[Senate Hearing 105-892]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 105-892
 
           MEDICARE FRAUD PREVENTION AND ENFORCEMENT EFFORTS

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


                                HEARING

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 9, 1998
                          (CHICAGO, ILLINOIS)

                               __________

      Printed for the use of the Committee on Governmental Affairs

                               -----------

                    U.S. GOVERNMENT PRINTING OFFICE
54-282 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
WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma                MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                       Lynn L. Baker, Chief Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                   SUSAN M. COLLINS, Maine, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SAM BROWNBACK, Kansas                JOSEPH I. LIEBERMAN, Connecticut
PETE V. DOMENICI, New Mexico         DANIEL K. AKAKA, Hawaii
THAD COCHRAN, Mississippi            RICHARD J. DURBIN, Illinois
DON NICKLES, Oklahoma                ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania          MAX CLELAND, Georgia
           Timothy J. Shea, Chief Counsel and Staff Director
                 David McKean, Minority Staff Director
                     Mary D. Robertson, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Durbin...............................................     3

                               WITNESSES
                      Wednesday, December 9, 1998

Dorothy Collins, Regional Administrator, Health Care Financing 
  Administration, U.S. Department of Health and Human Services, 
  Chicago, Illinois..............................................     7
James A. Kopf, Director, Criminal Investigations Division, Office 
  of Inspector General, U.S. Department of Health and Human 
  Services, Washington, DC.......................................     9
Barbara Coyle, Volunteer, Catholic Charities, Suburban Area 
  Agency on Aging, accompanied by Jonathan Lavin, Executive 
  Director, Suburban Area Agency on Aging........................    14

                     Alphabetical List of Witnesses

Coyle, Barbara:
    Testimony....................................................    14
    Prepared statement of John Grayson submitted by Ms. Coyle....    39
Collins, Dorothy:
    Testimony....................................................     7
    Prepared statement...........................................    31
Kopf, James A.:
    Testimony....................................................     9
    Prepared statement...........................................    35
Lavin, Jonathan:
    Testimony....................................................    14
    Prepared statement...........................................    40
Toomey, Mary Clare:
    Prepared statement...........................................    40


           MEDICARE FRAUD PREVENTION AND ENFORCEMENT EFFORTS

                              ----------                              


                      WEDNESDAY, DECEMBER 9, 1998

                                       U.S. Senate,
                 Permanent Subcommittee on Investigation,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m., at 
the Federal Courthouse, 219 South Dearborn Street, Room 2525, 
Chicago, Illinois, Hon. Susan Collins, Chairman of the 
Subcommittee, presiding.
    Present: Senator Collins and Durbin.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Good morning. The Subcommittee will please 
come to order. Let me begin today by taking the opportunity to 
thank my colleague, Senator Dick Durbin, for inviting me to the 
beautiful, albeit, supposed to be windy City of Chicago, as the 
Permanent Subcommittee on Investigations continues its inquiry 
into fraud in the Medicare Program.
    Senator Durbin and I have worked together on several 
initiatives to protect consumers from fraud. He traveled to my 
home State of Maine last February to attend a hearing this 
Subcommittee held regarding telephone billing fraud known as 
slamming. On the day of the hearing we did not have a crystal 
clear day like today. This is a typical Maine day, the weather 
you are having today.
    However, that cold February day the weather changed from 
snow to rain to ice to sleet and back to snow throughout the 
day. And Senator Durbin's heroic efforts to participate in that 
hearing reminded me of the faithful postal carrier in that 
neither rain nor wind nor snow nor all three at once could 
deter him from attending that hearing. I appreciate his 
commitment to protecting consumers throughout the United States 
as well as his long time interest and concern about the subject 
of this hearing, Medicare fraud.
    This is the third hearing that the Subcommittee has held 
examining waste, fraud and abuse in the Medicare Program. At 
our first hearing on June 26, 1997, we heard from a variety of 
witnesses including representatives from the General Accounting 
Office, the Inspectors General's Office, the FBI and the Health 
Care Financing Administration.
    That hearing provided an overview of the problem and 
evaluated the extent to which waste, fraud and abuse affects 
the Medicare Program. We learned that the Medicare Trust Fund 
loses more than $20 billion per year. I want to repeat that--
$20 billion a year in improper payments, an astounding and 
completely unacceptable financial drain on the system.
    As we in Congress struggle with how to restore the solvency 
of the Medicare Program and look at painful issues such as 
whether we should needs test part of Medicare, it is terrible 
that we're losing this kind of money each year to waste, fraud 
and abuse. Surely we should make sure that we stem that drain 
before we pursue other issues to restore solvency.
    This loss undermines the fiscal integrity of Medicare and 
our ability to provide needed health care services to the 38 
million Americans who rely on this vital program.
    During our second hearing on January 29, 1998, we explored 
a dangerous trend in Medicare fraud. That is the increasing 
number of bogus providers who enter the system with the sole 
and explicit purpose of robbing it. One of our witnesses told 
us that he went into Medicare fraud because it was way easier 
than dealing drugs. He could make way more money at far less 
risk.
    In another example, the Subcommittee investigators 
uncovered two physicians who submitted more than $690,000 in 
fraudulent Medicare claims after listing nothing more than a 
Brooklyn, New York laundromat as their office location. If 
anyone had done the least bit of checking, it would have been 
evident that this was completely bogus.
    In another case revealed by the Subcommittee, over $6 
million in Medicare funds were sent to durable medical 
equipment companies that provided no goods or services 
whatsoever. One of these companies even listed an absurd 
fictitious address--physical address--that had it existed would 
have been in the middle of the runway of the Miami 
International Airport.
    Today's hearing is a continuation of the Subcommittee's 
efforts to fight waste, fraud and abuse in the Medicare 
Program. The most effective way to stop this attack on Medicare 
is to prevent the fraud in the first place instead of chasing 
after the money from the crooks long after the money is gone.
    This hearing will focus on the successful fraud prevention 
and enforcement efforts in Illinois and the surrounding areas 
that have been undertaken by an impressive coalition of Federal 
and State agencies and private organizations during the past 3 
years.
    In highlighting these efforts, we hope to draw some lessons 
that may be useful in preventing Medicare fraud nationwide. As 
Congress and the administration work to maintain the solvency 
of the Medicare Program, we must be far more aggressive in 
curtailing the billions of dollars lost each year to waste, 
fraud, abuse and improper payments. Unfortunately, this task is 
not as easy as it sounds. There isn't a line item in the 
Federal budget entitled Medicare waste, fraud and abuse that we 
can simply strike and be done with it.
    Fraud not only compromises the solvency of the Medicare 
Program, but also in some cases directly affects the quality of 
care delivered to older and disabled Americans. We have a 
solemn obligation to those Americans and to all of our Nation's 
taxpayers to protect Medicare. We must ensure the solvency of 
the Medicare Trust Fund so that it can continue to serve older 
and disabled Americans into the 21st Century.
    We must guard against unscrupulous providers who give our 
seniors inferior or substandard health care. And we must 
protect the Nation's taxpayers from career criminals whose 
illegal schemes cost us millions of dollars each year.
    Let me make this clear. The vast majority of health care 
professionals are dedicated and caring individuals whose top 
priority is the well being of their patients. They too are 
appalled by the unscrupulous providers and others who take 
advantage of weaknesses in the program to steal millions of 
dollars from the Medicare Trust Fund. Our goal is to bring 
about effective Medicare reform that will prevent such fraud in 
the future, allowing millions of Americans to continue to rely 
on this vital program's many capable, caring and conscientious 
health care providers.
    Today we will hear about two successful demonstration 
projects designed to prevent fraud and abuse. The first 
program, Operation Restore Trust, was a demonstration project 
initiated by the Department of Health and Human Services in 
1995. The goal of the ORT Program was not only to detect and 
punish fraud and abuse using traditional law enforcement 
techniques, but also to identify areas of vulnerability in 
order to stop fraud before it happens. This hearing will assist 
those of us in Congress in evaluating the effectiveness of this 
program.
    The second project we will discuss today involves tapping 
the skills and the expertise of retired professionals who are 
beneficiaries themselves and ask them to help us in identifying 
and reporting waste, fraud and abuse in the program. In May 
1997, the Administration on Aging at the direction of Congress 
awarded funds to 12 organizations around the country to recruit 
and train retired doctors, nurses, teachers, lawyers, 
accountants and other professionals to identify Medicare fraud 
and to conduct community education activities.
    One of the entities that received support was the Suburban 
Area Agency on Aging in Oak Park, Illinois, an organization 
represented by one of our witnesses today. I look forward to 
hearing about the accomplishments of this innovative volunteer 
program operating here in Illinois.
    Indeed, I look forward to hearing from all of our witnesses 
this morning as they describe their efforts to fight and 
prevent the kind of abuse that our previous hearings have 
uncovered. I realize that I opened the hearing without 
identifying myself. I'm used to being in either Maine or 
Washington. So perhaps I should do that more formally at this 
point.
    I am Senator Susan Collins. I'm from the State of Maine, 
the great State of Maine, as we say. And I am the Chairman of 
the Permanent Subcommittee on Investigations. It is now my 
pleasure to yield to my friend and distinguished colleague, 
Senator Dick Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thank you, Senator Collins. And I'm happy 
to welcome you to Chicago, having endured the horizontal rain 
storm in Maine when I visited for the hearing there. I can tell 
you that if you stick around here for a few more weeks, you may 
find the same thing in Chicago. Fortunately, today we have a 
wonderful, beautiful day in a beautiful city known as the windy 
city, and it's always a debate topic as to whether that relates 
to the weather or the politicians, but whatever the origin of 
that phrase, we certainly love this town and the State that 
it's in. Thank you for joining us.
    This Permanent Subcommittee on Investigations is a 
Subcommittee of great history, and one that has made a valuable 
contribution to the Nation over the years. Senator Collins, as 
the most recent Chair of this Subcommittee, has carried on that 
fine tradition. I can honestly tell you it is one of my best 
and most rewarding assignments as a U.S. Senator from Illinois, 
because Senator Collins has a special feeling about issues 
involving consumers and the need to make certain that we are 
fair and do everything in our power to give consumers a break. 
And whether it's Medicare and the seniors and their families 
who will lose from the cheats and the waste and the fraud, 
telephone slamming and cramming, an issue that came to my 
attention here in Chicago, and we have worked on together in 
Washington, or doing something to make sure that the food 
safety inspection system across America is the very best that 
it can be. This Subcommittee leads the way, and I am honored to 
be a Member of it. And I thank you for this important hearing 
today.
    For the 38\1/2\ million Americans who rely on Medicare for 
their health protection, this is more than just another 
governmental program. This is literally a matter of life and 
death. It is a question of quality health care versus some of 
the budget constraints which we're all very aware of. If our 
debate in Washington goes as planned, for the next few months 
we will talk a great deal about the future of Social Security, 
and we should.
    The fact is that Social Security untouched will be solvent 
and will pay out every year with a cost of living adjustment 
for at least three more decades. That doesn't mean that we 
should shirk our responsibility. We certainly ought to address 
even longer term solvency.
    Medicare, on the other hand, is in a much more precarious 
position. Medicare untouched, by some estimates, may go 
bankrupt as soon as 2008. We continue to put money from our 
General Treasury into the Medicare system to try to keep costs 
under control. Congress is under pressure, and should be, to 
respond to this as quickly as possible.
    None of us want to raise premiums. None of us want to cut 
back on services. But we have to face the reality. This hearing 
addresses what I consider to be the first and easiest place for 
us to visit to help Medicare. To go after some $23 billion in 
waste every single year, waste that affects every senior 
citizen. Waste that denies to seniors the basic and good 
quality medical care which they've come to expect. The kind of 
waste which defrauds taxpayers and is virtually intolerable.
    The hearings that we've had in Washington have been a 
revelation. You can read about it in the newspaper, but when 
Senator Collins brings in a man who has been convicted of 
Medicare fraud who will not appear except behind a curtain and 
he testifies to us what he was able to get by with, it is just 
disgusting. To think that some rip-off artist would get into 
the Medicare system and literally abuse it by taking advantage 
of senior citizens and taxpayers. This man is serving time in 
prison. I'm convinced that a lot of others should, too.
    But make no mistake. As the Senator has said, the vast 
majority of providers are honest people. They're doing their 
very best. They worry about the bureaucracy of the forms and 
all of the things that government tosses in their path. But 
they understand, I hope, that we have got to keep this system 
as good and effective as possible.
    Some of the examples Senator Collins noted I'll never 
forget. To have a medical care provider provide an address to 
the Federal Government which even the most cursory examination 
of the telephone book or even a driver in Miami in this case 
would have told you was a total fictitious address, an address 
in the middle of the runway at Miami International Airport. To 
have addresses given that turn out to be laundromats, turn out 
to be drop boxes, and these are people who are literally 
billing the Medicare system thousands and millions of dollars a 
year for fictitious services and equipment.
    We had a case where one so-called durable medical equipment 
company was providing diapers for incontinent nursing home 
patients. Each diaper cost 30 cents. They billed the Federal 
Government $8 for each one of them, referring to them as 
urinary collection devices. This is common and, unfortunately, 
it takes the money out of the system that needs to be put back 
in to help so many people.
    Luckily, we've taken an initiative at the Federal level, 
Operation Restore Trust, which we are going to explore today, 
and just see how effective it's been. There's entirely too much 
fraud still in the system, but maybe we're moving in the right 
direction. And those who will testify and tell us about it will 
give us an indication of our success and what more we can do.
    I happen to believe the first line of defense on Medicare 
fraud are seniors and their families. I understand that many 
elderly people under Medicare are not in a position because of 
a physical ailment or other problems to police the system for 
us, to read carefully every line item in their billing, but 
honestly, if they can and if their families can join them in 
this effort, it is the first line of defense. To look and find 
something preposterous that is being billed to the Federal 
Government and to say this just isn't right and it isn't fair 
and I'm going to tell somebody about it.
    There's nothing, I think, more effective than to have 
seniors activated and mobilized to do just this. And we're 
going to hear testimony today about efforts to make that 
happen. I think that will go a long way.
    Second, the Federal Government has to do a better job. To 
think that, as Senator Collins and I have seen, so many people 
are ripping off the system in such obvious ways without the 
kind of surveillance that's necessary really calls for new 
legislation. And Senator Collins and I are working on a bill 
which will bring basic accountability and auditing procedures 
here to make certain that we catch up with those that are 
trying to cheat the system.
    The basic message which I hope goes out today from this 
hearing in Chicago is that when it comes to cutting corners and 
cheating seniors and ripping off the Treasury, that is 
absolutely unacceptable. Whether it's Medicare or any other 
program, we are not going to tolerate it. We hope that we can 
mobilize a bipartisan effort in the U.S. Senate, in Congress 
and across the Nation.
    The President's announcement this week of further 
initiatives by the administration give us encouragement, but we 
have to make sure that we do our job by getting the facts 
straight, and that's what this hearing is all about.
    I thank Senator Collins and all those in the audience for 
joining us today. I'm looking forward to it.
    Senator Collins. Thank you, Senator. We will now hear from 
our panel of witnesses who will discuss their efforts to fight 
and prevent waste, fraud and abuse in the Medicare Program.
    I'd ask that our witnesses come forward at this point. Our 
first witness is Dorothy Collins. She is Regional Administrator 
for the Health Care Financing Administration here in Chicago. 
Ms. Collins is responsible for monitoring the Medicare Program 
in Illinois and five surrounding States.
    I would also note that I have an aunt with the same exact 
name, but we are not related in this case, but good name.
    Our second witness is James Kopf. He is the Director of the 
Criminal Investigations Division of the Department of Health 
and Human Services, Office of Inspector General. Mr. Kopf has 
more than 20 years of Federal law enforcement experience. He 
served as the National Coordinator of Operation Restore Trust 
Demonstration Project during its first year.
    Finally, we will hear from Barbara Coyle, who has very 
kindly agreed to step in this morning at the last moment to 
testify in place of John Grayson, who had been slated to 
testify before the Subcommittee today. Unfortunately, Mr. 
Grayson is ill and is unable to be with us this morning. We 
very much appreciate Ms. Coyle stepping into the breech and 
taking up the cause.
    Ms. Coyle is from Evergreen Park, Illinois. She is a 
retired public health nurse. She volunteers with Catholic 
Charities, the South Suburban Senior Services, and with the 
Southwest Council in Aging for the Suburban Area Agency on 
Aging. She is accompanied by Jonathan Lavin, who is the 
Executive Director of the Suburban Area Agency on Aging, the 
Triple A, I think I'll call it from now on.
    Again, we are very pleased to have you all with us. We have 
a rule at the Permanent Subcommittee on Investigations that 
requires us to swear in all of the witnesses. I want to tell 
you it's not that we doubt that any of you will do anything but 
tell us the truth, but it is part of our rule. So I'm going to 
ask that you all stand and raise your right hand so that I can 
swear you in.
    (Witnesses sworn.)
    Thank you. You may be seated. We will make your entire 
written testimony part of the hearing record. We're going to 
ask that you limit your oral testimony to no more than 15 
minutes a person this morning. And we will start with Ms. 
Collins.

