[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
MEDICAID FRAUD AND ABUSE: ASSESSING STATE AND FEDERAL RESPONSES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
NOVEMBER 9, 1999
__________
Serial No. 106-72
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
61-043 CC WASHINGTON : 1999
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Oversight and Investigations
FRED UPTON, Michigan, Chairman
JOE BARTON, Texas RON KLINK, Pennsylvania
CHRISTOPHER COX, California HENRY A. WAXMAN, California
RICHARD BURR, North Carolina BART STUPAK, Michigan
Vice Chairman GENE GREEN, Texas
BRIAN P. BILBRAY, California KAREN McCARTHY, Missouri
ED WHITFIELD, Kentucky TED STRICKLAND, Ohio
GREG GANSKE, Iowa DIANA DeGETTE, Colorado
ROY BLUNT, Missouri JOHN D. DINGELL, Michigan,
ED BRYANT, Tennessee (Ex Officio)
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Adams, Mitchell, Chief Executive Officer, Healthwatch,
Technologies, LLC, accompanied by Jim Gorman, President and
Chief Operating Officer.................................... 61
Aronovitz, Leslie G., Director, Chicago Field Office, U.S.
General Accounting Office.................................. 6
Fecteau, Marc P., Assistant Director, Department of Human
Services, Bureau of Medical Services, State of Maine....... 40
Glynn, Michael J., CEO, Codman Group, accompanied by Philip
Caper, Founder and Chairman of the Board, Codman Group..... 73
Hartwig, John E., Deputy Inspector General for Inspections,
Office of the Inspector General, Department of Health and
Human Services............................................. 14
Krayniak, John, Director, Medicaid Fraud Control Unit,
Division of Criminal Justice, State of New Jersey.......... 22
MacQuarrie, Jean, Medstat.................................... 77
Thompson, Penny, Medicare Program Integrity Group, Health
Care Financing Administration, accompanied by Rhonda Hall,
National Coordinator, Medicaid Fraud and Abuse............. 44
Viola, Greg, Senior Manager, Deloitte and Touche............. 67
Williams, Gwendolyn H., Montgomery, Alabama.................. 34
(iii)
MEDICAID FRAUD AND ABUSE: ASSESSING STATE AND FEDERAL RESPONSES
----------
TUESDAY, NOVEMBER 9, 1999
House of Representatives,
Committee on Commerce,
Subcommittee on Oversight and Investigations,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:30 a.m., in
room 2322, Rayburn House Office Building, Hon. Fred Upton
(chairman) presiding.
Members present: Representatives Upton, Burr, Bilbray,
Bryant and Green.
Staff present: Chuck Clapton, majority counsel; Amy
Davidge, legislative clerk; and Chris Knauer, minority
investigator.
Mr. Upton. It must be 10:30. Good morning, everyone.
Today we're going to hold a hearing to look at fraud and
abuse in the Medicaid program. Unlike the more publicized
problem of Medicare fraud, less attention has been paid to
fraud in the Medicaid program, which helps to pay for the
health care costs of many of our poorest and oldest citizens.
I hope that by focusing greater attention on this problem,
we can encourage State and Federal authorities to increase
their efforts to reduce Medicaid fraud and abuse. The amounts
of money being lost to Medicaid fraud are staggering. Using the
more conservative estimate of 10 percent that has been
previously suggested by the GAO, Medicaid may have lost as much
as $17 billion to fraud and abuse during fiscal year 1998.
No one knows precisely how much fraud has actually cost the
Medicaid program, however, although many experts believe the
number may be far higher than the 10 percent estimate that I
used.
As we will hear from our witnesses today, Medicaid fraud
and abuse is a problem which appears to be growing worse. Just
last week, the GAO released a report which had been requested
by Senator Susan Collins from Maine. This report described how
Medicaid and Medicare are increasingly being defrauded by
organized criminal groups which are carrying out sophisticated
and well-organized crimes and scams. Each of these frauds can
cost the Medicaid program tens and even hundreds of thousands
of dollars every month, maybe even millions. According to the
report, many criminals now regard Medicaid cards as their own
personal Visa or MasterCards which can be used to obtain money
wherever and whenever they need it.
In order to assess how well States and the Federal
Government are responding to the Medicaid fraud problems, we
should heed the advice of Professor Malcolm Sparrow and count
the zeros. Professor Sparrow, one of the foremost academic
experts in the field of health care fraud, has described a
process for comparing the total value of claims paid, estimated
losses to Medicaid fraud and the amounts invested in program
integrity efforts.
For example, Medicaid last year paid approximately $177
billion in claims and, using a conservative estimate, lost $17
billion to fraud and abuse. That's a 17 followed by 9 zeroes.
Funding for Medicaid Fraud Control Units, which serve as the
principal agent for investigating and prosecuting Medicaid
fraud, was only $85 million--or 85 followed by 6 zeroes.
Even taking into account additional funding for other
program integrity activities, Professor Sparrow estimated that
the total amount invested to protect Medicaid from fraud and
abuse is no more than a few hundred million dollars. This
clearly reflects a severe underinvestment in program integrity
amounts.
Nowhere are the effects of this underinvestment more
pronounced than in the acquisition and use of computer tools to
detect fraud and abuse. As anyone who has recently purchased a
PC can tell you, technology is changing so rapidly that a
computer bought only last year is now out of date, and one
purchased 5 years ago is almost hopelessly antiquated. How then
can we expect State Medicaid agencies, some of which are still
using 10-year-old computer systems to process and review
Medicaid claims, to have any hope of uncovering these new,
highly complex fraud schemes?
In order to address these concerns, several technology
vendors have developed new computer tools to assist State
efforts to detect Medicaid fraud and abuse. The witnesses on
the second panel today, including Jean McQuarrie from Medstat
technologies from Michigan, are providing new and innovative
ways for States to acquire the latest in technology systems to
improve their anti-fraud efforts.
I look forward to hearing from these witnesses and seeing
demonstrations of how these products can, in fact, improve
anti-fraud efforts. In addition, I look forward to hearing from
all of today's witnesses on what else can be done to control
the Medicaid fraud problem. Whether it is through policy
changes or through the continuing use of congressional
oversight to identify problem areas, we in Congress do have an
obligation to do our very best to protect this important
program.
I yield to the gentleman from Texas, Mr. Green, for an
opening statement.
Mr. Green. Thank you, Mr. Chairman. And thank you for
scheduling this important hearing and bringing this to our
attention.
As a member of the Health and Environment Subcommittee, I
have attended several hearings on the issue of health care
fraud. Traditionally, because of how these programs are
financed, our primary focus has been reducing Medicare fraud,
in fact, not only on this committee but in earlier service on
the Government Operations Committee.
While HCFA has made significant improvements in reducing
the amount of overpayments and mispayments to Medicare
providers, it's time for us to focus our attention to the
Medicaid program. The fact that the amount of fraud in the
Medicaid program is estimated to be at least 10 percent of all
claims and as much as 30 percent tells us we have a lot of work
to do.
If the conservative estimate of 10 percent is accurate,
then it translates into approximately $17 billion in improper
payments. As the overall percentage of fraud increases, it
becomes clear that we may be misspending over $50 billion per
year. This, incidentally, would be enough to pay for things
such as a prescription drug benefit for seniors.
Unfortunately it's our responsibility to make sure that
every appropriate action to reduce fraud at every level of the
Medicaid program is implemented. But before we can do that, we
have to first identify how much money is being wasted and what
steps can be taken to reduce that fraud.
I look forward to the witnesses and the hearing we have
today, Mr. Chairman, especially the GAO who is releasing a
report today on this very issue; and I yield back my time.
Mr. Upton. Thank you.
Mr. Burr, the vice chairman, for an opening statement.
Mr. Burr. Thank you, Mr. Chairman; and thank you for this
hearing on Medicaid fraud and abuse. It's not the first, it
won't be the last, and as I walked over I've got to admit I've
got some great questions today. But the big question is. Will
the answers be different than anything this committee has heard
before? We always do a tremendous job of reiterating in 5 or 6
different ways that staff memo as to why we're holding this
hearing.
I want to thank all the witnesses, Panel I and Panel II,
for their willingness to come today, but I would also plead
with you, tell us what the solution is. I'm tired of having IG
reports that tell us that waste, fraud and abuse exists; and
whether it's 5 percent or 10 percent or 30 percent, if it
exists, it ought to be eliminated. Tell us what the problem is.
Is the problem that we need to get the Federal Government out
of the structure of the programs and let the States do it or
get more involvement from the private sector as it relates to
determining where the fraud and abuse is and identifying how to
eliminate it?
We can all speculate as to what the problem is. But until
those who are the closest to it can tell us how to eliminate
it, we will continue to hold hearings that continue to discuss
waste, fraud and abuse, a rip-off of the American taxpayers
but, more importantly, money that is devoted to health care to
individuals across this country that does not make it to them
and does not make it to their coverage.
I agree with Mr. Green, there are many things we can do
with this money if we can figure out how to make sure that it's
accounted for and to make sure that the criminal element in
there--I made comments when I came to Congress, Mr. Chairman,
that there's one thing I will always be convinced of, coming
from the private sector, that thieves are much smarter than
bureaucrats.
It will always exist that they will outsmart every trap
that we're able to create, but there will be an element always
of waste, fraud and abuse and that our objective is to make
sure it's as small as it can possibly be. I don't know that we
can get there until we layer back the complicated delivery
systems that we have designed, and I look forward to our
witnesses' comments on that.
And I yield back.
Mr. Upton. Thank you.
Mr. Bryant.
Mr. Bryant. Thank you, Mr. Chairman.
Let me immediately associate myself with the remarks of my
colleague from North Carolina on this and just tell you that I
have a long opening statement that I will give that I will
submit for the record.
I will also add that, as a former United States attorney,
we were one of the first offices--one of the first, there were
several ahead of us--one of the first to open up a fraud and
abuse section on health care. And what we found out immediately
was that our Federal investigative agencies--and I'm not going
to name the names, but you all know who they are--did not have
that in those days as a priority. And, of course, they were out
fighting drugs and white collar crime and bank robberies and
all kinds of other things that are very important, but we found
an amazing group of Statewide people who regulated the State
medical industry, investigators there who, they cannot find
prosecutors, local district attorneys to prosecute their cases.
So we put together that team of Federal prosecutors primarily
with State investigators and had some success there.
But I remember sort of what my friend from North Carolina
said. I remember back in those days it was not that big of a
push. But I think poignant to this hearing is the fact that we
were finding criminals from other areas, we were getting out of
the old areas of ripping off people and getting into the health
care because it was so easy and so much money involved here,
and I sense, after hearing some of the reports that we've had
and some the statements that will be presented today, that that
still is going on.
So I wish you could come in here and give us an easy
answer. There is no easy answer. We know that. But if you can--
as my colleague has said, if you can give us some ideas of what
we can do, it may be this is just such a massive area that it
cannot be controllable, but we have to do better. And we will
never get to the end, but we have to do better.
And, again, thank all of you for coming in. I look forward
to hearing from you and you answering our questions. Thank you.
Mr. Upton. Thank you.
Mr. Bilbray.
Mr. Bilbray. Mr. Chairman, I think my colleagues on both
sides of the aisle have addressed this item for opening
statements quite appropriately, and I would yield back with the
request that we get to testimony. Thank you very much.
Mr. Upton. Thank you.
I would just like to ask for unanimous consent that all
members of the subcommittee may submit in full, in their
entirety, any opening statements that they may have. And so
moved.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Let me begin by thanking Subcommittee Chairman Upton for holding
this hearing today. By focusing public scrutiny on the issue of
Medicaid fraud and abuse, we can hopefully raise the level of awareness
about this troubling problem, and encourage the state and Federal
agencies to redouble their efforts.
Health care fraud and abuse is an enormous problem in this country,
with a cost that has been estimated by some experts to exceed $100
billion every year. In the Medicaid program alone, the cost of fraud
and abuse may exceed $17 billion every year. While these numbers are
shocking, they fail to convey the human impact of this sort of fraud.
Our greatest concern should relate to how this type of fraud hurts our
most vulnerable citizens, the poor, the elderly and the disabled, who
all depend on Medicaid to provide their health care needs. Every dollar
that Medicaid loses to fraud and abuse is a dollar that does not go to
health care for these individuals. So, it is particularly troubling to
me that Medicaid fraud is on the rise.
Too often, Medicaid anti-fraud efforts have been overshadowed by
larger initiatives which focused on fraud and abuse affecting Medicare.
The Committee on Commerce has sought to focus attention on the issue of
Medicaid fraud through its recent oversight work. Committee staff have
interviewed many of the agencies and individuals who serve on the front
lines of current efforts to control Medicaid fraud, to learn what can
be done to improve current efforts. A recent General Accounting Office
report, prepared for Senator Susan Collins, detailed the growing
sophistication of criminal organizations exploiting Medicaid and other
government health care programs. Increasingly complex fraud schemes,
each of which can cost State Medicaid programs hundreds of thousands of
dollars every month are detailed. To further avoid detection, these
groups often rapidly move from State to State. They also often quickly
move the proceeds overseas, which makes it almost impossible for law
enforcement to recover these monies, if and when the fraud is ever
detected.
To combat this problem, the Medicaid program relies upon an array
of State and Federal agencies. Unfortunately, these agencies are not
set up to work in concert. Activities are often uncoordinated, and in
many cases the agencies lack the resources to adequately address fraud.
We will hear today from current and former State officials who will
describe how some Medicaid agencies are still relying on twenty year
old computers to detect and track fraud and are operating on budgets
that under fund Medicaid program integrity efforts.
If we are to make progress to protect Medicaid recipients from
fraud and abuse, we must encourage the States to take the necessary
steps to address these issues. At the Federal level, both the Health
Care Financing Administration (HCFA) and the Office of Inspector
General at the Department of Health and Human Services need to better
coordinate their efforts.
The benefits from such efforts have already been demonstrated. In
recent years, limited multi-state anti-fraud initiatives, coordinating
the activities of a wide array of agencies responsible for combating
health care fraud, have lead to finding almost $200 million in
inappropriate payments. Such initiatives should serve as a model for
future efforts to detect and prevent Medicaid fraud. We have the
capability to combat this problem, and we have an obligation to the
folks who use the Medicaid program to ensure that we are doing all that
we can to stop fraud and abuse in this important program.
Mr. Upton. With that, we will start with the testimony.
Ladies and gentlemen, we have a long tradition in this
subcommittee, and you may know, of taking testimony under oath.
Do any of you have objection to that?
We also allow for counsel both under committee rules and
under House rules. Do you need counsel? And, if not, if you
would all stand and raise your right hand.
[Witnesses sworn.]
Mr. Upton. Thank you. Let me just introduce you for the
audience, and we will proceed.
Ms. Leslie Aronovitz, the Director of the Chicago Field
Office, GAO; Mr. Jack Hartwig, Deputy Inspector General for
Inspections, Office of the Inspector General; John Krayniak,
Director of the Medicaid Fraud Control Unit, Division of
Criminal Justice for the State of New Jersey; Ms. Gwen
Williams, from Montgomery, Alabama; Mr. Marc Fecteau, Assistant
Director, Department of Human Services, Bureau of Medical
Services, for the State of Maine; and Ms. Penny Thompson,
Director, Medicare Program Integrity Group, Health Care
Financing Administration, HCFA, from Baltimore, accompanied by
Ms. Rhonda Hall, the National Coordinator of Medicaid Fraud and
Abuse.
Ladies and gentlemen, we thank you and welcome. We would
like you to limit your remarks to 5 minutes. We've got this new
timer up here instead of the kitchen timer that we've had for a
year. So this is brand new. It will give you a little warm-up
light, a yellow light, before your 5 minutes expires. Your
testimony will be made part of the record in its entirety.
Ms. Aronovitz, we will begin with you. Thank you for coming
this morning.
TESTIMONY OF LESLIE G. ARONOVITZ, DIRECTOR, CHICAGO FIELD
OFFICE, U.S. GENERAL ACCOUNTING OFFICE; JOHN E. HARTWIG, DEPUTY
INSPECTOR GENERAL FOR INSPECTIONS, OFFICE OF THE INSPECTOR
GENERAL HHS; JOHN KRAYNIAK, DIRECTOR, MEDICAID FRAUD CONTROL
UNIT, DIVISION OF CRIMINAL JUSTICE, STATE OF NEW JERSEY;
GWENDOLYN H. WILLIAMS, MONTGOMERY, ALABAMA; MARC P. FECTEAU,
ASSISTANT DIRECTOR, DEPARTMENT OF HUMAN SERVICES, BUREAU OF
MEDICAL SERVICES, STATE OF MAINE; AND PENNY THOMPSON, MEDICARE
PROGRAM INTEGRITY GROUP, HEALTH CARE FINANCING ADMINISTRATION,
ACCOMPANIED BY RHONDA HALL, NATIONAL COORDINATOR, MEDICAID
FRAUD AND ABUSE
Ms. Aronovitz. You're very welcome.
Mr. Chairman and members of the subcommittee, we are
pleased to be here today to discuss ways to combat fraud and
abuse in the Medicaid program. Federal and State expenditures
total over $175 billion a year and pay for the health care of
40 million poor mothers, their children, and poor elderly,
blind and disabled individuals. Neither the beneficiaries nor
Federal and State taxpayers can afford to see these funds
misspent.
We have just launched a study to better understand the
scope and effectiveness of Medicaid program integrity efforts
at the Federal and State levels and we will report on our
results next spring.
Today my remarks will focus on a brief overview of the
multiple players involved in addressing Medicaid fraud and the
importance of Federal and State cooperation.
Medicaid fraud and abuse control entails a complex mix of
characters and entities. For a composite view of this mix, I
call your attention to the easel on your right. You can find a
more detailed chart on page 4 of your written statement, and
you should have a small copy of the chart with your materials.
As a practical matter, the front line of oversight and
enforcement takes place in the States, so I will begin with the
middle section of the chart first. The two key players at the
State level are the State Medicaid agency and the Medicaid
Fraud Control Unit, which--and I'm not making this up--as
everyone in the enforcement business calls it, the MFCU. Each
State has its own Medicaid agency, generally located in the
State's Department of Health and Welfare or Human Services. The
State Medicaid agency not only pays claims and performs other
administrative duties, but it also conducts program integrity
activities.
State Medicaid agencies typically have a data analysis unit
called a SURS, which stands for Surveillance and Utilization
Review Subsystem. The SURS unit is dedicated to reviewing paid
claims to identify suspect billing practices or other
aberrations indicating potential wrongdoing. Separate from the
State Medicaid agency, 47 States have MFCUs, again the Medicaid
Fraud Control Unit, which are generally located in the State's
Attorney General's Office. The MFCUs carry out investigations
and in most States have the authority to prosecute.
This brings us to the local level, where the local district
attorney can assist the State MFCU or prosecute in situations
where MFCUs do not have prosectorial authority.
At the Federal level, you will notice that the two key
departments are Health and Human Services, and Justice. Within
HHS are the Health Care Financing Administration and the Office
of Inspector General HCFA oversees the States' Medicaid
agencies and the IG oversees the States' MFCUs. In the Justice
Department, the key players are the U.S. Attorneys and the FBI.
Our previous work shows that various Federal, State and
local agencies may have different or competing priorities in
their efforts to investigate, prosecute and enforce compliance.
This complicates Federal and State fraud control efforts and
makes such orchestrated government stings as Operation Gold
Pill and Operation Restore Trust, which are discussed in our
written statement, remarkable examples of interagency
coordination.
Our work in this area also shows that, in addition to
coordinating the multiple players, investing in preventive
strategies and dedicating adequate resources to fraud control,
units are essential components of an effective program
integrity strategy.
One issue we are pursuing in our study is the appropriate
role for HCFA in working with the States. We recognize the
difficulty in striking a balance between the stewardship of
Federal Medicaid funds and the need for flexible approaches in
dealing with 50-plus separate Medicaid programs. However,
mindful of that balance, HCFA is in a position to explore in
partnership with all of the States the appropriate level of
commitment to preventing and detecting fraud and abuse. We
think it's important because both have a fiduciary
responsibility to administer Medicaid efficiently and
effectively.
This concludes my prepared statement, and I will be happy
to answer questions that you may have.
[The prepared statement of Leslie G. Aronovitz follows:]
Prepared Statement of Leslie G. Aronovitz, Associate Director, Health
Financing and Public Health Issues, Health, Education, and Human
Services Division, GAO
Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today as you discuss ways to combat fraud and abuse in the
Medicaid program. Some 40 million Americans--not only poor mothers and
children but also poor elderly, blind, and disabled individuals--depend
on health care services made possible by the Medicaid program. With
total expenditures of over $177 billion in fiscal year 1998, Medicaid
is the third largest social program in the federal budget and
represents a significant share of individual state budgets as well.
Fraud and abuse drains away vital program dollars and exploits
taxpayers and vulnerable beneficiaries. As we recently reported,
consumers and legitimate health care providers have been victimized by
the fraud schemes of career criminals and organized criminal
groups.1 While the Department of Health and Human Services
(HHS) and the Department of Justice have recently augmented their
program integrity activities for Medicare, the Congress is concerned
that a similar emphasis be placed on fraud and abuse control in
Medicaid. We have just launched a study to better understand the scope
and effectiveness of Medicaid program integrity efforts at the federal
and state levels and will report our results next spring. Today, my
remarks will focus on a brief overview of the problem, several key
components of fraud control, and the importance of federal and state
cooperation. My comments are based on observations gleaned from our
prior work addressing both Medicaid and Medicare program integrity
issues and from our ongoing Medicaid study.
---------------------------------------------------------------------------
\1\ Health Care: Fraud Schemes Committed by Career Criminals and
Organized Criminal Groups and Impact on Consumers and Legitimate Health
Care Providers (GAO/OSI-00-1R, Oct. 5, 1999).
---------------------------------------------------------------------------
In summary, our body of work on health care fraud and abuse
indicates that programs the size and structure of Medicaid are
inherently vulnerable to exploitation. Fraud schemes often cross state
lines and enforcement jurisdictions, entailing a number of federal,
state, and local agencies that may have different or competing
priorities in their efforts to investigate, prosecute, and enforce
compliance. Experience shows that coordinating the efforts of the
multiple players, investing in preventive strategies, and dedicating
adequate resources to fraud control units are essential components of
an effective program integrity strategy. Finally, our work shows that
the Health Care Financing Administration (HCFA), the agency in HHS
responsible for administering Medicaid federally, is in a position to
work in partnership with the states to ensure an appropriate level of
commitment in states' efforts to control Medicaid fraud and abuse.
background
Medicaid is a jointly funded federal-state health insurance program
for eligible low-income and needy people. Although it is one federal
program, as a practical matter, it consists of 56 separate programs
(including the District of Columbia, Puerto Rico, and the U.S.
territories). Within broad federal guidelines, each state establishes
its own eligibility standards; determines the type, amount, duration,
and scope of services; sets the rate of payment for services; and
administers its own program. For fiscal year 1998, federal Medicaid
expenditures were over $101 billion, with the states contributing about
$76 billion. For each state, the federal share varies according to a
statutory formula. The federal government picks up at least half the
cost for medical services, and in nine states, it pays for more than 70
percent.
Medicaid fraud and abuse control entails a complex mix of actors
and entities. At the federal level, HCFA and the HHS Office of
Inspector General (OIG) have program oversight responsibilities. The
Federal Bureau of Investigation (FBI) and the U.S. Attorneys in the
Department of Justice are responsible for enforcement under certain
conditions. However, front line oversight and enforcement reside
primarily with the states. Each state administers its Medicaid program
through a state Medicaid agency--variously situated in departments such
as health, welfare, or human services. In addition to paying claims and
performing other administrative duties, the state Medicaid agencies
conduct program integrity activities. Many state Medicaid agencies have
a ``data mining'' unit--a surveillance and utilization review subsystem
(SURS) unit--dedicated to reviewing paid claims to identify suspect
billing practices or other aberrations indicating potential wrongdoing.
Separate from the state Medicaid agency, 47 states have Medicaid Fraud
Control Units (MFCU), generally located in the state's attorney
general's office, which carry out investigations and prosecutions. For
a composite view of the multiple agencies involved in Medicaid fraud
and abuse control, see table 1.
1. Overview of Medicaid Fraud and Abuse Control Efforts
------------------------------------------------------------------------
Agency Responsibility Related activities
------------------------------------------------------------------------
Federal
Department of Health and Human Services (HHS)
Health Care Financing Oversees state Among other
Administration (HCFA). Medicaid agencies. activities,
through its
Medicaid Fraud
and Abuse
National
Initiative, HCFA
provides an
ongoing forum and
training for
state officials
on fraud control.
Office of Inspector General Oversees state The OIG can
(OIG). Medicaid Fraud sanction
Control Units. fraudulent
Investigates providers by
federal Medicaid imposing
fraud cases. exclusions and
civil monetary
penalties.
It refers
investigative
findings to DOJ.
Department of Justice (DOJ)
U.S. Attorneys.................. Prosecute Medicaid The U.S. Attorneys
fraud cases also indict,
referred by FBI negotiate
and HHS OIG. settlements, and
make recoveries.
Federal Bureau of Investigation Investigates The FBI refers
(FBI). federal fraud investigative
cases but cannot findings to the
impose sanctions. U.S. Attorneys.
State
State Medicaid agency (located Administers state The state Medicaid
in such departments as health, Medicaid program agency's
human services, and welfare). and oversees activities may
Medicaid program include
integrity conducting pre-
activities. and postpayment
claims reviews
and administering
the provider
enrollment
process.
Program integrity/surveillance Reviews claims SURS units refer
and utilization review data to detect suspected fraud
subsystem (SURS) \1\ unit. and investigate cases to the
aberrant payment state's MFCU and
patterns and noncriminal cases
conducts other to the state
types of Medicaid agency's
integrity collection unit.
activities.
Medicaid Fraud Control Unit Investigates and The MFCU may refer
(MFCU) \2\ (generally in state prosecutes cases cases that will
Attorney General office). involving not be prosecuted
fraudulent to the state
Medicaid Medicaid agency
activities. or other
Investigates and authority for
acts on administrative
complaints of action.
abuse or neglect
of patients in
facilities
receiving
Medicaid funding.
Local
District attorney............... Prosecutes
Medicaid fraud
cases in states
where MFCUs do
not have
prosecutorial
authority.
------------------------------------------------------------------------
\1\ States vary in how their program integrity activities are organized
and in what the units are called.
\2\ Three states do not have MFCUs--Idaho, Nebraska, and North Dakota.
fraud and abuse are a persistent problem in medicaid program
The magnitude of fraud and abuse in the Medicaid program has not
been quantified. Nevertheless, similar fraud and abuse schemes crop up
in different states, and states have problems with fraud and abuse
under both fee-for-service and managed care payment methods. Medicaid
is vulnerable to fraud because of some intrinsic characteristics--such
as its share of states' budgets and its vulnerable beneficiary
population.
Several Types of Fraud and Abuse Are Common in Medicaid
Common Medicaid fraud and abuse schemes generally fall into three
broad groups: improper billing practices, misrepresentations of
professional or service qualifications, and improper business
practices.2 Improper billing practices include ``upcoding,''
in which the provider misrepresents treatment provided and bills for a
more costly procedure; ``ghost'' or ``phantom'' billing, in which a
provider bills for services never provided; and delivering more
treatment than is either necessary or appropriate for the patient's
diagnosis. Misrepresenting qualifications encompasses such offenses as
submitting false credentials to obtain a Medicaid provider number and
performing treatments outside the bounds of what is permitted by one's
license. Among the improper business practices found in Medicaid are
kickbacks for referring or otherwise steering patients to a particular
provider or product such as pharmaceuticals; self-referrals, in which
providers, for example, may order and request lab tests from companies
they own or have a financial interest in; and antitrust violations, in
which companies collude with each other or with providers to improperly
influence payments or fees. Table 2 contains examples of fraud and
abuse cases from the files of state MFCUs.
---------------------------------------------------------------------------
\2\ Fraud involves a willful act to deceive for gain, whereas abuse
typically involves actions that are inconsistent with acceptable
business and medical practices.
Table 2: Examples of Medicaid Fraud and Abuse
------------------------------------------------------------------------
Type of fraud Example
------------------------------------------------------------------------
Billing Fraud............................. A psychiatrist operated a
``psychotherapy mill,'' in
which parents were enticed
to enroll their children in
``free'' enrichment
programs such as after-
school tutoring, field
trips, and supervised
recreation in exchange for
their children's Medicaid
numbers. Using these
numbers, the psychiatrist
billed Medicaid for
psychotherapy services not
provided. A psychologist he
employed discovered the
scam and negotiated a
higher salary from him. The
psychologist also set up
her own copycat operation.
State officials estimated
that the two fraudulently
obtained $421,000 from
Medicaid. The defendants
pleaded guilty, were
ordered to pay fines and
restitution, and received
probation. Source: Georgia
State Health Care Fraud
Control Unit.
Business Practices Fraud.................. Two businessmen pleaded
guilty to felony charges
related to a complex scheme
of submitting fraudulent
nursing home cost reports
to the state's Medicaid
program. The scheme
involved a nursing home
chain and a shell
corporation that the chain
allegedly contracted with,
enabling the owners to bill
Medicaid for inflated
expenses related to phony
contracts with the nursing
homes. Through a complex
web of bank and investment
accounts, the owners
laundered payments. The
scheme, which netted the
owners nearly $10 million
in excess Medicaid
reimbursements, was
discovered when a state
auditor became suspicious
of high payments to the
shell company. One of the
defendants received 50
months in prison and a
$70,000 fine; the other, 36
months in prison and a
$50,000 fine. Both received
an additional 3 years of
supervised release. As
restitution, the pair
agreed to pay about $6
million to the state
Medicaid program and to
forfeit of an additional $2-
million-plus in assets.
Source: Georgia State
Health Care Fraud Control
Unit.
Fraudulent Misrepresentation of A woman, who had never
Qualifications. attended, graduated, or
received a degree from a
nursing school, presented a
false nursing license to
several nursing homes that
employed her. She also
contracted with a county
Board of Mental Retardation
and Developmental
Disabilities to provide
nursing and counseling
services. The
misrepresentation was
discovered when substandard
care she provided led to
complaints and a subsequent
investigation. A state
nursing board determined
that the woman posed as a
nurse for at least 5 years.
She was charged with felony
Medicaid fraud, felony
forgery, and misdemeanor
practice of unlicensed
nursing. She pleaded guilty
and was sentenced to 5
years' probation and was
ordered to either pay some
$3,850 in restitution or
perform 84 days of
community service. Source:
Ohio Attorney General's
Health Care Fraud Section.
