. It is just not going to 
work.
    So I appreciate the efforts that you are making, and we 
would welcome any further thoughts or recommendations that you 
might have on how we can slam the door shut up front to prevent 
bogus businesses and outright criminals from entering the 
Medicare system. Again, I want to thank you very much for your 
testimony and your assistance to us.
    I also want to thank the PSI staff for doing an excellent 
job in what has been a very complicated investigation, and I 
want to thank all the law enforcement officials and HHS 
officials who have assisted us in this regard. In particular, 
on PSI staff, Tim Shea, Don Mullinax, Eric Eskew, Ian Simmons, 
Mary Robertson, and Lindsey Ledwin all played key roles, and 
without them we would not have been able to get the kind of 
evidence that was presented today. And, finally, I do want to 
again thank John Frazzini, who played a key role in helping us 
as a detailee to the Subcommittee and has continued his 
excellent efforts in this regard.
    So thank you very much, and this hearing will stand 
adjourned.
    [Whereupon, at 12:40 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

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