TESTIMONY OF DOROTHY COLLINS,\1\ REGIONAL ADMINISTRATOR, HEALTH 
 CARE FINANCING ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND 
               HUMAN SERVICES, CHICAGO, ILLINOIS

    Ms. Collins. Good morning. Chairwoman Collins, Senator 
Durbin, thank you very much for inviting me here today to 
discuss Operation Restore Trust and our ongoing fight against 
fraud, waste and abuse.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Collins appears in the Appendix 
on page 31.
---------------------------------------------------------------------------
    Operation Restore Trust was launched by President Clinton 
in 1995 as a five-State demonstration project. It has rapidly 
become the way we do day-to-day business nationwide because of 
its overwhelming success.
    Operation Restore Trust, along with the stable funding for 
program integrity work that was established in 1996, marks a 
turning point in our fight against fraud, waste and abuse. It 
has led to record levels of convictions, fines, restitutions 
and exclusions of unscrupulous providers.
    It has shown us how to move faster and smarter. We are 
using what we learn broadly and aggressively. We are conducting 
more audits, more reviews and site visits than ever before.
    Operation Restore Trust also helped generate broad support 
to close loopholes, raise standards, promote efficiencies and 
prevent problems in the first place.
    Most importantly, Operation Restore Trust taught us how 
critically important it is to coordinate with all of our 
partners, from the FBI to the individual beneficiary. And it 
inspired us to work with our partners to develop a 
comprehensive program integrity plan. Together we are making 
fraud and abuse harder to accomplish, easier to see and less 
appealing to the unscrupulous.
    Illinois was among the first Operation Restore Trust 
demonstration States. We brought together teams from the Health 
Care Financing Administration, the Office of the Inspector 
General and the Administration on Aging to target areas where 
we knew we had problems, home health agencies, nursing homes, 
hospices and durable medical equipment suppliers. We tackled 
these problems through several key elements of Operation 
Restore Trust.
    We used statistical methods to identify potential problems. 
We cooperated through inter-disciplinary teams to review 
questionable providers. We coordinated investigations with law 
enforcement to assure coordination at all relevant levels of 
investigation. We empowered aging organizations, ombudsmen and 
individual beneficiaries and health care workers, by training 
them to detect and report potential problems. And we looked for 
efficiency. For example, by using State survey officials who 
already monitor care for quality, to also look for questionable 
billing practices.
    In Illinois, one of our first projects focused on 20 home 
health agencies. We used statistical analysis to draw up a list 
of agencies that had aberrant billing patterns. We coordinated 
our plans with our law enforcement partners who had separate 
investigations underway. We trained State registered nurse 
surveyors who conduct home health agency quality reviews to 
spot program integrity problems and had them conduct surveys of 
the agencies on that list.
    The State surveyors also, and importantly, visited 
individual beneficiaries at home to ask about their care. They 
found that far too often services were overused, not medically 
necessary or not covered by Medicare. In some cases, the 
beneficiary was not even homebound. We then had our claims 
processing contractor review the State surveyors' findings. 
They determined that these 20 home health agencies had been 
improperly paid more than $777,000, which is now being 
recouped.
    They also prevented further improper payment of another 
$570,000 to these agencies. All for an investment, in this 
particular project, of about $52,000.
    Other Operation Restore Trust initiative in Illinois 
uncovered hospice billing for patients who were not terminally 
ill and there were other questionable practices. Several 
hospice cases have been referred to law enforcement for further 
action.
    We also found durable medical equipment vendors billing for 
unnecessary and expensive supplies that were simply being 
stockpiled in nursing home storage rooms. One provider has been 
referred to the FBI and substantial overpayments are being 
recovered from other providers.
    Overall, Operation Restore Trust has saved more than $200 
million nationwide in its first 2 years through restitutions, 
fines, settlements and identified overpayments. Its expansion 
began as soon as its success became apparent.
    In 1997, we began to incorporate Operation Restore Trust 
into our day-to-day business approach. We added community 
mental health centers' abuse of Medicare's partial 
hospitalization benefit to the Operation Restore Trust project 
list and found centers with no trained professionals providing 
no treatment of any kind or billing for therapies such as 
bingo. We now have a national initiative underway to stop these 
abuses. As the result of initiation of the community health 
center review in Illinois, a provider with 13 sites was found 
not to meet even the basic requirements and is now no longer a 
Medicare provider.
    We also initiated special reviews of rehabilitation 
agencies, home health agencies and other types of providers in 
other States.
    Also in 1997, we made significant improvements to Operation 
Restore Trust's special anti-fraud hotline, 1-800-HHS-TIPS, so 
that beneficiaries and health care workers with potential 
problems to report can get information quickly to the right 
people who will follow up.
    Since this hotline started in June 1995, its operators have 
spoken to some 145,000 individuals regarding potential fraud, 
waste and abuse problems. In this region, we have received 
about 4,000 complaints through the hotline so far, which have 
led to almost $2 million in recoveries in about 350 cases and 
an additional 75 referrals to law enforcement for further 
criminal investigation.
    In order to build on the lessons of Operation Restore 
Trust, the Health Care Financing Administration has developed a 
comprehensive program integrity plan which is nearing 
completion. We began last March by sponsoring an unprecedented 
National Conference on Fraud, Waste and Abuse. Groups of 
experts from private insurers, consumer advocates, health care 
provider groups, State health officials and law enforcement 
agencies shared successful techniques and explored new ideas.
    Those discussions were synthesized and analyzed to 
determine the most effective approaches and most promising new 
ideas. The result is a comprehensive program integrity plan 
with several clear objectives, which all can be traced to 
lessons learned in Operation Restore Trust. These objectives 
are to increase the effectiveness of our medical review, to 
implement the Medicare Integrity Program, proactively address 
the new programs initiated in the Balanced Budget Act, promote 
provider integrity, prepare for the year 2000 computer issue 
and target known problem areas such as congregate care scams 
and the community mental health centers.
    This plan also notes the legislative initiatives recently 
announced by the President to address fraud, waste and abuse in 
the Medicare Program.
    In conclusion, Operation Restore Trust has led to 
unprecedented success and it has become the standard for our 
business operating procedures and practices. We greatly 
appreciate your interest and support for these efforts and we 
look forward to working with you as we continue to move 
forward, and I am happy to answer any questions you might have.
    Senator Collins. Thank you, Ms. Collins. Mr. Kopf, would 
you please proceed.

       TESTIMONY OF JAMES A. KOPF,\1\ DIRECTOR, CRIMINAL 
  INVESTIGATIONS DIVISION, OFFICE OF INSPECTOR GENERAL, U.S. 
    DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