------------------------------------------------------------------------
Fee-for-service providers do not have a monopoly on fraudulent and
abusive health care practices. Under managed care, providers intending
to exploit the program have adapted to new financial incentives.
Whereas receiving a fee for each service enables providers to enhance
revenues by ordering too many services, receiving a lump-sum payment in
advance for each enrollee can encourage dishonest providers to enhance
their profits by stinting on patient care. Consistent with this
incentive are examples of Medicaid managed care fraud and abuse by
prepaid health plans: avoiding expensive treatments, underfinancing
plan operations, providing poor quality care, using deceptive marketing
practices, and claiming phony enrollments. In a specific instance in
Tennessee, a managed care plan used a homeless shelter as the address
for nearly 4,500 fictitious enrollees--a scheme that was generating
nearly $450,000 a month in fraud losses to Medicaid. The scheme came to
light once the shelter tipped off the state Medicaid agency. Managed
care plans can also engage in fraudulent business practices similar to
those in fee-for-service health care--such as providing kickbacks for
referrals or having unqualified personnel provide services.
Fraud and abuse schemes also cross jurisdictional and program
boundaries, complicating the task of pursuing the perpetrators. In our
October 1999 correspondence on health care fraud, we noted that
criminal groups have created interstate health care fraud schemes and
have used associates in foreign countries to transfer ill-gotten
proceeds out of the United States. For example, a group with ties to a
New Jersey scheme purchased a lab in Illinois and began bilking
Medicaid and Medicare there. In another case, two individuals
investigated for Medicaid fraud in south Florida were tied to three
individuals in North Carolina who used a similar scheme to falsely bill
Medicare. Proceeds from this scam were laundered through associates in
Mexico.
Medicaid Is Vulnerable to Fraudulent and Abusive Practices
Certain characteristics of the program make Medicaid an attractive
target for exploitation, as follows:
As a third-party payer, Medicaid pays for services provided by
others and cannot, as a practical matter, police each claim for
reimbursement submitted. In a state like New York, the very
size of the program invites exploitation. In fiscal year 1998,
New York's Medicaid program, covering roughly 2 million
beneficiaries,\3\ cost an estimated $27 billion. Medicaid
consumes, on average, 20 percent of a state's budget.
---------------------------------------------------------------------------
\3\ Our data on New York's beneficiary enrollment reflects calendar
year 1998.
---------------------------------------------------------------------------
The impermanence of the population, owing to beneficiaries'
changing eligibility status, makes the program a target for
such schemes as billing for services provided to ineligible or
deceased individuals.
Because many states pay considerably less under Medicaid than
providers' customary charges, Medicaid providers are often in
short supply. Thus, program administrators are reluctant to
impose controls that are perceived as burdensome for fear of
discouraging provider participation.
coordination, prevention, and adequate resources are key fraud control
elements
Our prior health care program integrity work has shown that strong
federal and state leadership is needed to ensure that three essential
fraud control elements are in place. First, the multiple agencies
involved must coordinate their efforts effectively. Second, HCFA and
the states must focus on preventive strategies, since detection and
prosecution efforts alone cannot stem program losses. Finally, state
agencies need the administrative and technical tools and resources to
accomplish their mission.
Coordination Essential, but Difficult to Achieve
Examples from our prior program integrity work underscore the
importance of coordinating the efforts of multiple law enforcement and
oversight agencies. One of our reports focused on Medicaid prescription
drug diversion,\4\ often referred to as ``pill-mill'' fraud, in which
physicians, clinic owners, and pharmacists collude with willing
beneficiaries by fraudulently prescribing and distributing prescription
drugs. In some cases, pharmacists added medications to beneficiaries'
orders and kept the extra for resale; clinics provided unneeded
prescriptions to beneficiaries, who would trade them for merchandise;
and providers gave beneficiaries prescriptions for drugs in exchange
for their Medicaid number to bill for services not provided. We noted
that a drug diversion case could typically involve five or more state,
local, and federal agencies in its investigation, prosecution, and
resolution. Network diversion schemes could involve third-party payers
other than Medicaid, entrepreneurs, beneficiaries, middlemen, and
physicians not enrolled in Medicaid. Handling such schemes could entail
coordination between, for example, a MFCU in the state's department of
law and other agencies with jurisdiction, such as an office of
professional medical conduct in the state's department of health, an
audit office in the state's department of social services, and an
office of professional discipline in the state's department of
education.
---------------------------------------------------------------------------
\4\ Medicaid Drug Diversion Fraud: Federal Leadership Needed to
Reduce Program Vulnerabilities (GAO/HRD-93-118, Aug. 2, 1993).
---------------------------------------------------------------------------
Two examples illustrate the payoff resulting from agency
cooperation. One is the FBI's Operation Goldpill. Working with other
federal agencies and with state MFCUs and regulators, approximately
1,000 FBI agents participated in the FBI's largest health care
undercover operation at that time, involving 50 cities nationwide. This
initiative reflected a new strategy focusing on multidefendant
conspiracy indictments rather than single-defendant prosecutions.
Through this effort, law enforcement agencies were able to charge 254
defendants; seize $10.8 million in assets, including 11 pharmacies; and
levy $6.6 million in fines.
The second example--Operation Restore Trust (ORT)--represented a
cornerstone in recent health care fraud coordination, which focused on
Medicare and Medicaid fraud and abuse. ORT brought together the HHS OIG
and other federal, state, and local agencies to target wrongdoing by
home health, nursing home, and durable medical equipment providers,
initially in five states. In its first 2 years of operation, ORT
identified $188 million in inappropriate payments. Among the lessons
learned was the importance of coordination among the various program
and enforcement agencies involved at the federal, state, and local
levels. For example, coordination between Medicare claims
administration contractors and state licensing inspectors in the
project states resulted in the decertification of many of the targeted
home health agencies and the recovery of substantial sums in
inappropriate payments. Through the Medicare contractors' efforts to
train state inspectors on specific billing and beneficiary coverage
issues, the inspectors were able to provide the contractors information
they might not otherwise have been able to obtain on beneficiaries who
were not eligible or home health agencies that billed for services not
provided. Through this mutual exchange of information, contractors were
able to identify an array of billing abuses costing the government
millions of dollars.
As obvious as the benefits are from interagency coordination,
several barriers exist that discourage such cooperative efforts. Among
these are the following:
Labor-intensity of building a case with uncertain outcome. The
level of resources and interagency coordination required for
case development can stall the pursuit of a case at many
junctures and delay the resolution of a case for many years.
The pursuit of fraud often begins with the state Medicaid
agency, which, to refer the case to a MFCU, must typically
prepare careful documentation through data analyses, claims
audits, interviews with patients, and medical record reviews.
The MFCU may reject cases because of its backlog, insufficient
evidence, or estimated dollar losses below a certain threshold.
At the time of our drug diversion study, one state's MFCU
typically rejected more than 90 percent of the Medicaid
agency's fraud referrals because of staffing constraints. For
cases accepted, MFCU investigations can involve, among other
things, additional interviews or analyses of medical records
and subpoena of financial records. If the case enters federal
jurisdiction, the MFCU may forward the case to a U.S. Attorney.
If the case is prosecuted and convictions are obtained, further
work also may be necessary to establish administrative
sanctions and recover overpayments.
Timing of actions to maximize administrative as well as
criminal sanctions. In our drug diversion study, we reported
that the state agencies and MFCUs made little effort to time
audits and criminal investigations so that civil recoveries
could be made without compromising criminal prosecution. When
poor communication exists between a MFCU and the state Medicaid
agency, the state agency may be delayed in taking civil action
before the statute of limitations has expired. In such cases,
the agency may have to forgo the opportunity to assess monetary
penalties or obtain recoveries that can restore financial
losses to the Medicaid program.
Competing productivity goals between agencies. One state's
MFCU officials told us that a state Medicaid agency's SURS
unit, for example, may be reluctant to classify provider
overpayment cases as fraud. Fraud cases must generally be
referred to the state MFCU. Cases classified as overpayments
generally remain the within the SURS' jurisdiction, and
recoveries are credited to the SURS' performance results.
Federal payback rules. Federal law creates a fiscal incentive
for states to avoid finding fraud.\5\ The law requires that the
state pay back the federal share of these overpayments within
60 days of discovery, regardless of whether the state has
recouped its losses.\6\
---------------------------------------------------------------------------
\5\ 42 U.S.C. 1396b(d)(2)(C).
\6\ While this requirement may be appropriate under ordinary
circumstances so that states are encouraged to seek recovery, it may
not be appropriate in criminal cases in which recovery efforts could
damage the investigation by alerting the suspect.
---------------------------------------------------------------------------
We are currently reviewing states' efforts to enhance coordination
in our ongoing study for the Committee. In Georgia, the MFCU has
established working teams consisting of members from three state
agencies--prosecutors from the Attorney General's office, investigators
from the Georgia Bureau of Investigation, and auditors from the
Department of Audits.
Prevention Is Key to Avoiding Program Losses
Preventive strategies designed to stop improper activity before
Medicaid incurs losses is another essential control. Our observations
on coordination difficulties demonstrate that efforts to detect and
prosecute wrongdoing are important but are typically expensive and
labor-intensive, sometimes with little financial recovery to show for
the effort. Consistent with this view is HCFA's philosophy ``to pay it
right'' instead of paying and chasing.
Preventive strategies can be embedded in the design of provider
enrollment procedures, payment methods, coverage policies, and
beneficiary eligibility verification. As we concluded from previous
work, states' emphasis on developing preventive measures were well-
placed because efforts to recover losses were often unsuccessful. In
our ongoing study, we will examine states' approaches to fraud control
prevention. One example--provider enrollment controls in the Medicare
program--illustrates how such approaches help avert fraud.
Until recently, when new requirements were established,
Medicare procedures for certifying home health agencies were
seriously flawed. For example, in a 1997 report,\7\ we noted
that becoming a Medicare- certified home health agency had been
too easy, particularly in light of the number of problem
agencies that had been identified in past years. There had been
little screening of those seeking Medicare certification. For
example, Medicare certified an agency owned by an individual
with no home health experience who turned out to be a convicted
drug felon and who later pleaded guilty with an associate to
having defrauded Medicare of over $2.5 million. Rarely did new
home health agencies fail the program's certification
requirements. HCFA has since developed procedures to better
scrutinize the qualifications and background of home health
agency applicants.
---------------------------------------------------------------------------
\7\ Medicare Home Health Agencies: Certification Process
Ineffective in Excluding Problem Agencies (GAO/HEHS-98-29, Dec. 16,
1997).
---------------------------------------------------------------------------
Adequate Resources Include Qualified Staff and Modern Technology
An investment in adequate resources, consisting of qualified staff
and modern payment safeguard technology, is a third element essential
to effective Medicaid fraud and abuse control. Over time, health care
fraud schemes have become increasingly complex, frequently involving
networks of people, sophisticated computer techniques, and multiple
geographic locations. In a 1994 Medicare report,\8\ we focused on the
results of a HCFA demonstration examining the effect of additional
program safeguard funding. We found that the ``demonstration''
contractors had achieved higher medical review savings than the control
group contractors because they committed more resources to improving
their analytic tools and hiring qualified technical staff.
---------------------------------------------------------------------------
\8\ Medicare: Greater Investment in Claims Review Would Save
Millions (GAO/HEHS-94-35, Mar. 2, 1994).
---------------------------------------------------------------------------
In recent interviews, officials in several states have expressed
concerns that the lack of effective data systems has hampered their
efforts to identify fraud. For example, one state official said that
the state's Medicaid automated detection system is 15 years old and not
well designed for the types of analysis needed today. Another official
noted that the state lacked a system to perform electronic prepayment
screening of claims, a tool that we have reported on in Medicare
reports as a fundamental payment safeguard. Reflecting these concerns,
a MFCU official stated that service data, staff capable of mining them,
and state-of-the-art detection software are important tools for fraud
control. Our ongoing study will examine the extent of states' capacity
to identify fraud or abuse.
hcfa's role in medicaid fraud control
In recent years, HCFA has taken steps to improve its program
integrity efforts in both Medicare and Medicaid. For Medicaid in
particular, HCFA's role to date has been largely to facilitate training
and information-sharing efforts for the states.
In 1997, HCFA established the Medicaid fraud and abuse national
initiative designed to bring different components among and within
states together at meetings and to provide training, share information,
and address common concerns. As part of the initiative, individual
committees have been created to work on specific problems and
solutions. For example, a state legislation committee developed a
database on a Web site that all states can access that catalogues
states' program integrity legislation. This serves states seeking
models for anti-fraud-and-abuse legislation and contacts for further
information. A federal legislation committee has developed proposals to
increase state effectiveness that have been added to HHS' legislative
proposals. HCFA has also formed and funded a technical advisory group
that meets regularly to discuss Medicaid program integrity issues.
Despite HCFA's positive efforts to facilitate states' activities,
we are concerned about the agency's efforts to ensure that all states
have effective program integrity strategies. In our June 1999 testimony
on Medicaid payments for school-based services, we raised concerns
about HCFA's role as steward of Medicaid funds. We noted that the
agency's regional offices, lacking specific guidance, were inconsistent
in their determinations of whether a given state's practices for
claiming administrative costs were appropriate. Practices that HCFA had
allowed in one state had not been allowed in others, resulting in
confusion. It also created an environment in which school systems
``pushed the envelope'' into the realm of questionable billing
practices.
From this particular work we made observations that apply to
Medicaid fraud and abuse control in general. First, striking a balance
between the stewardship of Medicaid and the need for flexible
approaches in dealing with 50-plus Medicaid programs is difficult.
However, mindful of that balance, HCFA is in a position to explore, in
partnership with states, the appropriate level of commitment to
preventing and detecting fraud and abuse. We think this is important
because both have a fiduciary responsibility to administer Medicaid
efficiently and effectively.
Mr. Chairman, this concludes my prepared statement. I will be happy
to answer any questions you or the Subcommittee Members may have.
gao contact and acknowledgments
For future contacts regarding this testimony, please call Sheila K.
Avruch, Assistant Director, on (202) 512-7277. Key contributors to this
testimony include Barrett W. Bader, Bonnie L. Brown, Hannah F. Fein,
and Robert L. Lappi.
related gao products
Financial Management: Increased Attention Needed to Prevent
Billions in Improper Payments (GAO/AIMD-00-10, Oct. 29, 1999).
Health Care: Fraud Schemes Committed by Career Criminals and
Organized Criminal Groups and Impact on Consumers and Legitimate Health
Care Providers (GAO/OSI-00-1R, Oct. 5, 1999).
Medicaid: Questionable Practices Boost Federal Payments for School-
Based Services (GAO/T-HEHS-99-148, June 17, 1999).
Fraud, Waste, and Abuse: The Cost of Mismanagement (GAO/AIMD-98-
265R, Sept. 14, 1998).
Nursing Homes: Too Early to Assess New Efforts to Control Fraud and
Abuse (GAO/T-HEHS-97-114, Apr. 16, 1997).
Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded
Providers From Federal Health Programs (GAO/HEHS-97-63, Mar. 31, 1997).
Fraud and Abuse: Providers Excluded From Medicaid Continue to
Participate in Federal Health Programs (GAO/T-HEHS-96-205, Sept. 5,
1996).
Medicare and Medicaid: Opportunities to Save Program Dollars by
Reducing Fraud and Abuse (GAO/T-HEHS-95-110, Mar. 22, 1995).
Prescription Drugs: Automated Prospective Review Systems Offer
Significant Potential Benefits for Medicaid (GAO/AIMD-94-130, Aug. 5,
1994).
Medicaid: A Program Highly Vulnerable to Fraud (GAO/T-HEHS-94-106,
Feb. 25, 1994).
Medicaid Drug Fraud: Federal Leadership Needed to Reduce Program
Vulnerabilities (GAO/HRD-93-118, Aug. 2, 1993).
Mr. Upton. Thank you very much.
Mr. Hartwig.
TESTIMONY OF JOHN E. HARTWIG
Mr. Hartwig. Good morning, and thank you for the
opportunity to testify on the subject of Medicaid fraud and
abuse and what is being done to address it.
While the vast majority of health care providers are
honest, all large health care programs are vulnerable to
exploitation, and Medicaid is no exception. Over the years, we
have seen abuses in many forms.
The responsibility for detecting, investigating and
prosecuting fraud and abuse in the Medicaid program is a shared
responsibility between the State and Federal Governments. Each
State is required to have a program integrity unit dedicated to
detecting and investigating suspected cases of Medicaid fraud;
and, as you have just heard, most States fulfill this
requirement by establishing Medicaid Fraud Control Units.
The Office of Inspector General has oversight
responsibilities for the fraud control unit, and those
responsibilities include the initial certification and the
yearly recertification of the Medicaid Fraud Control Units. We,
the Medicaid Fraud Control Units and other law enforcement
agencies work together to coordinate our anti-fraud efforts,
and these partnerships have greatly enhanced our ability to
carry out our mission.
Ten years ago, the OIG helped establish the National Health
Care anti-fraud Association, representing both governmental and
private third-party payers and law enforcement agencies, to
coordinate government and private health care fraud enforcement
activities. More recently, a National Health Care Fraud Task
Force has been established to better coordinate State and local
and Federal health care enforcement operations. In addition,
the OIG and the Medicaid Fraud Control Units have joined
together with other Federal and State law enforcement agencies
to organize local health care fraud task forces throughout the
country.
We have worked together on joint training exercises. As an
example, the Office of Inspector General has sponsored a
program to provide a 5-day session to Medicaid Fraud Control
Unit investigators, and that program was held at the Federal
law enforcement training center in Glynco, Georgia.
The Office of Inspector General has also sponsored training
sessions regarding Federal grant regulations for the Medicaid
Fraud Control Unit employees and other State administrative and
financial staff.
I would also like to highlight an OIG cooperative effort
with State Medicaid audit partners. Five years ago, we began an
initiative to work more closely with State auditors in
reviewing the Medicaid program. The partnership plan was
created as an effort to provide broader coverage of the
Medicaid program by partnering with State auditors, State
Medicaid agencies and State internal audit groups. Sixteen
State auditor reports have been issued under this partnership
with a financial impact of $163 million.
The audit partnerships provide broader coverage of the
Medicaid program and provide a more effective and efficient use
of scarce audit resources by both the Federal and State audit
sectors. We plan additional audit partnerships with the States
to strengthen that capability.
In our oversight role, we are in the process of conducting
a study that will assess the Medicaid program safeguards used
in a sample of States and will provide information on States
developing provider enrollment safeguards to assess keeping bad
providers out of the program. We will also look at prepayment
and claims processing and postpayment review at the States.
I appreciate the opportunity to come before you today to
review the fight against fraud and abuse in the Medicaid
program. I thank you and the committee for highlighting this
important issue and allowing us to share with you our
observations.
[The prepared statement of John E. Hartwig follows:]
Prepared Statement of John E. Hartwig, Deputy Inspector for
Investigations, HHS Office of Inspector General
Good Morning, I am John E. Hartwig, Deputy Inspector General for
Investigations in the Office of Inspector General. Thank you for the
opportunity to testify on the subject of Medicaid fraud and abuse and
what is being done to address it. While the vast majority of health
care providers are honest, all large health care programs are
vulnerable to exploitation, and Medicaid is no exception. Over the
years, we have seen abuses take many forms. Fraud, waste and abuse
continue today, depriving taxpayers and consumers of the value of their
contributions. Our sense, however, is that the States are steadily
becoming more effective in limiting abuses through continuous
improvements in their systems and processes.
With my time today, I will review some of the challenges that the
States face in guarding the fiscal soundness of their Medicaid programs
and share with you some recent examples of fraud perpetrated against
the program. I want to describe how the States are partnering with our
office, the Health Care Financing Administration and other Federal and
State law enforcement offices to leverage their effectiveness. Finally,
I want to describe some of the areas we have observed that provide
opportunities for continued improvement.
background
The Office of Inspector General
The Office of Inspector General (OIG) was created in 1976 and is
statutorily charged with protecting the integrity of Departmental
programs, as well as promoting their economy, efficiency and
effectiveness. The OIG meets this statutory mandate through a
comprehensive program of audits, program evaluations, and
investigations designed to improve the management of the Department and
to protect its programs and beneficiaries from fraud, waste and abuse.
Our role is to detect and prevent fraud and abuse, and to ensure that
beneficiaries receive high quality, necessary services, at appropriate
payment levels.
Medicaid Program
The Health Care Financing Administration (HCFA) administers the
Medicaid program. Authorized under Title XIX of the Social Security
Act, Medicaid is a means-tested health care entitlement program
financed by States and the Federal Government--approximately 43 percent
from the States and 57 percent from the Federal Government in FY 1998.
To date, all 50 States, the District of Columbia, and the five
territories have elected to establish Medicaid programs.
Within the broad national guidelines that the Federal Government
provides, each of the States establishes its own eligibility criteria.
While there are specific Medicaid requirements, States have
considerable flexibility in structuring their Medicaid programs,
including provider payment rates, certification standards and
development of alternative health care delivery programs. States are
required to provide a core of mandatory Medicaid services to all
eligible recipients. In addition, States have restructured eligibility
coverage through ``program'' and ``research and demonstration''
waivers. These waivers allow States some flexibility to reform health
care by expanding coverage, to create alternatives, and to allow
beneficiaries to select their own Medicaid providers.
fraud investigations
The responsibility for detecting, investigating and prosecuting
fraud and abuse in the Medicaid program is shared between the Federal
and State Governments. Each State is required to have a program
integrity unit dedicated to detecting and investigating suspected cases
of Medicaid fraud. Most States fulfill this requirement by establishing
a Medicaid Fraud Control Unit (MFCU). Each Medicaid State agency also
has a Medicaid Management Information System. A subpart of this data
system is the Surveillance and Utilization Review Subsystems Units
(SURS). The SURS units are charged with ferreting out fraud by
conducting preliminary reviews of providers and beneficiaries with
aberrant claims or billing patterns that possibly indicate criminal
fraud. When potential fraud cases are detected, the SURS refer the
cases to the MFCUs. Regulations require the Medicaid State agencies and
the MFCUs to enter into a Memorandum of Understanding in which the
agencies agree to refer all cases of suspected provider fraud to the
units.
Medicaid Fraud Control Units
In 1977, Congress enacted Public Law 95-142 which authorized
Federal matching funds for States to voluntarily establish a Medicaid
Fraud Control Unit. The Omnibus Budget Reconciliation Act of 1993
required the establishment of MFCUs unless a waiver is requested from
the Secretary of the Department of Health and Human Services (HHS).
These fraud units are part of the State Attorney General's office or
other State agency that is separate and distinct from the Medicaid
State agency. The purpose of the MFCUs is to investigate and prosecute
Medicaid provider fraud, patient abuse and fraud in administration of
the program.
The MFCUs are integrated law enforcement units composed of
investigators, attorneys, auditors and analysts. At present, 47 States
have fraud control units established and operating, while three States
(Nebraska, North Dakota and Idaho) have received waivers from the
Secretary. These waivers relieve these three States from the
requirement to establish a Medicaid fraud control unit in the manner
specified by the current Federal regulations.
The MFCUs investigate and prosecute allegations of Medicaid fraud
and patient abuse or neglect. Specifically, they:
Investigate and prosecute suspected cases of Medicaid fraud in
connection with any aspect of the provision of medical
assistance.
Review and investigate complaints of abuse and neglect of
patients in health care facilities that received payment under
the State plan.
Investigate suspected cases of fraud that occur within the
Medicaid State agency.
Provide for the collection, or referral for collection to the
single State Medicaid agency, of overpayments that are made by
health care facilities.
Safeguard the privacy rights of all individuals and provide
safeguards to prevent the misuse of information under the
unit's control.
Submit an annual report to the Secretary of HHS detailing the
accomplishments and activities of the unit.
Where State law permits, fraud control units both investigate and
prosecute cases statewide. In eight of the 47 States, the units do not
prosecute their own cases but instead refer them to a Federal, State or
County prosecutor. Cases are generated by the units themselves and also
come from a variety of sources including the Office of Inspector
General, the Medicaid agency (including the Surveillance and
Utilization Review Subsystem units), other Federal and State agencies
(such as Survey and Certification Units) and the media. In States with
fraud control units, the Medicaid agency agrees to report all suspected
cases of provider fraud to the unit. To ensure that Medicaid
overpayments identified by the units through their investigations are
recovered, the units are required to either undertake administrative
recovery actions or have procedures to refer them for collection to
other appropriate State agencies.
Although originally managed within HCFA, the oversight
responsibilities for the fraud control units were transferred to the
Office of Inspector General in 1979 since the Units' activities were
determined to be more closely related to the OIG investigative
function. Federal funds for the Medicaid fraud control program are
included in the Health Care Financing Administration appropriation. The
program reimburses the States for the cost of operating a unit at a
rate of 90 percent for the first three years and 75 percent thereafter.
Currently, all 47 MFCUs are receiving the 75 percent rate.
Medicaid Fraud Control Unit Accomplishments
Since the inception of the Medicaid fraud control program, the
units have recovered hundreds of millions of program dollars. The
following chart represents recoveries to the Medicaid program for the
past five fiscal years for which data are available:
----------------------------------------------------------------------------------------------------------------
Federal Funding
YEAR Allocated by Actual Federal Federal/State
HCFA Expenditure Recoveries
----------------------------------------------------------------------------------------------------------------
1998...................................................... $87,000,000 $85,793,887 $83,625,633
1997...................................................... $82,000,000 $80,557,146 $147,642,299
1996...................................................... $79,000,000 $77,453,688 $57,347,248
1995...................................................... $76,000,000 $73,258,421 $88,560,361
1994...................................................... $65,600,000 $64,573,926 $42,780,015
----------------------------------------------------------------------------------------------------------------
It should be noted that there are areas of MFCU activity, such as
patient abuse cases, that do not generate a monetary return, but are
part of the overall effort to provide quality care and to hold the
health care community accountable for the Federal and State dollars
spent. In FY 1998, patient abuse cases accounted for over 30 percent of
the 6,839 cases investigated by the 47 units.
Some types of fraudulent schemes currently under investigation by
the MFCUs involve:
Billing for Services Not Provided. This is one of the most
common types of fraud. Examples include a provider who bills
Medicaid for a treatment or procedure that was not actually
performed, such as blood tests when no samples were drawn or x-
rays that were not taken.
False Cost Reports. A nursing home owner or hospital
administrator may intentionally include inappropriate expenses
not related to patient care on costs reports submitted to
Medicaid.
Illegal Remunerations. A provider (i.e., nursing home
operator) may conspire with another health care provider (i.e.,
physician, ambulance company) to share a certain portion of the
monetary reimbursement the health care provider receives
(kickbacks) for services rendered to patients. Kickbacks
include not only cash, but vacation trips, automobiles or other
items. The practice results in unnecessary tests and services
being performed for the purpose of generating additional income
to both the referring source and the provider of the service.
Medicaid Fraud Control Units Case Examples
Some recent cases investigated by the MFCUs include the following:
A radiologist collected $1.7 million from Medicaid over a 26-
month period by engaging in improper billing practices. Two-
thirds of the services went to pay kickbacks to the clinic
operators who supplied him a staggering total of 24,000
unnecessary, duplicate or phony tests to ``review.'' Most of
these tests, provided by representatives of local clinics, were
of the same people, but they had been given different names and
Medicaid identification numbers. The radiologist was convicted
of grand larceny and sent to prison.
In New Jersey, the owner of two medical clinics was indicted
in 1997 for bilking Medicaid of more than $6 million. He
claimed to have performed colonoscopies and other expensive
procedures, even though he had no equipment for doing them.
Two Atlanta businessmen pled guilty to felony charges for
submitting fraudulent nursing home cost reports to the Georgia
Medicaid program. The businessmen operated a ``shell
corporation'' established primarily for creating inflated
contracts with nursing homes. The nursing homes received an
artificially inflated Medicaid per diem reimbursement rate.
Between 1991 and 1996, the businessmen obtained nearly $10
million in excess Medicaid reimbursements. A State auditor
uncovered the scheme in 1996 when he performed a routine audit
and became suspicious of the high payments. The businessmen
were indicted and were found guilty on eight counts of false
documents. They were sentenced to 50 months in prison, required
to pay restitution of approximately $6 million to the Medicaid
program and to forfeit an additional $2.1 million in assets.
A Maryland woman was convicted of felony theft for defrauding
more than $19,000 from mentally disabled adults during a 6-
month period in 1996. The woman stole social security checks
from them and drained the savings accounts of disabled adults
who were in her care. In one case, money was withdrawn from an
existing account but never deposited into the patient's other
account. Similarly, this woman stole from at least three other
Medicaid recipients, depleting their accounts to the extent
that they were unable to pay their rental expenses and were
deprived of clothes and other essentials. She was sentenced to
home detention and ordered to repay the victims.
OIG Oversight of MFCUs
The OIG has responsibility for oversight of the funding and
operating standards of the 47 MFCUs, including coordinating part of
their investigative training. During FY 1998, we provided oversight and
administered approximately $85.8 million in funds granted by HCFA to
the MFCUs to facilitate their mission. In FY 1999, HCFA's funding
allocation amounted to $92.2 million. For FY 2000, $97.7 million has
been allocated.
The OIG's oversight duties include the initial certification and
yearly recertification of the MFCUs. Regulations require the MFCUs to
submit an application to the OIG with an annual report and a budget
request. The MFCU application, annual report, budget and quarterly
statistical reports are reviewed by the OIG to determine if the MFCUs
are in conformance with standards issued by the OIG. The OIG also
reviews questionnaire responses from the Medicaid Agency and OIG Field
Offices. On-site inspections and reviews of the MFCUs are conducted by
the OIG on an as needed basis. The OIG maintains ongoing communication
with individual State units and the National Association of Medicaid
Fraud Control Units related to the interpretation of program
regulations and other policy issues.
federal and state partnerships
The OIG has aggressively sought new and innovative ways to stretch
our resources and thus maximize the effectiveness of our anti-fraud
efforts. Over the years, we have forged new and stronger links with
other Federal agencies, State governments and the private sector. A
major component of the Health Insurance Portability and Accountability
Act of 1996 was the establishment of a program to coordinate health
care anti-fraud efforts. The OIG, MFCUs, and other law enforcement
agencies work together to coordinate anti-fraud efforts. These
partnerships have greatly enhanced our ability to carry out our
mission.
Ten years ago, the OIG helped establish the National Health Care
Anti-Fraud Association, representing both governmental and private
third party payers and law enforcement agencies, to coordinate
governmental and private health care fraud enforcement activities. Over
the years, this governmental/private partnership group has been
extremely successful in fostering our collaborative efforts. More
recently, the OIG has established with the Department of Justice and
other enforcement agencies an Executive Level Working Group to focus on
health care fraud. In addition, the OIG and MFCUs have joined with
other State and Federal law enforcement agencies to organize health
care fraud task forces throughout the country.
We have taken steps to develop partnerships and build a team to
combat health care fraud and abuse. Listed below are examples of cases
involving both the OIG and MFCUs:
In Florida, a hospital health care corporation agreed to pay
the Government $469,000 to resolve its liability under the
False Claims Act and entered into a corporate integrity
agreement with OIG. This agreement settles allegations
concerning Medicaid claims submitted by one of its component
facilities between 1995 and 1997. The claims at issue were
submitted to the Florida Medicaid program, by one of the
corporation's hospitals, for services rendered to patients in
the adolescent psychiatric unit. Allegedly, the hospital billed
for services not rendered or not provided in accordance with
Medicaid requirements; and, the defendants failed to adequately
document the length and nature of the services provided.
A psychologist in Georgia is serving a 2-year prison sentence
for defrauding the Medicaid program of approximately $209,000.
The psychologist submitted false billings to Medicaid for
services that were not medically necessary and services in
excess of the number actually provided. In addition to
imprisonment, the doctor was ordered to pay restitution in the
amount of $209,000 and was excluded from the program for 15
years.
An alcoholism clinic in New York was excluded for a period of
10 years for felony larceny. The two owner/operators of the
clinic were involved in a scheme to defraud Medicaid, which
lasted over five years. They submitted false claims that
resulted in overpayments totaling approximately $113,000. Both
owners were ordered to pay restitution in the aforementioned
amount and were each excluded for 10 years.
The OIG excluded a dentist because he was required to
surrender his license to practice dentistry in California while
a formal disciplinary hearing regarding his professional
competency was taking place. After surrendering his license and
being excluded from the Medicaid program by the OIG, the
dentist moved to Oregon. While in Oregon, he applied for a
license to practice dentistry with the appropriate licensing
board and then for a provider number to bill Oregon's Medicaid
program. In researching the dentist's current practices, the
OIG determined that he had not been truthful about his
exclusion status and that the Medicaid agency had an
investigation in progress regarding his current billing
practices. The dentist was subsequently convicted of Medicaid
fraud and falsifying business records. He has been excluded
again for an additional 10 years.
Federal and State Audit Partnerships
Other cooperative efforts include State Medicaid Audit
Partnerships. Five years ago, we began an initiative to work more
closely with State auditors in reviewing the Medicaid program. The
Partnership Plan was created as an effort to provide broader coverage
of the Medicaid program by partnering with State auditors, 11 State
Medicaid agencies and two State internal audit groups. Sixteen State
auditor reports have been issued with a financial impact of $163
million.
As health care fraud has become increasingly complex, we have found
a greater need to coordinate with other law enforcement entities, as
well as others, with a vested interest in fighting fraud and abuse. For
example, our auditors partner with State auditors, other State groups
including departmental internal auditors, departmental inspectors
general, Medicaid agencies, and the Health Care Financing
Administration's financial managers, to conduct joint reviews. The
level of involvement of each partner is flexible and can vary depending
upon specific situations and available resources.
The goal of our Federal and State partnership is not just to
identify and recommend recovery of unallowable costs from State
agencies. Rather, it is designed to focus on issues that will result in
program improvements and reduce the cost of providing necessary
services to Medicaid recipients. The Plan provides broader coverage of
the Medicaid program and provides a more effective and efficient use of
scarce audit resources by both the Federal and State audit sectors.
Since its inception in 1994, active partnerships have been
developed in 22 States on such diverse issues as:
Program issues related to Medicaid outpatient prescription
drugs.
Unbundling of clinical laboratory services.
Outpatient non-physician services already included as an
inpatient charge.
Excessive costs related to hospital transfers.
Excessive payments for durable medical equipment.
Acquisition costs for Medicaid drugs.
Program issues related to managed care.
Joint projects have also identified areas where improvements in
program operations could be achieved, unallowable program expenditures
could be recovered and future cost savings could be recognized.
Clinical Laboratory Services. One Partnership Project was
undertaken to review Medicaid payments for clinical laboratory
services. The objective of this review was to determine the adequacy of
State agency procedures and controls over the payment of Medicaid
claims for clinical laboratory services. Audits in 22 States examined
pricing of lab tests and system edits and controls to detect and
prevent duplicate payments and identified $33.9 million in Federal and
State overpayments. The review also found that State Medicaid agencies
did not have adequate controls to ensure that the Medicaid program did
not pay more than Medicare would have paid for the same clinical
laboratory tests.
Dual Eligibles. A unique example of OIG auditors, State Auditors,
and Medicaid Fraud Control Units working together is an ongoing managed
care initiative involving dual eligible Medicare/Medicaid
beneficiaries. The objective of this review is to determine the extent
of inappropriate Medicaid fee-for-service payments made on behalf of
dually eligible beneficiaries while enrolled in a Medicare risk HMO.
The review began with State Auditor work conducted in two States, Texas
and Florida. The Texas State Auditors found that the State Medicaid
claims on behalf of beneficiaries for prescription drug services should
have been covered by the Medicare HMO. The Florida State Auditor's
Office found that the Medicaid fee-for-service program improperly paid
for medical services and drugs that should have been provided by the
Medicare HMOs. The questioned payments amounted to over $15.8 million
in Calendar Year 1996. As a result of the findings for 1996, the review
was referred to the Florida Medicaid Fraud Control Unit which is
continuing the review for 1994, 1995, 1997 and 1998.
opportunities for continued improvement
I want to describe some recent and continuing activities that
relate to improving anti-fraud and abuse efforts in the Medicaid
program.
Training
The OIG sponsored a program to provide five-day training sessions
for MFCU investigators at the Federal Law Enforcement Training Center
(FLETC) in Glynco, Geogia. The training is administered by the
Inspector General Academy in cooperation with the National Association
of Medicaid Fraud Control Units and is intended to improve the
effectiveness of the MFCUs in investigating and prosecuting Medicaid
provider fraud and patient abuse and neglect.
The Office of Investigations also sponsors and coordinates training
conferences regarding the Federal grant regulations for MFCU employees
and other State administrative and financial staff. Additional training
for MFCU investigators is available through the Health Care Fraud
Investigations Training Program provided at the FLETC. The OIG, in
cooperation with the Financial Fraud Institute at the FLETC, developed
this two week training program. Course topics include health care fraud
schemes, interviewing techniques, evidence gathering, case preparation
and financial investigative techniques.
Increased Auditing Partnerships
Additional Federal and State partnerships will be developed with
the States to strengthen the capability to detect, prosecute and punish
fraudulent or abusive reimbursement activities. Potential audits and
developing issue areas include:
Medicaid denials of inpatient acute hospital stays.
Physician clinical billing practices.
Medical equipment, supplies, and related items.
Medicaid prescription drugs--average wholesale price.
Medicaid prescription drugs--dispensing fees.
Hospice care--eligibility.
Home health care--eligibility.
Managed Care--payment of enhanced rates.
Multi-state audit of long-term care to include licensing,
inspections, violations, and reimbursement systems.
Mental health services.
Surveillance and Utilization Review Subsystem (SURS)
In 1972, Congress enacted Public Law 92-603 that provided funding
to States to foster development and implementation of the Medicaid
Management Information System (MMIS). One of the subcomponents of the
MMIS is the Surveillance and Utilization Review Subsystem (SURS). These
units were designed to serve as major contacts and analysis points for
detection and referral of potential fraud and provider abuse cases to
assigned components within the States that pursue investigation of
alleged criminal fraud within the Medicaid Program, usually the
Medicaid Fraud Control Units.
As part of the Medicaid Management Information System, the SURS
applies automated post-payment screens to Medicaid claims adjudication
to identify aberrant billing patterns that may indicate fraud or
provider abuse. The SURS staff reviews systems output and conducts
preliminary reviews of providers to determine whether they can
substantiate a pattern of fraud. In such cases, they must refer the
matter to the States' fraud control unit for investigation.
Based on a review we conducted in November 1996, we determined that
the number and percentage of suspected fraud referrals from SURS had
declined in the previous 10 years. Officials at the State fraud control
units were divided in their opinions as to the extent and quality of
SURS development of fraud allegations and edits. Based, in part, on our
recommendation, HCFA established a Program Integrity Group to address
fraud and abuse issues within the Medicaid and Medicare programs. This
group was charged with monitoring many projects that would increase the
effectiveness of fraud unit activities.
Managed Care Fraud
Last summer, we released a report describing the manner in which
Medicaid Section 1115 Waiver States detect, review, and refer for
investigation fraud and abuse cases in managed care programs. This
emerging area is of great importance as an increasing number of
Medicaid beneficiaries receive health care services under managed care.
In our review of 10 States we found variation in the intensity and
nature of States' oversight activities for managed care fraud and that
there is no general agreement about specific roles and responsibilities
for fraud detection and referral in managed care. We recommended a
series of actions for HCFA to undertake and work with us
collaboratively, including establishing guidelines for States and
managed care organizations to follow in developing and carrying out
fraud and abuse detection and referral activities. Also, we recommended
that HCFA ensure that States monitor managed care organizations' fraud
and abuse programs for compliance with its guidelines. Finally, we
encouraged HCFA to continue in developing and sponsoring training in
managed care fraud and abuse referral and detection techniques for the
States and Medicaid managed care organizations.
Medicaid Payment Safeguard Activities
We are in the process of conducting a study that will assess
Medicaid program safeguards used in a sample of States and will provide
information on the state of developing safeguards in the areas of
provider enrollment, prepayment and claims processing and post payment
review. We are finding several States are employing new safeguards in
provider enrollment that show promising results in reducing the number
of abusive providers within the program. States are now beginning to
employ claims processing edits and other systems improvements similar
to those used by Medicare that should reduce program vulnerabilities.
Finally, we are seeing States begin to target their post payment
activities to more accurately target fraud and abuse activities. All of
these developments and new strategies suggest promising approaches that
may be adopted by all of the State agencies and further strengthen the
Medicaid program.
conclusion
We appreciate the opportunity to come before you today and share
with you the continuing improvements that we are witnessing in the
ongoing fight against fraud and abuse in the Medicaid program. We will
continue to work for further improvements that will strengthen the
program through our investigations, financial audits and evaluations of
program effectiveness. Perhaps most importantly, we look forward to
continuing our active partnerships with other Federal and State
agencies and to providing oversight and guidance in investigating fraud
and abuse in health care. My thanks to you and the committee for
highlighting this important issue and allowing us to share our
continuing efforts. This concludes my testimony. I welcome your
questions.
Mr. Upton. Thank you very much.
Mr. Krayniak.
TESTIMONY OF JOHN KRAYNIAK
Mr. Krayniak. Thank you.
My name is John Krayniak. I'm a Deputy Attorney General and
the Director of the New Jersey Medicaid Fraud Control Unit. I
appear today as a representative of the National Association of
Medicaid Fraud Control Units.
In line with the Chairman's earlier statement, I would note
that in 1965 the Medicaid program was $1.5 billion, and we've
now gone to approximately $176 billion.
Mr. Upton. Our population is getting older.
Mr. Krayniak. Yes. For the first 10 years of the Medicaid
program, Medicaid providers operated and billed with little or
no oversight. In 1977, Congress, recognizing a need for an
enforcement mechanism, passed the Medicare-Medicaid Anti-Fraud
and Abuse Amendments which created the State-based Medicaid
Fraud Control Unit program. States receive 90 percent of the
startup costs for this program for 3 years, and thereafter the
States receive 75 percent of the costs of running the Medicaid
Fraud Control Unit.
The mission of the units is to investigate and prosecute
provider fraud. It's also to investigate and prosecute abuse or
neglect of patients in any facility that receives Medicaid
dollars and also to investigate and, if necessary, prosecute
fraud in the administration of the Medicaid program at the
State level.
The Medicaid Fraud Control Units investigate and prosecute
cases that range from street-level, drug diversion schemes to
sophisticated white collar crimes. From one-defendant provider
fraud cases to multi-defendant, multi-crime, multi-State
conspiracies, the oversight is with the HHS OIG. Each unit must
be initially certified, and each year the MFCU applies for a
recertification.
There are currently 47 certified Medicaid Fraud Control
Units. They comprise approximately 1,275 professionals, that is
attorneys, auditors and investigators, that are organized into
a strike-force-type investigative and prosectorial agency.
Forty of us are in the State Attorney General's Offices.
Most of the units belong to their local, Federal and State
Health Care Fraud Task Force and meet regularly with the U.S.
Attorney's Office and other Federal agencies involved. To date,
the units have achieved an enviable record, I believe, of over
9,000 criminal convictions.
Additionally, the units serve as a focal point for the
Department of Justice in dealing with multi-State case
settlements concerning providers that operate on a national
basis. The units have participated in a number of these
settlements that have resulted in a return to the Medicaid
program of approximately $145 million.
I would like to speak for a moment about my association,
the National Association of Medicaid Fraud Control Units. As I
said, all 47 units belong. Our primary mission is for training.
We conduct four training sessions each year to train and
retrain auditors, investigators and attorneys, of course.
Additionally, each unit provides in-service training, many of
them going out to local and county police academies and giving
instructions on investigation and prosecution of patient abuse.
We currently have 11 negotiating teams working with the
Department of Justice on what we call global settlement cases,
cases involving national providers that are ongoing right now.
That concludes my remarks, and I thank the committee for
inviting me.
[The prepared statement of John Krayniak follows:]
Prepared Statement of John Krayniak, Director, New Jersey Medicaid
Fraud Control Unit
Mr. Chairman and Members of the Committee, thank you for the
opportunity to appear before you today to discuss the role of the
states in investigating and prosecuting Medicaid fraud. I am John
Krayniak, Director, of the New Jersey Medicaid Fraud Control Unit. I am
very pleased to appear before you as the representative of the National
Association of Medicaid Fraud Control Units of which I currently serve
on the Executive Committee.
The skyrocketing costs associated with health care delivery and the
continued ``graying'' of our population have resulted in an increased
reliance upon government-sponsored programs such as Medicare and
Medicaid to provide much needed health insurance to those who would
otherwise go without medical care.
The Medicaid program, which was established to provide health care
to indigent patients, has seen its enrollment explode. When the Program
started, in 1965, Medicaid expenditures were $1.5 billion. Nationwide,
the Health Care Financing Administration expected to spend more than
$176.5 billion in FY 1998 to sustain the Medicaid Program. Medicaid
recipients increased from about 10 million in 1967 to a projected 36.7
million in FY 98, an increase of 267 percent. States are responsible
for up to 50% of the cost of the Medicaid programs and some states now
spend between 15 to 20% of their total budget to sustain the program.
This nation is expected to spend more than $1 trillion on health
care or 15% of our gross national product this year. Given these
figures, it is not surprising that our health care delivery system has
proven ripe for fraudulent activity.
The General Accounting Office (GAO) has estimated that fraud and
abuse accounts for 10% of health care costs and while there may not be
a way to establish a precise figure, we are certainly talking about
many hundreds of millions of dollars of fraud and abuse in the Medicaid
program alone. In Congressional testimony, GAO has stated that only a
fraction of health care fraud is identified and prosecuted. More than
20 years after the creation of the Medicaid Fraud Control Unit program,
new fraud schemes continue to be uncovered as providers become more
sophisticated and are able to detect new weaknesses in the system.
During the past decade, in particular, we have literally seen a
feeding frenzy on the Medicaid Program, an unprecedented period in
which wave after wave of multimillion dollar frauds have swept through
nursing homes and hospitals, to clinics and pharmacies, durable medical
equipment (DME), radiology and labs, and more recently, home health
care. Although we do the best we can to put an end to program
vulnerabilities, we still have profiteers who search and succeed in
finding the next great loophole in the Medicaid system.
state medicaid fraud control units
While the investigation and prosecution of health care fraud has
only recently become a top national law enforcement priority, the
states have been combating Medicaid fraud for more than 20 years and
are viewed as leaders in the detection and prosecution of fraud in the
health care industry. Medicaid, established by Congress in 1965 is of
course, the primary government health care program for approximately
36.7 million of America's poorest and oldest citizens. For the first
decade after Medicaid was created, the system operated with few
controls against fraud. Inadequate safeguards combined with multi-
billion dollar expenditure levels made a substantial amount of fraud
inevitable. The result was an unprecedented theft of government dollars
as local prosecutors struggled with the difficult task of prosecuting
these highly sophisticated crimes. Congress came to recognize an urgent
need to address this loss after much media attention and Congressional
hearings highlighted the theft of taxpayer dollars and the harm
suffered by Medicaid patients who were deprived of basic medical care.
The result was legislation to establish specialized state-based strike
forces to police the Medicaid program.
In 1977, Congress enacted legislation, the Medicare-Medicaid Anti-
Fraud and Abuse Amendments, P.L. 95-142 which established the state
Medicaid Fraud Control Unit Program and provided the states with
incentive funding to investigate and prosecute Medicaid provider fraud
and to prosecute the abuse or neglect of patients in all residential
health care facilities which receive Medicaid funds. Federal financial
participation (FFP) for the first three years of a Unit's existence is
90 percent of the costs incurred by a certified Unit in carrying out
its responsibilities. Thereafter, the federal government continues to
provide 75% of each Unit's costs after the three year start-up period
with the proviso that the FFP for any one quarter may not exceed the
higher of $125,000 or \1/4\ of the sums expended by the federal, state
and local governments during the previous quarter in carrying out the
state Medicaid program. All states are now at 75% FFP.
This funding formula allows the federal government to insure that
each Unit's activities are directed exclusively at provider fraud,
fraud in the administration of the Medicaid program and patient abuse,
and not at crimes lacking an appropriate Medicaid nexus.
Although the federal regulations require the MFCUs to be annually
certified by the Secretary of the Department of Health and Human
Services (HHS), the Office of the Inspector General of HHS has been
delegated the administrative oversight responsibilities for the Units.
The Health Care Financing Administration (HFCA) was originally assigned
the certification, recertification and general oversight responsibility
of the MFCU program. However, it was soon recognized that the Units'
activities were more closely related to the OIG investigative function.
This transfer took place in 1979.
The enabling federal legislation emphasizes the necessity of
having an integrated multi-disciplinary team of attorneys,
investigators, and auditors in one office in order to successfully
prosecute these complex financial crimes. The Units are required to be
separate and distinct from the state Medicaid programs to avoid
institutional conflicts of interest, and are usually located in the
state Attorney General's office, although some Units are located in
other state agencies with law enforcement responsibilities such as the
state police or the state Bureau of Investigation. The Omnibus
Reconciliation Act of 1993 required all states to have a Medicaid Fraud
Control Unit by January, 1995, unless a state can demonstrate to the
Secretary of the Department of Health and Human Services, (HHS) that it
has a minimum amount of Medicaid fraud and that residents of health
care facilities that receive Medicaid funding will be protected from
abuse and/or neglect. Idaho, Nebraska and North Dakota do not have
federally certified MFCUs. The District of Columbia is in the process
of establishing its MFCU.
Since the inception of this pioneering program, 47 federally
certified state Units have successfully prosecuted over 9,000 corrupt
medical providers and vendors and elder abusers--convictions that would
not have occurred without this vital piece of legislation. These 47
Units police most of the nation's Medicaid expenditures with combined
staff of approximately 1,275 and a total federal budget of 95 million
dollars. This amount represents a small fraction of the total Medicaid
budget that the Units are responsible for policing. Unit size varies
state-by-state and is dictated to some extent by the size of state's
Medicaid program. In New Jersey, for example, our Medicaid budget is 6
billion dollars and the Unit employs 36 staff. New York is the largest
Unit with approximately 280 staff and Wyoming is the smallest with
four.
In addition to the criminal consequences of MFCU cases (repayment
of restitution, overpayments, state exclusions, incarceration, and
often the loss of certifications, the ability to conduct business and
professional licenses), the criminal convictions of the Units become
the basis for further federal actions. The federal actions that are
reported by the Office of Inspector General (OIG) of the Department of
Health and Human Services (HHS) include the underlying state
convictions, judgments, forfeitures, civil settlements, federal program
exclusions, and civil monetary penalties. In fact, the majority of
health care fraud convictions, penalties, and exclusions reported to
you are based upon MFCU convictions. The MFCUs are the most efficient
and effective law enforcement agencies in the battle against health
care fraud and patient abuse.
patient abuse and neglect
The MFCUs success in detecting and prosecuting Medicaid provider
fraud is widely recognized, it is perhaps less well known that the
Units are the only law enforcement agencies in the country specifically
charged with investigating patient abuse and neglect.
In the mid-1970's, allegations of nursing home patient abuse
shocked the country, causing universal outrage and a demand for
effective redress. Implicitly acknowledging that patient abuse matters
were the ``orphans'' of local prosecutors' caseloads--they having
neither the time nor the expertise required to consistently prosecute
such matters successfully--Congress conditioned each state's
participation in the MFCU program upon its formulating ``procedures for
reviewing complaints of the abuse and neglect of patients of healthcare
facilities which receive payments under the State [Medicaid] plan''
and, where appropriate, prosecuting such cases or referring them to
other state agencies for prosecution (42 U.S.C. Sec. 1396b(q) [4]; 42
CFR Sec. 1007.11[b]). In accordance with that mandate, today each of
the 47 currently enrolled MFCUs devotes a substantial portion of its
caseload to patient abuse investigations. State Medicaid Fraud Control
Units review thousands of referrals alleging patient abuse, neglect and
the misappropriation of patient funds.
Patient abuse can be classified into several categories. For
example, providing inadequate medical or custodial care or creating
other health care risks may constitute patient neglect. Physical abuse
includes acts of violence such as slapping, kicking, hitting or
punching a patient and sexual abuse. Financial abuse includes the
misappropriation of patients' personal funds such as commingling
patient and facility funds or using patient funds to pay for facility
operations.
Scores of investigations and years of cumulative experience have
made it clear that the abuse, neglect, mistreatment, and economic
exploitation of nursing home residents is a problem of far greater
magnitude than previously thought. Eleven years ago, our national
association, in collaboration with the National Association of
Attorneys General (NAAG), responded to the growing national concern
about patient abuse by adopting Guidelines and Commentary for
Legislation to Prohibit Patient and Resident Abuse. These Guidelines
are designed to encourage states to enact patient abuse statutes that
would not only provide the necessary prosecutorial tools and enhanced
penal sanctions for combating this type of shocking misconduct, but
would also serve as a powerful deterrent to potential patient abusers.
It is difficult to conceive of a more vulnerable, less threatening
group than residents of long-term care facilities. Yet, too often, they
are the target of cruel and, at times, sadistic violence and
mistreatment. Most reprehensibly, in long-term care facilities,
perpetrators of physical abuse are usually those charged with care and
well-being of patients. For example:
A New York physician was criminally prosecuted for willful
neglect and reckless endangerment of a nursing home patient in
his care. He mistook a peritoneal dialysis catheter in the
patient's abdomen for a feeding tube, and ordered that she be
fed through the catheter. When this error was discovered two
days later, he made a conscious decision to do nothing to help
the patient despite expert advice that the patient required
hospitalization for treatment. Finally, ten hours later, the
physician agreed to transfer the patient to the nearby hospital
for care.
In Louisiana, a former certified nursing assistant trainee
was arrested for raping a mentally ill woman in a nursing home
and lying about his criminal record to get a job.
In Arizona, a residential care home owner was sentenced to
serve 21 years--the longest sentence for elder abuse in the
state's history--for neglecting and abusing his aged patients.
To induce families to place their relatives in his facility,
the defendant had lied to them about his licensure status.
Six physicians who worked at a facility for mentally retarded
patients in Pennsylvania were arrested for allegedly abusing
their patients and five were charged with the simple assault
and neglect of a care-dependent person for allegedly using
staples and sutures to seal wounds without the use of
anesthesia.
Beverly Enterprises, Inc., the largest nursing home chain in
the nation, agreed to pay $600,000 to improve care at their 17
facilities in the state of Oregon, after an MFCU investigation
of a Beverly home found evidence of inadequate staff training
and supervision, and other conditions constituting an immediate
threat to resident health and safety.
71 felony charges were filed against nine individuals and
three corporations involved with four Michigan nursing home
facilities for criminal patient abuse and neglect and
falsification of records at the facilities. A Michigan nursing
home and its owner/administrator were charged with one count of
involuntary manslaughter for the drowning death of an elderly
patient who drowned in scalding hot water.
And beyond these egregious cases, the Units have also uncovered
thousands of incidents of individual nurses, aides, and orderlies,
raping, sodomizing, beating, kicking, and force-feeding the helpless,
often incompetent patients in their charge.
Congress enacted P.L. 95-142, not only because of the widespread
evidence of fraud in the Medicaid Program, but also because of the
horrendous tales of nursing home patient abuse and resident
victimization--and the Units are justly proud of their record in
protecting the frail and vulnerable institutionalized elderly.
provider fraud schemes
In the past decade, the MFCUs have seen a rapid increase both in
the number of fraudulent schemes and the degree of sophistication with
which they are committed. Although the typical fraud schemes such as
billing for services never rendered, double billing, misrepresenting
the nature of services provided, providing unnecessary services, false
cost reports and kickbacks still regularly occur, new and often
innovative methods of thievery have consistently occurred and are even
just beginning to appear.
Medicaid fraud cases run the gamut from a solo practitioner who
submits claims for services never rendered to large institutions which
exaggerate the level of care provided to their patients and then alters
patient records in order to conceal that lack of care. MFCUs have
prosecuted psychiatrists who have demanded sexual favors from their
patients in exchange for prescription drugs, nursing home owners who
steal money from residents, and even funeral directors who bill the
estates of Medicaid patients for funerals they did not perform.
The following are typical schemes corrupt providers may use to
defraud the Medicaid program.
1. Billing for services not rendered--A provider bills for services not
rendered, x-rays not taken, a nursing home or hospital
continues to bill for services for a patient who is no longer
at the facility either due to death or transfer, and
psychiatrists bill for SSI qualifying exams which do not occur.
2. Double-billing--A provider bills both the Medicaid program and a
private insurance company (or the recipient) for treatment, or
two providers request payment on the same recipient for the
same procedure on the same date.
3. Substitution of generic drugs--A pharmacy bills the Medicaid program
for a brand name prescription drug, when a low cost generic
substitute was supplied to the recipient at a substantially
lower cost to the pharmacy.
4. Failure to refund unit dose prescriptions--Many nursing home
pharmacies dispense drugs using the ``unit dose'' method, where
a month's supply of pills are dispensed in sanitary bubble
packs holding individual doses. The prescriptions are billed to
Medicaid when dispensed, usually at a premium because of the
extra effort involved in the unit dose packaging. Those
medications which are not used should be, but often are not,
credited to Medicaid. The percentage of returned medication is
high in a nursing home because of the large number of mid-month
medication changes, hospitalizations, and ``use as needed''
medications in the nursing home industry.
5. Unnecessary services--A physician performs numerous tests which are
medically unnecessary and result in great expense to the
insurer. Extreme examples noted in many states include ``gang
banging,'' where a single optometrist, podiatrist or other
specialist will be allowed to treat the entire nursing home
population in a day, regardless of whether the service is
medically necessary for the particular patient being seen.
6. Upcoding--A physician bills for more expensive procedures than were
performed, such as a comprehensive procedure when only a
limited one was administered, a psychiatrist bills for
individual therapy when group therapy was given.
7. Kickbacks--A nursing home owner requires another provider, such as a
laboratory, ambulance company or pharmacy, to pay the owner a
certain portion of the money the second provider receives from
rendering services to patients in a nursing home. This practice
is particularly costly because we find that it encourages the
nursing homes, which act as gatekeepers for the ordered
ancillary services, to subscribe to unnecessary ancillary
services which are reimbursed by Part B Medicare and Medicaid.
8. False Cost Reports--A nursing home owner or operator includes
inappropriate expenses for Medicaid reimbursement.
new schemes and trends
Over the past few years, these so-called ``typical'' schemes have
given way to more innovative ones. Recently, the Units have identified
serious fraud problems in several industries including laboratories,
home health care, medical transportation, durable medical equipment and
pharmacies. The incidence of illegal drug diversion has risen sharply
over the years, carrying with it a dramatic financial impact on the
Medicaid program.
More and more states are enrolling their Medicaid population into
managed care plans. While proponents of the managed care system believe
that it is the best method for providing low cost high quality health
care to more people, the experience of the fraud Units reveal that no
health care plan is immune from fraud and indeed fraud does occur in
managed care plans.
Recent global settlements of cases involving multiple state and
federal entities have encouraged cooperative federal/state efforts to
protect the Medicare/Medicaid programs from health care providers or
vendors whose activities know no borders.
fraud in nursing homes
The Medicaid program still continues to finance the largest
percentage of total costs for nursing homes. In 1997, total Medicaid
vendor payments were approximately $123 billion dollars. Approximately
30.5 billion of this amount went to nursing facility services which
includes skilled nursing facilities (SNFs) and all other categories for
Intermediate Care Facilities (ICF), other than mentally retarded (MR)
services. The number of skilled nursing facilities has been increasing
since the 1970's and by the beginning of 1998 reached 14,860, an
increase of 4.8 percent since 1997.
Traditionally, nursing home prosecutions involve the filing of
false cost reports, which were proven false because they claimed
reimbursement for expenses which were not properly attributed to
patient care. The following are examples of nursing home fraud:
The Maryland MFCU has criminally prosecuted owners and
administrators for including in their nursing home cost reports
the following; the cost of renovating their personal
residences, buying shrimp and tenderloin for holiday
entertaining, including personal maid service and opera tickets
on a cost report; fixing up rental properties for the benefit
of the owners and paying a salary to a son who was in prison in
Texas at the time he was drawing the salary.
Two Atlanta businessmen entered guilty pleas in federal
district court to felony charges related to a complex scheme of
submitting fraudulent nursing home cost reports to the Georgia
Medicaid program. As a part of their guilty pleas, the pair
agreed to pay restitution of approximately $6 million to the
Georgia Medicaid program and also agreed to the forfeiture of
an additional $2.155 million in assets.