    Mr. Kopf. Thank you. Good morning, Madam Chairman, Senator 
Durbin. Thank you for inviting me to participate in this vital 
hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kopf appears in the Appendix on 
page 35.
---------------------------------------------------------------------------
    I'm James A. Kopf, the Director of the Criminal 
Investigations Division in the Office of Inspector General at 
the U.S. Department of Health and Human Services. I'm here to 
tell you about some innovative practices we have developed in 
fighting fraud and abuse in Medicare and Medicaid. We've had 
noble successes, but we cannot let our guard down and be 
satisfied with today's successes in this area.
    Let me share some insights about our experiences with the 
constantly escalating assaults on our programs. With annual 
expenditures of well over $300 billion, the Medicare and 
Medicaid Programs present a sizeable target to those who seek 
to unjustly enrich themselves at the taxpayers' expense.
    In late fall of 1994, with resources shrinking, Health and 
Human Service Secretary Donna Shalala, asked the Inspector 
General, June Gibbs Brown, to develop a new approach that would 
enlist the resources of the various health and human services 
components to attack fraud and abuse in Medicare and Medicaid. 
It was decided to implement a coordinated effort involving the 
OIG, the Health Care Financing Administration and the 
Administration on Aging.
    Those three components of HHS served as a cornerstone to 
the department's new initiative and brought the department's 
many years of experience and expertise together in a 
concentrated effort.
    In addition, we invited the Department of Justice, 
including the Federal Bureau of Investigation, the U.S. 
Attorneys Office, State and local agencies involved in fighting 
health care fraud and abuse to participate in this combined 
effort which became known as Operation Restore Trust. It was 
started in March 1995 and became a presidential initiative in 
May of that year.
    The purpose of the initiative was three-fold. To coordinate 
all available resources in an effort to make a significant 
impact on health care fraud and abuse. To reach out and educate 
the public on the growing problem of the health care fraud 
schemes. And to demonstrate the combined effort would be the 
most cost efficient method of attacking this problem with 
results yielding a significant return on the dollars invested.
    We focused our efforts on five key States and three high 
growth areas. The States were New York, Florida, Illinois, 
Texas and California. These States represented over one-third 
of all the beneficiaries and expenditures in the Medicare and 
Medicaid Program. The high growth areas were both health, 
nursing facilities and durable medical equipment.
    Our audits, evaluations and investigations indicated that 
the home health industry had become the target for unscrupulous 
providers. Criminals had increased their profit margin five-
fold in the 2 years preceding Operation Restore Trust. Nursing 
facilities also came under scrutiny not only for fraud and 
abuse, but also for the potential of quality of care and 
patient abuse issues. Durable medical equipment is 
traditionally a hotbed for those who want to steal from the 
government.
    At the time, Medicare provider numbers, that are the 
authorized numbers used to bill the Medicare Program, were 
easily obtainable and no prior health care experience was 
required to go into the DME business. As was mentioned before, 
so profitable was this area that criminal elements in south 
Florida decided to leave a lucrative drug business and open up 
DME companies because, as you mentioned, it was more profitable 
and less risky.
    After the first year of the project, hospice care was added 
as a high growth focus area based on our audits of the industry 
and indicated a potential for fraud and abuse. Project 
coordinators in each of the five States established work groups 
comprised of the agencies I mentioned earlier. The work groups 
determined project goals and objectives unique to each State 
and implemented innovative plans that made the best of all the 
available resources.
    The States coordinated their efforts with the OIG, HCFA and 
AOA headquarters, which in turn shared the results in the 
States' efforts with the entire demonstration team. The result 
was a cohesive, concentrated attack on health care fraud. 
Members of the partnerships we formed are here today to tell 
you about the results of this initiative. Each will provide a 
unique perspective as to what they hope to see accomplished.
    I am here to share information regarding some of the 
successful cases that flowed out of this project. First, during 
Operation Restore Trust, a scheme was uncovered involving 
incontinence supplies provided to nursing home patients. Adult 
diapers are not items that a nursing facility can bill 
separately to Medicare. The cost of providing adult diapers is 
the responsibility of the nursing facility as part of its 
routine costs of providing care to patients.
    Investigations revealed that unscrupulous providers 
convinced nursing home operators that they had found a 
legitimate way to bill Medicare for the diapers. In return for 
the names and the Medicare numbers of incontinent patients, 
these suppliers provided the nursing homes with an endless 
supply of adult diapers at no cost. The suppliers then billed 
Medicare as if the diapers were an item known as a female 
urinary collection device that Senator Durbin referred to 
earlier.
    This device could be billed for $7 to $8 per item while the 
cost of purchasing the diaper was only 30 cents. The supplier 
billed Medicare as if the more expensive collection devices 
were being provided three times a day, 7 days a week. The cost 
to Medicare mounted at an incredible rate. The suppliers 
quickly recouped their overhead and began making money.
    If I may, I'd like to show you. This is the adult diaper 
that sells for 30 cents. This is the actual device that was 
billed at $7 to $8, the female urinary collection device. As 
you can see, there's a vast difference between the two of them.
    This particular scheme was found to be so widespread that 
involved patients and suppliers throughout the country. These 
cases have been successfully investigated and a number of the 
investigations are still ongoing, including here in the State 
of Illinois. We were able to detect this scheme and investigate 
all the matters concerned because of the combined efforts and 
the resources of all of the partners of ORT.
    In all, savings to Medicare as a result of this type of 
investigation has amounted to an estimated $104 million in 
1996, with projected estimated savings to be $534 million over 
the next 5 years.
    The next case had some distinct characteristics not found 
in some of our investigations. This supplier provided 
incontinent care kits to nursing homes. These relatively 
inexpensive kits included a pair of latex gloves, a small cup 
of sterile water, a disinfectant, an absorbent pan, a pair of 
plastic tweezers and a small plastic pair of scissors. The 
supplier misrepresented the patients as having chronic 
incontinence in order to bill Medicare, then inflated the 
number of kits actually provided. An average of 90 kits per 
month per patient was billed, but only about a third of that 
number was actually provided.
    What sets this investigation apart from the others was the 
fact that the perpetrators closed and then reincorporated their 
business under different names 31 times during the course of 
the investigation. Shortly after they started doing business 
with Medicare, the Quisenberrys, a father and daughter team, 
became aware that the Medicare contractor who processes the 
claims was scrutinizing the claims due to the concerns about 
possible fraud and abuse in this area.
    Before the company du jour could run up enough claims to 
gain the attention of the contractor, the Quisenberrys would 
simply close the business and incorporate a different name and 
a different location. They were able to accomplish this by 
enlisting the aid of friends and family who fronted the 
operation for them. When this investigation was concluded, the 
Quisenberrys and five of their associates were named in a 
Racketeering, Influenced, Corrupt Organization indictment. The 
RICO indictment was the first of its kind in the health care 
fraud arena.
    More significantly, it was the largest RICO indictment in 
the history of the judicial district in which it was filed, 
alleging damages of approximately $30 million to the Medicare 
Program. All parties pled guilty to their part in the scheme. 
This is not the largest Medicare fraud case we have 
investigated, but the Quisenberry case clearly was one of the 
more unique investigations setting the trend in how to cheat 
the government. A number of jurisdictions are now considering 
similar charges in other investigations that are related to 
this type of scheme.
    Although this supplier was actually based in Michigan, it 
did over $1 million in business with nursing homes in Illinois, 
and for that reason it was included as part of Operation 
Restore Trust. Again, if it was not for the resources and the 
expertise brought under the ORT umbrella by all of the 
partners, this investigation would not have come to a 
successful conclusion.
    Based on periodic cost reports, Medicare reimburses home 
health agencies, nursing facilities and other providers who 
render care in a facility-like setting. The cost report is used 
to itemize the total cost of operation of the provider and 
identifies the proportion of the provider's total cost to costs 
that was related to the care of Medicare beneficiaries and 
forms on the basis of Medicare reimbursement.
    It is possible, however, to bury within this document 
expenditures which are totally unrelated to providing Medicare 
beneficiaries with treatment. Through ORT we initiated a number 
of cost report cases in Illinois as they apply to nursing 
facilities or home confined patients. In one case, a nursing 
home administrator embezzled money from the owners of his 
nursing home by including non-medical expenses in the cost 
report disguising them as reimbursable items.
    In some instances, the money was actually used for 
improvements on his private residence and an accumulation of 
over 200 pornographic videotapes. In addition, he created a 
ghost employee and paid himself a sizeable salary under that 
name. He also embezzled money from residents in the nursing 
home by gaining control of their personal finances.
    In all, this man stole $1.6 million, all but $200,000 was 
obtained through false claims on the false cost reports. He 
pled guilty as a result of this investigation and was sentenced 
to a total of 46 months' imprisonment and ordered to pay $1.6 
million in restitutions, including $67,000 to a Medicare 
beneficiary from whom he swindled money.
    In another type of case which was identified during 
Operation Restore Trust, a number of businesses who identified 
themselves as community health care centers were found to be 
defrauding Medicare and Medicaid. These providers supplied 
adult day care under the guise of mental health therapy. 
Patients at other nursing facilities were delivered by the 
provider and held for the day in an empty warehouse of an 
abandoned building. They were allowed to watch T.V. or play 
cards, but were otherwise provided no structured care.
    The providers claimed the expense of providing 
transportation, meals and services of mental health 
professionals when they did not in fact provide any of these 
services. These investigations are far from complete and are 
very serious questions about the quality of care received by 
nursing home patients.
    Last, I'll describe the case of Home Pharmacy Services, a 
firm that operated in Illinois that provided pharmaceuticals 
for residents of 96 nursing facilities in that part of the 
State. These supplies were paid predominantly through Medicaid, 
although the example clearly demonstrates the application of 
the ORT protocol.
    Under the rules of Medicaid, drugs that are unused at the 
time of the patient's death or discharge are to be destroyed. 
This company, however, was recovering the unused drugs, 
repackaging them and reselling them often to other Medicaid 
patients. In addition, the unused drugs were not stored in 
appropriate places, usually creating a substantial health risk. 
The drugs could have lost the potency necessary to produce the 
medical goals of subsequent patients to which they were given. 
And more seriously, the drugs could have become toxic and 
threatened the user's health.
    An ORT coordinated task force executed a search warrant on 
the premises of the business in May 1996. Agents filled two 14-
foot postal trucks with records and evidence including a large 
amount of the recovered drugs which had not been repackaged. 
The drugs had been stored in store rooms that were neither 
sanitized nor climate controlled.
    The parent corporation of Home Pharmacy Services 
subsequently entered into a settlement negotiation with the 
Office of the U.S. Attorney and our office. As a result, the 
corporation paid $5.3 million in penalties and restitutions, 
entered into a corporate integrity plan and agreed to cooperate 
in the criminal prosecution of the manager and former owner of 
Home Pharmacy Services.
    The former owner, who had sold his business to the current 
owners, and who had actually started the scheme, entered into a 
plea agreement with the U.S. Attorney's Office. He was 
sentenced to 2 years in a Federal penitentiary and ordered to 
pay $750,000 in fines and restitutions to the government.
    This case came to fruition because of a cooperative effort 
put forth under Operation Restore Trust. The investigation was 
the earliest joint effort under the ORT and was an 
investigation comprised of a health care task force in the 
Southern District of Illinois. The task force was comprised of 
a team of agents from several State and Federal agencies 
including HHS, OIG, the FBI, Postal Inspection Service, the 
Illinois Medicaid Fraud Control Unit, the IRS and the Illinois 
Pharmacy Board.
    Funding made available through ORT helped make it possible 
to open an OIG field office in Fairview Heights, Illinois, the 
city in which the Office of the U.S Attorney for the Southern 
District is located, making prosecution easier. As you can see, 
the Operation Restore Trust experience provided all of us with 
a new template for the way we do business. New lines of 
communications were opened and cooperation among agencies 
involved in fighting health care fraud reached new heights.
    The proof is in the remarkable return on investment 
realized under the 2 year demonstration project. In the five 
States, we identified $187.5 million in fines, restitutions and 
settlements. This constitutes approximately $23 to $1 
investment in the project.
    Operation Restore Trust also paved the way for the passage 
of the Health Insurance Portability and Accountability Act in 
1996. That statute included a solid funding base which allows 
our agency to continue an aggressive fight against fraud and 
abuse in the Medicare and Medicaid Programs. It also enabled us 
to become a full partner with other law enforcement agencies in 
pursuing these goals.
    We're very proud of our accomplishments, but we cannot be 
naive or rest on our laurels. Every day criminal elements are 
developing new and novel approaches to exploiting Medicare and 
Medicaid and other health care programs. We need to stay ahead 
of them. We are therefore eager to work with this Subcommittee 
to further redefine our tools and the program safeguards needed 
to protect taxpayer dollars and Medicare resources.
    Thank you for holding this hearing, and I welcome your 
questions.
    Senator Collins. Thank you very much. Ms. Coyle.

 TESTIMONY OF BARBARA COYLE,\1\ VOLUNTEER, CATHOLIC CHARITIES, 
    SUBURBAN AREA AGENCY ON AGING; ACCOMPANIED BY JONATHAN 
  LAVIN,\2\ EXECUTIVE DIRECTOR, SUBURBAN AREA AGENCY ON AGING

    Ms. Coyle. This morning I am going to be John Grayson, if 
you don't mind. My name actually is Barbara Coyle, and I am a 
retired public health nurse. I am also a volunteer in the 
Suburban Area Agency on Aging Health Care Anti-Fraud, Waste and 
Abuse Community Volunteer Demonstration Project.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Grayson submitted by Ms. Coyle 
appears in the Appendix on page 39.
    \2\ The prepared statement of Mr. Lavin and Ms. Toomey appears in 
the Appendix on page 40.
---------------------------------------------------------------------------
    While I am talking as John Grayson, I would also like to 
tell you that essentially what I am saying represents all of 
the volunteers and the presenters in this program.
    Mr. Grayson's testimony reads: I first heard about the 
project from a public service announcement that was on the 
radio. I contacted Ms. Mary Clare Toomey, project director, and 
subsequently enrolled in her training program. In my training 
class, there were 38 volunteers. And the training program 
extended over a period of 3 days, during which the speakers 
included staff from the Office of Inspector General, the 
Illinois Department of Public Aid, Ombudsman Program and the 
Medicare Fraud Units.
    In my area, Catholic Charities Northwest, based in 
Arlington Heights, Illinois, is the host site with Mary 
Nommenson, the local coordinator of the program. Mary makes 
calls to various senior organizations and sets up the 
appointments for me to make my presentations. I am generally 
assisted by another volunteer named Jim Grimm, who is present 
at this hearing, from Elk Grove Village. He does a little bit 
of the speaking and helps me by passing out literature and 
conducting surveys and doing personal interviews after my 
presentation.
    At the presentations I first introduce myself and then 
attempt to build some interest and some enthusiasm for what 
we're doing by pointing out to the senior citizens that 
Medicare spends $200 billion a year of which it is estimated 
that $20 billion is lost through fraud, waste and abuse. I 
point out that it is predicted that Medicare will go bankrupt 
in 10 years and that undoubtedly, as it starts to go bankrupt, 
benefits will be reduced or co-payments will be increased. So 
it is in all of our interest to help save Medicare by doing 
what we can to spot any indications of fraud and abuse.
    I want to point out that we are saving this vital program 
not just for ourselves, but for our children and potentially 
our grandchildren. I explain how easy it is for crooks to 
swindle the system by merely having a doctor's prescription for 
unnecessary procedures or equipment as well as having your 
Medicare number. I explained that the Medicare number is just 
like your credit card number and that you should never give it 
out to anyone who isn't known to you to be a genuine provider 
of services.
    I relate some of the instances or types of fraud that have 
been perpetrated on people and the system. These examples of 
fraud are the ones that already have been conceived by the 
crooks who have been caught, but the possibilities for new 
theft and fraud schemes are infinite and changing constantly.
    We are seeking the help of our audiences in spotting fraud, 
because they are on the front lines and have the best 
opportunity to see suspicious activity first. I emphasize that 
it is very important for them to examine their medical summary 
notice or explanation of medical benefits following a medical 
procedure. They need to be sure that they received everything 
that was billed to Medicare.
    When they do spot something that doesn't look right, the 
first call should be to their medical provider to obtain an 
explanation. If they aren't satisfied with this, I suggest they 
call their SHIP counselor--Senior Health Insurance Program 
counselor--to assist them in getting an explanation. If they 
still aren't satisfied, then I suggest that they call the 
numbers on the pamphlet I give them, which would either be the 
Federal 1-800-HHS-TIPS line, a local number at the Suburban 
Area Agency on Aging (1-800-699-9043), or call Mary Nommenson 
at Catholic Charities (847-253-5500).
    I try to give them an incentive by telling them that there 
is now a bounty being paid to whistle blowers who help us 
uncover fraud. They could be paid 10 percent of whatever is 
recovered, up to $1,000.
    I conclude by reiterating the three main points I wanted to 
make. First, don't give your Medicare number to anyone that you 
don't know. Second, check your explanation of medical benefits 
carefully to make sure you received everything that Medicare is 
being billed for. And third, save our literature so that if you 
do come across anything that doesn't look right, you'll have 
our number and where you can call us.
    I close by thanking them for their attention and by urging 
them to help us save Medicare. I then explain that Jim Grimm 
and myself will be available after the presentation to talk to 
anybody who wants to ask us questions. We also want to hear 
them tell us about their own experiences. Generally we do have 
a few people who want to talk to us on a one-to-one basis. We 
ask them to fill out the survey form so that we can report 
these back to our host for documentation and statistics.
    I personally have provided presentations to a variety of 
community organizations and am constantly amazed at the level 
of interest by participants in attendance. There are usually 
three or four individuals in the audience who share their 
personal stories of suspected fraud and abuse after the 
presentation.
    I have found participation in the Suburban Area Agency on 
Aging's Fraud and Abuse Program to be challenging and rewarding 
and am very pleased to be able to relate my experience with you 
today.
    Senator Collins. Thank you very much, Ms. Coyle.
    Mr. Lavin, please proceed.
    Mr. Lavin. I'm not scheduled to give oral testimony.
    Senator Collins. OK. At this point I'm going to turn to 
Senator Durbin to lead off the questions of the witnesses.
    Senator Durbin. Thank you, Madam Chairman. Thank you for 
your testimony. I appreciate it very much. Ms. Collins, can you 
start off by making clear a part of this record a statement 
about some of the process that is followed. For example, it's 
my understanding that in each State there is an intermediary or 
some company that has been hired by Medicare which basically 
does the work of receiving the bills from the providers and 
sends those bills on to the Federal Government. Is that 
correct?
    Ms. Collins. Yes, that's true.
    Senator Durbin. In our State of Illinois, what company is 
that?
    Ms. Collins. Currently now the intermediary for Part A 
operations is Administar Federal and for Part B claims it is 
Wisconsin Physician Services.
    Senator Durbin. Does that change from time to time? Is 
there a bidding process or some sort of a reevaluation?
    Ms. Collins. These contracts are fairly new in the State. 
They were only established this last year, because the long-
time contractor, Health Care Service Corporation, withdrew from 
the program this year. Many contractors have been in the 
programs for a long, long time, but there has been some 
turnover recently.
    Senator Durbin. And so let's say that I wanted to open up a 
business which was going to sell durable medical equipment to 
senior citizens. In this State I would contact the 
intermediary, is that correct, to establish myself?
    Ms. Collins. Yes, that's right.
    Senator Durbin. And the intermediary would then issue me a 
number to provide services or equipment, whatever it happens to 
be?
    Ms. Collins. Yes. And we have changed the process somewhat 
related to enrollment of new providers, particularly suppliers, 
due to the problems that have been identified in the Operation 
Restore Trust effort. It is no longer just call up and get a 
number. There is a screening process that is carried out.
    Senator Durbin. Is every prospective provider screened?
    Ms. Collins. Right now the suppliers, all suppliers, 
prospective providers, are screened and there is a site visit 
conducted. Other prospective providers, say a new hospital or 
other kind of organization, there's a different process that is 
undertaken, not necessarily called a provider enrollment 
screening process.
    Senator Durbin. What does screening consist of?
    Ms. Collins. Information is collected for verification of 
location and address.
    Senator Durbin. Physical verification?
    Ms. Collins. There are on-site reviews that are taking 
place for new suppliers and for previous suppliers, there is a 
3-year cycle of on-site reviews that we're undertaking now to 
check those suppliers who already have a provider number.
    Senator Durbin. Is there a criminal background check as 
part of this?
    Ms. Collins. I would be glad to provide that for the 
record.
    [The information provided follows:]
                  Information requested for the record
          Criminal background checks.--We do not currently perform 
        criminal background checks on potential providers or suppliers. 
        We are interested in studying whether criminal background 
        checks could help reduce fraud among some or all provider and 
        supplier groups. Our contractors do use third party validation 
        sources to verify information on provider and supplier 
        application forms, and some of these sources contain criminal 
        background information. We ask all providers and suppliers on 
        our enrollment applications whether any individual with 5 
        percent or more ownership (including individual health care 
        practitioners who seek to be enumerated as a provider in the 
        Medicare program) has been convicted of a health care related 
        crime or a felony. Any who say yes are referred to contractor 
        fraud units for further investigation. If owners have been 
        excluded from Medicare by the HHS Inspector General, the 
        application is denied. We also are currently developing a 
        regulation that will implement a Balanced Budget Act provision 
        giving the HHS Secretary authority to deny or revoke enrollment 
        to any convicted felon.