South Carolina's first criminal conviction following the
Unit's creation in 1995, was a management company that operated
a nursing home. The company illegally received almost $50,000
in Medicaid funds for a patient who had already been
discharged.
The former administrator of a nursing home in Nevada pleaded
guilty after the Unit charged him with falsifying reports to
the state by reporting nurse staffing hours in excess of the
Medicaid regulations minimum requirements, when in fact, the
actual hours of direct care were below the minimum levels.
In Pennsylvania, a nursing home owner and his corporation
pleaded guilty to Medicaid fraud for illegally collecting over
$120,000 by claiming reimbursement for personal, family and
non-reimbursable business expenses. These expenses included
vacation trips, entertainment costs, maintenance and home-
improvement expenses for his personal residence and health and
life insurance for his family. In addition, the owner
fraudulently inflated reimbursement expenses for the nursing
home by submitting in his cost reports operating expenses of
two separate personal care boarding homes that he also owns.
In Washington State, a nursing home owner and administrator
were convicted for billing the Medicaid program for hundreds of
thousands of dollars for the full cost of patients who were
concurrently being billed to Medicare.
For the first time in Ohio, the owner/operator of a group of
nursing homes was convicted of money laundering after a 3\1/2\
year investigation for receiving $23,000 more than he was
entitled to from the Medicaid program.
laboratories
Aggressive marketing techniques, not traditionally associated with
the health care industry, have increased costs by adding marginally
necessary or totally unnecessary tests to health care bills. One such
example are the recent Labscam cases where physicians were misled into
ordering a rare, but expensive, diagnostic tests when they needed only
an inexpensive and basic blood chemistry. Investigators found that
several independent clinical laboratories induced doctors to order
laboratory tests which were medically unnecessary by assuring that the
additional tests would be free or of minimal cost. In fact, the
laboratories were billing government insurers for these tests without
the referring physician's knowledge. As a result of this three-year
task force effort targeting unbundling schemes, federal and state
governments were paid a total of $642 million to settle potential civil
and criminal liability.
Billing for useless laboratory tests and cheating both government
and private insurers is still occurring. In Maryland, a laboratory and
its owner were found guilty of numerous counts fraud and theft. The
defendants were charged with billing government and private insurers
for performing more than 8,000 unauthorized and useless diagnostic
tests totaling nearly $150,000. The owner was also convicted of
representing a laboratory which was in violation of the state's quality
assurance laws. He was sentenced to serve five years in and ordered to
pay $161,000 to Medicaid, Medicare and several commercial health
insurance companies.
The Illinois MFCU charged several defendants with allegedly
establishing a phony lab and billing Medicaid and private insurance
companies for lab tests that allegedly were never performed by the lab.
During a search of one of the defendants' home, tubes of what appeared
to be human blood were found in the garbage can. Before the scheme was
exposed, over $300,000 in payments from Medicaid and insurance
companies passed through the corporate bank account.
Laboratories that provide drug testing for substance abuse programs
have also been the subject of MFCU investigations. The Massachusetts
MFCU indicted a drug testing laboratory and its president for allegedly
overcharging Medicaid for tests it performed and then used in a series
of fraudulent billing schemes to increase their billings even more. In
Pennsylvania, a laboratory agreed to pay $750,000 to settle allegations
that it overcharged the state for testing done for drug and alcohol
facilities and hospitals in the Pittsburgh area.
Defendants across the country have found a way to turn blood into
money. Clinic owners purchase human blood from ``blood brokers.'' These
brokers draw many vials of blood from people willing to sell it. These
are often drug addicted individuals. The clinic owners pair these
samples with fictitious laboratory requisition forms, using Medicaid
recipient numbers drawn from their files. They order an expensive panel
of tests which the laboratory performs. The laboratory then kicks back
a portion of the Medicaid payment to the clinic owner.
In a New Jersey case exemplifying this scheme, a laboratory's
Medicaid billings increased to $5.5 million from $500,000 in the
previous year. During this investigation one defendant purchased vials
of human blood from a cooperating witness. This was a ``controlled
sale'' and the blood was drawn from state investigators who
volunteered. Another defendant walked into an office where police were
conducting an unrelated investigation with a bag containing vials of
human blood.
Four defendants pleaded guilty and were sentenced to prison terms
ranging from six to ten years. After a three week jury trial, another
defendant was convicted and sentenced to one year in county jail.
Similar schemes have been detected in several other states. In
California, a variation has emerged. It is called ``dry labing.''
Instead of purchasing bogus samples from clinic owners lab operators
merely submit electronic claims repeatedly. Trafficking in Medicaid
identifiers is on the upswing.
home health care
Already the fastest growing part of the Medicaid-funded health care
system, state and federal outlays in the home health industry have
ballooned in the last five years. The Medicaid federal share for home
health care is expected to reach $18.4 billion by the year 2000. This
increase is due to an aging population, shorter hospital stays,
increasing cost of nursing home care and an increase in technology.
Since the 1970s, technology has advanced to the point of allowing more
and more patients to remain in their homes and receive treatment. The
profile of a typical home health care recipient is one who is elderly,
disabled, has AIDS, heart disease, diabetes or has been discharged from
the hospital and needs more care.
Not only are home health care agencies charged with grossly
inflating the number of hours their employees worked, but, more
importantly, in some cases with recklessly sending untrained,
unqualified, and unlicenced aides into private homes of thousands of
critically ill and care-dependent patients. It is an industry that
contains all of the components for disaster. It is unregulated in the
traditional medical sense, multiple agencies are involved with large
amounts of government money and it is attractive to the consumer.
Let me highlight a few examples of the Units' work in this area:
In California, an elderly man who died by starving and in his
own filth, was locked in a room by his sons and daughter while
they enjoyed Thanksgiving dinner in another room. They were his
government paid home health caregivers.
Five individuals in Massachusetts were charged on a variety
of Medicaid fraud charges as a result of the MFCU's
investigation into Medicaid's personal care attendant program
which allows disabled individuals to remain in a community
setting with the aid of personal care attendants. Each of the
defendants charged the stated for services which were not
provided and/or inflated billings made to the agencies.
In Pennsylvania, after a four week trial, a home health care
agency owner and her corporation were found guilty for engaging
in a 5\1/2\ year scheme to defraud Medicare and Medicaid of
over $1 million. Evidence presented at trial revealed that the
owner falsified records regarding patient homebound status.
Two home health care providers continued to bill the
Washington State Medicaid program after the patients had died.
In one of these cases, the defendant continued to bill the
state while living with the victim's ex-wife.
A certified nurse's aide in Maine was sentenced to three
years in jail, with all but 30 days suspended, and to four
years probation for adding her name to a number of credit cards
that belonged to the patient and making purchases on those
cards totaling $7,196.13.
A major home health care agency settled with New York for
1.75 million dollars for submitting tens of thousands of
inflated bills to Medicaid covering 1.2 million hours of
services from 1994 to 1997.
Among the most rapidly growing segments within the home health care
industry is home infusion treatments. Home infusion treatments include
more than the actual medication. In addition to drugs and nutritional
formulas, supplies such as tubing, syringes, alcohol swabs, bottles,
gloves and needles, and expensive equipment such as pumps, nebulizers,
glucose monitors and blood pressure kits that are regularly utilized by
the victims of these serious illnesses, all of which are billed on a
regular basis.
A large amount of the funds, too, are spent in the area of home
care services. Regular visits, frequently more than once a day, by an
R.N., nurse practitioner, home health aide, a physicians's assistant or
even a physician, are required and reimbursed. Further, regular visits
to a physician for certification of continued need and dosage
adjustment are necessary. Again, a classic recipe for fraud with
fragmented billings; drugs are billed by the pharmacies; the supplies
used to assist in administering the drugs are billed by the DME
provider; professional services are billed by the home health service
company or individual providers; and personal services may be billed to
various agencies.
The potential for fraud in this rapidly-expanding and highly
expensive industry is clear. Kickbacks to doctors to authorize
medically-unnecessary treatment, services or supplies, whether provided
or not, is cause for MFCU concern.
medical transportation
Virtually every state MFCU has found egregious examples of fraud by
non-emergency medical transportation companies. Medicaid will generally
pay for a patient's transportation to a medical provider either when
mass transit is unavailable in the recipient's area or when the
patient, because of a debilitating physical or mental condition, cannot
use this method of transportation. Examples of medical transportation
fraud include; billing for an excessive number of miles per trip for
services actually provided, billing for recipients who drove
themselves, paying kickbacks to recipients who used the medical
transportation services, allowing non-eligible persons to use another
recipient's card, submitting falsified appointment dates for round-trip
transportation services to a provider's offices, charging billing for
emergency transportation for non-emergency situations, billing for
fictitious services not covered by the Medicaid program or for
transportation that was not provided, creation of phoney certificates
of need ostensibly by doctors, and kickbacks to doctors for improperly
certifying the need.
Transportation fraud is also committed by ambulance providers as
well. For example, in Pennsylvania claims were filed to the state
requesting reimbursement for ambulance trips that were not medically
necessary. Many of these trips were to doctors' offices, which are not
reimbursable under Medicaid regulations, but were misrepresented as
being trips to hospitals. A Minnesota company that provided ambulance
and medical transportation reached a $3 million dollar settlement with
state and federal authorities for falsely billing the Medicaid and
Medicare programs. The company billed these programs for basic life
support ambulance transportation, claiming that the rides were
medically necessary, when a lesser form of transportation would have
been adequate.
A Florida task force investigation into false billings for the
transportation of Medicaid patients resulted in 31 convictions of
company executives, dispatchers and drivers. Due to lack of program
oversight, companies with only one or two old vehicles were able to
generate millions of dollars in false billings to the Medicaid program.
It is estimated that over 18 million dollars was stolen from the
program in South Florida alone.
The general transportation program in Maryland virtually collapsed
under the weight of fraud and abuse. In 1988, the program cost
taxpayers $4.5 million per year. Fraud, abuse and aggressive marketing
caused the demand for program services to increase four fold in four
years, for a cost of $16.2 million in 1992, at which time it was
abolished.
In California, a state that pays for almost no transport services,
nearly $1 million was recovered from bank accounts hours before the
money was to be transferred out of the country. The defendants had
already fled. They had used a combination of phoney certificates of
need, lying about the mileage and kickbacks to board and care operators
for access to Medi-Cal patients.
In Arkansas, as a result of a search warrant of one cab company, 16
former drivers of the company, nine Medicaid recipients and three
others were convicted and were ordered to pay over $2 million in
restitution to the Medicaid program.
drug diversion
Drug diversion or more properly the diversion of legal drugs for
illegal purposes in the Medicaid program, has generated a supply of
dishonest health care providers who both abuse their prescribing
privileges and incur great costs to prescription plans, such as
Medicaid. In large urban centers, it is not uncommon to find a so-
called ``pill mill'' which has as its primary purpose the issuance of
prescriptions for controlled drugs in exchange for cash or, in some
cases, sexual favors. These drugs may then be resold ``on the street''
or sent abroad for black and gray markets for several times their cost,
sustaining the continued addiction of countless individuals. In some
instances, we have found that the street addicts resold the
prescription drugs to other pharmacies at a fraction of their original
cost and at some risk to the unsuspecting customers of the second
pharmacy.
However, while drug diversion is often used in the context of pill
mills and script selling doctors, the definition should include such
cases as nurses who work in nursing homes who order prescriptions from
pharmacies without a physician's order and then obtain the prescription
from the pharmacy delivery person and either sell the drugs or use the
drugs for themselves.
The larger point-of-entry cities of the United States have noted
so-called ``hit and run'' schemes in which foreign nationals
fraudulently obtain a Medicaid provider number and then submit invoices
for services not rendered. In larger cities, these fake providers often
are able to obtain hundreds of thousands of Medicaid dollars before
their detection, at which time they flee to their homeland. In one such
case in New York, the perpetrators went so far as to establish a
medical laboratory and then offer to buy the blood of Medicaid patients
for $10 a pint. Once the owners of the laboratory obtained the blood
and the Medicaid eligibility numbers of the patients, they would submit
astronomical bills to Medicaid, representing that they had performed an
extensive and costly blood work-up, the results of which the patients
would not receive. The laboratory owners were discovered only when
numerous ``patients'' began appearing at hospital emergency rooms after
selling excess amounts of blood and rendering themselves gravely ill.
In many of the nation's larger urban centers, it is not uncommon to
find so-called ``pill mills''--medical centers whose primary purpose is
the issuance of prescriptions for controlled drugs in exchange for
cash. In a typical scenario, a ``patient'' will visit an unscrupulous
doctor and buy, for instance, a prescription for 90 Valium (10 mg)
tablets at a price of about $1 a pill. After ``busting'' the 'scrip
(having it filled) at an accommodating pharmacy, the patient will
resell the pills to individuals at $5 a pop and thereby net a profit of
$360. Not factored into this economic equation, however, is that each
participant in the scheme is sustaining the continued addiction of
countless individuals.
fraud in managed care
Both the Medicaid and Medicare programs are utilizing managed care
delivery systems. In some states, managed care has been in existence
since the early 1980s. Currently, more and more states are requiring
greater numbers of their Medicaid population to participate in their
managed care programs.
Proponents of the managed care system believe that it is the best
method for providing low cost, high quality health care to more people.
Managed care is supposed to save money not only in the delivery of
services but by cutting down on the amount of paperwork. While many
observers point out that the very nature of managed care prevents
fraud, the experience of the Medicaid Fraud Control Units, demonstrates
otherwise. Rather, fraud simply takes different forms, in response to
the way the program is structured.
In the traditional fee-for-service fraud, the healthcare provider
is generally the one who commits the fraud. However, in managed care,
fraud can be committed by a managed care organization (MCO), a
contractor, subcontractor, provider, state employee, or beneficiary.
Managed care fraud includes the following:
Fraud in the procurement of the contract with the state Medicaid agency
by the MCO;
Fraud committed in procuring provider subcontracts;
Falsification of financial solvency by the MCO;
Marketing and enrollment fraud, such as, enrolling ineligible or non-
existent individuals;
Kickbacks for referrals to specialty physicians; and
Underutilization or the failure to provide adequate or timely
reasonably accessible medical services to a patient for whom
the provider has accepted a duty of care.
Marketing abuses are among the most prevalent type of managed care
fraud. In almost all instances, this type of fraud occurs in the
Medicaid HMO setting. Marketing agents fraudulently enroll Medicaid
recipients by giving them false information, often without the
recipients' knowledge. In many instances, persons are enrolled who are
not Medicaid-eligible, such as prisoners. Many states have taken active
measures to prevent, or at least reduce, this type of fraud, such as
forbidding the direct solicitation of recipients by the HMO.
One of the first managed care fraud cases involving marketing
schemes occurred in Tennessee. OmniCare, Tennessee's fourth-largest
TennCare provider, employed marketing representatives who were paid a
fee to enroll individuals in the health plan. Approximately 4,500
fictitious applications were submitted to TennCare and TennCare paid
approximately $1.8 million to OmniCare for these enrollees. This money
was subsequently recouped. Four marketing representatives were charged
in a 28 count indictment for mail fraud, false statements, social
security violations and conspiracy. Two of the defendants pleaded
guilty. One was sentenced to 12 months and one day incarceration, three
years supervised release and ordered to pay restitution of $5,000 to
OmniCare. The other defendant was sentenced to three years probation
and restitution of $246,400 to OmniCare. The remaining two defendants
went to trial and were found guilty on all counts. One defendant was
sentenced to 27 months incarceration, three years supervised release
and restitution of $126,800. The other defendant was sentenced to 68
months incarceration and ordered to pay $1.4 million in restitution to
OmniCare.
In Florida, Care Florida Health Plan, a health maintenance
organization, paid the state $1.75 million dollars to settle
allegations that it improperly enrolled Medicaid patients in the plan.
California, Illinois, Maryland and Pennsylvania have also had cases
involving marketing abuses.
The Maryland MFCU obtained convictions of 24 individuals for crimes
related to the marketing of HMO plans to Medicaid recipients. The
investigation resulted in charges against 14 HMO marketing
representatives representing four of the five HMOs doing business in
Maryland's Medicaid market, two HMO supervisors and eight Department of
Social Service (DSS) employees. The crimes were based on bribing
program employees in order to induce disclosure of Medicaid recipient
information and forged or fraudulent enrollments, often made possible
through use of the improperly disclosed information. These convictions
resulted in the stronger regulations for HMOs doing business in
Maryland and prohibition of HMO marketing at DSS offices and allowing
the state to impose fines of up to $10,000 for fraudulent marketing
practices.
For the first time, an MFCU has convicted a managed care
organization and its top executive for stealing hundreds of thousands
of taxpayer dollars from patients and participating doctors. The New
York Medicaid Fraud Control Unit charged the owner and CEO with
stealing more than $300,000 and defrauding 79 of the plan's
participating doctors by engaging in an elaborate ``bust out'' scheme
that improperly removed thousands of patients from these physicians'
rosters. The CEO, who paid physicians based on the number of members
assigned to them, instructed his staff to illegally remove
approximately 6,700 patients from physicians' rosters during a two
month period enabling him to reduce his expenditures and divert the
savings to his company. He entered into a plea bargain which provides
for the repayment of $375,000 to the Medicaid program.
The National Association of Medicaid Fraud Control Units (NAMFCU),
which represents the 47 state MFCUs, adopted Model Criminal Enforcement
Statutes for Managed Care in October 1996. This model criminal
legislation is designed to provide a framework for the states to
redress fraud in a managed care environment by criminal prosecution. In
considering the adoption of any or all of the proposed model, states
should examine their respective existing laws with regard to false
claims, false statements, unfair competition, unfair business and
deceptive marketing and antitrust to determine whether new laws are
needed.
Managed care fraud is more difficult to detect, investigate and
prosecute than the traditional fee-for-service Medicaid provider fraud.
There are a number of reasons that make managed care fraud cases more
difficult. These include the complexity of the contractual agreements,
the lack of referrals from the Medicaid agency and of reporting
requirements, and the failure many times by the Medicaid agency to
recognize that fraud does occur in managed care.
multi-state/federal cooperative efforts
Cooperative efforts between state and federal authorities have
proven very effective in protecting Medicaid and Medicare from health
care providers or vendors whose activities involve both programs and
cross state lines. Joint federal and state task forces have been
established in states throughout the nation, and agents increasingly
are working together to detect fraud against government insurers. One
side effect of these efforts has been the recognition by seasoned
practitioners that all parties must be at the table when any case
resolution is discussed. A settlement reached with a state Medicaid
Fraud Control Unit in which all Medicaid claims are resolved, for
example, does not necessarily resolve those in other states or any
outstanding Medicare claims or their attendant sanctions. The result
has been an unprecedented willingness on the part of state and federal
authorities to reach ``global'' settlements in which all outstanding
claims by government insurers can be resolved, and in which all
administrative sanctions can be addressed. Unlike state consumer
protection or antitrust multistate settlements, where the states
determine that a market problem exists and appoint a lead Attorney
General as negotiator, MFCU global settlements are generally based upon
a federal Medicare investigation and prosecution. The federal
government realizes that the states must be included in these cases
because they would be unable to settle the Medicaid portion without
them.
The federal government also understands that defense attorneys are
unlikely to settle a case without the effected state settlement
agreements. Most states, like the federal government, have the
authority to exclude a convicted provider from their health care
programs. It would make the settlement of these cases impossible if
defense attorneys had to obtain settlement agreements from individual
states and had to negotiate separate terms with each state.
In 1992, for the first time the state MFCUs participated in a
global settlement, U.S. v. National Health Laboratories, Inc. (NHL).
Since that time, the MFCUs have participated in the successful
conclusion of ten global settlement cases with a total Medicaid
recovery of almost $145 million dollars.
relationship with the s/urs units
Federal regulations require state Medicaid agencies and MFCUs to
enter into a Memorandum of Understanding (MOU) in which the agencies
agree to refer all cases of suspected fraud to the Unit. In addition,
the agency must afford the Unit access to their records. The
Surveillance and Utilization Review Subsystem (S/URS), a subsystem of
the Medicaid Management Information System (MMIS) which applies
automated post-payment screens to Medicaid claims to identify aberrant
billing matters, is the entity within the state Medicaid agency that
refers suspected fraud cases to the MFCU. Established procedures for
sharing Medicaid information between state officials, not only ensures
referral of appropriate cases but also helps protect program integrity.
A number of reports have been issued assessing the effectiveness of
the process used by Medicaid agencies to refer possible fraud cases to
the Units and have offered suggestions for improvements. The most
recent report, Surveillance and Utilization Review Subsystems' Case
Referrals to Medicaid Fraud Control Units, was published by the Office
of Inspector General in November 1996. This report concluded that the
number and percentage of suspected fraud referrals from S/URS to MFCUs
had declined during the past ten years, S/URS employees do not have
sufficient training to assure that they develop and refer suspected
fraud allegations in a consistent and appropriate manner, and HCFA does
not routinely monitor S/URS development to establish whether potential
fraud issues are being appropriately and consistently analyzed and
referred.
The report recommended several solutions that HCFA, in consultation
with OIG, should consider, including the convening of a Medicare and
Medicaid fraud and abuse task force to plan and implement improvements
in fraud operations and the development and implementation of a
comprehensive evaluation system for S/URS case identification,
development and referral activities.
HCFA convened a Medicaid Fraud and Abuse Technical Advisory Group
(TAG) in 1998 as a forum for the sharing of issues, resources, and
experiences among the states to develop best practices and to advise
HCFA on policies, procedures, and program development. Twelve states
are represented on the TAG as well as representatives from the National
Association of S/URS officials and Medicare. I was recently appointed
the TAG representative of the National Association of Medicaid Fraud
Control Units.
I would like to describe to the Committee the relationship between
the New Jersey Office of Program Integrity (OPIA) which is part of the
state Medicaid agency and is responsible for referring appropriate
cases to the Medicaid Fraud Control Unit and the MFCU.
Regular meetings between the MFCU and OPIA managers and staff
members have reduced the mistrust and have allowed the two Units to
work more closely together. The two Units have established a series of
regularly scheduled monthly meetings with more frequent meetings and
telephone conversations as needed.
Monthly screening meetings are supplemented with meetings on
specific cases or topics. In addition the MFCU Director updates to OPIA
Assistant Director on all significant case activities by letter. In
cases where an indictment is returned, an accusation is filed, or a
civil settlement entered into, the MFCU Director writes and includes a
copy of all appropriate documents.
One of the major sources of friction between Medicaid S/URS Units
and MFCUs has been the inability of many S/URS Units to take action to
stop incorrect payments to providers who were the subjects of MFCU
investigations. The MFCU often requests that the S/URS take no further
action while the criminal investigation is pending in order to assure
that the actions of the S/URS do no interfere with or compromise the
criminal investigation. Furthermore, the MFCU is often unable to share
evidence gathered during the course of its criminal investigation with
the S/URS because of rules or laws protecting the secrecy of grand jury
proceedings. As a result, protecting the integrity of a MFCU
investigation often means adversely affecting the financial integrity
of the Medicaid program, at least on a temporary basis.
New Jersey resolved this dilemma several years ago when the MFCU
and OPIA developed a unique procedure for striking a balance between
the needs of the MFCU and those of the state Medicaid Agency. Under
this procedure, the MFCU agreed in many cases to permit the Department
to take whatever administrative action was necessary to protect the
financial integrity of the New Jersey Medicaid program, including
prepayment monitoring, withholding payments pending conclusion of the
criminal investigation in accordance with 42 CFR 455.23, and/or
exclusion from the Medicaid program. Moreover, in cases where the MFCU
is able to establish probable cause, search warrants are used in
addition to or instead of grand jury subpoenas to gather evidence. The
MFCU is therefore often able to share with OPIA the fruits of its
criminal investigation while that investigation is in progress. In
addition, the aggressive use of undercover operations has produced
evidence that the MFCU is able to share with OPIA. This provides OPIA
with the evidence and witnesses necessary to permit DMAHS to take
summary administrative action to stop incorrect payments from being
made to a provider while that provider is under criminal investigation
without compromising the criminal investigation or violating grand jury
secrecy. By resolving this dilemma, the MFCU and OPIA have eliminated a
major source of controversy that has adversely affected the
relationship between other MFCUs and S/URS throughout the country.
Additionally, the MFCU attempts to lessen the workload of OPIA when
possible. Whenever a defendant pleads guilty to a criminal charge, the
MFCU insists that the defendant sign a Consent Order of Debarment of
Disqualification from the Medicaid program. The Consent Order specifies
that the defendant has been advised of his right to a hearing on the
subject of debarment or disqualification, understands it, and waives it
by agreeing to be debarred for a minimum period of five years or
disqualified for a minimum period of eight years. This Consent Order is
placed on the record in open court, and the judge handling the matter
also signs it. The Consent Order also provides that the defendant agree
to the same period of disqualification from Medicare and any other
state or federally funded health care program as agreed to regarding
the Medicaid program. This Consent Order is immediately forwarded to
OPIA. As a result, instead of securing approval from the Attorney
General's Office for a pre-hearing suspension, issuing a Notice of
Suspension, preparing for a hearing involving civil attorneys from the
Division of Law within the Department of Law and Public Safety, and
actually going through the hearing process with its inevitable delays
and problems, OPIA simply prepares a Notice of Debarment or
Disqualification, sends it to the provider, and notifies the agency's
fiscal agent. The Consent Order and exclusion notice are also forwarded
directly to the Office of the Inspector General within the U.S.
Department of Health and Human Services for appropriate federal action.
Consequently, the resources OPIA would have expended on
administratively prosecuting this suspension can be put to more
productive use in other cases.
Finally, since OPIA was established in 1975, it has had two
supervisors, both of whom were attorneys. One of the reasons for this
was the belief by top management within the Medicaid agency that an
attorney would be best suited by training and experience to understand
and resolve the problems and issues that arise between a MFCU and a S/
URS Unit. Conversely, it was felt that the MFCU chief would feel more
comfortable in discussing legal problems and issues with another
attorney. Furthermore, since 1979, OPIA has been headed by an attorney
who was formerly a civil Deputy Attorney General (DAG) in the same
department as the MFCU. This individual not only provided legal
representation to the Medicaid agency and OPIA, but also worked closely
with the MFCU while a DAG. Since 1979, he has made a close and
productive working relationship between OPIA and the MFCU a top
priority.
For all of these reasons, New Jersey's S/URS Unit and MFCU have
developed a working relationship characterized by cooperation and
mutual respect and as a result have enhanced New Jersey's Medicaid
anti-fraud and abuse efforts.
national association of medicaid fraud control units (namfcu)
The National Association of Medicaid Fraud Control Units (NAMFCU)
was established in 1978 to provide a forum for the nationwide sharing
of information concerning the problems of Medicaid fraud control, to
foster interstate cooperation on law enforcement and federal issues
affecting the MFCUs, to improve the quality of Medicaid fraud
investigations and prosecutions by conducting training programs and
providing technical assistance for Association members, and to provide
the public with information on the MFCU program. All forty-seven MFCUs
comprise the Association. Forty of the Units are located in the Office
of the Attorney General and seven are located in other state agencies.
The Association employs a Counsel, located at the National
Association of Attorneys General in Washington, D.C. The Association
coordinates and disseminates information to the various Units,
maintains a library of resource materials, and provides informal advice
and assistance to its member Units and to those states considering
establishing a Unit. NAMFCU has provided extensive training for MFCU
staff over the years and is called upon regularly to supply speakers
for numerous health care fraud seminars. It has also co-sponsored
training programs with the F.B.I. and the American Bar Association and
conducts a specialized academy at the Federal Law Enforcement Training
Center. Most Medicaid Fraud Control Units provide training regularly
within their own states at police academies on elder/patient abuse and
for social service employees, community and provider groups on billing
fraud issues as well as patient abuse. The Medicaid Fraud Report,
published ten times a year, is the Association's newsletter. The
newsletter contains information concerning prosecutions by various
states, reports of legal decisions affecting fraud control prosecution,
and analyses of legislation affecting the Medicaid program and MFCUs.
NAMFCU also serves as a clearinghouse for state/federal cooperative
efforts and provides a responsive voice to Congressional inquiries.
In closing, I want to emphasize that the Medicaid Fraud Control
Units are viewed as having a national leadership role in detecting and
prosecuting fraud and abuse in government funded health care programs.
The Units have been successful in serving as a deterrent to health care
fraud, in identifying program savings, removing incompetent
practitioners from the health care system, and in preventing physical
and financial abuse of patients in health care facilities.
Thank you again for the opportunity to testify today.
Mr. Upton. Thank you very much.
Ms. Williams.
TESTIMONY OF GWENDOLYN H. WILLIAMS
Ms. Williams. My name is Gwen Williams. I recently retired
from the State of Alabama, having served 22 of my 25 years with
the Alabama Medicaid agency. For the last 4 years, I served as
commissioner of that agency and in that role served on the
Executive Committee of the National Association of State
Medicaid Directors. I participated with that organization in
partnership with the Health Care Financing Administration in
the creation of a National Technical Advisory Group for
Medicaid Fraud and Abuse.
I served initially as the liaison between the Executive
Committee of the National Association of State Medicaid
Directors and ultimately assumed the role as chair of the
National Fraud and Abuse Technical Advisory Group.
I want to share with you just for a few minutes about that
group and what it has done in the last 1\1/2\ years of its
operation.
This group, which is a joint partnership between the State
Medicaid directors and the Federal Government through HCFA, is
chaired by a Medicaid Director. It is staffed by the American
Public Human Services Association. So it is a joint partnership
arrangement to provide an open forum for discussion of fraud
and abuse issues.
In the 1\1/2\ years since its operation, the Technical
Advisory Group has focused on common issues between the 50
States and the Medicaid programs. We have focused heavily on
communication and have experienced some significant success in
heads-up type information being shared between the States to
alert sister States of fraudulent providers or fraudulent
provider schemes before the other States are affected.
A recent case in point is the case of Indiana, which
received that type of alert from the State of Florida,
considerable distance, but as that heads-up information was
distributed around the country by the State of Florida, Indiana
found that that provider had, in fact, opened operation in
Indiana and prevented the payment of $26,000 in claims that
were currently pending in that State.
At another role that the TAG has played has been to
identify emerging issues. As you have already discussed this
morning, the Medicaid and health care environment is changing
rapidly. It has become more and more complex, and as it has
changed so has the type of problems with fraud and abuse in the
program. The emerging issues that we have identified are things
that have not really gained attention, such as personal care
services in the home and the vulnerability of those patients
for fraud and patient abuse in the home, for those unsupervised
types of care.