    Senator Durbin. Now, one of the things that we have tried 
to stress is the important role the seniors can play in 
detecting fraud in the Medicare system. Ms. Collins, you would 
agree with that, I'm sure.
    Ms. Collins. Oh, yes. Definitely.
    Senator Durbin. And so what troubles me is I learn that 
HCFA is considering a change in the billing procedure under 
Medicare, whereas in the past there used to be a statement of 
benefits and an explanation of benefits sent to senior 
citizens, which will give them a better understanding of what 
they're being billed for.
    If I'm not mistaken, HCFA is at least considering reducing 
or suppressing, as they say, some of this information. That 
would seem to be counter-productive to me. It wouldn't really 
help the seniors if they didn't have enough information to 
detect the fraud, would it?
    Ms. Collins. Right. I share your concern with that. There 
has been some suppression of those notices that have gone to 
beneficiaries. But we are changing that. By April of this year 
we will be requiring all of our intermediaries to issue notices 
regarding claims on virtually all claims.
    Senator Durbin. I want to make sure I understand this.
    Ms. Collins. Sure.
    Senator Durbin. Because I thought this was a HCFA procedure 
that was underway to reduce the explanation of benefits that 
were being mailed out. Are you saying that's been changed?
    Ms. Collins. We will be telling contractors in April to 
mail out notices, either the explanation of medical benefits or 
the Medicare summary notice, on virtually all claims. You are 
correct that there has been some suppression of those notices 
currently. But we are taking steps to rectify that situation.
    Senator Durbin. That's good. And do you believe that you 
are sending out--I'm going to ask Ms. Coyle the same question, 
Mr. Lavin as well. Do you believe you're sending out clear 
information as to senior citizens on Medicare about the TIPS 
hotline and what they should do to police their own bills to 
find out if there's potential fraud?
    Ms. Collins. There is always room for improvement with that 
information. The HHS-TIPS number and supporting information are 
provided with the explanation of medical benefits and the 
Medicare summary notice.
    Senator Durbin. I would say, Ms. Collins, if a survey that 
I read is accurate, that we are not doing a good enough job. 
And I say we, because Congress has a responsibility here, too, 
to provide you the resources to get that done.
    What I refer to is a survey done by the AARP and one done 
by the Office of Inspector General, I might add, as well, 
concerning the public level of awareness of Medicare fraud and 
our government efforts to combat it. The findings, are you 
aware of them, Ms. Collins, are rather troubling.
    They confirmed that 85 percent of seniors were not aware of 
any government agency working to reduce fraud in Medicare, 83 
percent were not aware of the Office of Inspector General 
hotline, and 85 percent believed it was their responsibility 
personally to report fraud, that's good, 74 percent reported 
always reviewing the explanation of Medicare benefits. I say 
that because it clearly says to me, if this is accurate, and I 
believe that these two surveys are, we need to do a lot more so 
that seniors can learn of their responsibilities and their 
opportunities.
    Ms. Coyle, has that been your experience, too, that many 
seniors don't know what's available?
    Ms. Coyle. Right. True.
    Senator Durbin. So that stops them from using the system 
we're putting in place from Operation Restore Trust. Mr. Kopf, 
one of these surveys was by your office, is that your finding 
as well?
    Mr. Kopf. The survey did indicate that many of the seniors 
did not know the efforts we've made. What we're doing now is 
increasing our efforts to get the word out to the senior 
citizens, not only of our office but of the various schemes and 
fraudulent use of people that are involved in this type of 
thing so they can refer it accurately to us.
    Senator Durbin. It seems like this is a big undertaking. I 
mean, the numbers of people, Ms. Coyle, that you referred to 
and Mr. Lavin, the agency that's been involved in it, in the 
thousands. And if I'm not mistaken, the number of Medicare 
beneficiaries in our State could approximately reach what, 2 
million, or is it somewhere in that neighborhood? I think it 
might be.
    Ms. Coyle. Oh, I'm not aware of that. I'm sorry.
    Senator Durbin. I'm not aware of----
    Mr. Lavin. I think 2 million is a high figure.
    Senator Durbin. One-point-six million.
    Mr. Lavin. That's it.
    Senator Durbin. So we have a long way to go here in terms 
of reaching that level of public information. I think we have 
to do a lot more. Mr. Kopf, that question of suppressing the 
explanation of benefits under Medicare, do you have any 
feelings about that?
    Mr. Kopf. We would encourage that the explanation of 
medical benefits continue to go out to the beneficiaries 
because it works hand in glove with the efforts that all of us 
are trying to do to inform the public. And once we inform the 
public, they would actually have a piece of paper in front of 
them to remind them of what they should be looking for.
    For example, if they receive the care or not.
    Senator Durbin. Now, let's assume that we've got a 
suspicious situation here. And you've been involved in some of 
these investigations. I'd really like to ask you what kind of 
cooperation you receive from the U.S. Attorney's Office and 
other prosecutors when you've detected a potential fraud?
    Mr. Kopf. We've received a high degree of cooperation. Over 
the last couple of years especially, since the initiation of 
Operation Restore Trust, a lot of U.S. Attorneys have hired 
prosecutors to come into their offices.
    There has been a ramp up of education. These cases are a 
little more complex than the prosecutors are used to. But the 
cooperation is there. Their task force, because of ORT, and now 
through HCFA, are task forced in literally all of the districts 
throughout the country in health care form. So I think there's 
a good foundation for cooperative effort, not only with our 
offices and the U.S. Attorneys, but also with HCFA and AOA, in 
a combined effort to bring the information together.
    Senator Durbin. I have some other questions, but I'm going 
to defer to the Chairman to ask hers and then I'll return. But 
if I might ask one last question. The TIPS procedure which 
offers an incentive to beneficiaries alone. I believe it's an 
incentive only to beneficiaries, but am I mistaken on that? The 
10 percent, is that available only to beneficiaries?
    Ms. Collins. Yes.
    [The information provided follows:]
                  Information requested for the record
          Incentive payments for reporting fraud and abuse.--Incentive 
        payments of up to $1,000 for those who report fraud and abuse 
        in Medicare can be made to both beneficiaries and non-
        beneficiaries. These payments can be made starting in January 
        1999 and should bolster our critical efforts to enlist the 
        support of Medicare beneficiaries, health care workers, and our 
        many other partners in the fight against fraud, waste and 
        abuse.

    Senator Durbin. It raises a question in my mind as to why 
that incentive is not available to anyone who would produce 
information that would lead to a successful prosecution and 
recovery of money that should not have been spent under 
Medicare.
    There are Qui Tam actions and others under the Federal Law 
which create rewards, incentives for whistle blowers and 
investigators and the like to come forward. Do you think that 
might be of some benefit in perhaps engaging others to keep an 
eye out for this kind of Medicare fraud?
    Mr. Kopf. I think any type of system that encourages 
turning in individuals that are defrauding the government is 
good. Of course, with a reward type of system, it's a little 
bit difficult. These cases take a long time to develop and the 
financial rewards are usually 2 and 3 years down the road.
    But as you mentioned, not only this type of system that 
HCFA is putting into effect, but the simple effect that the Qui 
Tam issue has grown so large that a lot of people are using 
that as a vehicle to inform us of wrongdoing.
    Senator Durbin. It's been a major source of litigation in 
southern Illinois against one particular agency in our State. 
And it created the type of incentive where, frankly, the people 
who were blowing the whistle were discouraged many, many times 
but stuck with it, because they believed they had legitimate 
claims. Ultimately they did and they will be rewarded for that.
    I think when we look at the magnitude of this problem, in 
the area of $20 billion plus, we need similar mechanisms 
available so that whistle blowers and those who perceive 
wrongdoing won't be easily discouraged from trying to ferret it 
out. I yield to the Chairman.
    Senator Collins. Thank you, Senator. I want to follow up on 
a couple of the excellent points that you raised.
    Ms. Collins, you talked about the screening and on-site 
reviews that your region is doing. And I want to commend you 
for those. From the previous hearings this Subcommittee has 
held, Senator Durbin and I know how effective a simple on-site 
visit can be or even a minimal screening can be to exclude the 
completely bogus provider of services, or actually that don't 
provide any services in a lot of cases.
    I want to clarify, however. Is this screening and on-site 
review that is being done only being done in the States that 
are part of Operation Restore Trust?
    Ms. Collins. No. It's in all States.
    Senator Collins. It is now in all States?
    Ms. Collins. Yes.
    Senator Collins. When was that adopted, do you know?
    Ms. Collins. That has recently been expanded.
    [The information provided follows:]
                  Information requested for the record
          Site visits to medical equipment suppliers.--We announced 
        plans for a nationwide policy of mandatory site visits for all 
        durable medical equipment suppliers on January 24, 1998. We 
        began requiring site visits of all newly enrolling suppliers 
        and virtually all re-enrolling suppliers in June.

    Senator Collins. That is something that we are looking at 
putting into legislation. I am pleased to hear that it's 
recently been expanded. I think it will really help screen out 
some people right up front before damage is done.
    Mr. Lavin, we were talking earlier. Senator Durbin raised 
the issue of the need to get more information to seniors about 
what to do when they spot fraud. And Ms. Coyle was telling 
about the efforts the volunteers are making in making the 
presentations. I notice that you've also put out what I think 
is a really terrific brochure. It starts off saying, ``Who 
pays? You do.''
    It tells seniors what to do. It also gives some tips. Could 
you talk to us a bit about the brochure and give us some idea 
on how you're distributing it?
    Mr. Lavin. Yes. Thank you very much. Barbara is really nice 
to have come in to give John Grayson's testimony. He lives in 
the northwest suburbs and she lives in the southern. It's 
probably about 60 miles distance between the two. So she did an 
excellent job of filling his shoes at the very last minute.
    Today in the audience--please bear with me--(I'm mentioning 
this to answer your question) we have our volunteers and some 
of the people who are staffed at local agencies in Skokie, Lake 
County, Oak Park, Kankakee, Elk Grove Village, Harvey, 
Northfield, Kane, and McHenry counties, and possibly others 
came in since we started this.
    We really put our emphasis on making sure that the 
community is part of this information campaign. We work with 11 
different organizations that are community based. Jointly we 
seek to get the word out about the Operation Restore Trust 
message to report things that don't look right. We try to act 
as a buffer if there's something that may be correct, but does 
not look right. Our goal is to help cut the congestion at the 
1-800-HHS-TIPS line so that the really important calls are not 
lost.
    Our approach in the Operation Restore Trust brochure was to 
use the aging network of our volunteers as well as their host 
sites. We said to them that we want to present something that 
would really help get the message across. They helped design 
this particular brochure. We sent out drafts of it. They sent 
back comments. And they use the brochure combined with their 
own agency materials. In Barbara's case, Catholic Charities 
South Suburban Senior Services, created a brochure saying, ``If 
you have a question or concerns about your Medicare or Medicaid 
charges, call MAMA''--which means what, Barbara?
    Ms. Coyle. It's the Medicare And Medicaid Advocacy program.
    Mr. Lavin. So the MAMA is, picked up right away in terms of 
knowing you are going to get help, you're going to get a good 
explanation, and you're going to get the homework done on your 
behalf--right in your community. So we're very proud of this 
presentation.
    We've also in the early days, when we had a small contract 
from the Administration on Aging, we were able to get out over 
15,000 brochures to older persons, some translated into 
Russian, Spanish, and Polish for this area. We are doing a good 
job of getting information together, getting it into the hands 
of people like Barbara, John Grayson, and the folks here with 
us today to give these brochures to the people, and hopefully 
the information will be there when they have a question, they 
will call us, and make contact with the local agency. They can 
then begin a relationship with their volunteers and with their 
community organization for a number of programs and benefits.
    All of this is possible--(see they should have let me 
testify!)--because we were able to take this program and put it 
right into our older Americans Act at Senior Service Network 
throughout the metropolitan area existing programs and 
community agencies that help older people. By allowing us to 
work on this problem and using our ability to get the message 
out to all the people, this program went very quickly. We had 
volunteers in the community within 3 months of the notification 
of our grant.
    Senator Collins. It's an excellent effort, and I really 
commend you for it. I was in Iowa in October and visited the 
Area Agency on Aging. And they have a similar effort underway 
and it's something that I'd very much like to see New England 
start doing as well.
    Mr. Kopf, don't you think if we could somehow get this 
information in the hand of every Medicare beneficiary, maybe 
you'd be overwhelmed, I don't know, but given the findings that 
Senator Durbin gave us from the AARP survey and the survey from 
your office, it seems to me that most seniors don't know where 
to go if they have a problem. Do you think we should be doing 
more to try to get information such as this in the hands of 
more beneficiaries?
    Mr. Kopf. Definitely. We may be overwhelmed, but I welcome 
that problem rather than letting other people go about stealing 
from the government.
    The more outreach we can do, the more we can put out to the 
general public, not only the beneficiaries, but also the 
children of beneficiaries, that help them, the better we're 
going to be at doing our job. Not only can they become our eyes 
and ears, which is most important, because our resources are 
such that it's limited to certain areas, but they can become 
our eyes and ears and they can also make significant 
recommendations as to how they're seeing on such issues as 
quality of care and the services being given.
    So it's really a win-win situation when something like this 
happens.
    Senator Collins. Ms. Coyle, I like the reference in the 
testimony that you delivered to treating your Medicare number 
as you would treat a credit card number. I think that's a very 
good analogy that all of us can relate to, and yet we know from 
our previous hearings that oftentimes seniors have been very 
trusting in giving out that number.
    As you've been giving the presentations yourself, are 
people surprised that they need to be that careful, or what is 
their reaction?
    Ms. Coyle. I'll tell you the response we receive. They 
indicate to us that they really have never thought about it 
before. So actually, we repeat that message, treat your 
Medicare card like a credit card, we may say it four or five 
times during the presentation. It's really one of the most 
important things we do.
    One of our volunteers gave a presentation at a low income 
senior citizen housing unit, and after the presentation, one of 
the residents went to the coordinator for the building and 
reported that there was something funny going on in their 
building. There was a group that was going around to the 
residents and offering them fun days, free trips to Navy Pier, 
in exchange for their Medicare number.
    Senator Collins. Interesting.
    Ms. Coyle. And now that's under investigation. But here's 
the tale of a resident, once informed, who could act on 
something like that.
    Senator Collins. See, that shows exactly the value of the 
outreach you're doing. Because you alert people that there's a 
problem and all of a sudden it triggers a thought in their 
minds that may well expose a major fraud. So I think this 
program sounds very worthwhile.
    Before I yield back to Senator Durbin, I want to just raise 
one issue with you, Mr. Kopf. And that's on the Quisenberry, I 
think is the name of the case.
    Mr. Kopf. Yes.
    Senator Collins. Thank you. This case is incredible to me, 
because as I understand it, this family reincorporated the 
business more than 30 times, is that correct?
    Mr. Kopf. That's correct.
    Senator Collins. And that didn't raise any red flags? Is 
that because in each case it was under a different provider 
number?
    Mr. Kopf. It was under a different provider number under 
each case. And at the time the Quisenberrys entered into their 
fraudulent schemes, the contractors, while they had state-of-
the-art computers tracking it, the state-of-the-art at the time 
was really archaic to what it is now. So that by the time the 
contractors were aware that a scheme was going on, it was 
usually 6 to 9 months after it had already been started. The 
Quisenberrys were smart enough to know that they could stay 
below the radar screen of the contractors if after that time 
period they simply reincorporated.
    Now, as you know, incorporating a business is a State 
function and not controlled by the Federal Government. So they 
could have as many incorporations as they can getting different 
provider numbers. Today, however, that time period has shrunk 
dramatically, because of the knowledge that HCFA has gained 
through correcting provider numbers being issued, and also the 
computer system. So there's no longer this long gap that was 
there before HCFA now has a customer information database that 
can more rapidly pinpoint the scope and extent of any of the 
billers in relation to the beneficiaries and utilization of 
that particular project.
    Senator Collins. Does the HCFA form which is used to grant 
a provider number by the intermediary ask whether or not the 
company has ever done business in the past with Medicare under 
a different provider number?
    Mr. Kopf. I'm not sure. I don't believe that it does.
    Senator Collins. Ms. Collins, do you know?
    Ms. Collins. I honestly don't know the answer to that 
question.
    Senator Collins. It seems that would be a simple fix is to 
automatically have a question about have you ever done business 
with Medicare under a different provider number. And that you 
could tell whether they've been suspended or terminated from 
the program. It seems like that would give you a tracking so 
that you just can't swiftly close down 1 day, open up the next 
day, apply for a new number and go on ripping off the program.
    Ms. Collins. I don't know if that is specifically asked, 
but we're certainly asking for a great deal more information 
than we ever have before. And the checking that we do is more 
thorough than ever before. But I just can't answer that 
question specifically.
    Senator Collins. If you would, for the record, get back to 
us on that.
    Ms. Collins. Well, I'll be happy to.
    [The information provided follows:]
                  Information requested for the record
          Application forms.--Medicare provider application forms do 
        specifically ask whether the provider or supplier has ever 
        billed Medicare or Medicaid before. Applicants who have 
        previously billed Medicare or Medicaid must submit information 
        regarding that prior billing entity.