The Technical Advisory Group has taken an active role in
not only identifying these new issues but also strategizing
ways to identify them, prevent them and, in the appropriate
cases, identify for prosecution.
Another role that the Technical Advisory Group has been
very successful in is developing best practices, as States have
success in identifying fraudulent schemes, sharing that
information with their sister States so that those States, too,
can focus those best practices on their Medicaid programs.
One of the primary roles of the Technical Advisory Group
and one I want to spend a little more time on this morning with
you is in the area of legislation and regulation. There are a
number of issues that the Technical Advisory Group has
identified in the area of legislation that we believe will
significantly facilitate States in their efforts to identify
and prevent fraud and abuse in the Medicaid program.
The first such--there are three initiatives that the
Technical Advisory Group presented last year and was endorsed
by the National Association of State Medicaid Directors and the
American Public Human Services Association as being appropriate
legislative initiatives for Medicaid fraud.
The first is what's commonly known as the 60-day rule. This
is a requirement where every Medicaid program must refund to
the Federal Government within 60 days any identified
overpayment, whether or not that overpayment has been
collected. Imagine, if you will, accepting a job paying, say,
$100,000 a year, and you're notified immediately, even before
your first paycheck, that you owe the full Federal income tax
on that salary. This is the burden the States face when they
identify overpayments for providers. This is a huge
disincentive for States to actively pursue large, vulnerable
prosecutions or identification of possible fraudulent schemes
where the collection of that overpayment may be very risky.
Another issue that was identified by the Technical Advisory
Group is in the area of recipient suspensions. Under the
current Federal law, Medicaid recipients cannot be suspended
from the Medicaid program unless they are convicted in Federal
court of Federal Medicaid fraud.
Those of you that are familiar with the Federal courts know
that Medicaid recipient fraud is not an issue, has never been
an issue in law enforcement for Medicaid. Medicaid has focused
exclusively on provider fraud. But I'm here to tell you the new
and emerging schemes actively incorporate Medicaid recipients
in those schemes, particularly in the area of pharmacy.
I heard mention this morning the concept of Medicaid as a
credit card. This is a mentality that Medicaid recipients have
held since the beginning of the program. It is something that
Medicaid recipients feel is their right, to use their Medicaid
card to purchase drugs through the Medicaid program that they
in turn sell in the street, to work in concert with fraudulent
Medicaid providers to cheat the Medicaid program.
I believe I'm out of time.
The ability of a State to suspend or terminate Medicaid
recipients' participation in the program is a huge deterrent
when that recipient understands the risk that they bear. It is
also a huge incentive to encourage recipient cooperation in
fraud investigations.
One solution that States believe is very appropriate is in
the area of Federal matching funds. Currently, fraud and abuse
activities at the State level are matched at 50/50.
You heard earlier that the Medicaid Fraud Control Unit
activities are matched at 75 percent. There seems to be a
problem here when the investigators--the costs of investigation
is at 75 percent, but the State must put up half the costs of
the salaries and benefits of those employees used to identify
the suspected fraud.
I would encourage you to look at the CHIP model, the Child
Health Insurance Program, as a model to encourage States to do
more. The Congress identified a huge problem in the area of
children's health insurance. They did two things--they gave
States a financial incentive to address the problem through
enhanced Federal matching. They also gave States broad
flexibility on how to approach the problem within certain
constraints and certain guidelines. I believe this is a model
that will work in all areas of the Medicaid program and
certainly in the area of fraud and abuse.
I will say that no one is more sensitive to the problems of
Medicaid fraud and abuse than Medicaid directors. Medicaid
directors are those individuals struggling with their limited
State matching funds. They are acutely aware that every dollar
spent inappropriately in the Medicaid program is a dollar they
cannot spend on needed services to their customers, their
clients, their recipients.
I appreciate the attention you're giving this issue. I
appreciate the opportunity to come today and represent the
Medicaid directors perspective, and I look forward to
responding to your questions.
[The prepared statement of Gwendolyn H. Williams follows:]
Prepared Statement of Gwendolyn H. Williams, Renaissance Government
Solutions
Chairman Upton, distinguished members of the Subcommittee, and
interested listeners, my name is Gwen Williams. I recently retired from
the State of Alabama after twenty five years of service, twenty two of
which were with the Alabama Medicaid Agency. During those years I
served in many capacities, including that of Director of Program
Integrity, and from January 1995 until January 1999 I served as
Commissioner of that Agency. During my tenure as Medicaid Commissioner,
I was honored to represent the Southeast as a member of the Executive
Committee of the National Association of State Medicaid Directors
(NASMD).
Emerging issues and challenges facing state Medicaid programs in
recent years have created a landscape resembling that of a rugged and
inhospitable wilderness. Program expansions, service demands, and
escalating costs have created mountains of adversity which often
obscure from administrative view other perils and pitfalls which
threaten the integrity of the program. Fraudulent billing schemes,
abusive overutilization, and collusion among providers all drain
precious resources away from the vulnerable populations dependent on
the program for their health and safety. Unqualified providers,
inappropriate services and denial of needed care all threaten the
Medicaid patients' safety and their trust in the health care delivery
system.
State Medicaid Directors are not blind to these perils, and have
consistently sought to respond to these threats in a timely and
efficient manner. In the past few years, however, as more attention has
been given to these concerns at the national as well as local level, a
cooperative effort between state Medicaid programs and the Health Care
Financing Administration (HCFA) has emerged. This effort will have the
dual result in providing a forum for states to identify barriers to the
prevention, detection and elimination of fraudulent and abusive
practices within Medicaid and facilitating information available to the
states about emerging fraud schemes and successful deterrent and
detection methods employed by other states.
In August, 1997, the Health Care Financing Administration convened
a focus group to discuss fraud and abuse issues within the Medicaid
program. One significant result of this meeting was the creation of a
national Medicaid Fraud and Abuse Control Technical Advisory Group.
This group, commonly referred to as the Fraud and Abuse TAG, brought
together state program integrity representatives from across the
country, along with representatives from HCFA. The TAG is chaired by a
Medicaid Director and staffed by the American Public Human Services
Association. A member of the Executive Committee of the National
Association of State Medicaid Directors serves as liaison to all TAGs,
and I was selected to be the liaison to the new Fraud and Abuse TAG. I
later assumed the dual role as chairman of the TAG upon the resignation
of the original chair.
The mission of this TAG, as developed by its initial membership, is
as follows:
The TAG exists as a forum for the sharing of issues, solutions,
resources, and experiences among the states to develop best
practices; advise HCFA on policies, procedures, and program
development; and make recommendations to APHSA regarding fraud
and abuse policy and legislation changes in a coordinated
effort to reduce resources that are lost as a result of fraud
and abuse in the Medicaid program.
Since its establishment in early 1998, this TAG has worked
diligently to fulfill its stated mission. Through the use of topical
workgroups, the TAG has already accomplished many of its initial goals.
A list of legislative proposals, which will be addressed in greater
depth later in this presentation, was developed in the summer of 1998
and endorsed by both the National Association of State Medicaid
Directors and the American Public Human Services Association. In
addition, the Legislative and Regulation Workgroup has also reviewed
and provided comment on several legislative and regulatory proposals
dealing with Medicaid fraud and abuse.
A Medicaid Fraud Statutes Web Site was developed by HCFA, in
cooperation with state program integrity staff. This web site, located
at http://fightfraud.hcfa.gov/mfs, contains a comprehensive listing of
the best Medicaid fraud and abuse statutes among the states. The data
base is indexed by subject matter, facilitating research into
successful state legislative initiatives to combat fraud and abuse.
In 1998, a TAG workgroup developed and conducted a survey of state
Medicaid programs to identify the top fraud and abuse issues, both
administrative and programmatic, facing Medicaid programs in today's
marketplace. Included in the survey instrument were questions regarding
methods employed by states to prevent and correct fraudulent and
abusive billing practices. The results of this survey affirmed the
commonality of issues between the states and demonstrated a need for
improved communication between states on successful methods to address
those issues. The TAG concluded that the survey provided an appropriate
segue to begin consolidation of ``best practices'' identified by states
and Medicaid Fraud Control Units, and the subcommittee has proceeded
with this effort.
Because of the significant fiscal impact of the pharmacy program to
all states' budgets, the TAG established a Pharmacy Workgroup devoted
to exploring fraud and abuse prevention methods and best practices in
that program. While pharmacy specific legislation and policies vary
greatly from state to state, the workgroup has identified a number of
common concerns within that program. To expand on those common issues,
the workgroup surveyed all states asking what successful actions each
state has taken to address pharmacy fraud and abuse. The states were
also questioned about actions they would take if given the authority.
The workgroup is consolidating the findings of this survey into concise
``best practices'' which will be distributed to all states.
A critical component of the TAG's mission is to improve
communication both between states and with HCFA. The TAG created a
process of ``fraud alerts'' to disseminate emerging fraud schemes
quickly among all states. The development of this process has already
reaped significant dividends for the states. States are reporting
successful intervention in preventing fraud by suspected providers and
suspicious practices due to ``heads up'' information received through
the TAG's communications network.
This communication network has also been beneficial to the states
in providing immediate response to HCFA on legislative or regulatory
proposals. This improved communication flow insures that states are
afforded the opportunity to identify potential barriers and unexpected
consequences of such proposals before they are adopted.
An important ongoing role for the TAG is the identification of
emerging problems which impact the integrity of the Medicaid program
and establishing dialog to address those problems. Currently, the TAG
is actively addressing concerns with self-directed care services, such
as home and community based services. Included in these concerns is the
prevention and detection of fraud, qualifications of care providers,
and reasonable standards and training on those standards for accurate
documentation of services. Successfully addressing these concerns
presents the added burden of balancing program integrity needs without
undermining the self-directed care philosophy. Although the amount of
fraud and abuse currently being detected in these services is small,
the potential for loss to state Medicaid programs could be substantial,
given that these programs can command up to 25 percent of the budget.
As previously stated, the Legislation and Regulation Workgroup
identified a number of legislative initiatives which would improve
states' efforts to prevent and detect Medicaid fraud and abuse. Three
specific proposals were developed in 1998 and presented to HCFA with
the endorsement of both the National Association of State Medicaid
Directors and the American Public Human Services Association. Those
three proposals are as follows:
1. Increase Federal matching funds for fraud and abuse activities from
the current 50% to 75%. The increase in available matching
funds could provide a significant incentive to states to
increase resources devoted to fraud and abuse. Such costs would
include salary and benefit costs for investigators and fraud
auditors, travel costs, computer support (both hardware and
software), and any other costs directly related and clearly
identifiable with fraud activities.
2. Removal of the ``60 day rule'' for return of federal matching funds
on all identified overpayments. This rule, which requires a
state to refund the federal match on any identified overpayment
without regard to its actual collection, creates a significant
disincentive for states to identify overpayments of large
amounts unless collection is assured and imminent. The
collection process on fraud and abuse cases is long and often
volatile. States often negotiate repayment agreements that,
while delaying collection, facilitate both the resolution of
cases and removal or restriction of problem providers without
protracted legal battles. A far more reasonable approach would
be to require states to return FFP immediately upon collection,
thus removing this barrier while preserving the appropriate
return of federal funds.
3. Amend Title XIX to permit states to suspend recipient eligibility
for a reasonable period for fraud or abuse of the program.
Currently, Title XIX only cites conviction in federal court as
grounds for suspension of Medicaid eligibility. Federal law
enforcement officials have historically focused all attention
on provider activities, without regard for recipient
activities. As the Medicaid program has grown and become more
complex, so have the opportunities for recipient fraud and
abuse. Particularly in the pharmacy program, states are
discovering organized and often wholesale efforts by recipients
and groups of recipients to defraud the Medicaid program. Often
these efforts are in concert with fraudulent efforts on the
part of Medicaid providers. States desperately need the
authority to suspend participation in the program by those
recipients clearly found to have defrauded the program.
In addition to the above, the Legislative and Regulation Workgroup
continues to identify legislative initiatives that could significantly
improve their ability to identify and correct fraudulent practices. A
current proposal which has not yet been presented to NASMD and APHSA
relates to facilitating the use of cash rewards to Medicaid recipients
who report provider fraud which results in a conviction. Currently, any
such cash payment is applied to the recipient's income, which adversely
affects their eligibility for coverage and creates a disincentive to
the recipient. Legislation to exempt such rewards from eligibility
determination will enable states to offer a specific incentive to
recipients to report suspected fraud.
Another issue that would require legislative intervention is that
of ``fleeing felons''. Welfare reform legislation specifically excluded
Medicaid from provisions that make felons ineligible to receive
government benefits. Not only are Medicaid benefits protected, but
states are prohibited from performing data matches with Medicaid
records to assist law enforcement in locating fleeing felons. Many
states believe that this is contrary to maintaining the integrity of
the program and should be amended.
In recent years, there has been a growing involvement by the Office
of the Inspector General (OIG) in evaluation of states' and HCFA's
efforts in the fraud and abuse arena. While the intent of these efforts
is admirable and appropriate, they have themselves caused disruptions
and difficulties to the states. Staff performing these reviews usually
have no background in Medicaid and require extensive efforts by state
program integrity staff to assist in them. In addition, demands for
extensive technical and system support for their efforts further
disrupt program integrity staff from their duties. Often, the
methodology applied to the reviews is seriously flawed, and does not
effectively address fraud and abuse.
For example, in the Single State Audit, in which the OIG enlists
individual states' auditors to perform payment accuracy studies, the
state is examined in four areas: medical necessity, proper
documentation, incorrect coding, and non-covered services. States are
being held accountable for the medical necessity and proper
documentation of all services reviewed; however, without 100%
prepayment review of all claims and removal of all timeliness
requirements for claims payment, states cannot ensure that each and
every service rendered is medically necessary and that the providers'
supporting documentation is complete, correct, and legible. The result
is a ``double-whammy'' to states-audit citation for issues not
necessarily related to either fraud or abuse and significant disruption
to program integrity efforts to truly address fraud and abuse.
It should be readily apparent why states are reluctant to eagerly
support such efforts. It should likewise be apparent why there is
little confidence by states in OIG's findings when the subject of such
reviews.
It is often said that if you've seen one Medicaid program, you've
seen one Medicaid program due to the varied approaches states take in
operating their programs. This is also true in examining relationships
between state Medicaid agencies and Medicaid Fraud Control Units, which
range from a sense of shared purpose to raging animosity. In Alabama
for example, the relationship has moderated somewhere between the two
extremes, with periodic leanings in either direction. The success of a
Medicaid Fraud Control Unit (or MFCU) is often perceived as directly
linked to the effectiveness of the state's program integrity unit.
While there is a great deal of truth in this assumption, there are many
other factors that affect a unit's success.
The MFCUs have the dual responsibility of prosecuting Medicaid
provider fraud and prosecuting patient abuse in nursing facilities.
There are strong feelings on the part of states that the added
responsibility of patient abuse dilutes attention to Medicaid fraud.
States often experience great frustration as MFCUs expend time
consuming efforts in patient abuse cases, while the more difficult
provider fraud cases languish, often past the statute of limitations
for prosecution. There is a shared perception among state Medicaid
agencies that local law enforcement agencies are more than capable of
investigating and prosecuting patient abuse, and that those same local
agencies resent the outside interference of the MFCUs. Provider fraud
is far more difficult to investigate, and even harder to successfully
prosecute. With pressure both from within the state and from the OIG to
``produce'', it is not surprising that MFCUs would look to patient
abuse cases to demonstrate their effectiveness.
Another issue adversely affecting the relationship between state
Medicaid agencies and MFCUs has always been the nature of referrals.
States often feel caught in a ``catch 22'' with regard to when a case
should be appropriately referred. They hear from their MFCU that they
should refer any and all instances where fraud is suspected, but then
complain that not enough verification was done to ensure a quality
referral, thus wasting their investigative time. On the other hand,
when states attempt preliminary verification on the existence of
suspected fraud, they encounter sharp criticism from the MFCUs for
potentially compromising the investigation.
The primary argument in the initial establishment of the MFCUs as
separate and apart from state Medicaid agencies, was their ability to
be ``independent'' of the program and its concerns. While this is
certainly a noble motive, it has contributed greatly to the strained
relationship between the two organizations. As state Medicaid agencies
have come repeatedly under the gun for ensuring patient access to care,
MFCUs are not so encumbered. Particularly in rural areas, where access
to Medicaid providers has been a constant struggle for states,
aggressive actions by MFCUs in performing sweeping reviews of specific
providers (usually physicians) has created serious distrust in the
program by providers, resulting in their withdrawal from the program.
These ``search and destroy'' missions rarely uncover genuine fraud or
billing abuse, but create havoc in provider practices. State Medicaid
agencies are then left to pacify outraged provider groups and
associations and try to avoid mass exodus of these providers from the
program.
While Medicaid Fraud Control Units and state Medicaid agencies have
a shared responsibility to attack fraud and abuse within the Medicaid
program, the current statutory and regulatory relationship is seriously
flawed. There has to be a better solution to enabling and empowering
states in better investigation and prosecution of Medicaid fraud.
In conclusion, contrary to what you may think or hear, state
Medicaid agencies are very concerned about the integrity of their
program and committed to actions to prevent, detect, and eliminate
fraud and abuse within the Medicaid program. Thank you for allowing me
the opportunity to share the perspective of one Medicaid director.
Mr. Upton. Thank you very much.
Mr. Fecteau.
TESTIMONY OF MARC P. FECTEAU
Mr. Fecteau. Chairman Upton, distinguished committee
members, I'm here representing the National Association of SURS
Officials, the State agencies who address fraud and abuse and
waste. While others tend to concentrate on the fraud issues,
our units are involved in all three areas. For example, a
mental health agency that charges $300 for a 4-hour group
therapy session and their supporting documentation states
``they were here, I saw them,'' that's not fraudulent, but yet
the State identified and recovered over half a million dollars
in a case with this type of documentation in the charts.
The integrity units or SURS units recover millions of
dollars over the years, but they also identify the fraudulent
activities that come through. A psychological examiner that
obtained the Medicaid ID numbers for entire families while
serving as a school counselor and billed over $150,000 of
services on behalf of members, family members he had never
seen.
The case reviews are time consuming. They involve medical
records and so forth. Yet State integrity units remain
understaffed. Some are still staffed at their 1985 levels.
Since then, our provider base has tripled, our Medicaid
expenditures are quadrupled. A few States have even experienced
reductions in staffing, and one State had its entire
understaffed unit replaced by a single individual with no
experience in Medicaid fraud and abuse.
In addition to being understaffed, the units or most units
are limited to 20-year-old technology, 1970's design. In an age
where technological obsolescence is measured in days, then
surely these systems are considered the dinosaurs of
technology.
Even with these limitations, in a current survey going on
right now, 20 States have responded they have identified over
$240 million of fraud, abuse and waste in the last 2 years; and
these involve a wide range of discrepancies, from the provider
that billed the Medicaid program for lab cultures that he
performed with a cardboard box and a light bulb to the
multimillion dollar scams involving providers and clients
buying and selling Medicaid ID numbers for the sole purpose of
defrauding the Medicaid program.
The units also address recipient abuse of health care
services. Through the lock-in program or restriction program,
they can limit a client to one physician, one pharmacy and one
hospital. The program attempts to curb the abuse related to
prescription drugs, overuse of emergency room services--one
client had 160 in 1 year. Calculating this cost savings is
difficult, but one State did do that in 1990 when its two-
person recipient unit was disbanded for cost savings purposes.
But the study concluded that this program was saving nearly $1
million per year in this one State.
Unfortunately, the restriction program is not effective if
a client is also on Medicare. Medicare does not have a
comparable program. Therefore, a dual-eligible client can
continue to abuse health care services. Medicare covers the
physicians and the emergency room visits, but Medicaid pays the
coinsurance, the transportation to each service, and the
narcotics. This is an area in which we believe that HCFA could
provide needed assistance and guidance.
It's important to state that the relationship between HCFA
and the SURS units has made tremendous advances. The
adversarial type relationship of only 5 to 6 years ago has been
replaced with a partnership to address Medicaid fraud and
abuse. But in the course of partnering toward a united goal,
the basic SURS requirements needed for a State to be in
compliance have been either eliminated or not enforced.
Unfortunately, HCFA's good-faith effort to work with the States
has been interpreted by some to mean that they can reduce their
SURS administrative expenses and remain in total compliance.
Congress has made a commitment to address Medicare fraud.
Now we ask that it make that same commitment to the Medicaid
program. The commitment can be demonstrated in several ways.
First, Federal guidelines and requirements need to address
the minimum standards for a compliant fraud and abuse function
that indicates minimal staffing requirements. These minimal
requirements could be based on a State's Medicaid expenditures,
for example. The guidelines should also establish on what
constitutes sound technological tools, not 1970's mainframe
computer systems.
The States could also receive an incentive for expanding
their commitments by offering Federal funding at a 75 percent
match for all State positions whose primary duties are related
to Medicaid fraud and abuse.
Second, creative methods of funding the acquisition of
technological tools could further enhance this commitment to
the States. The Federal Government could offer to initially
fund 100 percent of replacement fraud and abuse technology and
allow the State to repay its share through its recoveries from
fraud and abuse.
Third, a cooperative recipient utilization program needs to
be established between Medicaid and Medicare. Millions of
Medicaid and Medicare dollars are lost each year through abuse
of health care services.
And, finally, the statute requiring States to reimburse the
Federal financial participation portion within 60 days of
notifying a provider of an overpayment needs to be eliminated.
This statute basically penalizes States that actively pursue
the waste found in their programs. Since both the State and
Federal Government share in the cost of Medicaid, should they
not also both share in the costs of reducing waste in a
program?
The SURS units stand committed in the fight against
Medicaid fraud, abuse and waste. We believe that we provide a
solid foundation from which your commitment to effectively
address these issues can become a reality.
Thank you for this opportunity to express our concerns. I
will be happy to answer any questions.
[The prepared statement of Marc P. Fecteau follows:]
Prepared Statement of Marc P. Fecteau, President, National Association
of Surveillance Officials
Chairman Upton, Ranking member Klink, distinguished Committee
members, I wish to thank you for this opportunity to share the Medicaid
fraud and abuse activities of the State agencies' Surveillance and
Utilization Review Units (SURS) and Program Integrity Units.
The SURS and Program Integrity units monitor the Medicaid Program
for fraud, abuse, and waste by conducting reviews or audits of health
care providers and beneficiaries. From these case reviews the units
often identify potential fraudulent activities and, as required by
federal statute, refer these cases to the Medicaid Fraud Control Units.
In most states, the SURS or Program Integrity Units remain actively
involved during the fraud investigation.
Although fraud cases receive more publicity, abuse and waste in the
Medicaid Program is certainly more prevalent. The states' integrity
units are at the forefront of these case reviews. They routinely
monitor, through actual medical record reviews, the services that are
billed to Medicaid. Computer reports can assist in identifying the
areas to be reviewed, but cannot replace the value and necessity of
actually reviewing the record of service. What is Medicaid paying for?
Should it pay $300 for a four hour group therapy session when the only
documentation in the chart is ``They were here, I saw them?'' Or should
Medicaid reimburse at $60 per session the substance abuse counselor
that bills dozens of individual therapies that focus solely on finding
a girlfriend for a client?
It is from these routine reviews that recoveries are made for abuse
and waste, and where many fraudulent activities are discovered. For
example, a routine review of another substance abuse counselor
discovered that nearly every individual therapy session that was billed
to Medicaid was in fact group services. Another routine review
discovered a psychological examiner that had no documentation for any
of the services billed to Medicaid. The SURS unit expanded its review
and learned that the provider was the school district counselor and had
obtained Medicaid ID numbers from the children's Medicaid cards.
Subsequently, the SURS unit calculated that up to 90% of the services
billed had never been provided and over $150,000 of fraudulent billings
were identified.
These units are the front line troops in combating fraud, abuse,
and waste. In the mid to late 1970's, states implemented a computerized
system that was initially designed to monitor the utilization of health
care services paid for by Medicaid. The system soon became the primary
tool for identifying potential fraud and abuse in the Medicaid Program.
Unfortunately, 20 years later, this mainframe computer system continues
to be the mainstay fraud and abuse tool for most states. In an age
where technological obsolescence is measured in days, our 20-year old
systems are definitely the dinosaurs of technology. But then, as some
states have reported, enhancing software technology to identify more
cases without addressing proper staffing requirements simply results in
more cases pending review.
Yet, despite the fact that most of the units have not grown in
proportion to the Medicaid Program and are limited to 1970's computer
technology, they continue to be successful. In a current survey, 20
states have reported identifying over $200M of provider fraud, abuse,
and waste in their respective Medicaid Program's in the last two years.
Recipient cases have amounted to an additional $47M of saved or
recovered funds. These cases cover a wide range of discrepancies from
simple billing errors to major fraud schemes. Cases vary from the
provider that billed Medicaid for lab cultures performed by using a
cardboard box and a light bulb, to the multi-million dollar scams
involving providers and clients buying and selling Medicaid ID numbers
for the sole purpose of defrauding the Medicaid Program.
SURS Units are also involved in addressing recipient abuse of
health care services and administer the Restriction or Lock-in Program
which limits a client to one physician, one pharmacy, and one hospital.
An abusive pattern may for example include visits to 15-20 physicians
to get prescriptions that are filled at an equal number of pharmacies.
One State reported a client that had 160 emergency room visits in one
year. The client abused services to the point that she would call an
ambulance from the harness racing track to get transported to the
hospital. The hospital subsequently provided her with her taxi fare to
her home. The restriction program has been successful in curbing
recipient abuse, however, for clients under both Medicaid and Medicare
the abuse cannot be addressed. Since Medicare has no comparable program
these dual eligible clients continue to abuse health care services. One
such client has approximately 10 physicians and is seen in emergency
rooms from which she receives narcotic prescriptions that she
eventually sells at high stakes bingo games. Medicare covers her
physician and emergency room visits, but Medicaid pays the co-
insurance, the transportation to the services, and the narcotics if
they are not early re-fills (otherwise she pays for those out of
pocket). A cooperative recipient utilization control program needs to
be established between Medicaid and Medicare. This is an area in which
we believe HCFA could provide needed assistance and guidance.
It is important to note that in the last several years, the
relationship between HCFA and the SURS units has made tremendous
advances. The adversarial relationship of only 5 to 6 years ago has
been replaced with a partnership to address Medicaid fraud and abuse.
But in the course of partnering towards a united goal, the basic SURS
requirements that States need to comply with have been eliminated.
Instead, the requirement now indicates that States need only perform
the SURS function. This can be met by simply assigning to an employee
the additional duty of reporting any suspicious claims to their
supervisor. In effect the fraud and abuse activity becomes another task
for the employee and the supervisor. A proper case review by qualified
and dedicated staff is not necessary to meet the current guidelines.
The SURS and Program Integrity Units have been tremendously
successful. But, if our success is to continue, the individual States
need to make the same commitment to fighting fraud, abuse, and waste in
the Medicaid Program as Congress did when it funded additional staffing
for the Office of Inspector General and the Federal Bureau of
Investigation. Many States continue to operate with under-staffed SURS
and Program Integrity Units and most do not possess the technological
tools to identify the sophisticated fraud schemes that are occurring
throughout our healthcare system. Why are States reluctant to increase
their participation in this area? I believe that the current federal
guidelines specifying the minimal requirements fail to convey Congress'
commitment on this issue.
The federal government has clearly indicated its commitment to
fighting health care fraud, abuse, and waste in the Medicare Program
and now it needs to make the same commitment to the Medicaid Program.
One of the first issues that needs to be addressed is the statute
requiring States to reimburse the Federal Financial Participation (FFP)
portion within 60 days of notifying a provider of an overpayment. This
requirement basically penalizes states that actively pursue the waste
found in their programs. Since both the State and the Federal
government share in the cost of the Medicaid program, should they not
also share equally in the cost of reducing waste in the Program?
The second way to insure that fraud, abuse, and waste do not go
undetected is to institute guidelines and requirements that
specifically address the minimum standards for a compliant SURS
function. These guidelines should address minimum staffing
requirements, which could be based on Medicaid expenditures, and
require sound technological tools. These new guidelines could also
provide an incentive for States to expand their commitment by funding
at a 75% match all state positions whose primary duties are directly
associated with Medicaid fraud and abuse. In addition, creative methods
of funding the acquisition of technological tools could further enhance
the federal government's commitment to the States. As an example, the
federal government could offer to initially fund 100% of new technology
and allow states to repay their share through the recoveries from fraud
and abuse.
The Surveillance and Utilization Review Units and Program Integrity
Units share Congress' commitment in the fight against health care
fraud, abuse, and waste. We believe that our units provide a solid
foundation from which your commitment to effectively address these
issues can become a reality. Again, thank you for this opportunity and
I will be happy to answer any questions you may have.
Mr. Upton. Thank you again very much.
Ms. Thompson.
TESTIMONY OF PENNY THOMPSON
Ms. Thompson. Mr. Chairman, distinguished subcommittee
members, thank you for the opportunity to discuss our efforts
to fight fraud, waste and abuse in Medicaid.
I'm accompanied by Rhonda Hall, who is the National
Coordinator of our fight against fraud and abuse in Medicaid,
leading the HCFA team which works day to day with our Technical
Advisory Group on this issue.
We share your concern for protecting taxpayer dollars and
Medicaid program integrity, and we appreciate the evaluations
and advice provided by the HHS Inspector General and the
General Accounting Office on these efforts.
We fight fraud, waste and abuse in Medicaid in partnership
with States, beneficiaries, providers, contractors and other
Federal agencies. States are primarily responsible for finding,
prosecuting and preventing Medicaid fraud. We provide funding,
technical assistance, and oversight. Ms. Williams, in
particular, talked about some of our activities in regard to
this in her testimony.
Some States are making good progress in making sure their
Medicaid programs protect taxpayer dollars. However, we all
agree that more needs to be done.
To further our efforts, we hired an expert outside
contractor, Dr. Malcolm Sparrow, to lead four seminars with
State agencies and produce a report on how to better fight
Medicaid fraud. His report has three key findings for us.
First, we need to do more to address problems in managed
care. States want more guidance and more help in identifying
and pursuing fraud in the managed care environment.
Second, we need to help States develop better data systems
for finding fraud. States are looking for more assistance and
more guidance and more support in pursuing technological
solutions in addressing fraud.
And, finally, we need to make sure that all the States are
taking the issue seriously.
And I have to say about this, if you had asked me to
predict before we began these seminars what the key findings
would be, I would have predicted that States would be looking
for assistance with technology, and I would have predicted that
States would have been looking for assistance with pursuing
fraud in managed care environments.
I would not have predicted that States would have reported
that they still had a problem in getting their leadership,
legislative and executive, to take this issue seriously. After
all, the President has led us in an effort against fraud, waste
and abuse in our health care programs. The Secretary of Health
and Human Services has established this as a top priority. The
Attorney General has established health care fraud as a top
priority. The Congress has been active in holding hearings and
pursuing legislation on health care fraud. I would have thought
that we were past the point of needing to ensure that people
were taking this issue seriously.
We are taking several steps to help States. We are
providing guidance on how to address the unique program
integrity issues related to managed care and are finishing up
work on a document to be released to States to make suggestions
to them about what to look for in managed care environments and
how to pursue those kinds of issues. We are helping States to
develop better data systems and other technological tools. Our
technology conference being planned for next year will build on
a comprehensive catalog we are developing of anti-fraud
technology solutions. We are providing guidance and technical
assistance so States can strengthen efforts to prevent improper
payments, rather than trying to recoup them after the fact. And
we are helping States share best practices and legislative
strategies for fighting fraud.
These actions are helping to build a foundation upon which
we, together with the States, establish measurable goals for
improvement and greater accountability. This is essential,
because clearly each State must be held accountable for
protecting taxpayer dollars and in making measurable
improvement in fighting fraud, waste and abuse.
In the coming months, we will begin working with States to
develop systems to measure their progress in fighting fraud.
Early next year, we will be sending a national review team out
to a targeted selection of States to look at their anti-fraud
efforts. We will test a new review protocol, and we will hold a
commitment conference composed of senior State and Federal
officials to obtain agreements about goals, expectations,
resources, measures and accountability.
We welcome your assistance and appreciate your continued
interests in these efforts. Thank you for holding this hearing,
and I'm happy to answer any questions.
[The prepared statement of Penny Thompson follows:]
Prepared Statement of Penny Thompson, Program Integrity Director and
Rhonda Hall, Medicaid Fraud & Abuse National Coordinator, Health Care
Financing Administration
Chairman Bliley, Chairman Upton, Representative Klink,
distinguished Subcommittee members, thank you for the opportunity to
discuss our efforts to fight fraud, waste, and abuse in Medicaid. We
share your concern for protecting taxpayer dollars and Medicaid program
integrity. And we appreciate the evaluations and advice provided by the
HHS Inspector General and the General Accounting Office on these
efforts.
We fight fraud, waste, and abuse in Medicaid in partnership with
States, beneficiaries, providers, contractors, and federal agencies.
States are primarily responsible for detecting, prosecuting, and
preventing Medicaid fraud, waste, and abuse. We provide funding and
technical assistance and oversee States in their efforts to ensure that
taxpayer dollars are spent appropriately.
Some States are making good progress in making sure that their
Medicaid programs protect taxpayer dollars. However, we all agree that
more needs to be done, and we are committed to repeating and building
upon this success across the country.
To further these efforts, we hired an expert outside contractor,
Dr. Malcolm Sparrow, to conduct seminars and produce a report on how to
better fight Medicaid fraud, waste, and abuse.
We are providing States with comprehensive guidance and technical
assistance so they can build strengthen efforts to prevent improper
payments, rather than try to recoup them after the fact.
We also are working with States to help them develop better data
systems and other technological tools for ferreting out fraud, waste,
and abuse. And we are modifying our National Fraud Investigation
Database to include Medicaid cases, which will further help in tracking
down and stopping unscrupulous providers across the country.
These actions are helping to build a foundation upon which we can,
together with States, establish measurable goals for improvement and
greater accountability. In the coming months, we will begin working
with States to develop systems to measure their progress in fighting
fraud, waste, and abuse. Two states have already begun developing
claims error rates to accurately determine the extent of improper
payments. Concrete goals and accountability measures will provide a
clearer picture of what we must do to eliminate fraud, waste, and abuse
in Medicaid and ensure that taxpayer dollars are spent appropriately.
background
Medicaid is a State/federal partnership. Each State runs its own
program with federal financial support and oversight. Beyond a core set
of mandatory covered services, Medicaid programs vary widely among
States. Each State Medicaid program is required to have systems in
place to protect program integrity but, again, these vary widely. Some
states have independent Inspectors General, others have very active
involvement from the Office of the Controller, and others rely heavily
on the State Attorney General.
Special federal matching funds are available for State Medicaid
fraud control units. These fraud control units are usually located in
the State Attorney General's office and generally perform both
investigatory and prosecutorial functions. Congress specifically
prohibited these units from being part of the designated Medicaid
agency to assure investigative independence. Forty-seven States have
established such units to investigate allegations. The HHS Inspector
General administers the funding and activities of these State Medicaid
fraud units. In States without fraud control units, the Medicaid agency
is responsible for investigating allegations and referring cases to the
appropriate authorities.
Federal funding is also available to States for Medicaid management
information systems. All States include review of claims before they
are paid, as well as surveillance and utilization review to look for
errors after claims are paid, in their management information systems.
The prepayment reviews include verification that the recipient is an
eligible beneficiary, the provider is authorized to furnish services,
the services and visits are logically consistent, the payment does not
exceed the reimbursement rate, and that no other party is legally
liable for payment. The post-payment reviews identify abnormal billing
patterns that may indicate fraud, waste, or abuse. The surveillance and
utilization review units are required to refer suspected fraud to the
fraud control units, if one exists, for further investigation and
possible prosecution.
Federal Oversight
In June 1997, our agency's Southern Consortium was given the lead
for the national Medicaid fraud and abuse oversight efforts. The
Southern Consortium, which consists of the Atlanta and Dallas regional
offices, had already been very aggressive in tackling some of the most
daunting program integrity challenges. The Consortium's leadership and
this innovative arrangement allows our national office to get closer to
the ``front lines'' of State activity in the fight against fraud,
waste, and abuse.
In August 1997, we convened a focus group of State Medicaid staff
to assess States' efforts, needs, and challenges. This provided many
valuable lessons that we have been able to act upon.
For example, one of the major needs expressed by the States was for
a national forum that States can use to share information and discuss
issues. We therefore formed the Medicaid Fraud and Abuse Control
Technical Advisory Group in which State and federal technical staff
discuss how program integrity policy is carried out. This advisory
group is divided into six workgroups, including:
the Legislative and Regulatory Workgroup, which is charged
with developing State legislative proposals and policy
clarification on a number of issues;
the Database Workgroup, which is developing an educational
packet that identifies various reporting requirements and
suggestions on how States can implement them;
the Pharmacy Workgroup, which is formulating a Best Practices
guide for controlling fraud and abuse in the pharmacy area;
the Inspector General's Issues Workgroup, which is identifying
various Inspector General activities that affect states and
collaborating with the Inspector General to allow State input
into the design and development of audits, studies, etc.;
the Managed Care Workgroup, which is focusing on operational
issues related to the unique program integrity problems posed
by managed care; and
the Data Sharing Workgroup, which is will disseminate
information to all States on Medicare-Medicaid data sharing
rules.
The advisory group has also surveyed program integrity and fraud
control unit officials across the country to gain a deeper
understanding of their needs and concerns.
fraud and abuse seminars
Because of the clear need to be more effective in fighting Medicaid
fraud, waste, and abuse, we last year contracted with Dr. Malcolm
Sparrow, a nationally recognized expert in health care fraud issues. He
conducted a series of seminars across the country where State program
integrity personnel came together to discuss their successes,
challenges, and concerns. Three essential themes emerged:
There are unique program integrity issues within managed care
that need to be addressed. Many States are still learning how
to address the unique program integrity challenges posed by
managed care, and some are fighting the misconception that
managed care somehow does away with program integrity issues.
There are substantial technology issues, such as obtaining
access to claims databases, claims analysis, fraud & abuse
detection. Many States have inadequate technological
infrastructures and a basic inability to interrogate databases
efficiently to ferret out improper claims. They could benefit
from further guidance and technical assistance on acquiring new
data systems and other fraud and abuse detection tools.
There is a need for building commitment, understanding,
support, and resources for fraud and abuse control efforts.
While some States are having success, the seminars made clear
that, in many States, the nature and magnitude of the Medicaid
fraud problem is still not properly understood. In some States
it may not even be treated as a serious or central issue in
program administration.
We are taking several steps to help States address these concerns.
managed care
For managed care, we have sponsored a series of workshops, dating
back to 1997, to bring State managed care staff together with
utilization and review directors and fraud control unit directors. They
have been conducted in conjunction with George Washington University's
Center for Health Policy Research and attended by Medicaid staff from
49 States. These workshops focused on how fraud manifests differently
within the managed care setting and how programs to address it should
be structured. They also featured ``negotiating sessions'' among State
delegations and resulted in written agreements on how to work more
cooperatively and effectively together.
To further address managed care program integrity issues, we worked
with State Medicaid agencies and fraud control units to develop
Guidelines for Addressing Fraud and Abuse in Medicaid Managed Care. The
guidelines focus on:
key components of an effective managed care fraud control
program ;
data needed to detect and prosecute managed care fraud;
how to report managed care fraud,
suggested language for managed care contracts and waivers to
help fight and prevent program integrity problems; and
the roles of the Health Care Financing Administration, State
Medicaid agencies, State fraud control units, managed care
organizations, and the HHS Inspector General.
We hope to have these guidelines to the States by early next year.
technology and data systems
Better data systems are key to improving efforts to fight Medicaid
fraud, waste, and abuse. We are working diligently to help States make
the most effective use of State and federal data systems and data
collection efforts. As noted above, our technical advisory group is
preparing an educational packet that identifies various reporting
requirements and suggestions for how States can implement them. They
are also compiling and will disseminate information to all States on
Medicare-Medicaid data sharing rules.
We recently developed a national fraud and abuse electronic
bulletin board, co-sponsored by the American Public Human Services
Association, to allow States to exchange and share information on fraud
and abuse related issues.
These efforts are particularly important because instances of fraud
and abuse are often not limited to one State or even one program. For
example, a special South Florida task force demonstration project had
unprecedented success in fighting fraud, waste and abuse by getting
Medicaid agencies, Medicaid fraud control units, Medicare claims
processing contractors, and U.S. Attorneys to all work together to
detect fraud and abuse in both Medicare and Medicaid. For example, the
task force matched Medicare and Medicaid data to identify patterns of
questionable billing practices. We have learned from this effort and
are encouraging other States to replicate these types of efforts.
And, as mentioned above, we are modifying our National Fraud
Investigation Database to include Medicaid cases. Until now, this
system has captured only Medicare information. This will play a key
role in helping us to replicate the success seen in the South Florida
task force demonstration project.
state accountability
Because States have the primary responsibility for protecting
Medicaid program integrity, we are taking several steps to help States
meet this challenge and understand their obligation to ensure that
taxpayer dollars are spent appropriately.
For example, we have developed and posted on our www.hcfa.gov
website a comprehensive listing of State statutes that target Medicaid
fraud. This allows States to access and share innovative and effective
program integrity legislation. For example, if a State is considering
proposing legislation to regulate third party liability, a listing of
State laws on this subject is readily available, along with links that
allow direct viewing of statutory language. The website also includes
detailed contact information for State program integrity personnel and
individual State legislation web sites.
And we are now working to clarify how States can ensure that
payments are not made to providers who have been ``excluded'' from
Medicare and Medicaid because of program integrity or other problems.
We have worked closely with the HHS Office of the Inspector General on
this, and expect to disseminate clear guidance on the process early
next year. This guidance will address the specifics of what must be
reported to whom, when and where, as well as how to enforce exclusions,
and the consequences for States that fail to comply. We are also
working to help States enhance their processes for identifying excluded
providers.
Still, it is clear that each State needs to be held accountable for
protecting taxpayer dollars and meeting concrete goals and objectives
for improvement in the fight against fraud, waste, and abuse. As
mentioned above, we are going to work with States to develop systems to
measure their progress. Two states have already begun developing claims
error rates that are essential for accurately determining the extent of
improper payments and any improvement in preventing them. With clear
goals and concrete accountability measures we will have a clearer
picture of what we must do to further to eliminate fraud, waste, and
abuse from Medicaid.
Internally, we have developed clear guidance for our own staff on
how to review State agency program integrity efforts, both in fee-for-
service and managed care. This guidance mandates focus on:
how States identify, receive, process and use information
regarding potential fraud and abuse by Medicaid providers;
how entities outside the Medicaid agency participate in
preventing, identifying and reducing fraud and abuse;
whether key program integrity components are included in State
contracts with managed care organizations; and
whether State agencies are complying with appropriate laws and
regulations.
To begin developing objective and measurable goals for improvement,
we will in January 2000 send a national review team to conduct a
targeted evaluation of anti-fraud efforts in eight States selected to
represent a cross section of State Medicaid programs. This will help
provide an accurate assessment of where States are, what barriers may
hinder their progress, and what most needs to be done to ensure
substantial, measurable improvement.
conclusion
We have been working diligently to help States improve their
efforts to fight Medicaid fraud, waste, and abuse. We are providing
States with information, tools and training to build effective program
integrity infrastructures. And we are building a basis for holding
States accountable for measurable improvement in their program
integrity efforts. We welcome your assistance and appreciate your
continued interest. And I am happy to answer your questions.
Mr. Upton. Thank you all very much.
I just know, before my 5 minutes starts, you talk about
MFCUs, I used to follow a running back from Michigan by the
name of Tim Biakabutuka, he plays for Carolina now.
Mr. Burr. North Carolina.
Mr. Upton. Don't ask me to spell it.
We're going to start with members asking 5 minutes of
questions, and we will rotate.
Ms. Aronovitz, as I read your testimony last night--and I
want to thank all of the witnesses who provided their testimony
last night. HCFA was close. I walked out the door at 6 to vote,
and I think it showed up to 5 to 6, so I was able to take it
with me.
As I read this, particularly this specific instance in
Tennessee where a managed care plan used a homeless shelter for
the address of nearly 4,500 fictitious enrollees, how easy was
it to find examples like that in the report that you found?
Ms. Aronovitz. It's not that difficult at all. The States
all do have their horror stories, and actually the flip side of
that is their successes in being able to identify those
situations. I think they would all say that they need to do
more, invest in more technology, better technology, and have
more resources.
I think that was something that we've heard even in the
little amount of work we've done since we started our study,
that States really are looking for more resources and better
technology and more sophisticated approaches to identifying
those types of problems.
Mr. Upton. Would you say--in my opening statement, I talked
about 10 percent fraud and abuse, which is $17 billion. Is that
about what you think? Is that a pretty accurate figure? Do you
think it's more than that? Do you think it's less--if you had
to say.
Ms. Aronovitz. It's very--it's literally impossible to
tell. But I do want to make a differentiation between improper
payments and fraud. Fraud is the intentional wrongdoing, which
needs to be proved. So when you talk about any number, any
estimate, you're talking about payments that should not have
been made for one reason or another. Until a case is actually
taken through the system and prosecuted, you can't really say
whether it was fraudulent or not. So, therefore, fraud is
particularly hard to measure.
Mr. Upton. Mr. Fecteau, yesterday I spent an hour with my
local hospital board and a number of other providers and the
last couple of weeks as well. We were hoping to take some
legislation up tomorrow to remedy some of the Balanced Budget
Act of 1997 reductions to providers, and we're looking at about
a $13 billion package over 5 years, and we're trying to figure
out the ways we can pay for it as well.
As we think about the 10 percent--you know, sort of the lay
of the land 10 percent fraud figure, $17 billion, I mean, does
that come and fulfill the dream that a lot of our providers
would wish for? And you talked about the $240 million in fraud
and abuse that your organization has sort of looked at, but
that's over 2 years. I mean, that's only scratching the surface
of what might be out there.
Mr. Fecteau. That's correct.
Mr. Upton. I mean, that's pretty incredible that--I mean,
even though we identified perhaps as much as $17 billion a
year, $34 billion over 2 years, in fact, our collection efforts
are pretty--identification methods are pretty miserable?
Mr. Fecteau. Again, that's 20 States, and again the SURS
units in some of the larger States, the units and program
integrity units are broken into various subunits. And this does
not--I know one State, Texas, the reports that I got in from
them was not totally complete, based on what HCFA's figures
were.
But you are right. The methods in most States for
identifying fraud, abuse and waste are antiquated systems at
this time.
Mr. Upton. Okay. Ms. Williams, I very much appreciated
reading your testimony last night. And, in fact, I focused on I
guess the--early on in your testimony you talk about the
fleeing felons. Another issue that would require legislation is
that of fleeing felons, welfare reform legislation specifically
including Medicare provisions that make felons ineligible to
receive government benefits.
I actually had that amendment passed in this committee when
we dealt with this subject about 2 years ago, and the Senate
dropped it in conference. And I certainly--based on the hearing
today and other hearings that we had, I also serve on the
Health and Environment Subcommittee, and I would like to work
with Chairman Bilirakis to develop legislation that will give
everyone the tools to identify the abuses that are out there
and to really go after the people that abuse the system in a
major way.
And I particularly appreciated your number of examples of
what we can do. When you talked about the 60-day rule, do you
have--and you made a very good point, for all of us that pay
income taxes--do you think we ought to just discard that
altogether? Should we have a day limit, 120 days, 180 days, or
should we just say when the money is collected, that's when you
pay it back?
Ms. Williams. I think definitely when the money is
collected it should be--the Federal financial participation
should be immediately refunded. I think there can be standards
set on a State for reasonable collection activities. I think
that there is room for some constructive definition of what
reasonable collection activities are, but to have to refund the
Federal matching before a State has the opportunity to collect
the funds, particularly if they're in a process of negotiating
plea bargain agreements, that sort of thing, it's very, very
punitive on the States.
I think there's somewhere in between that we can go besides
totally forgetting the money until it's collected. I think
there's some reasonable standards of promptness that can be
agreed upon that would be reasonable for the States to collect
or pursue collection, but to have to refund the money in
advance is extremely punitive.
Mr. Upton. I know my time is expired. But I just wish to
really thank you for your testimony, and we can work together.
And maybe just a quick comment from Ms. Thompson. Do you
all have any comments in terms--it would be nice to have the
legislation--the administration onboard with a package like
this and really make it bipartisan and save the taxpayers some
money. I don't know if you've commented publicly in terms of
some of the items that the States have offered up.
Ms. Thompson. Let me comment specifically on the 60-day
rule, because the administration has said that it does not
support eliminating the 60-day rule. But I think the kinds of
comments that Ms. Williams talked about in terms of finding
some reasonable accommodation in the middle I think makes a lot
of sense.
What we don't want to do is find ourselves in a situation
where we don't have any kind of standard or any kind of
assurance that collections are going to be made. In fact, the
large majority of overpayments are, in fact, administrative
overpayments, and it's a debt collection matter, and we
certainly want to encourage States to be expeditious in
handling those kinds of matters. At the same time, I think
we're well aware of the kinds of problems that Ms. Williams
cites, and we would be happy to explore further what some
possible legislative solutions might be in that regard.
Mr. Upton. Just a last question, what about suspending the
card of folks who abuse Medicaid services.
Ms. Thompson. I have to say I'm not sure what the
administration has said about that. But I think certainly one
of the things that we would pursue is how to handle recipient
collusion. I think that is a big issue, particularly in some of
the organized crime and organized scams. Lock-in is also a
potential available mechanism, for States to require
beneficiaries to go to a particular pharmacy or a particular
provider and control their utilization in this manner as well.
Mr. Upton. Okay. Mr. Burr.
Mr. Burr. Ms. Williams, I want to thank you on behalf of
Mr. Bryant and I for being a witness that we could understand.
It's not very often that we have the opportunity with this
group in Washington to get Southerners up here, and I
appreciate that.
Ms. Aronovitz, let me ask you, can fraud control really
exist without structural changes to the delivery system?
Ms. Aronovitz. Are you talking about the managed care
structure and the fee-for-service structure?
Mr. Burr. Just talking about Medicaid as it's currently
designed, whether it's the regulations that come from HCFA or
what the States design. Without changes, can we have fraud
control that we feel confident works?
Ms. Aronovitz. That question is one that we haven't really
looked into in any great depth. It's quite broad and very
important.
Mr. Burr. Isn't it important, though?
Ms. Aronovitz. Absolutely. It's a policy, programmatic
question that needs to be addressed; and one way to start would
be to look at specific activities of the program integrity
units in the State Medicaid agencies.
Mr. Burr. With I think the exception of Ms. Williams, I
heard everybody convince me and I think convince everybody in
this room that waste, fraud and abuse exists in Medicaid. So
let's not go back over that part. Let's start there and say,
now how do we solve it?
And I guess my question is very simple. Do you, as one who
has looked at the problem, believe that you can solve the
problem without structural changes?
Ms. Aronovitz. I think that any large health care program
will be vulnerable. There are a lot of reasons why Medicaid and
Medicare, in particular, would be vulnerable in any structure.
It has to do with the fact that in Medicaid, in particular,
you're running 50 different programs where claims that are
coming in are a very small value each, but it's the volume of
the claims that ends up being a problem.
Mr. Burr. Can we agree that there is going to continue to
be, regardless of how creative we get and how vigilant we are
with waste, fraud and abuse teams or reports or reviews, waste,
fraud and abuse?
Ms. Aronovitz. This program will always be vulnerable, yes,
in my opinion.
Mr. Burr. Mr. Hartwig, you've looked at waste, fraud and
abuse before, haven't you?
Mr. Hartwig. Yes.
Mr. Burr. Tell me what has changed structurally since the
last time you looked at it and this time you looked at it.
Mr. Hartwig. Let me just make a general comment first. And
you raised the issue about the health care system. The health
care system is basically a voluntary payment system. It's a
system based on trust, so I think you're always going to have
some abuses of that system. To handle those abuses, health care
is a chain, and the chain starts with the recipient and
beneficiaries, and it goes up to law enforcement.
Mr. Burr. Tell me what has changed in that since the last
time you looked at it.
Mr. Hartwig. I am getting to the change. There's certainly
a lot more awareness today than in the past about fraud and
abuse in the health care system. I think some work that our
office did on the review of the financial statements of the
Medicare program; I think Operation Restore Trust, an
initiative that was started by the Department of Health and
Human Services a number of years ago as a partnership effort
involving both Federal, State and local law enforcement; and I
think some of the recent initiatives of making health care
fraud a priority have changed the system, because of how we
looked at it.
Mr. Burr. Tell me how the system differs, if you take law
enforcement changes out of the mix.
Mr. Hartwig. I think there's a greater awareness today than
in the past of a system being abused. I don't know that there's
been fundamental changes in the way that the system pays claims
and the way the system has been abused or allows itself to be
abused.
Mr. Burr. Let me ask Mr. Krayniak. You said that we have
caught--we have prosecuted Medicaid fraud and abuse. Why does
it still exist?
Mr. Krayniak. The Medicaid Fraud Control Units are really
at the end of the chain Mr. Hartwig just described. We get the
referrals from the single State agency or from whatever agency,
and our response is limited. I mean, we are prosecutors, we can
go into court, we can seek incarceration, fines and other
appropriate penalties. That certainly serves the deterrent
effect. But we are, as I said, at the end of that line, and the
numbers of cases that we are able to bring to successful
conclusion, while it does serve a deterrent effect, certainly
cannot change the structure of the system.
Mr. Burr. Do you think that people are aware of the waste,
fraud and abuse that exists out there?
Mr. Krayniak. I've been the director in our State for 6
years; and I can say, in that time, the awareness, the
attention and the resources that have been paid to it have
increased very, very dramatically, so I would answer your
question yes.
Mr. Burr. Ms. Williams, let me commend you and the
Technical Advisory Group, because I think you did mention some
things that I hope people wrote down. You talked about S-CHIP,
which is the children's program. And I want to ask you, how did
we provide for flexibility in that that's not provided for in
the normal Medicaid program where it makes it easier to make
sure that there's less waste, fraud and abuse in the children's
program than in the normal Medicaid?
Ms. Williams. Please understand my reference to the S-CHIP
program was not related directly to fraud and abuse. My
reference to the S-CHIP program was how Congress identified an
urgent need, wanted States to react quickly and effectively and
provided two major incentives to make that happen, financial
incentive and increased matching and flexibility and program
design to let the States tailor the program to meet their
needs.
I know in Alabama, when S-CHIP was passed, it received huge
attention by the Alabama legislature and the administration to
act quickly to take advantage of this encouragement from
Congress to address this problem, a problem that, a year
before, I'm not sure the Alabama legislature really understood
existed.
Mr. Burr. But a plan can be designed in a way that creates
less of an incentive for waste, fraud and abuse.
Ms. Williams. Absolutely. What I believe was accomplished
with the S-CHIP legislation in terms of a model is Congress
decided and defined what it wanted out of the program in very
clear terms. There were standards set that States had to comply
with, and then money was put with that.
There was flexibility on how States achieved that goal of
ensuring children and how the programs were designed for their
States, whether it was private insurance, expanded Medicaid, a
variety of solutions, but the ultimate goal was defined very
clearly by Congress, and then the money came with it.
I believe that Congress could do the same with Medicaid
fraud and abuse, define the end results that Congress wishes to
see occur in State Medicaid programs and then incentivize
States with the flexibility to meet that goal and enhance
Federal matching funds above the current 50/50 match to do it.
Mr. Burr. You just hit on a tremendous key, and I just want
to make sure everybody heard you. You said incentivize our
ability to make the system better. I think we work in a penalty
system in most cases, and that does not achieve a better
system, I can assure you.
Let me move to Ms. Thompson just very quickly, because I
know my time has run out, Mr. Chairman.
Ms. Thompson, tell me what HCFA's success is with
fraudulent Medicare recovered dollars. Is it 100 percent?
Ms. Thompson. No.
Mr. Burr. It's not, is it? It's a fairly low number, if I
remember. I can't quote it right off the top of my head, but I
think we looked at that before.
My only point for raising that question is for you to take
back to HCFA and to the administration that, we cannot expect
the State recovery on fraudulent Medicaid to be 100 percent,
yet we take an inflexible position as it relates to their
reimbursement of us once they identify and report overpayment
or fraudulent payments, and I think that that's something that
this Congress and this administration needs to address.
Let me just make one last statement as it relates to your
testimony. And I hope that HCFA--and I feel confident that they
will work with Congress to make sure that we provide whatever
tools and allow whatever flexibility for States to change their
programs to create incentives for the elimination of waste,
fraud and abuse and to suggest to HCFA, in a number of places
you refer to objectives under way, objectives to measure goals
to assess the need for improvement and national review teams.
We're passed that. We don't need to review it anymore. We know
there's a problem. What we need to do is sit down and find the
solution.
And if the solution is third-party people being hired by
States to come in and pay claims and--you know, I raise the
question, because I know we're going to hear from some third-
party folk--then some States might have to adopt that, if they
can't run the programs efficiently their own way.
But I think we need to get past trying to determine whether
there's a problem, admit there is a problem, and find the
solution.
I thank the chairman for his indulgence. I yield back.
Mr. Upton. Mr. Bryant.
Mr. Bryant. Thank you, Mr. Chairman.
Let me first say that I'm going to have to leave here very
shortly and go to another very important meeting and will try
to get back probably for the second panel, as soon as I can.
But I have a number of points I wanted to make, and I wanted to
thank this panel for being helpful in your testimony.
I think the title of this hearing is Medicaid Fraud and
Abuse. I think there's another element out there that we're not
really discussing that we waste, and it's something that does
not get into the element of fraud and something--a distinction
I think we have to be careful--particularly I know we will hear
from the second panel about differentiating between those three
issues.
I understand today's hearing mainly concerns fraud and
particularly the organized--one part of today's hearing, the
organized crime, criminal element of health care fraud. And
that's the one that I'm particularly concerned about and think
we ought to come down the hardest on, because typically I would
think that's the largest amount that we're talking about.
One nice thing about health care fraud from--a silver
lining in a cloud, there's a lot of times there's money you can
recover, unlike a lot of crime out there. You catch the crook
and put him in jail, and that's about all you can do. In this,
there's money that can be recovered.
And I know several of you testified as to the amounts of
money that you picked up and added back to Treasury, but I
think--of course, that's a drop in the bucket, but we do have
that opportunity. And if there's any way that we can as a
Congress enhance that ability--and I think back to things like
asset forfeiture that we use so appropriately in drug cases, at
least I think it's appropriate, and that's sort of an issue of
argument now in this Congress. But if we might look at that.
And I will be honest with you. I don't know--it may take an
expansion of the law to get into this type of area. Here again,
distinguishing very carefully between the waste and maybe
perhaps some abuse, some confusion, but highlighting those
fraudulent cases, particularly the bigger cases out there that
we could go out hopefully and not harass people who make honest
and legitimate mistakes.
One question I throw out, Ms. Williams--and again I'm doing
a lot of talking. I've got, really, one question I want to ask
Mr. Hartwig at the end. But, Ms. Williams, and maybe this is
done, but in reviewing the GAO report, there are all kinds of
scenarios where this type of crime is committed. Some of it has
to do with the mailbox, drop box, that kind of stuff. Do we
have the ability to administratively pay only--have a ruling
that we're only going to pay people with addresses and we're
not going to send checks to mailboxes and drop boxes and things
like that? Can we do that? Is that a possibility?
Ms. Williams. It is a possibility. It presents new issues.
For example, out-of-State providers, how do they properly get
certified? Do we send State enrollment, provider enrollment
staff around the country verifying the out-of-State providers?
Alabama for years prohibited out-of-State providers except for
emergency situations; and, unfortunately, the courts decided
that was inappropriate, that we had to let any provider that
wanted to participate in Alabama, regardless of where they were
from, participate. I think there are some issues like that.
I know Florida has been very successful in certain provider
types that seem to have a higher vulnerability to fraud, such
as durable medical equipment providers that, prior to
enrollment, they are making a physical site visit to make sure
it's not a drop box, to make sure there is an actual business.
So, yes, sir, there are things like that that States are
already doing in their enrollment process to try to identify
providers beforehand.
Mr. Bryant. Okay. You know, sitting up here you think of
all of these ideas and you realize this is not the first time,
in all probability, that a light was going off, so there's a
lot of smart people out there trying to think about this, too.
Mr. Hartwig, let me ask you about the GAO report last week
that was made to Senator Collins which described the influence
of organized crime in committing Medicaid fraud. I know it is
difficult to investigate and try these cases, but this is maybe
something you can answer. And my time is running out, but if
you can answer today and then maybe follow up with a more
comprehensive written response to these questions.