    Senator Collins. That would be great, because that's an 
issue that we may want to pursue. Senator Durbin.
    Senator Durbin. Mr. Kopf, why do these cases take 3 years 
to investigate and prosecute?
    Mr. Kopf. Most health care cases are very complex white 
collar crime investigations that involve a lot of documentation 
to be observed and gone through. When we issue a subpoena, for 
example, to look at records, the records are in massive 
amounts.
    The tracking of an individual case from the initiation of 
the complaint that comes in is such that it not only deals with 
one particular issue, but it will spread to other areas. For 
example, in one particular company they were taking the money 
used in a home health agency and depositing that money, sending 
it off shore to the Cayman Islands, reinvesting it under 
related businesses such as a travel agency, such as employing 
health care benefits for their own employees. And really it 
becomes a very complex case. It's hard to understand.
    Second of all, as we go about presenting the cases, it 
really has to have the type of jury appeal to show that there 
was clear intent involved. Usually one of the chief defenses 
that is used is the provider will say, well, we did give a 
service. And so we were providing the community with something. 
But taking that all into consideration, by the time you go 
through the documentation to compare it to the utilization, 
it's really a complex white collar crime case.
    Senator Durbin. I seemed to detect at some of our earlier 
hearings that, for better or for worse, Florida seems to be a 
leader in fraud, probably because of the number of seniors 
there and the language situation that presents itself from time 
to time. If I'm not wrong, one of the earlier witnesses 
testified about these community mental health centers and 
really it was Florida where it appears they first figured out 
how to get into the system and to bill Medicare for services 
which should not have been billed.
    Is that a correct observation, or am I being too tough on 
that?
    Mr. Kopf. Florida is certainly a prime target area because 
of the number of seniors that reside in that State. California 
and New York are second and third right behind it. And also, 
not only because there are a lot of beneficiaries that live in 
this State, but as you pointed out, there is a language 
difference. There are a lot of aliens that come in, and rather 
than trust the local physician, they'll go back to their own 
community. And it's a difficult situation.
    Senator Durbin. What are you detecting in Florida and those 
other States that we can expect to become the next national 
trend in terms of Medicare fraud?
    Mr. Kopf. I think one of the areas that we mentioned 
earlier was the community mental health centers. I think that 
is an area that we have found through our studies, our audits 
already completed, is a rapidly growing industry. I think it 
increased in payments well over 500 percent over the last 
couple of years.
    We looked at that to be one of the new areas. That's on the 
bad side. The good side is we have detected it early. And 
working with HCFA and working with the seniors in the State, I 
think we'll be able to possibly put this under control more 
rapidly than some of the other schemes in the past.
    Clearly though, the durable medical equipment will always 
be a prime target, especially where there are a lot of seniors 
and there's a lot of advertising and telemarketing going on.
    Senator Durbin. How many of these cases lead to debarment 
each year where a provider is debarred from doing business, any 
further business with the Federal Government?
    Mr. Kopf. Last year our office excluded from the program 
over 3,000 providers.
    Senator Durbin. Out of how many? What's the universe?
    Mr. Kopf. I really don't know. It's a vast universe, but 
it's increasing. I think we're having closer cooperation with 
State facilities, particularly the Medicaid Fraud Control 
Units.
    Also other agencies such as the FBI that are bringing their 
private cases to us that are convicted, so that we can get 
these people out of the system.
    Senator Durbin. Ms. Collins, there's a problem, is there 
not, once a provider has been excluded or debarred as to 
whether or not they continue to receive payments from the 
intermediaries at HCFA?
    Ms. Collins. Clearly that has to be addressed to assure 
that these excluded providers do not get any future payments 
from Medicare.
    Senator Durbin. Well, one of the provisions in the bill 
that Senator Collins and I will be working on is requiring 
Medicare or Medicaid contractors to reimburse the Federal 
Government if they continue to pay a provider which has been 
found guilty and debarred from doing business with the 
government.
    That seems so obvious. I'm sure a lot of people listening 
are thinking, wait a minute, you have said that these people 
cheated the taxpayers and now you said they can't do business 
with the Federal Government. And yet the intermediary continues 
to do business with them and pay it out of the Treasury.
    That seems to be something that we ought to address and 
shouldn't have much controversy associated with it.
    Ms. Collins. Well, I would respond that I think there are 
other ways to address that rather than holding the intermediary 
liable for that payment. We have a responsibility to make sure 
that the intermediary has the good information in order to 
assure that those payments are not made. And I believe Mr. Kopf 
has talked about our efforts in that regard to assure that 
those payments are not made with improved databases and cross-
checks.
    [The information provided follows:]
                  Information requested for the record
          Payment to excluded providers.--Clearly, we must make sure 
        payments do not go to excluded providers, and we are now 
        developing a more sophisticated system to make sure that they 
        do not. We expect contractors to make a good faith effort to 
        prevent payment to excluded providers. However, contractors 
        have not always been given all the data needed to prevent 
        payment to excluded providers. Working with the HHS Inspector 
        General and our contractors, we have identified ways to improve 
        our system for preventing such improper payments. The system we 
        are now developing includes a substantially improved database 
        on excluded providers. That will help make sure our contractors 
        have the information they need to prevent improper payments to 
        these providers. We will instruct contractors to check that 
        database against files of providers billing Medicare. We also 
        will instruct contractors to check the excluded provider 
        database against databases with employment information. That 
        will help prevent excluded individuals and entities from 
        getting back into the program, and should be much more 
        effective than our old system.

          In addition, we are considering a regulation to require 
        providers to periodically re-enroll in Medicare, thereby 
        allowing us to reevaluate whether each provider continues to 
        meet Medicare's standards. This would help assure that only 
        legitimate providers are enrolled and able to receive Medicare 
        payments.

    Senator Durbin. I might return to the point made by Senator 
Collins about Medicare numbers. I don't know how they are 
provided to seniors. Once you qualify for Medicare, do you 
receive notice in the mail from the Federal Government of your 
Medicare number?
    Ms. Collins. Yes. You receive a card and a number.
    Senator Durbin. And is there any kind of warning or advice 
on there about how important it is to keep that number 
confidential?
    Ms. Collins. Yes. And in our literature we do provide 
information about that.
    Senator Durbin. Well, I hope we're doing everything we can 
as people do with new credit cards to impress upon seniors the 
need to keep that number confidential.
    One other element that we checked out was, Mr. Kopf, 
perhaps you can address it. It appears that some of these 
providers, once they've been discovered as having defrauded the 
government, have been able to escape fines by declaring 
bankruptcy. Are you familiar with that?
    Mr. Kopf. Very much, yes.
    Senator Durbin. Could you explain that?
    Mr. Kopf. What happens is once an individual knows they are 
under investigation, is they will declare bankruptcy. They'll 
dissipate all of the illegal gotten funds as quickly as they 
can. And what this does to us, it hinders our ability to 
collect those ill gotten gains and bring them back to the 
Treasury, bring them back to the Trust Funds.
    It's been on the increase and it seems to be a way of doing 
business once they're aware that we are looking at them. We can 
almost count on within a few months that all of a sudden 
they've claimed bankruptcy and have an inability to pay back 
the government.
    Senator Durbin. One of the provisions of the bill we're 
working on would not allow them to discharge this debt to the 
Federal Government, so that we could continue to pursue them 
and collect it. And I hope that we can provide that as well.
    Mr. Kopf. That would be excellent.
    Senator Durbin. I don't think the bankruptcy court should 
be a shelter for those who have defrauded the government from 
paying back what they have taken from us.
    I'd like to thank this panel for your testimony and yield 
back to the Chairman at this point.
    Senator Collins. Mr. Kopf, one of the cases that you cited 
in your testimony involved a pharmaceutical company that, if I 
understood you right, was improperly recycling drugs, I guess 
would be one way to put it, from nursing home facilities in 
cases where the patient had either died or been discharged, and 
not used the full amount of the drug. The drug is then being 
repackaged and resold. Is that correct?
    Mr. Kopf. That's correct.
    Senator Collins. And that's an important case because in 
many instances when we talk about Medicare fraud, we talk about 
the monetary loss. But in this case, what was being done posed 
a health threat as well. Because the people were getting drugs 
that weren't properly stored, that may have been expired. Is 
that accurate?
    Mr. Kopf. That's correct. That's accurate.
    Senator Collins. Why hasn't a problem like this been 
identified earlier? Is this a case where the controls on 
pharmaceuticals that aren't used are inadequate? Talk to us a 
bit about how this occurred and how it could be prevented.
    Mr. Kopf. It occurred because when this particular 
pharmaceutical company came to a nursing home, the nursing home 
assumed that they were doing a service for that nursing home. 
There's a lot of trust that goes between each individual. And 
the nursing home would trust the pharmaceutical company to 
provide that service and then the nursing home would not have 
to provide that service.
    As you know, criminals lie. And they were able to----
    Senator Collins. I am beginning to realize that.
    Mr. Kopf. So they're able to convince the nursing homes 
that they are going about the normal destruction of these 
different drugs when in fact they weren't. Probably two things 
that could occur at this time is that, again, an awareness to 
the nursing homes about this type of fraud scheme once it's 
gone through the courts and it's public. Let them know to be 
aware of the proper disposal of the drugs would go a long way.
    Senator Collins. Ms. Collins, I wanted to go back to the 
issue that Senator Durbin raised about when people get their 
Medicare card. You referred that there is literature that comes 
with that. Could you explain to us, I mean, is there some sort 
of brochure that gives the 1-800-HHS-TIPS number and some of 
the kinds of guidelines that this brochure has?
    Ms. Collins. A new Medicare beneficiary, when they receive 
their card, they will receive a Medicare handbook. And in that 
handbook there is information regarding the hotline number and 
other helpful phone numbers to contact if there are questions 
or concerns.
    Senator Collins. Is the 1-800 number put on the explanation 
of benefits form?
    Ms. Collins. Yes, it is.
    Senator Collins. Good. I think that the more we can get 
that out and the more we can have dedicated volunteers like Ms. 
Coyle out there doing demonstrations and talking to people, the 
more we can involve senior citizens in this problem. I think 
the seniors are very eager to help. They are very protective of 
this program. And they realize how vital it is to their well 
being. And I think enlisting them is a wonderful idea.
    For that reason, I really enjoyed learning about Operation 
Restore Trust both from the HCFA perspective, the IG's 
perspective and the Area Agency's perspective, and that of a 
dedicated volunteer.
    This hearing will be very helpful to Senator Durbin and me 
as we complete our process of drafting a Medicare Anti-Fraud 
bill which we hope to introduce shortly after we reconvene in 
January.
    I don't have any further questions, but I want to see if 
Senator Durbin may.
    Senator Durbin. I might have one last question. And that is 
whether or not, there is an area of medical care which I 
consider to be very important and very good, but also open to a 
lot of abuse and that's home health care. Because unlike a 
nursing home situation or an institutional situation where 
there is usually a paper trail and a lot of witnesses, many of 
the services and pieces of equipment provided through home 
delivery and home health care usually consists of a provider 
and a senior with no one else on the scene and very little 
paper to evidence the transaction.
    Ms. Collins, how can we preserve home health care and the 
important contribution it makes toward the health of America 
and still have appropriate accounting and auditing so that the 
rip-off artists don't gravitate toward it?
    Ms. Collins. Well, I think the challenge has to be 
addressed in several ways. There are certain reimbursement 
incentives that we want to make sure are driven in the right 
direction. One of the loopholes that was closed in the Balanced 
Budget Act was to require that services are billed for from 
where they are given and not from some billing location which 
may be conveniently in a very high cost area so the 
reimbursement is inflated.
    Also our involvement of the surveyors in their routine 
survey work where they become the eyes of the agency and the 
ears of the agency. They are highly professional, trained 
participants in not only assuring quality of care provided to 
home health beneficiaries receiving the home health care. They 
also have a working knowledge of Medicare coverage and billing 
requirements, and are trained in program integrity issues, to 
help us spot them. And more importantly, they have the 
knowledge and a relationship with us, and with the Inspector 
General, to report on those issues so that there can be prompt 
follow-up.
    Senator Durbin. Well, I thank you. And I thank each of you 
for your testimony today. I think I've come away from this 
hearing with some specific things in mind. When it comes to 
HCFA, I think that your testimony, Ms. Collins, today was good 
news to Senator Collins and myself about additional activities 
by your agency to verify the locations and backgrounds of the 
providers.
    I think that that is a very positive improvement. I'm also 
happy to hear that what appeared to be a decision to suppress 
some explanation of benefits has been reversed so that seniors 
receive enough information to make important reviews of their 
own medical billing.
    Mr. Kopf, continue your work, of course, and I hope that we 
can provide you the resources and change the law in a way to 
make your effort even more successful in the future. I hope 
that we can find ways of creating more incentives for whistle 
blowers and people to come forward, because I think this is a 
valuable part of the process and what we are trying to achieve. 
And I thank you for all that you've contributed today in your 
testimony.
    Ms. Coyle and Mr. Lavin, thank you, too. I think seniors 
many times can provide the kind of expertise and knowledge to 
really make this work and work well. And what you've been able 
to do through Operation Restore Trust and with your own 
suburban agency has demonstrated that time and time again.
    I hope that many of the seniors who hear about this get a 
little upset to think that somebody is trying to rip them off. 
I can recall my mom calling me once in a while and saying, I'm 
not sure they're treating me right. And I hope that this will 
be additional incentive to spread this program across the 
country. And some basic things like telling people how 
important it is to keep their numbers to themselves and 
confidential so that they aren't used by other people.
    Thank you for your testimony. You've really given us, I 
think, first-hand information about efforts that are being made 
and Senator Collins, thank you for being here.
    Senator Collins. My pleasure. It is my hope, Senator 
Durbin, that perhaps it was the combined experience of 
Operation Restore Trust and the hearings that we held in 
Washington that exposed what happens when you don't have site 
visits that perhaps prompted HCFA to expand this nationwide.
    But whatever its cause, it's certainly good news and we 
look forward to working with all of you. I want to again thank 
Senator Durbin for inviting me to his home State. I can see why 
he's so proud to represent Chicago and indeed the entire State 
of Illinois. And I want to come back again.
    Thank you all very much for attending the hearing and for 
your contributions. I also want to thank our staff who worked 
very hard. Senator Durbin's staff was very helpful in the 
logistics for this hearing and Marianne Upton from his 
Washington staff, who has been working with us on several 
issues, is also here today, as well as several members of my 
staff, Steve Abbott, my Chief of Staff, Tim Shea, Don Mullinax, 
Eric Eskew, and Lindsey Ledwin from the Subcommittee, all 
worked very hard and I want to thank them for their efforts as 
well.
    This hearing is now adjourned.
    (Whereupon, 11:42 a.m., the Subcommittee was adjourned.)
                            A P P E N D I X