What steps is OIG taking to assist State Medicaid and law
enforcement officials in their efforts to combat this problem
of, again, organized crime involved in Medicaid fraud? And can
you specifically detail what efforts OIG has made to identify
these criminal groups that are targeting multiple State
Medicaid programs? What efforts are being made to improve
provider enrollment controls to keep fraudulent providers out?
And what additional resources is OIG making available to the
State investigators and prosecutors to assist them in their
efforts to combat this problem?
And given the serious nature of this and sort of the
feeling that some of us have here, and I know you all are just
as frustrated, but maybe to keep some accountability here, I
would ask that you, OIG, keep this committee informed on its
efforts to crack down on these criminal groups that I'm talking
about, again organized type, larger groups, which are
defrauding Medicaid. And with the Chairman's permission, I
would like to ask that OIG submit reports maybe on a quarterly
basis to this committee and keep us up on your efforts and help
us maybe relieve some of the frustrations. Does that sound
reasonable?
Mr. Hartwig. It certainly sounds reasonable.
I will tell you that one of the methods that we use is
local task forces and national task forces as a way of
identifying organized groups. And a second problem we have is
certainly large providers that operate in 30 or 40 States, in
identifying those. And Mr. Krayniak mentioned being a part of
the negotiating team to negotiate some global settlements.
I mentioned the National Health Care Task Force as a way of
looking at State, local and Federal enforcement issues on these
organized groups that not only target single States. They
target multiple States; they target the Medicaid program; they
target private insurance programs. And one of the things that
we have found is they are very good at finding in which State,
in which contractors on the Federal level, and in what State
contractors, there's a weakness, then going through and
targeting that.
We also in the OIG have issued what we call fraud alerts.
Those are items where we have found examples or groups that may
be operating--targeting a single procedure code, or targeting
single procedures, and looking at identifying that, letting
people know, and educating other law enforcement agencies.
One of the areas that we have partnership with the States a
lot is our exclusion program. The Inspector General has the
authority to exclude providers from participating in federally
funded State programs.
We currently have 15,000 providers on that exclusion list.
The Medicaid Fraud Control Units supply about a quarter of the
people that are on those lists through their convictions. State
licensing boards supply about 40 percent. I think it's very
important as we look to control Medicare fraud and Medicaid
fraud not to let those individuals come into the program in the
first place.
We've heard about recipient fraud--and I will just speak
briefly. You know, we have found that both recipients and
beneficiaries can be the hub of a fraud program. We have a
fairly substantial case involving Medicaid and Medicare clinics
where we have identified beneficiaries and recipients who
actually sell their cards or give their cards away. We had
identified 3,000 of those beneficiaries in a single State. We
looked at the top 10 beneficiaries, and in less than 2 years
their numbers had been billed over $100,000 in durable medical
equipment alone. We and the Health Care Financing
Administration took steps to stop paying claims for those
beneficiaries, and we didn't hear a single complaint.
So we are working with State authorities in that area to
expand where we have identified beneficiaries who allow their
numbers to be used. Again, as I look at the chain, we not only
look at the organized groups but we also look at the total
chain that allows them to operate, starting with the recipients
and beneficiaries.
Mr. Bryant. Thank you. If you could just make that report
to the directly to the committee staff.
I will close by simply saying that you sound like you're
doing an awful lot of things to identify ways to deter people.
And I think if you look at the GAO report and you see the
various ways that the system can be defrauded, which again
they're just as ingenious as criminals can be and it always
seems like one step ahead of us, but maybe get the major ways
to do this and find the ways, whether it is through licensing
or asset forfeiture of some sort or exclusion from the program,
things that you are already doing that might affect people like
insurance companies better, people like medical professionals
better and somehow the victims and the recipients, I should
say, who aren't victims, but the criminal recipients--I don't
know how you best deter those folks, but that type of study.
And it sounds like you're making good progress there. But I
think I alluded to the fact that the system is just so big, and
we're--you know, we put a lot of money in all of this, but
we're just underfunded, our prosecutors, our courts our
prisons, and all of these things come into play, and I
understand it's a big problem. But we just need to keep working
together as best as we can. And, again, to relieve some of our
frustrations, I appreciate the willingness of OIG to come
forward with this information at this level.
I'm going to have to excuse myself, because I have to be
there, but I will try and get back. Thank you.
Mr. Upton. Thank you, Mr. Bryant.
I've got a couple more questions before we move on, and I
know Mr. Burr is going to be coming back as well.
Mr. Krayniak, you are here for a number of reasons. One is,
the New Jersey program has had a pretty good, nationally known
reputation for your work exposing both managed care as well as
pharmacy benefit problems. Tell us what are some of the things
that New Jersey has done that maybe some other States haven't.
Mr. Krayniak. One of the things we try to do is to work
very closely with our single State agency. We meet with program
integrity people on a monthly basis. It's a formal case
screening meeting.
Mr. Upton. You go out and you physically inspect some of
the, as we've heard about, mail drop boxes--I mean, do you have
a very aggressive unit going out to make sure they're
physically located someplace and actually doing the things that
they're saying they're doing?
Mr. Krayniak. We perform triage. As problems develop in one
area, we focus on that area. We experienced the same situation,
shell corporations with post office boxes, mailbox rentals. We
send our investigators out, and we determine which providers
are there. We attempt to contact those providers, either in
person or by letter, telling them we're going to suspend
payments until you come in.
We do that in conjunction with our single State agency.
We've had no one come in as a result of those letters. No one
has contested millions of dollars of claims that we've
suspended because of work of my units done in identifying what
we believe are fraudulent rings and referring it right back to
the single State agency.
Mr. Upton. Now, New Jersey, I have to believe is one of the
members of the Technical Advisory Group that Ms. Williams
serves; is that correct?
Ms. Williams. Yes, sir.
Mr. Upton. How many other States do what New Jersey has
done, Ms. Williams?
Ms. Williams. To----
Mr. Upton. Or moving toward that end, I should say.
Ms. Williams. To some degree, I would think most of them--
to some degree. What Mr. Krayniak described is a more
formalized process. In Alabama we have a similar process where
the Medicaid Fraud Control Unit and the State--single State
agency's program integrity unit meet every month, go over
pending cases, problems identified, how to expand on that. It
varies from State to State.
There is a wide range of different relationships between
the States, between the State Medicaid agencies and the control
units. Some are very strong and cooperative, such as in New
Jersey. Some are very hostile and competitive. So it's very
difficult for me to say that every State--there's 47 Medicaid
Fraud Control Units, I would say probably 47 relationships, but
many States do try to do the same type of thing of having
regular scheduled meetings between program integrity staff and
fraud control unit staff to identify suspicious providers
individually and global practices to try to come up with
solutions to address them.
Mr. Upton. Now, how long has the Technical Advisory Group
been in existence?
Ms. Williams. The group had its first official
organizational meeting in the spring of 1998, March, April.
April, I believe, of 1998 was when it had its organizational
meeting. So it's been in effect about 1\1/2\ years.
Mr. Upton. Were you encouraged to do this by HCFA?
Ms. Williams. Yes.
Mr. Upton. Or was it a self deal?
Ms. Williams. Yes, it was a cooperative decision between
the National Association of State Medicaid Directors' Executive
Committee, who meets with HCFA every quarter. It was brought
to--I believe HCFA actually brought the suggestion to the
meeting and suggested that this Technical Advisory Group--but
it was a joint decision of the two organizations to work
together to create this Technical Advisory Group.
Mr. Upton. And like some organizations, say the National
Governors Council or the National Association of Counties, I
mean, do you take stands on issues? Do you take a formal
meeting where you adopt resolutions and encourage legislators
to take a certain path?
Ms. Williams. The Technical Advisory Group, because it is
an affiliate of the National Association of State Medicaid
Directors, makes recommendations to that organization, as does
the HCFA representatives to that Technical Advisory Group. The
three pieces of legislation that I mentioned came from the TAG
to the national association.
As an individual organization, no, sir, they do not take a
national stance. The membership of this Technical Advisory
Group is generally program and integrity directors within the
States, with some representation from the Medicaid directors
themselves and chaired by the Medicaid directors. So most of
those staff people on that group are not comfortable in that
environment. However, they feel very strongly about their
recommendations and pass them on through the Medicaid
Directors' Association.
Mr. Upton. Ms. Thompson, throughout I think your testimony
and other comments have been made, you all believe that the
States indeed are on the front line of both identifying and
then going after fraud and abuse. And it just seems to be,
listening to the testimony from all different fronts, that is,
the States are asking us to move forward to giving them more
tools in a number of ways. But you all are not exactly 100
percent behind their efforts.
I mean, as I think about the collection efforts as an
example, I remember that Congress a number years ago passed the
Prompt Pay Bill, which required that the Federal Government be
paid I think 30 days after something. And it would seem as
though, with regard to payments back to States that if, in
fact, they receive the money on January 1, that there would be
some--that there could be some rule where they would actually
reimburse the Federal Government by January 30 or, you know, 30
or 60 days versus the 60-day provision that is there now, which
a very good example is used, it just is not working and it
actually serves as a disincentive for the States to go after
fraud and abuse, which in turn means something ought to be
done.
Ms. Thompson. Well, as I mentioned before, first of all,
let me say we're 100 percent behind all of the efforts to
attack fraud and abuse. That doesn't mean that we're in 100
percent agreement on every particular on how to do that. And
that's inevitable, and that's fine. As I mentioned, I think
that we are certainly aware of some of the issues, for example,
that Ms. Williams talks about in terms of the problems
associated with the 60-day rule.
But the primary purpose behind that rule was to ensure that
States were taking prompt action on debt collection matters.
And so I think, as usual, we have to figure out how to balance
some competing demands and priorities in a way that makes sense
to everyone. And we would be happy to continue to have those
conversations. What we don't support is just the elimination of
that requirement without some other kind of structure or
standard in place to make sure that the Federal Government is
made whole in a timely fashion and that the States, in fact,
have proper debt collection processes in place.
Mr. Upton. I would just like to say, as I yield to Mr. Burr
if he has additional questions, that I am going to talk to
Chairman Bilirakis this afternoon and urge him to proceed in
some way so that we can strengthen the hand to go after fraud
and abuse. It's always a good line in any audience, I'm against
fraud and abuse. I've only found one Member of Congress to vote
against it when we've had that opportunity. But I do believe
that we do--we have to provide more tools so that, in
particular, we can go after the participants that in fact
defraud the taxpayer of lots of money, way too much.
It's clearly a slippery slope that's only getting worse and
not better, and we need to take advantage of some of the ideas,
particularly from those on the front lines in terms of what
they suggest that can strengthen their hand. And I know you
will be a willing participant in that.
Ms. Thompson. Absolutely.
Mr. Upton. And I intend to ask Mr. Bilirakis to move some
legislation.
Mr. Burr, do you have any additional questions?
Mr. Burr. Only one comment, Mr. Chairman.
Ms. Thompson, please don't take this the wrong way. I don't
think you hear Ms. Williams and some of the other State folks.
What they're graciously offering is some good advice as to how
more States would get committed to chasing waste, fraud and
abuse, if there was not a punitive regulation on them to
produce money prior to the collection of money. I would listen
to her.
I think it's very wise advice. And I think that it's so
wise that I think you may see legislative language which
suggests that that is something that HCFA should adopt if they
don't suggest it on their own.
I thank you. I yield back.
Mr. Upton. Thank you very much for your testimony. We look
forward to working with you in the days ahead, that's for sure.
Have a terrific week.
We will call the second panel.
Mr. Mitchell Adams, who is the Chief Executive Officer of
HealthWatch Technologies, Massachusetts; Mr. Greg Viola, Senior
Manager of Deloitte and Touche, from New Jersey; Mr. Michael
Glynn, CEO of the Codman Group, in Massachusetts; and Ms. Jean
MacQuarrie from Medstat, from the great town of Ann Arbor,
Michigan.
We need to get started. I am getting a little worried about
votes. So we will--as you all heard, we have a long tradition
of taking testimony under oath. Do any of you have objection to
that? And under both House and committee rules, we allow you to
have counsel, if you so desire and--do you have any desire to
have counsel? Good.
If you would stand and raise your right hand.
[Witnesses sworn.]
Mr. Upton. They're all now under oath.
Mr. Adams, if you're prepared, we will start with you.
TESTIMONY OF MITCHELL ADAMS, CHIEF EXECUTIVE OFFICER,
HEALTHWATCH, TECHNOLOGIES, LLC, ACCOMPANIED BY JIM GORMAN,
PRESIDENT AND CHIEF OPERATING OFFICER; GREG VIOLA, SENIOR
MANAGER, DELOITTE AND TOUCHE; MICHAEL J. GLYNN, CEO, CODMAN
GROUP, ACCOMPANIED BY PHILIP CAPER, FOUNDER AND CHAIRMAN OF THE
BOARD OF THE CODMAN GROUP; AND JEAN MACQUARRIE, MEDSTAT
Mr. Adams. Good morning, Mr. Chairman and committee
members. My name is Mitchell Adams. I'm Chief Executive Officer
of HealthWatch Technologies, and HWT, LLC. Prior to my job,
which I've had for about a year, I was for 8 years the
Commissioner of Revenue of Massachusetts.
I'm joined this morning in the room with Jim Gorman, who is
the President and Chief Operating Officer of our companies; and
before this Jim was the Director of the Medicaid program in the
State of Maine.
Our companies provide a unique and proven solution to the
problem of Medicaid fraud and abuse, which combines proprietary
systems, state-of-the-art information technologies, extensive
Medicaid program experience and health care expertise. The team
offers a full-spectrum service to States, including the
specific identification of improper claims paid to providers
and the collection of overpayments as an agent for the State.
The service, which includes all hardware, software, and
personnel services, is offered on a contingent fee basis,
determined as a percentage of the funds actually collected so
that there is no costs to the State until recoveries are
actually received. This approach meets an important need for
States which generally do not have the personnel, financial
resources, or IT expertise to address the problem.
The Commonwealth of Kentucky has demonstrated bold vision
in undertaking what is believed to be the Nation's first full
service identification and collection contract. The results
have been extraordinary. Working closely with the Kentucky
Department for Medicaid Services, the DMS, $30 million to $40
million of specific overpayments have been identified. Of this,
$14 million is slated for collection action in the coming
weeks; and it is expected that the balance, between $15 million
and $25 million, will be collected in the coming months after
final review by the DMS.
The project has resulted in the production of 160 results
sets which include over 2 million lines of specific
overpayments to providers. The hard copy printout comprises
over 200,000 pages. Based on collection experience to date, it
is estimated that approximately 80 percent of the overpayments
identified will in fact be collected, returning up to $25
million to Kentucky.
While overpayments involve thousands of providers and
include all categories of service providers, the data show that
the abuse is concentrated among a very small percentage of
providers, between 2 percent and 4 percent generally. The vast
majority of Kentucky providers are honest, law-abiding
citizens, playing by the rules. Overpayments identified
represent only a fraction of 1 percent of the paid claims
analyzed.
Many studies assess the extent of overpayments in the
system, as we've heard this morning, at about 10 percent. On
the basis of these studies, it is estimated that the
overpayments that could be identified in Kentucky, if this
effort is continued, range between $600 million and $800
million.
Our team works closely with the Attorney General of
Kentucky, the United States Attorneys for the Eastern and
Western districts, Kentucky's Office of the Inspector General
and representatives of the Federal Office of the OIG; and in
the development of cases for criminal prosecution, these
agencies have identified approximately 25 cases representing
overpayments of over $1.5 million to review for possible
criminal prosecution.
This approach can benefit the Medicaid system in two ways
other than the recovery of funds. First, the algorithms that
reveal the abuse that we have found can be converted into
prepayment edits so that overpayments are not made in the
future. Second, the action of collection will have a chilling
effect on providers who are abusing the system, thus reducing
improper claims prospectively.
We believe that the contingency recovery model described
here and proven effective in Kentucky provides a workable
solution to the problem of fraud and abuse in the Medicaid
system and should be replicated in other States.
Presently we are aware of four other States that are
following Kentucky's bold lead and are in the process of
implementing this approach. HCFA needs to encourage States to
adopt these innovative approaches to curbing health care fraud
and abuse in the federally funded health care programs and
generally. State agencies, which are generally understaffed and
overworked, should be encouraged to use outside consultants
whose main focus is the detection and prevention of Medicaid
overpayments.
These consultants should not be involved with the payment
of claims in the first instance and should be evaluated by HCFA
and the States. HCFA should publish a list of approved
consultants, as they have done with approved Medicare
contractors. States should be encouraged by HCFA to pay these
consultants on a contingent fee basis, as this method of
payment provides the resources and incentive necessary to do
the job.
Finally, we would respectfully request and recommend that
this subcommittee continue to hold oversight hearings in order
to monitor the progress HCFA and the States are making toward
detecting and preventing the enormous amounts of overpayments
that currently characterizes the Medicaid program. Without this
continuing oversight, little progress is likely to be made.
Thank you very much for the privilege of presenting this
testimony.
[The prepared statement of Mitchell Adams follows:]
Prepared Statement of Mitchell Adams, CEO, HealthWatch Technologies,
LLC
Mr. Chairman and Members of the Committee, good morning, my name is
Mitchell Adams. I am here today representing HealthWatch Technologies,
LLC, and HWT, LLC. Our team has done pioneering work in harnessing the
power of information technology to address the problem of fraud and
abuse in the Medicaid System.1 I have worked as the Chief
Executive Officer of these companies for the last year. For the
preceding eight years, from 1991 through 1998, I served as the
Commissioner of Revenue of Massachusetts. In this agency we did ground
breaking work in the application of the newest information technologies
to the collection of state revenues and modernization of the State's
Child Support Enforcement Program, which became a model program for the
nation. Prior to becoming Commissioner of Revenue, I had 15 years
experience in health systems management, as Vice Chancellor for
Administration and Finance at the University of Massachusetts Medical
Center, as Dean for Finance and Business at the Harvard Medical School
and as Budget Director for Boston's Beth Israel Hospital. I presently
serve as a member of the Board of Trustees of Harvard Vanguard Medical
Associates, which constitutes the health centers division of Harvard
Pilgrim Health Care, New England's largest HMO.
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\1\ HealthWatch Technologies, LLC and HWT, LLC are affiliated with
Sapient Corporation, an e-services consultancy that helped develop the
technology used in the identification of overpayments. The contract for
the identification and collection of overpayments in the Medicaid
program in Kentucky described in this testimony was initially awarded
to Sapient. However, since Sapient's core business does not include the
identification and collection of overpayments in the healthcare system,
that contract was undertaken with the understanding that it would be
assigned to an affiliated organization. HealthWatch Technologies, LLC
was formed for the sole purpose of providing these services in
Kentucky. HWT, LLC was formed to provide program integrity services to
public and private healthcare organizations nationally.
---------------------------------------------------------------------------
I am joined this morning by my colleague, Mr. James Gorman, who
works with me in this innovative and challenging endeavor to combat
Medicaid fraud. Before joining our team, Mr. Gorman was the Director of
the Maine Bureau of Medical Services for five years, where he built a
state-of-the-art data warehouse and decision support system for the
state's Medicaid Program. Prior to joining the Bureau of Medical
services, Mr. Gorman was a management expert assigned to the Department
of Safeguards within the United Nations' International Atomic Energy
Agency, the program charged with tracking the world's nuclear material.
First and foremost, I want to commend Commerce Committee Chairman
Thomas J. Bliley for charging the General Accounting Office with the
responsibility of conducting an in-depth survey to study and report on
the current efforts to combat Medicaid fraud at various governmental
levels. One of the specific charges to the GAO was to determine
``innovative techniques and strategies'' developed at the state level
to be applied to fraud control efforts in other health care programs.
HealthWatch Technologies, LLC, and HWT, LLC emphatically support this
charge for the following reasons.
Multiple studies have demonstrated that the country's healthcare
system is subject to extensive waste, fraud and abuse. Federal studies
have shown that the extent of fraud and abuse in federally supported
healthcare programs ranges from 10% to 14%. These studies show that the
Medicaid program is undeniably a part of the problem. A comprehensive
study in Texas recently found that a staggering 12.5% to 32.2% of
Texas' Medicaid payments were questionable, depending on the type of
service provided. Malcolm Sparrow, Professor of Practice at Harvard's
Kennedy School of Government, and one of the nation's leading experts
and researchers in the field of healthcare fraud and abuse, summarizes
the situation this way; ``Fraud in the healthcare system has been, and
remains, out of control.''2 Our experience in the field
confirms Professor Sparrow's conclusion.
---------------------------------------------------------------------------
\2\ Sparrow, Malcolm K., License to Steal, 1996, p.212.
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The problem exists in all the 50 states and efforts to address it
have been essentially a failure nationwide. In 1995 and 1996, for
instance, approximately $185 million in federal funds was provided to
47 state Medicaid Fraud Control Units (MFCUs) to support their fraud
and abuse detection and collection efforts, but only $71 million--or
less than 40% of the amount spent on such detection and collection
efforts--was recovered. In 1997 total expenditures in the Medicaid
program amounted to approximately $200 billion nationwide, yet in that
year the major government agencies charged with addressing fraud and
abuse in the Medicaid program, the MFCUs and the Surveillance and
Utilization Review Subsystems (SURS) units of the various states,
recovered a total of only approximately $250 million. The amounts
recovered, however, relate to claims paid over a multi-year period
which we estimate totaled approximately $700 billion.
the unique approach of healthwatch technologies and hwt in the use of
information technology to address the problem
Our team offers state governments a unique program that has proven
to be an effective part of the solution to the problem of fraud and
abuse in the Medicaid system.
There are a number of companies offering software products and
systems which Medicaid departments can obtain that allow them to
analyze their data to identify patterns of aberrant activity and
behavior among recipients and providers. With further analysis and
investigation of the data, the Medicaid department might then make a
determination of overpayment amount as a basis for a recoupment action
or an initial determination of possible fraudulent behavior that could
be referred to prosecutorial authorities.
The approach of our team is significantly different and offers a
great deal more to a state's Medicaid department. We offer a full
spectrum service including the provision of all information technology
services and necessary hardware, analysis of data, the specific
identification of fraudulent and abusive claims that have been paid,
the presentation of the evidence to prosecutorial authorities and the
recovery of the funds for the state. We operate on a contingency fee
determined on the basis of repayments received by the state. We receive
no compensation whatsoever, unless the state actually recovers
overpayments. We believe that our business model is the first of its
kind and that our approach addresses a very important need which to
date has gone unfulfilled. Implementation of this innovative process
requires substantial resources in information technology expertise,
hardware, software, capital and staffing which are simply not available
within state government under present circumstances. The contingent
payment mechanism makes use of the recovered funds to supply the
resources needed.
Outline of the Process
Providers who use abusive or fraudulent billing practices know the
claims processing systems as well as those who operate them. They also
know that the present state of claims processing technology cannot
check the thousands of potential variables and still process claims in
a timely manner. Most states have some type of data warehouse to help
in the identification of improper utilization, but very few have made
material progress in solving the problem because, in addition to a
shortage of resources, they lack the process experience, specific
knowledge base and the information technologies required.
Our companies employs its own SIEQ
methodology to ensure that all available expertise and technologies are
brought to bare on the problem. This methodology employs close
examination of applicable policies and claims processing systems,
exposing weaknesses that jeopardize fiscal integrity. It then develops
algorithms tailored specifically to those areas revealed to be most
vulnerable to waste, fraud and abuse. Then, processing of the raw data
(paid claims, recipient and insurance data, vital statistics, etc.)
against the algorithms produces detailed, line-by-line listings of
overpayments by specific providers. These listings represent
substantial and immediate recovery opportunities. They are actionable.
Detailed listings of overpayments are then presented to the state's
Medicaid staff for final verification. Prior to any overpayment
collection activity, all detailed listings are presented to a review
board consisting of the appropriate investigative and prosecutorial
authorities, the state's Attorney General, the United States Attorneys,
and the representatives of the federal Office of the Inspector General,
to give these agencies the opportunity to make an assessment as to
whether criminal investigation is appropriate. Cases which are selected
for criminal review are set aside from the collection process to permit
development of possible criminal prosecution by the appropriate agency.
Overpayment collection is undertaken by our team as an agent of the
state. Following the state's rules and regulations governing the
collection of overpayments and due process with regard to providers'
rights to appeal and review, we send providers letters, under signature
of the appropriate state official and pre-approved by the state,
requesting recovery of any overpayments made. Each letter includes
detailed, line-by-line listings of each and every overpayment together
with a clear explanation of the reason these payments are in violation
of Medicaid regulations. Management of the dispute resolution process
is supported by our team under the direction of the state's Medicaid
department.
Proof of the Process: The Kentucky Project
The Commonwealth of Kentucky is the first state to demonstrate the
vision to implement the full-spectrum approach outlined here, and the
results have been extraordinary.
An enormous amount of Medicaid overpayments have been identified in
Kentucky. Working closely with the staff of Kentucky's Department of
Medicaid Services, our team 3 has identified specific
overpayments in excess of $14 million, most of which we believe can be
recouped by our team for the Commonwealth over the next several months.
The findings consist of over 160 result sets, each of which details
specific line items of paid claims which are part of a particular
category of overpayment by service and provider type. Altogether over 2
million line items of paid claims are involved. The hard copy print out
of the detailed reports amounts to over 200,000 pages.
---------------------------------------------------------------------------
\3\ See footnote 1.
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In addition to the $14 million in Medicaid overpayments which are
proceeding to collection referred to above, we have identified
overpayments in the range of $15 million and $25 million which are
still undergoing analysis and review by the Kentucky Medicaid
Department. We expect collection action to be initiated on this group
of overpayments within the next several months, and the bulk of
recovery of these overpayments to be made in the three months
following.
These findings do not target any one provider group but identify
overpayments made to physicians, dentists, medical laboratories,
hospitals, nursing homes, pharmacists, DME dealers, rural health
centers, transportation providers, home health agencies and others. The
overpayments identified in the reports cover a broad spectrum of abuse
including duplicate services, upcoding, unbundling, impossible
services, etc. By way of example, we have found:
Excessive Services: A small percentage of physicians routinely
inflate the amount of time that they claim to be spending with
Medicaid clients. Approximately 500 physicians routinely claim
that they spend over 15 hours a day with Medicaid clients. Our
reports include evidence of numerous physicians routinely
charging Medicaid for seeing Medicaid patients for more than 24
hours per day.
Excessive Quantities: Providers are routinely reimbursed for
providing services and supplies in quantities that are far in
excess of what would be reasonably necessary. This is
particularly true with regard to Durable Medical Equipment(DME)
providers and pharmacists. As an example certain providers
routinely claim to supply patients with over 200 inhalers per
month for a charge of over $4,000 each time. Maximum usage of
this product is 3-4 inhalers per month at a cost of about $150.
One provider routinely claims to provide 90 times the normal
supply of a particular pharmaceutical solution, resulting in a
per claim payment in excess of $1500 more than what would have
been paid if an appropriate quantity had been billed. As
another example, there are numerous physicians who routinely
charge for up to 5 urinalysis tests each time they perform one.
Duplicate Billing: Several categories of providers routinely
submit claims for the same service provided to the same patient
on the same day. A typical case is one in which two dentists at
opposite ends of the state repeatedly submit claims for
extracting the same tooth, for the same patient, on the same
day.
Inappropriate Services: Certain providers routinely submit
claims for services for which there is no apparent medical
necessity. Numerous transportation companies have submitted
claims for thousands of ambulance and taxi rides, costing over
$500,000 in the aggregate, when there is no record that any
medical services at all were provided on the day the
transportation service was rendered.
While our results make it clear that fraud and abuse in the system
are pervasive in that all provider and service types are involved, our
analysis shows that the abuse is concentrated in a very small group of
providers. Typically, the abusive behavior is confined to between 2%
and 4% of each provider group. The vast majority of Kentucky providers
are honest, law-abiding citizens, playing by the rules.
Work of the Review Board:
The Review Board in the Kentucky project consists of the
Commonwealth's Attorney General, represented by staff of the MFCU, the
United States Attorneys for the Eastern and Western Districts of
Kentucky, Kentucky's Office of the Inspector General, and
representatives of the federal Office of the Inspector General. At the
Review Board's meeting on November 2, 1999, representatives of the
Federal Bureau of Investigation were present. The Review Board has met
six times over the past several months and the United States Attorneys
and the Attorney General's Office have identified the cases of
approximately 25 particular providers of various types in which they
have determined that the apparent abusive practices are so extreme as
to warrant close investigation with a view towards possible criminal
prosecution. The Medicaid overpayment amount represented by these cases
is in excess of $1.5 million.
The Collection Phase:
The first step in the collection phase was undertaken just over two
months ago, and the results are extremely encouraging. On August 20, an
initial and relatively small set of collection letters (275 letters
representing approximately $300,000 in recoverable overpayments) was
sent to dentists under the Department of Medicaid Services (DMS)
Commissioner's signature. DMS regulations stipulate that providers may
dispute its findings of overpayment by indicating in writing their
intention to do so within a 30-day period. By September 20, the end of
the 30 day period, only 55 of the 275 dentists, that is 20%, had
indicated that they had any reservations about our findings. Thus, by
regulation the balance of 220, representing about 80% of the providers
involved, are obligated to repay the overpayments. We expect that this
will result in repayment to the Commonwealth of approximately $250,000,
most of which will have been received within the next sixty days.
We believe that collection of the balance of the overpayments
identified to date, the $14 million slated for immediate collection
action and the $15 million to $25 million still undergoing final
review, can be as successfully implemented as the first set has been,
and that we can return to Kentucky about 80%, or between $20 million
and $30 million over the coming months.
We believe the Commonwealth of Kentucky's Cabinet for Health
Services deserves enormous credit for having the wisdom and foresight
to begin this effort and to support it as recoveries have been made. We
think they represent a model for other states to emulate.
Future Identification and Recovery of Medicaid Overpayments:
We are convinced that the overpayments we have identified and will
be recovering in the coming months represent a small fraction of what
can be developed with a continuation of this effort. The aggregate
amount of claims in the Medicaid database we have been working with is
approximately $8 billion (claims paid over a 3 + year period ending
June 30, 1998). Thus our findings to date amount to less than , of 1%
of that amount. Based on the numerous studies that have been undertaken
to estimate the extent of overpayments in the Medicaid system
nationally, it is reasonable to estimate that the overpayments in
Kentucky that could be identified range between $600 and $800 million.