                              ----------                              


                 PREPARED STATEMENT OF DOROTHY COLLINS
    Chairwoman Collins, Senator Durbin, distinguished Subcommittee 
members, thank you for inviting me here today to discuss Operation 
Restore Trust and our ongoing fight against fraud, waste and abuse. We 
greatly appreciate your interest and Support for this essential effort.
    Operation Restore Trust was launched by President Clinton in May 
1995 as a five-State demonstration project targeting just three areas. 
It has rapidly become the way that we do day-to-day business throughout 
our agency because of its overwhelming success.
    Operation Restore Trust, along with the stable funding for program 
integrity work that was established by the Health Insurance Portability 
and Accountability Act in 1996, marks a turning point in our fight 
against fraud, waste and abuse. It has lead to record levels of 
criminal convictions, civil monetary fines, financial restitutions, and 
permanent exclusions of unscrupulous providers from our programs. It 
has shown us how to move faster and smarter. We are using what we have 
learned broadly and aggressively, and conducting more audits, medical 
reviews, and site visits than ever before. It has generated broad 
bipartisan support for changes in the law to close loopholes, raise 
standards, promote efficiency, and prevent problems from occurring in 
the first place. And it has inspired us to work with our partners to 
develop a Comprehensive Program Integrity Plan to make fraud and abuse 
harder to accomplish, easier to see, and less appealing to those who 
are unscrupulous.
    Most importantly, Operation Restore Trust has taught us how 
critically important it is for us to coordinate with all our partners, 
from the Federal Bureau of Investigation on down to individual 
beneficiaries.
    Since the inception of Operation Restore Trust, we have been 
greatly assisted by provisions of the Health Insurance Portability and 
Accountability Act of 1996 and the Balanced Budget Act of 1997, which 
included increased and dedicated funding to fight fraud, waste and 
abuse, and several other important provisions which help protect 
program integrity. We are committed to continuing our success and 
expanding it at every opportunity.
BACKGROUND
    Illinois was among the first five Operation Restore Trust 
demonstration States, the others being California, Florida, New York, 
and Texas. Together these States include nearly 40 percent of all 
Medicare and Medicaid beneficiaries. Operation Restore Trust brought 
together teams from the Health Care Financing Administration, the HHS 
Inspector General, and the Administration on Aging in these States to 
target three fast-growing areas where we knew we had problems--home 
health, nursing homes and hospices, and durable medical equipment.
    Operation Restore Trust includes several key elements:

     LSophistication--Advanced statistical methods are used to 
identify areas and individual providers for investigation and audit;

     LCooperation--Interdisciplinary teams review questionable 
providers, both for problems specific to that provider and to 
indications of more systemic problems in our programs;

     LCoordination--Investigations are planned and conducted 
together with law enforcement agencies at all relevant levels;

     LEmpowerment--State and local aging organizations, 
ombudsmen and individual beneficiaries and health care workers are 
engaged and trained to detect and report potential problems, with 
reporting facilitated through a toll-free anti-fraud hotline; and

     LEfficiency--State survey officials who already monitor 
care for quality are used as eyes and ears to also look for 
questionable billing. Increased cooperation and coordination also 
eliminate duplication of efforts that occurred in the past.

    In Illinois, one of our first Operation Restore Trust projects 
focused on 20 home health agencies that we identified through a process 
that has now become standard practice.

     LWe used statistical analysis to rank all agencies for 
total dollars paid, dollars paid per beneficiary, number of service 
units per beneficiary, and volume of claims.

     LWe drew up a list of those that had aberrant billing 
patterns based on our analysis, and had our law enforcement partners 
review this list so we would not target any that were already under 
separate investigations.

     LWe worked with the State to specially train its 
registered nurse surveyors, who already routinely conducted home health 
agency quality reviews for us, to spot program integrity problems, as 
well. These nurse surveyors conducted thorough surveys of the 
questionable agencies we had identified, including their medical 
documentation records.

     LThe State surveyors also, importantly, visited individual 
beneficiaries in their homes to ask about the care the home health 
agencies were providing. They found that far too often services for 
which the taxpayers were being billed were either overused, not 
medically necessary, or not covered by Medicare. In some cases, the 
beneficiary was not even homebound, which is an essential criterion to 
qualify for home health care.

     LWe had our claims processing contractor review the State 
surveyor's findings and conduct further studies. They determined that 
these 20 home health agencies had been improperly paid more than 
$777,000, which is now being recouped. In addition, they prevented 
further improper payment of another $569,555 to these agencies, all for 
an investment in this particular project of just $52,889. Similar 
Operation Restore Trust successes were achieved in all the five pilot 
States.

    Other Operation Restore Trust initiatives in Illinois uncovered 
hospices billing for patients who were not terminally ill, and durable 
medical equipment vendors billing for unnecessary and expensive 
supplies that were simply being stockpiled in nursing homes storage 
rooms.
EXPANSION
    Overall, Operation Restore Trust saved more than $200 million in 
its first two years through restitutions, fines, settlements, and 
identified overpayments. Its expansion began as soon as its success 
became apparent.
    In 1997, we began working to incorporate Operation Restore Trust 
into our day-to-day business approach throughout the country. Operation 
Restore Trust strategies were expanded to a total of 19 States--
Arizona, California, Connecticut, Florida, Illinois, Indiana, 
Louisiana, Massachusetts, Minnesota, Missouri, New Jersey, Ohio, 
Oklahoma, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming.
    Community mental health center abuse of Medicare's partial 
hospitalization benefit was added to the Operation Restore Trust 
project list, as our analyses showed costs soaring far beyond any 
reasonable projection. The partial hospitalization benefit provides 
outpatient psychiatric services to mentally ill patients who otherwise 
would have to be hospitalized. Operation Restore Trust investigations 
found centers with no trained professionals, providing no treatment of 
any kind, or billing us for ``therapies'' such as bingo. We now have a 
national initiative underway to terminate the most egregious community 
mental health centers, and to closely monitor others to ensure 
appropriate care and compliance with coverage requirements.
    We made significant improvements to Operation Restore Trust's 
special anti-fraud hotline, 1-800-HHS-TIPS, so beneficiaries and health 
care workers with potential problems to report could get more user-
friendly service and quicker access to live operators. As Secretary 
Shalala has said, beneficiaries and honest providers are among our most 
important allies in fighting fraud, and we must make sure they know how 
to reach us and how they can help. This hotline is a critical link, and 
since its inception in June 1995 HHS operators have spoken to 
approximately 145,000 individuals regarding potential issues of fraud, 
waste and abuse.
    We have received 3,956 complaints through the hotline in Region 
Five since its beginning in 1995 that so far have lead to $1.9 million 
in recoveries on 352 cases, with another 75 cases referred to law 
enforcement for further criminal investigation.
    Here in Region Five, we expanded Operation Restore Trust 
investigations into Indiana, Minnesota, and Ohio. This year we have 
expanded them into Wisconsin. And next year we are planning to use 
Operation Restore Trust strategies to target suspected problems in 
clinical laboratories, hospices, and skilled nursing facilities.
    Because of Operation Restore Trust, we are getting more information 
from beneficiaries about potential problems, and seeing much broader 
public awareness in general of how to fight health care fraud. We are 
seeing routine program integrity referrals from State surveyors. We are 
seeing provider groups do more to educate their members on program 
integrity issues, like the need for proper documentation. We have 
secured several important changes in legislation and regulation that 
help fight fraud, waste, and abuse, including:

     Lhome health reforms that close loopholes, eliminate 
incentives to bill for unnecessary or uncovered care, and tighten 
eligibility standards;

     Lthe ability to bar convicted health care felons from ever 
again getting paid by Medicare, and to exclude family members of 
sanctioned providers as well, so that they can't continue operating 
just by transferring the business in name to a relative; and

     Lthe right to require providers to give us their social 
security and employer identification numbers so that we can check to 
see if they've ever committed health fraud in the past.

    In fact, the success of Operation Restore Trust and our overall 
crackdown on fraud, waste and abuse may have generated undue concern 
among some providers. Let me be clear--we have no intention of 
prosecuting anyone for honest mistakes. If providers do make billing 
errors, we do want to find those errors, preferably before we make 
payment. If we find errors after we make payment, make no mistake about 
it, we do want the money back.
    But we are not looking to put anyone in jail for honest mistakes, 
and we are not going to refer physicians to law enforcement agencies 
for occasional errors. We know that most providers are honest and 
conscientious, and we have to believe that the provider knows he or she 
was violating billing rules before we make any referrals. Let me also 
be clear, however, that we have zero tolerance for fraud, waste, and 
abuse.
COMPREHENSIVE PLAN
    In order to further institutionalize and build on the lessons of 
Operation Restore Trust, we have developed a Comprehensive Program 
Integrity Plan, which is nearing completion. Its development began last 
March when we sponsored an unprecedented national conference on fraud, 
waste, and abuse in Washington, D.C., with broad representation from 
our many partners in this effort. The bulk of the conference consisted 
of discussion sessions. Groups of experts from private insurers, 
consumer advocates, health care provider groups, State health officials 
and law enforcement agencies were invited to share successful 
techniques and explore new ideas. Their discussions were synthesized 
and analyzed to determine the most effective strategies and practices 
already in place, and which among the new ideas that were raised 
deserve further exploration. The result is a Comprehensive Program 
Integrity Plan with several clear objectives.

    Increase the Effectiveness of Medical Review. This includes:

     Lincreasing the overall level of review, and targeting it 
on problem areas such as durable medical equipment, physician 
evaluation and management services, and home health claims;

     Lhiring additional physicians as claims processing 
contractor Medical Directors to improve the effectiveness of medical 
review and foster better understanding of program integrity issues 
among physicians;

     Lmaking more efficient use of prepayment review with 
claims processing computer ``edits'' that automatically deny improper 
claims;

     Ltraining for approximately 500 Medicare and Medicaid 
contractor employees by the HHS Inspector General's office on how to 
develop cases for prosecution when warranted;

     Levaluating local review policies to determine where 
national policy may be needed; and

     Lmeasuring how well individual contractors perform medical 
review activities.

    Implement the Medicare Integrity Program. This allows us to hire 
special contractors who will focus solely on Program integrity, as 
authorized under the Health Insurance Portability and Accountability 
Act. We are now reviewing public comments on a proposed regulation for 
how these contracts will work, and expect to issue a final regulation 
early next year. Until now, only insurance companies who process 
Medicare claims have been able to conduct audits, medical reviews, and 
other program integrity activities. Under the new authority, we can 
contract with many more firms who can bring new energy and ideas to 
this essential task. We expect to have four new types of contractors:

     Lpayment Safeguard Contractors will focus on medical 
review, fraud case development, cost report audits and related program 
safeguard functions as needed;

     La Coordination of Benefits Contractor will consolidate 
all activities associated with making sure Medicare does not pay for 
claims when private insurers or other government programs are liable;

     La Statistical Analysis Contractor will provide a 
comprehensive on-going analysis of trends, utilization data and other 
information which helps detect fraud, waste, and abuse; and,

     LManaged Care Integrity Contractor(s) will target the 
program integrity issues that are unique to health plans.

    We have already issued one Program Safeguard Contract solicitation 
to establish a multiple awards contract for these MIP activities. Once 
established, the multiple awards contract will allow us to issue Task 
Orders for any or all program integrity activities. This way we can 
have a pool of contractors available to undertake the work before we 
solicit proposals for specific contractors' workloads. This lets us 
experiment with various configurations of program integrity activities, 
and provides flexibility that will help mitigate risk related to the 
Year 2000 issue and other challenges. We also will be able to turn to 
these contractors when various situations arise, such as the appearance 
of new scams or the departure of another contractor.

    Proactively Address the Balanced Budget Act. This law created 
several new programs, benefits, and payment systems which all create 
new vulnerabilities. We are acting to address program integrity 
problems before they occur for:

     Lthe Children's Health Insurance Program;

     Ldiabetes self-management, mammography screening, prostate 
cancer screening, and osteoporosis screening benefits;

     Lreimbursement changes for physicians assistants and nurse 
practitioners; and,

     Lthe prospective payment system for skilled nursing 
facilities.

    Promote Provider Integrity. We intend to make clear that we do not 
simply pay bills, but enter into agreements to do business with 
providers. To do so, we will:

     Lstep up efforts to educate providers on how to comply 
with program rules;

     Lpublish a proposed regulation to establish clear 
enrollment and periodic reenrollment requirements, including conditions 
under which we will deny or revoke billing privileges and an appeal 
process for providers whose billing privileges are denied or revoked; 
and

     Lpursue bond requirements for certain types of providers, 
pending receipt of a General Accounting Office report on how to best 
use bonds to protect program integrity.

    Prepare for the Year 2000 Computer Issue. We have special work 
groups exploring how the millennium problem could impact program 
integrity efforts. They are evaluating the function, value, and Year 
2000 risks for each of our program integrity efforts, and developing a 
plan to mitigate or circumvent any problems if they do arise.

    Target Known Problem Areas. These include inpatient hospital care, 
managed care, congregate care (delivered settings such as assisted 
living facilities), nursing homes, and community mental health centers.

     LInpatient Hospital Care. We will have Medicare's Peer 
Review Organizations (PROs) investigate, correct, and prevent problems 
documented in audits of Medicare, such as providing unnecessary or 
uncovered services, failing to properly document care, and coding 
claims incorrectly. PROs currently perform activities such as 
validating diagnostic codes and reviewing medical records. Our new 
contracts with them will include strong financial incentives to reduce 
improper payment rates for inpatient care.

     LManaged Care. As mentioned above, we will hire a special 
program integrity contractor to focus on managed care, where fraud, 
waste, and abuse are more likely to involve inadequate care, avoiding 
enrollment of high-cost patients, and misrepresenting data on which 
payment rates are based. We expect such contractors to verify data, 
review beneficiary appeals to ensure that access to care is not denied 
inappropriately, and monitor plan compliance with Medicare rules.

     LCongregate Care. Beneficiaries in nursing homes, assisted 
living centers or adult day care facilities are easy targets because 
there is easy access to large numbers of beneficiary billing numbers. 
Unscrupulous providers conduct ``gang visits'' in which all 
beneficiaries receive a service or supply whether they need it or not, 
or they submit bills for every beneficiary without furnishing anything 
at all. They also submit duplicate bills to both Medicare and other 
payers for services that only one payer should cover. We will mount 
Operation Restore Trust style projects to fight these types of scams. 
We also will work to anticipate shifting incentives for congregate care 
fraud, waste, and abuse as we move to more prospective payment systems.

     LNursing Homes. As one of our original Operation Restore 
Trust focus areas, much is already underway to fight fraud, waste, and 
abuse and improve the quality of care. We will continue our initiative, 
announced by the President this summer, in which we are: working with 
States to improve their nursing home inspection systems; cracking down 
on nursing homes that repeatedly violate safety rules; seeking to 
require criminal background checks on all new nursing home employees; 
working to reduce the incidence of bed sores, dehydration, and 
malnutrition; and publishing nursing home quality ratings on the 
Internet. We also are likely to work with law enforcement partners to 
address egregious cases. And we will continue to develop Operation 
Restore Trust style projects targeted on specific nursing home fraud, 
waste, and abuse problems.

     LCommunity Mental Health Centers. As another of our 
earlier Operation Restore Trust focus areas, much is already being done 
to stop abuses in this area, as well. We have a 10-point action plan 
underway which first and foremost ensures that beneficiaries who need 
intensive psychiatric services get them from qualified providers. We 
are doing so through coordination with other agencies, providers, and 
advocacy groups. This beneficiary protection is essential as we 
terminate the worst offenders and work aggressively to bring others 
into compliance with all rules and regulations. We are increasing 
claims review and developing a prospective payment system that will 
eliminate incentives for inappropriate, unnecessary or inefficient 
care. We also are increasing scrutiny of new applicants and requiring 
site visits nationwide to ensure that they meet all of Medicare's core 
requirements. Already this year we have denied Medicare participation 
to more than 100 applicants because they failed to provide all the 
required services. And last year President Clinton sought legislation 
to strengthen CMHC enforcement activities by: authorizing fines for 
falsely certifying a beneficiary's eligibility for partial 
hospitalization services; prohibiting partial hospitalization services 
from being provided in a beneficiary's home or other residential 
setting; and authorizing the Secretary to set additional requirements 
for CMHCs to participate in the Medicare program.
CONCLUSION
    Operation Restore Trust has lead to unprecedented success in 
fighting fraud, waste and abuse. It has become the way we do business 
on a day-to-day basis throughout our Regional Office here in Chicago 
and the Nation. It lead us to conduct an unprecedented national 
conference on how to fight health care fraud, and from there to develop 
a Comprehensive Program Integrity Plan that builds on our successes and 
lessons learned. We greatly appreciate your interest and support for 
these efforts. Senator Collins, I know this area is of particular 
concern to you, and that you have conducted previous hearings and 
drafted legislation to help us in these efforts. We are honored to have 
you here with us today in Chicago. We look forward to working with you 
and Senator Durbin on further efforts to protect Medicare from fraud, 
waste and abuse, and I am happy to answer any questions you may have.
                               __________
                  PREPARED STATEMENT OF JAMES A. KOPF
    Good morning Madam Chairman. I am James A. Kopf, Director of the 
Criminal Investigations Division in the Office of Inspector General 
(OIG) at the U.S. Department of Health and Human Services (HHS). I am 
here to tell you about some innovative practices we have developed to 
fight fraud and abuse in the Medicare and Medicaid programs. We have 
had notable successes; and we know we cannot let our guard down or be 
satisfied with today's tools.
    Let me share some insights about our experiences with the 
constantly escalating assaults on our programs.

                 Developing New Enforcement Approaches

    With annual expenditures of well over $300 billion, the Medicare 
and Medicaid programs present a sizeable target to those who seek to 
unjustly enrich themselves at the taxpayers' expense.
    In late fall of 1994, with resources shrinking, the HHS Secretary 
asked the Inspector General to develop a new approach that would enlist 
the resources of the various HHS components to attack fraud and abuse 
in Medicare and Medicaid. It was decided to implement a coordinated 
effort involving the OIG, the Health Care Financing Administration 
(HCFA) and the Administration on Aging (AoA). Those three components of 
HHS served as the cornerstone for the Department's new initiative and 
brought the Department's many years of experience and expertise 
together in a concerted effort.
    In addition, we invited the Department of Justice, including the 
Federal Bureau of Investigation, the Offices of the United States 
Attorneys, and State and local agencies involved in fighting health 
care fraud and abuse issues to participate in this combined effort, 
which became known as Operation Restore Trust (ORT). It was started in 
March 1995, then became a Presidential initiative in May of that year.
    The purpose of this initiative was threefold: (1) to coordinate all 
available resources in an effort to make a significant impact on health 
care fraud and abuse; (2) to reach out and educate the public on the 
growing health care fraud schemes and issues; and (3) to demonstrate 
that a combined effort would be the most cost efficient method of 
attacking this problem, with results yielding a significant return on 
the dollars invested.
    We focused our efforts on five key States and three high-growth 
program areas. The States were New York, Florida, Illinois, Texas, and 
California. These States represented over one third of all 
beneficiaries and expenditures for Medicare and Medicaid nationally. 
The high-growth program areas were home health care, nursing 
facilities, and durable medical equipment.
    Our audits, evaluations, and investigations indicated that the home 
health industry had become a target for unscrupulous providers. Nursing 
facilities also came under scrutiny, not only for fraud and abuse, but 
also for potential of quality of care and patient abuse issues. Durable 
medical equipment (DME) is traditionally a hot bed for those who choose 
to steal from the government. At that time, Medicare provider numbers 
(i.e., authorized numbers used to bill the Medicare program) were 
easily obtainable, and no prior health care experience was required to 
go into the DME business. So profitable was this area that criminal 
elements in South Florida were leaving the illegal drug business to 
open DME companies. This was as profitable as dealing in drugs and was 
less risky.
    After the first year of the project, hospice care was added as a 
high-growth focus area, based on audits of the industry that indicated 
a high potential for fraud and abuse.
    Project Coordinators in each of the five States established work 
groups comprised of the agencies I mentioned earlier. The work groups 
determined project goals and objectives unique to each State and 
implemented innovative plans that made the best use of available 
resources. The States coordinated their efforts with the OIG, HCFA, and 
AoA headquarters, which in turn shared the results of each State's 
efforts with the entire demonstration team. The result was a cohesive, 
concentrated attack on health care fraud.
    Members of the partnerships we found are here today to tell you 
about the results of this initiative. Each will provide a unique 
perspective as to what they hoped to see accomplished. I am here to 
share information regarding some of the successful cases that flowed 
out of this project locally.

              Examples of Schemes Investigated in Illinois

Incontinence Supplies
    First, during Operation Restore Trust, a scheme was uncovered 
involving incontinence supplies provided to nursing home patients. 
Adult diapers are not items that a nursing facility can bill separately 
to Medicare. The cost of providing adult diapers is the responsibility 
of the nursing facility as a part of its routine cost of providing care 
to patients.
    Investigations revealed that unscrupulous suppliers convinced 
nursing home operators that they had found a legitimate way to bill 
Medicare for the diapers. In return for the names and Medicare numbers 
of incontinent patients, these suppliers provided the nursing homes 
with an endless supply of adult diapers at no cost. The suppliers then 
billed Medicare as if the diapers were an item known as a ``Female 
Urinary Collection Device.'' This device could be billed for $7.00 to 
$8.00 per item while the cost for purchasing the diapers was only 30 
cents per diaper. The supplier billed Medicare as if the more expensive 
collection devices were provided three times a day, 7 days a week. The 
cost to Medicare mounted at an incredible rate. The suppliers quickly 
recouped their overhead and began making money.
    This particular scheme was found to be so wide-spread that it 
involved patients and suppliers throughout the country. These cases 
have been successfully investigated, and a number of these 
investigations are still ongoing, including some in Illinois.
    We were able to detect this scheme and investigate these matters in 
Illinois because of efforts and resources provided through ORT. In all 
States, savings to Medicare are as a result of these types of 
investigations resulted in savings estimated at $104 million in 1996, 
projected to about $534 million over 5 years.
Changing Identities
    The next case had some distinct characteristics not found in the 
preceding examples. This supplier provided incontinence care kits to 
nursing homes. These relatively inexpensive kits included a pair of 
latex gloves, a small cup of sterile water, a disinfectant, an 
absorbent pad, a pair of plastic tweezers and a small plastic pair of 
scissors. The supplier misrepresented the patients as having chronic 
incontinence in order to bill Medicare, then inflated the number of 
kits actually provided. An average of 90 kits per month per patient was 
billed, but only about a third of that number was provided.
    What sets this investigation apart from the others was the fact 
that the perpetrators closed and then reincorporated their business 
under different names 31 times to avoid detection. Shortly after they 
started doing business with Medicare, the Quisenberrys, a father/
daughter team, became aware that the Medicare contractor who processed 
their claims was scrutinizing the claims due to concerns about possible 
fraud or abuse. Before their company du jour would run up enough claims 
to gain the attention of the contractor, the Quisenberrys would simply 
close the business and incorporate under a different name and location. 
They were able to accomplish this by enlisting the aid of friends and 
family who ``fronted'' for them.
    When this investigation was concluded, the Quisenberrys and five of 
their associates were named in a Racketeering Influenced, Corrupt 
Organization (RICO) indictment. The RICO indictment was the first of 
its kind in the health care fraud arena. More significantly, it was the 
largest RICO indictment in the history of the judicial district in 
which it was filed, alleging damages of approximately $30 million to 
the Medicare program. All the parties charged pled guilty to their part 
in this scheme. While not being the largest Medicare fraud case which 
we have investigated, the Quisenberry case clearly was one of the more 
unique investigations, setting a trend on how to cheat the Government. 
A number of jurisdictions are now considering similar charges in other 
investigations.
    Although this supplier was actually based in Michigan, it did over 
$1 million in business with nursing homes in Illinois, and for that 
reason, it was included as an Operation Restore Trust investigation. 
Again, if not for the resources and expertise that were brought in 
under ORT, this investigation would not have been brought to a 
successful conclusion.
Phony Cost Reports
    Based on periodic cost reports, Medicare reimburses Home health 
agencies, nursing facilities, and some other providers who render care 
in a facility-like setting. The cost report is used to itemize the 
total cost of operation of the provider. It identifies the proportion 
of the provider's total cost that is related to the care of Medicare 
beneficiaries and forms the basis for Medicare reimbursement. It is 
possible, however, to ``bury'' within this document expenditures which 
are totally unrelated to providing Medicare beneficiaries with 
treatment.
    Through ORT, we initiated a number of cost report cases in Illinois 
as they apply to nursing facilities or home-confined patients.
    In one case, a nursing home administrator embezzled money from the 
owners of his nursing home by including non-medical expenses in the 
cost report, disguising them as reimbursable items. In some instances, 
the money was actually used for improvements to his private residence 
and an accumulation of over 200 pornographic video tapes. In addition, 
he created a ghost employee and paid himself a sizeable salary under 
that name. He also embezzled money from residents in the nursing home 
by gaining control of their personal finances.
    In all, this man stole approximately $1.6 million. All but $200,000 
was obtained through false cost reports. He pled guilty as a result of 
this investigation and was sentenced to a total of 46 months 
imprisonment and ordered to pay $1.6 million in restitution, including 
over $67,000 to a Medicare beneficiary from whom he swindled money.
Exploiting the Frail Elderly to Bill Medicare
    In another type of case that was identified during Operation 
Restore Trust, a number of businesses identifying themselves as 
Community Mental Health Centers were found to be defrauding the 
Medicare and Medicaid programs. These providers supplied adult day care 
under the guise of mental health therapy.
    Patients at area nursing facilities were delivered by the provider 
and held for the day in empty warehouses or other abandoned buildings. 
They were allowed to watch TV or play cards, but were otherwise 
provided no structure or care. The providers claimed the expense of 
providing transportation, meals and the services of mental health 
professionals when they did not, in fact, provide any of these 
services. These investigations are far from complete and have raised 
serious questions about the quality of care received by nursing 
facility patients.
Home Pharmacy Services
    Last, I will describe the case of Home Pharmacy Services, a firm 
that operated in Southern Illinois that provided pharmaceuticals for 
residents of 96 nursing facilities in that part of the State. These 
supplies were paid for predominantly through Medicaid, although the 
example clearly demonstrates the application of the ORT protocol.
    Under the rules of Medicaid, drugs that are unused at the time of a 
patient's death or discharge are to be destroyed. This company, 
however, was recovering the unused drugs, repackaging them and re-
selling them, often to other Medicaid recipients. In addition, the 
unused drugs were not stored appropriately after they were recovered by 
the company, creating a substantial health risk. The drugs could have 
lost the potency necessary to produce the medical goals of the 
subsequent patient; and, more seriously, the drugs could become toxic 
and threaten the user's health.
    An ORT-coordinated task force executed a search warrant on the 
premises of this business in May, 1996. Agents filled two 14-foot 
Postal trucks with records and evidence, including a large amount of 
recovered drugs which had not yet been repackaged. The drugs were being 
stored in store rooms which were neither sanitized nor climate 
controlled.
    The parent corporation of Home Pharmacy Services subsequently 
entered into settlement negotiations with the Office of the United 
States Attorney and with our office. As a result, the corporation 
agreed to pay $5.3 million in penalties and restitution, enter into a 
corporate integrity plan, and cooperate in the criminal prosecution of 
the manager and former owner of Home Pharmacy Services. The former 
owner, who had sold his business to the current owners devised this 
scheme, entered into a plea agreement with the United States Attorney. 
He was sentenced to two years in a Federal penitentiary and ordered to 
pay $750,000 in fines and restitution to the Federal government.
    This case came to fruition because of the cooperative effort put 
forth under the auspices of Operation Restore Trust. The investigation 
was one of the earliest joint efforts under ORT and was the first 
investigation of the Health Care Fraud Task Force in the Southern 
District of Illinois which was itself a product of Operation Restore 
Trust. The Task Force was comprised of a team of agents from several 
State and Federal agencies, including the HHS OIG, the FBI, Postal 
Inspection Service, the Illinois Medicaid Fraud Control Unit, the IRS, 
and the Illinois Pharmacy Board. Funding made available through ORT 
helped make it possible to open an OIG field office in Fairview 
Heights, Illinois, the city in which the Office of the United States 
Attorney for the Southern District of Illinois is located and where 
this case was prosecuted.
Conclusion
    As you can see, the Operation Restore Trust experience provided all 
of us with a new template for the way we do business. New lines of 
communication were opened, and cooperation among agencies involved in 
fighting health care fraud reached new heights. The proof is in the 
remarkable return on investment realized at the end of the 2-year 
project. In the five States, the initiative identified $187.5 million 
in restitutions, fines, settlements, and other overpayments. This 
constitutes a return of more than $23 for every $1 invested in the 
project.
    Operation Restore Trust paved the way for the passage of the Health 
Insurance Portability and Accountability Act of 1996. That statute 
included a solid funding base that allows our agency to continue to 
aggressively fight fraud and abuse in the Medicare and Medicaid 
programs and to be a full partner with the other agencies and law 
enforcement entities in this effort.
    We are proud of our accomplishments, and we cannot afford to be 
naive or to rest on our laurels. Even as we speak, criminal elements 
are developing novel new approaches to exploit Medicare, Medicaid, and 
other health care programs. We need to stay ahead of them. We are 
therefore, eager to work with this committee to further refine our 
tools and the program safeguards needed to protect taxpayer dollars and 
medical care resources.
    Thank you for holding this hearing. I welcome your questions.
                               __________
     PREPARED STATEMENT OF JOHN GRAYSON SUBMITTED BY BARBARA COYLE
    My name is John Grayson and I am a volunteer at the Suburban Area 
Agency on Aging for the Health Care Anti-Fraud, Waste and Abuse 
Community Volunteer Demonstration Project. I am a retired owner of a 
manufacturing company in the north west suburbs, and have been with the 
project since October 1997. Next to me is Jonathan Lavin, Executive 
Director of the Suburban Area Agency on Aging in Oak Park, Illinois and 
Mimi Toomey also with the Suburban Area Agency on Aging in Oak Park, 
Illinois.
    I first heard about the project from a public service announcement 
that was on the radio. I contacted Miss Toomey and subsequently 
enrolled in her training program. In my training class there were 38 
volunteers and the training program extended over the period of 3 days, 
during which the speakers included staff from the Office of Inspector 
General, Illinois Department of Public Aid, Ombudsman Program and the 
Medicare Fraud Units. In my area the Catholic Charities Northwest is 
the host and Mary Nommenson is the coordinator. Mary makes calls to 
various senior organizations and sets up the appointments for me to 
make my presentations. I am generally assisted by another volunteer 
named Jim Grimm, from Elk Grove Village, who does a little bit of the 
speaking and helps by passing out literature and conducting surveys and 
doing personal interviews after my presentation.
    At the presentations, I first introduce myself and attempt to build 
some interest and some enthusiasm for what we're doing by pointing out 
to the senior citizens that Medicare spends 200 billion dollars a year 
of which it is estimated that 20 billion dollars is lost through fraud, 
waste and abuse. I point out that it is predicted that Medicare will go 
bankrupt in 10 years, and that, undoubtedly, as it starts to go 
bankrupt, benefits will be reduced or co-payments will be increased so 
it is in all of our interests to help save Medicare by doing what we 
can to spot any indications of fraud and abuse. I want to point out 
that we are saving this not just for ourselves but for our children and 
potentially our grandchildren. I explain how easy it is for crooks to 
swindle the system by merely having a doctor's prescription for 
unnecessary procedures or equipment as well as having your Medicare 
number. I explain that the Medicare number is just like your credit 
card number and that you should never give it out to anyone who isn't 
known to you to be a genuine provider of services. I relate some of the 
instances or types of fraud that have been perpetrated on people and 
the system. These are the examples of fraud that has already been 
detected, by crooks who have been caught, but the possibilities for 
theft and fraud are infinite, and changing constantly. We are seeking 
the help of our audiences in spotting fraud, because they are on the 
front line and have the best opportunity to see it first. I emphasize 
that it is very important for them to examine their medical summary 
notice, or explanation of medical benefits, following a medical 
procedure. They need to be sure that they received everything that was 
billed to Medicare. When they do spot something that doesn't look 
right, the first call should be to their medical provider to obtain 
explanation. If they aren't satisfied with that, I suggest they call 
their SHIP counselor, Senior Health Insurance Program counselor, to 
assist them in getting an explanation. If they still aren't satisfied, 
then I suggest that they call the numbers on the pamphlet I give them, 
which would either be the Federal HHS-TIPS line or our local number at 
the Suburban Area Agency on Aging, or call Mary Nommenson at Catholic 
Charities. I try to give them an incentive by telling them that there 
is now a bounty being paid to whistle blowers who help us to uncover 
fraud and that they could be paid 10 percent of whatever is recovered 
up to $1,000.
    I conclude by reiterating the three main points I wanted to make. 
First, don't give your Medicare number to anyone that you don't know. 
Second, check your explanation of medical benefits carefully to make 
sure you received everything that Medicare is being billed for. And 
save our literature so that if you do come across anything that doesn't 
look right, you'll have our number where you can call us. I close by 
thanking them for their attention and by urging them to help us to save 
Medicare. I then explain that Jim Grimm and myself will be available 
after the presentation to talk to anybody that wants to ask us 
questions. We also want to hear them tell us about their own 
experiences. Generally we do have a few people who do want to talk to 
us on a one-on-one basis. We ask them to fill out the survey form so 
that we can report these back to our host for documentation and 
statistics.
    I personally have provided presentations to a variety of community 
organizations and am constantly amazed at the level of interest by 
participants in attendance. There are usually three or four individuals 
in the audience who share their personal stories of suspected fraud or 
abuse after the presentation.
    I have found participation in the Suburban Area Agency on Aging's 
fraud and abuse program to be challenging and rewarding and am very 
pleased to be able to relate my experience with you today.
                               __________
       PREPARED STATEMENT OF JONATHAN LAVIN AND MARY CLARE TOOMEY
    The Suburban Area Agency on Aging, and the Northeastern Illinois 
Area Agency on Aging are pleased to be participants in the U.S. 
Administration on Aging ``Health Care Anti-Fraud, Waste, and Abuse 
Community Volunteer Demonstration Project.'' We greatly appreciate the 
assistance provided to us from Stasys Zukas our program officer in the 
Chicago office of the combined Regions 5 and 7 offices for the 
Administration on Aging, and in Washington D.C., Brian Lutz and Valarie 
Soroka. Our project also works in conjunction with the City of Chicago 
Department on Aging which has assisted us to spread the word on what 
Medicare beneficiaries and senior service agencies may do to identify 
and report fraud and abuse in the Medicare and Medicaid programs. We 
also want to mention how much we appreciate the advice and experience 
offered to us by the Illinois Department on Aging which has always been 
one of the leaders in Operation Restore Trust since it began in May of 
1995.
    We are one of twelve projects funded by the U.S. Department of 
Health and Human Services' Administration on Aging to recruit and train 
retired individuals to identify waste, fraud, and abuse in the Medicare 
and Medicaid program. In addition to the federal funds we receive, Blue 
Cross/Blue Shield of Illinois has provided us resources for volunteer 
recruitment and training in each of the first two years of the project. 
We also identify the time of our volunteers as in-kind match to our 
grant award. Once trained, these volunteers alert other seniors and 
help them recognize and report excessive charges for services or 
supplies, unnecessary service charges, and questionable billing 
practices.
    This Project is centered in local senior service agencies 
throughout the metropolitan Chicago area. In addition we were able to 
tap the expertise of the Illinois Department of Insurance Senior Health 
Insurance Program, the Illinois Nursing Home Ombudsman Program, the 
Office of Inspector General, the Illinois Attorney General's Office, 
Office of Inspector General, Department of Public Aid, and the State 
Police. Volunteers are recruited from all of suburban Cook County and 
the Collar Counties (DuPage, Grundy, Kane, Kankakee, Kendall, Lake, 
McHenry, and Will).
    The Area Agencies on Aging have subcontracted with eleven host 
sites in the metropolitan Chicago area to organize presentations and 
supervise volunteers. Each host site is responsible for coordinating 
volunteers to provide at least two educational programs per week with 
various senior organizations, civic organizations and church groups. 
Volunteers also provide individual assistance to beneficiaries on a as-
needed basis for specific issues and concerns. The participating 
organizations are all current grantees to the Area Agencies on Aging 
under Title III of the Older Americans Act and through the direction 
from Washington D.C. by the Administration on Aging and from 
Springfield, Illinois from the Illinois Department on Aging, to the 
regional level and then to the community as part of the Illinois senior 
service network. This network was able to develop proposals and 
implement volunteer recruitment and presentations in a rapid and 
effective fashion under this program.
    We emphasize that the vast majority of health care providers are 
honest and are trying to provide the best care that they can. We have 
worked with a number of doctors, nursing home administrators, hospital 
staff and other health care professionals to develop strategies which 
better ensure the integrity of the Medicare and Medicaid programs. It 
is in fact only a small percentage of unscrupulous people who are 
creating a serious problem.
    The U.S. General Accounting Office estimates that as much as $20 
billion are lost each year to fraud, waste and abuse. What is more, 
consumer surveys by the American Association of Retired Persons and the 
U.S. Department of Health and Human Services reveal that these 
practices are causing a great mistrust in the public's perception of 
our health care system. Like a neighborhood watch system, our mission 
is to be the eyes and ears of the Medicare program in our communities--
to help restore trust and help ensure that people are receiving the 
care that we pay for.
    The level of interest in this project demonstrated by the retired 
professionals has been quite impressive. Retired attorneys, paralegals, 
registered nurses and insurance professionals have made up the majority 
of those trained.
    The cooperation of federal, state, and local agencies to unite our 
efforts in combating fraud and abuse in Medicare and Medicaid was an 
achievement in itself. These groups have integrated efforts to not only 
raise beneficiary awareness, but have developed a system to share 
information which has been invaluable to our project. Agencies such as 
the Office of Inspector General, Illinois Department of Public Aid and 
the Illinois state police have provided speakers to participate in 
training the retired beneficiaries. The groups involved have benefited 
from the partnerships formed as a result of the combined efforts to 
combat Medicare and Medicaid fraud and abuse.
    Based on information provided by the Office of Inspector General we 
share ``horror'' stories with beneficiaries at presentations. We site 
specific examples of what to be aware of in detecting fraud and abuse. 
According to the latest figures, over $3 million has been recouped as a 
result of the volunteer activities across the country, but most 
important is the message we are sending to fellow seniors that they 
have the responsibility to help preserve their own Medicare and 
Medicaid programs.
    Of course, not every allegation becomes a case for investigation. A 
good deal of our assistance comes from helping people to navigate the 
health care system including who they should call, how to get 
information, and how to be better health care consumers. We try to 
educate people not only about what may be fraud, but also, what isn't 
fraud. A simple call to their provider or to their Medicare insurance 
carrier may clear up the discrepancy. But in those instances where 
something still may not seem right, the case is referred to the Office 
of Inspector General for investigation.
    To date, the Health Care Waste, Fraud and Abuse Community Volunteer 
Projects across the country have trained over 2,000 retired volunteers, 
held over 1,200 training sessions, informed more than 250,000 persons 
through community education sessions, reached more than 7 million 
persons through public service announcements and media messages, and 
referred several hundred cases to the Office of Inspector General which 
are currently under investigation.
    In the fiscal year 1999, the Administration on Aging has received 
$7 million to expand these volunteer projects nationwide, affirming the 
success of our combined efforts to combat fraud, waste and abuse in the 
health care system.
    The following figures highlight major achievements made during the 
period October 1997-October, 1998 in the Chicago Metropolitan Area:

     LNumber of individuals trained: 105
     LNumber of retired professionals trained: 85
     LNumber of others trained: 20
     LNumber of people reached through anti-fraud 
presentations: 10,075
     LNumber of individual beneficiary contacts: 90
     LNumber of suspected fraud reports made OR to be made by a 
volunteer: 21
     LNumber of reports NOT found to be fraudulent and handled 
locally: 69

    We are very pleased to have the opportunity to continue our 
project. We ask you to examine a few issues that may impact the program 
in the future:

    1. LThe Health Care Financing Administration is suggesting that 
they may save funds by suspending the mailing of Summary of Benefits 
(previously the Explanation of Medicare Benefits Notice). If these 
notices are not sent to Medicare beneficiaries, a key tool for the 
combating of Medicare fraud and abuse will be lost. We ask that these 
notices continue to be mailed and that you join us in promoting the 
close examination of those notices by beneficiaries.
    2. LWe ask that the Administration on Aging program be briefed of 
major findings by others who are combating fraud in the federal 
government so that our volunteers may offer current and accurate 
information in their presentations. The more knowledgeable we are of 
the fraud and abuse stories in the major headlines, the more convincing 
our message is to our audiences.

    Thank you for asking us to participate in this hearing.




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