Significant Reduction in the Cost of Kentucky's Medicaid Program Going
Forward:
Recovering overpayments made to providers in the past is only one
of the significant financial improvements that can be made in the
Medicaid program. Other substantial financial benefits can come about
in two other ways, by preventing the abuse before it happens:
The first way that abusive and fraudulent behaviors will be
reduced in the future is by the powerful ``chilling'' effect of
the collection effort itself. The small percentage of providers
abusing the system will understand very quickly that the system
will not tolerate their behavior and it will stop. The more
overpayments recovered, the greater and more effective the
``chilling'' effect.
The second way is that the logic behind many of the algorithms
which were used to identify overpayments can be converted into
prepayment edits in the program's payment system, thus assuring
that these particular abuses will be caught before payment is
made in the first place.
Recommendations for the Subcommittee's Consideration
We believe that the contingency recovery model described herein and
proven effective in Kentucky provides a workable solution to the
problem of fraud and abuse in the Medicaid system and should be
replicated in other states. Presently we are aware of four other states
that are following Kentucky's bold lead and are in the process of
implementing this approach.
There is no need for new legislation. Rather, the Health Care
Financing Administration needs to encourage states to adopt these
innovative approaches to curbing healthcare fraud and abuse in the
federally funded health care programs and generally. State agencies
which are generally understaffed and overworked should be encouraged to
use outside consultants whose main focus is the detection and
prevention of Medicaid overpayments. These consultants should not be
involved with the payment of claims in the first instance and should be
evaluated by HCFA and the States. HCFA should publish a list of
approved consultants as they have done so with approved Medicare
contractors. States should be encouraged by HCFA to pay these
consultants on a contingent fee basis as this method provides the
resources and incentive necessary to do the job. At the same time, HCFA
must reassure State Medicaid officials that vigorous yet warranted
overpayment collection activities will be protected from provider
backlash.
In addition, we would respectfully request and recommend that this
Subcommittee continue to hold oversight hearings in order to monitor
the progress HCFA and the states are making towards detecting and
preventing the enormous amount of overpayments that currently
characterize the Medicaid program. Without this continuing oversight,
little forward progress is likely to be made.
In conclusion, HealthWatch Technologies, LLC and HWT, LLC would
like to share responsibility for safeguarding Medicaid from fraud and
abuse. Thank you for the privilege of presenting this testimony.
Mr. Upton. Thank you very much.
Mr. Viola.
TESTIMONY OF GREG VIOLA
Mr. Viola. Mr. Chairman, members of the subcommittee, on
behalf of the partners and employees of Deloitte and Touche and
Deloitte Consulting, we would like to thank you for allowing us
the opportunity to provide you with this testimony today.
We would like to accomplish two goals: first, to summarize
our impressions of the attitude problems and successes in the
Medicaid community regarding fraud control; and, second,
educate you to our approach as to solving the problem.
First our impression. We have visited 17 Medicaid programs
in the last 2 years attempting to market our fraud control
solution. Some programs wish the problem would go away, some
proclaim it's under control, but most are interested in
fighting fraud, and they're often stymied by conflicts within
and between departments by politics or by ignorance.
Additionally, no Medicaid program has committed sufficient
funding to solve the problem.
And, finally, there need to be significant improvements in
fraud detection tools, techniques, technologies and their
implementation.
The reasons for this somewhat gloomy situation has been
recently documented in the report referenced in the first panel
by Dr. Sparrow at HCFA, which we would recommend reading for
further information.
On our approach. Our approach to fraud control is both
organizationally focused and process focused. I would ask that
you follow along with the charts that we're going to try to
appear on the screen.
Our organizational focus is concerned with orchestrating
cooperation between the various departments, the need to work
together to fight fraud. We analyze budget staffing,
technology, interactions with outside entities and other
related areas. We assign staff experienced in health care
reimbursement and claims analysis; in health care delivery,
including doctors and nurses; in State governmental operations
analysis; in systems and technology; and in investigations,
including former Attorneys General staff and FBI investigators.
The hopeful outcome of our organizational focus are changes
to the departments to position them for success in fraud
detection.
The process focus has several goals: to identify claims
improperly paid, whether due to waste, fraud and abuse or
error; to determine the mechanisms that allow the claims to be
placed in the first place; to implement claims payment
safeguards so that losses are prospectively avoided; and to
provide the State with requested information to support either
retrospective recovery of revenue, recoupment of the claims
against future billings or, where possible, to initiate
prosecution.
These goals are accomplished by loading Medicaid claims
onto our systems and analyzing those claims with both computer
technology and experienced staff analysis.
We review results with the State, assist in interpreting
the mechanisms that allow the claims to be paid, and design
safeguards against future claims of the same nature. These
analyses are applied repetitively as new claims are introduced,
both to measure the progress and to identify new emerging scams
as they develop.
We would like to conclude our presentation with some
graphical examples of the types of analyses we perform using
automated tools and to show you what some of the results look
like.
This first graphic is the result of an analysis that we ran
on a Medicaid program's claims to identify a pharmacy scam
where prescriptions are shopped from pharmacy to pharmacy
resulting in the prescription being billed and paid for
multiple times. In the first panel, you heard about lock-in
programs. Application of a good lock-in program will help to
deter this kind of fraud from occurring.
First, we processed several hundred millions of claims
using technology from HOPS International to identify those
claims using that scam. Those results themselves would be
sufficient to identify problem transactions for action, and
certainly one could pursue those providers solely on that
basis. However, we went looking for other relationships between
entities on those claims.
This first graphic, using a link analysis tool from I-2,
shows that each doctor-patient relationship--and in this chart
the doctors fan out from each patient--notice that each patient
has many prescribing physicians and, in fact, many more that
would be necessary for any one patient.
This second graphic zooms in to illustrate what may be a
ring of collusive activities between prescribing physicians and
patients. The numbers on each line, if you can see them,
indicate how much prescriptions were billed for that patient-
doctor relationship. This ring prompted us to look for
collusion using cluster analysis.
This next graphic shows cluster analysis performed on the
same data using a tool from SAS called Enterprise Miner. The
two axis on this chart represent four pharmacies labelled A, B,
C, D, and the circles at the intersections of the pharmacies
show the probable strength of any interrelationship.
The redder the circle, the more probable that there is a
relationship between those pharmacies; the larger the circles,
the more transactions would probably occur. If one examines the
left-most column of red circles above pharmacy A from the
bottom up for a moment, it shows that a patient shopping for
prescriptions using pharmacy A has a very high probability of
also shopping those prescriptions at pharmacies B, C and D. The
volume of transactions, the size of the circle, would be
largest with B and successfully smaller with C and D.
A subsequent analysis using decision trees correlating this
analysis with prescribing physicians showed that there was also
a 99 percent chance that certain specific physicians would be
involved in these transactions as well.
While one might be inclined to label this a conspiracy, it
could also be stolen IDs being used by a fourth party. What you
can infer from this analysis is that the claims tractions shows
these physicians, pharmacies and patients--or at least their
respective Medicaid numbers--have an usually tight
relationship. Only an investigation will tell the true story,
however. This analysis allows the scope of an investigation to
be narrowed to a few entities rather quickly and a decision
made as to next steps.
We thank you for the opportunity to testify.
[The prepared statement of Greg Viola follows:]
Prepared Statement of Greg Viola, Senior manager, Deloitte Consulting
LLC
summary
We have been asked to testify before this Subcommittee to discuss
our approaches to the detection and elimination of fraud in the
Medicaid program.
We have been supplying services and supporting products to identify
Medicaid fraud since October, 1997. Since that time, we have been able
to demonstrate the value, from a financial basis, of implementing a
fraud control solution. In the pilots we have done, we have been able
to quickly reveal (in a few weeks) tens of millions of dollars of
opportunity in this area from analyses of Medicaid paid claims.
However, the market has been slow to adapt these techniques, for
reasons made clear by Dr. Malcolm Sparrow in his recent report to HCFA
``Controlling Fraud and Abuse in Medicaid: Innovations and Obstacles'',
dated September 24th, 1999 (copies available on request). We are hoping
this situation changes in the near future.
Our approach, called DETECTTM, is broader in scope than most other
approaches. DETECTTM encompasses both an organizational focus (to
enable the payer--Medicaid programs--to implement and support fraud
control), and a process focus (to make available systems and methods to
implement and institutionalize detection processes in payer
organizations.
Since we are a systems integrator and consulting firm, we can
select or build software, and adapt our consulting approach, as the
needs of the market change. Currently, in addition to our 17+ years of
Medicaid consulting expertise and the use of Dr. Sparrow as an advisor,
we use database and processing technology from HOPS International, data
mining software from SAS Institute, and data visualization software
from I2
testimony
On behalf of the Partners and Employees of Deloitte & Touche and
Deloitte Consulting, my colleagues and I would like to thank the
subcommittee for allowing us the opportunity to be here with you today.
We believe that more interaction like this will enable us all to play
more effective roles in the fight against health care fraud.
First of all, some background. Many of you know that we are one of
the largest professional services firms in the world, serving the
public sector, and most industries in the private sector, all over the
globe. Those of us here with you today are concerned specifically with
the healthcare payer industry and the impact that fraud has had on both
the financial and medical health of the country.
Our specific focus is positioning our clients to be effective in
the fraud detection process, and enabling them to subsequently detect
and eliminate fraudulent health care claims. We have spent the last two
years in the marketplace, working with private and public payers,
developing, refining, and delivering what we believe is now the most
effective and comprehensive approach to fraud detection.
We would like to accomplish two goals today. First, to summarize
our impression of the attitude, problems, and successes in the payer
community regarding fraud control. Second, we would like to educate you
as to our approach to solving this problem. Let's begin.
Our impressions: We have found that a wide variety of models exist
in private and public payer organizations regarding the pursuit of
health care fraud. Some simply wish the problem would go away. Some
merely cite current efforts, and then proclaim that they have the
problem under control. Some program approaches are mired in politics,
or in ignorance, or both.
Some programs are truly interested in eliminating the problem, and
strive to rise above these issues to address fraud effectively.
However, they are often stymied by problems within their own
departments, and with other departments in the State. Aside from
attitudes, though, not enough payers, public or private, are devoted to
solving this problem effectively, and no Medicaid program appears
willing to commit sufficient funding, time, and effort to solve the
problem.
There are many reasons for this current situation. We would suggest
a review of Dr. Malcolm Sparrow's report to HFCA, dated September 24th,
1999, for a detailed discussion of those reasons. This report documents
the results of four regional seminars, sponsored by HFCA and conducted
between December of 1998 and May of 1999, on the subject of Medicaid
fraud and abuse control. These seminars were attended by
representatives from 49 states. We include two quotes below from the
report, both from page 12, to illustrate the problem:
``legislatures and senior management . . . appeared either not
to recognize the problem of Medicaid Fraud and Abuse; or if
they did, they did not seem to treat it as a serious or central
issue in program administration''
``the culture of social service agencies and claims processing
operations appears to be adverse, and in some cases openly
hostile, to the purposes and methods of effective fraud
control''
Our approach: Our approach is both organizationally-focused and
process-focused. The following chart summarizes our approach:
[GRAPHIC] [TIFF OMITTED] T1043.001
The organizational focus is concerned with making sure the
multiple departments in the State that need to cooperate to
identify and pursue fraud are poised to work together
effectively. This involves an analysis of their budgets,
staffing & skill levels, degree of technology sophistication,
available technology support, interactions with each other and
outside entities, etc. To perform this analysis, we assign
staff experienced in health care reimbursement and claims
analysis, in health care delivery (including doctors and
nurses), in state governmental operations analysis, in systems
and technology, in data mining, in fraud detection, and in
investigations (including former Attorneys General staff and
FBI investigators). The outcome of the organizational focus are
recommendations regarding changes to the departments within the
organization to position it for success in the fraud detection
environment.
The ultimate goals of the process focus are:
To identify claims improperly paid, whether due to
fraud, waste, abuse, or error;
To determine the mechanisms that allowed the claims to
be paid in the first place;
To implement claims payment safeguards so that losses
are prospectively avoided; and
To provide the payer with requested information to
support either retrospective recovery of the revenue or
recoupment of the claim against future billings, where
possible; and/or to initiate prosecution.
These goals are accomplished by acquiring the claims from
the payer, loading them onto our systems, and analyzing those
claims with both computer technology and experienced analysis
staff. We spend a great deal of time reviewing results with the
State staff, assisting in interpreting the mechanisms that
allowed the claim to be paid, and designing the safeguards
against future claims of the same nature. These analyses need
to be applied repetitively as new claims are introduced, both
to measure progress, and to identify new emerging scams as they
develop.
Our greatest asset in this endeavor is our extensive
knowledge of fraud scams. We have built this knowledge from our
relationship with Dr. Sparrow, from our own experience, from
our clients, and from available published reports. Since we are
not a technology vendor, but a consulting firm and technology
integrator, we can utilize whatever technology works the best
to implement that knowledge. We have currently integrated
software from HOPS International, SAS Institute, and I2. This
supplies us with database management and claims processing,
data mining (such as neural networks and decision trees), and
data visualization, respectively.
This combined focus allows to address most of the
significant issues regarding implementation of a fraud control
solution, as illustrated in the following chart.
[GRAPHIC] [TIFF OMITTED] T1043.002
We would like to conclude our statement with some graphic
examples of the types of analyses that we can perform using
these techniques, and what the results look like.
The first graphic is the result of an analysis we ran on a
Medicaid program's claims to identify a pharmacy scam where
prescriptions are shopped from pharmacy to pharmacy, resulting
in the prescription being billed for multiple times.
After processing several hundred million claims using the
HOPS technology to identify those claims meeting that scam, we
fed the suspect claims into the I2 link analysis tool. This
first graphic shows the all each doctor that prescribed for
each patient, connected by a line (the doctors ``fan out'' from
each patient). Note that each patient has many prescribers,
many more than would normally be necessary for any one patient.
The second graphic zooms in to illustrate what may be a ring of
collusive activities between prescribers and patients.
[GRAPHIC] [TIFF OMITTED] T1043.003
The next graphic shows additional analysis performed by
feeding this same data through the SAS Enterprise Miner tool.
We ran a cluster analysis, which shows the probability that
clusters of certain pharmacies will be shopped by any
individual patient.
[GRAPHIC] [TIFF OMITTED] T1043.004
If one examines the red (dark) circles, a patient shopping
prescriptions using pharmacy A has a very high probability
(98%) of also filling prescriptions at pharmacies B, C, and D.
The volume of the occurrence is predicted by the size of the
circle. A subsequent analysis shows that there is also a 99%
chance that certain physicians will be involved in the
transactions as well. While one might be inclined to label this
a conspiracy, it could also be stolen IDs being used by a
fourth party. What you can infer from the analysis is that
these physicians, pharmacies, and patients have an unusually
tight relationship. Only an investigation will tell the true
story, however, the scope of the investigation can be narrowed
to a few entities rather quickly, and a decision made as to
next steps.
The payback from such an analysis can be immediate. In
another instance, we identified a large number of discrepancies
in a Medicaid program's billings after approximately one week
of analysis. Selecting one provider, the State decided to go on
site and ask a few questions (not conducting an actual
investigation). The provider was a pediatrician who was
continually billing the highest level of service available,
which would only be reasonable if his patients were all
severely ill all the time. Upon the arrival of the State's team
at the doctor's office (in a storefront in a housing project),
the provider immediately confessed. The value of his billings
were over $1.0M/year, of which 25% conservatively was
overstated, resulting in a minimum $250,000 per year of
immediate savings from this one case
We would be pleased to discuss these and other related
topics at length, and you may arrange such a meeting by
contacting Ed Ruzinsky at (732) 296-6280.
Mr. Upton. Thank you.
Mr. Glynn.
TESTIMONY OF MICHAEL J. GLYNN
Mr. Glynn. Chairman Upton, distinguished subcommittee
members, thank you very much for the opportunity to testify
here this morning. Accompanying me is, on my left hand, is Dr.
Philip Caper, who is the founder and chairman of the board of
the Codman Group. I am pleased to have this opportunity to
present the Codman Group's experience of working with State and
Federal program managers in the assessment of provider
integrity.
Additionally, I wanted to discuss with you our
understanding of the challenges and opportunities in fraud
detection using today's most advanced technology.
Fraudulent claim volume is a very small subset of a large
universe of transactions and the corresponding number of
fraudulent providers is relatively small. Therein lies the one
major challenge, how to effectively identify the fraudulent
transactions without imposing processes and barriers that
interfere with the underlying mission of Medicaid.
Adding to the challenge, the individuals and institutions
committing the fraud are continually creating new schemes and
seeking to camouflage themselves against the background of
legitimate transactions. As a consequence, the detection of
fraud is a dynamic and complex process. No single methodology
and no static approach can adequately protect our public
programs.
Furthermore, fraud detection may interfere with the
requirements to assure adequate access to care. Medicaid
programs work diligently to create broad-based provider
networks for eligibles in areas that are historically
underserved. Chief are the inner city and rural areas. Program
managers should not be forced to alienate scarce but honest
providers as a by-product of the hype and surveillance needed
to identify the fraudulent ones.
Fraud detection systems which analyze claims data without
considering the patient's age, gender and level of illness will
erroneously target legitimate transactions, yet may ignore
others that represent unnecessary expenditure. To avoid
unfairly accusing honest providers and wasting investigative
resources, an anti-fraud system must consider and adjust for
patient level of illness.
Adjusting for the complexity of a provider's patient
population will dispel the concerns about higher than average
yet legitimate bills charges. Advanced detection systems that
comprehensively review claims and present well-documented,
highly targeted lists of suspects can greatly aid investigators
and limit intrusions on providers.
Let's look at the nature of the environment facing these
new systems.
Medicaid claims data are messy. Data originates from
multiple systems, making it difficult to weave together the
claim history of providers and eligibles. Additionally, many
investigators lack the training required to effectively analyze
the data. To address this issue, new detection systems support
the investigator's judgment without requiring the investigator
to develop technical expertise.
A single claim record may not by itself look unusual. Many
forms of fraud can only be effectively identified when multiple
related claims are linked together. Linking claims illuminates
relationships amongst collusive providers.
I would now like to present some examples of the findings
that represent our experience using a combination of fraud
detection tools.
If you can draw your attention to the first slide that's on
the screen, this is a project with Texas Medicaid that
commenced in 1998, is ongoing. Up to this point, over $70
million of potential overpayments have been identified,
approximately 5,000 potential suspects have been identified as
a result of the case investigations that are ongoing. To this
point, a total of $5.5 million have been deemed collectible,
and so far a total of $3 million has been recovered as a direct
result of the project, meaning that the project has more than
paid for itself already with lots of opportunity left to go
forward.
The second example is a Medicare Part B fraud project in
California. I know it's Medicare and this is Medicaid, but the
application of the technology is the same. What happened was
that providers in an eight county region of California were
profiled, claims from approximately half a million
beneficiaries were processed.
The system, our project, identified over $10 million in
potential overpayments. It strengthened the case against 28
providers who were already on alert as a result of the existing
systems that Medicare had in use, which put another $5.5
million in question, and it identified a potential $2.4 million
in questionable service that had not been picked up by the
existing systems, and through the adjusting for the illness
part of the patient population eliminated $2 million in false
positive activity that had been picked up by the system. All of
this was achieved for a direct cost of less than half a million
dollars.
Let's look at an example of one provider from this most
recent project, the California project that was identified as
having suspect billing activity. As you see in the slide, of
the providers total billing, 60 percent of the charges were
driven by three questionable--to put it mildly--procedures. A
total of over half a million dollars is billed--and going
through the first four bullet points, comparing them with the
peers, obviously far in excess of what his peer groups were
performing.
In addition, it's interesting to note that almost 100
percent of the services were performed on dual eligibles, both
Medicare and Medicaid eligibles.
Looking further into the provider profile, there's a
preponderance of referrals coming from a single referring
physician, $237,000 of the $584,000 billed came from a single
physician. And looking at this physician, the referring
provider has an unexplained concentration of referrals in two
areas, neurology and podiatry. This is a clear example of
collusive patterns that are too prevalent in the health care
system and can be detected using modern detection fraud and
detection tools.
In conclusion, I want to stress that technology exists
today to better identify fraudulent activity, abusive practices
and wasteful spending in health care and to do so in a
clinically sensitive matter. We must invest in the newer
technology that implies multiple fraud detection methods
simultaneously and does so in a clinically responsible manner
that supports the goals of the legitimate provider community.
Achieving this is critical if we're to protect and preserve the
care and quality of care in Medicaid.
Thank you very much for the opportunity.
[The prepared statement of Michael J. Glynn follows:]
Prepared Statement of Michael J. Glynn, President and Chief Executive
Officer, Codman Group
Chairman Upton and distinguished Subcommittee members, I am pleased
to have this opportunity to present the Codman Group's experience of
working with state and federal program managers in the assessment of
provider integrity. Additionally, I want to discuss with you our
understanding of the challenges and opportunities in fraud detection
using today's most advanced technology.
One needs to look no further than the most recent headlines to
confirm the magnitude and complexity of fraud in Medicaid. The most
recent estimates suggest that 10 to 20 percent of our national health
care spending is fraudulent with the dollar value loss estimated to be
$20 Billion annually. However, the fraudulent claim volume is a very
small subset of a large universe of transactions and the corresponding
number of fraudulent providers is relatively small. Therein lies the
one major challenge . . . How to effectively identify the fraudulent
transactions without imposing processes and barriers that interfere
with the underlying mission of Medicaid, providing needed care to the
legitimate beneficiary.
Adding to the challenge, the individuals and institutions
committing the fraud are continually creating new schemes and seeking
to camouflage themselves against the background of legitimate
transactions. As a consequence, the detection of fraud is a dynamic and
complex process. No single methodology and no static approach can
adequately protect our public programs. Clearly the current Medicaid
Surveillance Utilization Review or SURS subsystem is not adequate.
Emerging effective fraud detection systems are characterized by the
integration of multiple and diverse analytical approaches ranging from
statistical methods to data mining and data modeling.
Furthermore, fraud detection may interfere with the requirement to
assure adequate access to care. Medicaid programs work diligently to
create broad based provider networks for eligibles. In areas that are
historically under-served, chiefly the inner city and rural areas,
program managers should not be forced to alienate scarce, but honest
providers as a by-product of the heightened surveillance needed to
identify the fraudulent entities. The American Medical Association
newsletter, AMA News, recently headlined the outcry of providers in
Utah who were incensed by unjustified surveillance and intrusive
activity of fraud investigators.
The fraud detection process is further complicated by the diversity
of the patient population that presents itself to the medical
community. Medicaid eligibles include the young and the old, the mostly
healthy and the seriously ill. The proper and needed degree of medical
intervention, with its associated cost, hinges greatly upon the
patient's multiple conditions. Therefore, fraud detection systems which
analyze claims data without considering the patient's age, gender, and
level of illness, will erroneously target legitimate transactions, yet
may ignore others that represent unnecessary expenditure. To avoid
unfairly accusing honest providers and wasting investigative resources,
an anti-fraud system must consider and adjust for patient level of
illness. Adjusting for the complexity of a provider's patient
population will dispel concerns about higher than average, yet
legitimate, billed charges. Clinical sensitivity is paramount.
The standard approaches used to detect potential fraud and abuse
can exacerbate the frustration felt by legitimate providers. For
example, providers whose practices are reviewed as a result of random
sample audits may feel singled out. Instead, advanced detection systems
that comprehensively review claims and present well documented, highly
targeted lists of suspects can greatly aid investigators and limit
intrusions on providers.
Fraud detection results must be substantiated through sound
statistical methods. Often, these methods will sufficiently strengthen
the case for fraud and incent the provider to return funds. Failing
that, a strong statistical foundation will support successful
prosecution.
There are other reasons why Medicaid programs are slow to respond
to the expanding fraud. First, there are significant disincentives to
increase suspect identification rates because the increased prevalence
may call into question the competence of program management. Second,
money recovered by program or related agency investigators is not
likely to accrue to the Medicaid program. In fact, money identified as
overpayment may serve to justify program budget reductions.
But even if we overcome these hurdles by properly incenting the
program to increase surveillance and recovery, the task is large. Let's
look at the nature of the environment facing these new systems.
Medicaid claim data is messy. Data originates from multiple
systems, making it difficult to weave together the claim history of
providers and eligibles. Fraud investigations involve diverse
organizations which may lack shared access to the report systems needed
to identify and build the case against a provider. Additionally, many
investigators lack the training required to effectively analyze the
data. To address this issue, new detection systems must support the
investigator's judgement without requiring the investigator to develop
technical expertise.
A single claim record may not, by itself, look unusual. Many forms
of fraud can only be effectively identified when multiple related
claims are linked together. Linking claims illuminates relationships
among collusive providers. It highlights improbable rates of service
intensity and points out practice patterns that deviate from peer group
norms. Effective detection systems must take into account the linkages
and interrelationships among claims, eligibles and providers.
Another pivotal change in our approach to improved fraud detection
will be the ability to examine claims and data across borders. One
example is HCFA's current initiative to apply advanced detection tools
to national-scale Medicare data. Why is this important? Consider the
following quote from an article in the November 4, 1999 issue of the
New York Times:
The (General) Accounting Office said these ``organized criminal
groups tend to be quite transient,'' and should not be confused
with traditional organized crime groups like the Mafia . . . In
one case, it said, suspects fled from New Jersey to California
and started new operations on the West Coast before they could
be arrested for violations that had occurred in New Jersey. In
other cases, it said, New Jersey shut down several clinics but
later found that ``the New York Medicaid fraud control unit was
investigating the same individuals for different schemes.''
By examining claims on a national basis, these transient scammers
can be better identified and intercepted.
Fraud that spans multiple states presents a particular problem for
Medicaid programs, where program integrity efforts end at the state's
borders. In these cases, a focused national effort to create cross
border analytic programs could identify problems that only become
evident when their multi-state scope is exposed. Even more powerful
would be an effort to coordinate Medicaid and Medicare analysis, since
undoubtedly many of the same illegitimate actors are submitting claims
to both. Fraudulent providers prey on our most vulnerable populations,
specifically the poor, frail and elderly. New approaches must be put in
place to improve the coordination of care to the Medicaid-Medicare
eligible population.
I would like to present a sample of the findings that represent our
experience using a combination of fraud detection tools.
Medicare Fraud, Waste and Abuse Pilot Project Supported by HCFA through
the Program Integrity Contractor National Heritage Insurance
Company (NHIC)
Profiled providers in an eight county region in California
Reviewed claims of nearly 500,000 Medicare beneficiaries
Identified $10 Million in potential inappropriate payments to
providers
Strengthened the case against 28 providers who were already on
alert--$5.5 Million in question
Identified $2.4 Million in questionable service by providers
not previously under surveillance
Eliminated $2 Million in false positive activity
Texas Medicaid Fraud Detection Project 1998-99
More than $70 Million has been identified as potential
overpayment
Produced 4,953 new suspects
Total of $5.4 Million deemed collectible as a result of case
investigations
Total of $3 Million recovered to date as a direct result of
the project
In conclusion, I want to stress that technology exists today to
better identify fraudulent activity, abusive practices, and wasteful
spending in health care, and to do so with clinical sensitivity. The
fraud problem is too big to ignore. Current system design for fraud
detection in the Medicaid Management Information System or MMIS is only
marginally useful. We must invest in newer technology that employs
multiple fraud detection methods simultaneously and does so in a
clinically-responsible manner that supports the goals of the legitimate
provider community. Achieving this is critical if we are to protect and
preserve the quality of care in Medicaid.
Mr. Upton. Thank you.
Ms. MacQuarrie. Am I saying that right?
Ms. MacQuarrie. It's MacQuarrie, it's Scottish.
Mr. Upton. I'm sorry.
TESTIMONY OF JEAN MACQUARRIE
Ms. MacQuarrie. Mr. Chairman, members of the subcommittee,
my name is Jean MacQuarrie. I'm a vice president and the fraud
and abuse practice leader for the Medstat Group, which is based
in Ann Arbor, Michigan.
For the past 18 years, the Medstat Group has specialized in
providing health care decision support systems. These systems
consist of customized data bases and analytic software that is
specifically designed to help health care programs manage the
costs and quality of health care services.
In addition, we provide analytic consulting services that
help our customers use these applications effectively. Today we
are working with over 1,000 health care purchasers, payers,
providers and researchers. Our clients include companies like
General Electric, the Ford Motor Company, Federal Express,
managed care organizations like Humana, Prudential and Cigna
and the Mayo Clinic, and we work today with over 17 State
Medicaid programs.
We get input for the design and development of our
applications from those customers that we work with. Fraud
detection and investigation is a major way in which many of our
Medicaid clients use our systems.
I have worked in the field of health care fraud
investigation for 8 years, and I agree with the testimony that
has been presented today, both in Panel I and from my
cotestifiers here today.
The sheer volume of Medicaid claims data makes searching
for fraud like looking for needles in a haystack. It really
requires the implementation of advanced computer technology
that is designed specifically to ferret out the kinds of
problems that were perpetrated by organized crimes and others
that would defraud the Medicaid program.
We discussed earlier that most States today use fairly
outdated application software in their fight against fraud and
abuse, and we would encourage this committee to encourage their
State counterparts to acquire this advanced technology to help
in the fight against fraud and abuse. To address fraud more
effectively, these computer systems can be used both
prospectively and retrospectively. By prospectively, I mean
that some claims as submitted can be detected as being
fraudulent and should be stopped before they were paid, and
that is where the major focus of health care fraud and abuse
detection should be.
However, there are certain types of claims that were
submitted that will never be detected prospectively and can't
be stopped. So retrospective data analysis is critical to
identify the kinds of problems that are being perpetrated
within these State organizations and then to document the
algorithms used to find those kinds of fraud and to put them
into the payment systems to stop the outlay.
An example, an ambulance provider submits a claim for
transporting a patient, administering advanced life support
from location 1 to location 2. That claim will edit
appropriately and be paid by most claim payment systems that
were used in the Medicaid program today.
However, when you combine all of the experience, not only
of the ambulance company in terms of the patients who were
being transported but also the providers in that same community
who provide emergency room services, who provide dialysis
services to those recipients, it can easily be determined when
an ambulance company is defrauding the State organization,
perhaps by billing for advanced life support for virtually 100
percent of the patients that they transport. And we know that
that is not a likely scenario.
These data mining tools can be deployed in many different
fashions, neural-based tools, rules-based algorithms. One of
the major benefits or one of the significant attributes of a
rules-based system is that it takes health care experts in the
field who have been dealing with health care transactional data
for many, many years and imbeds that logic into these
sophisticated computer applications so that they can look for
differences from the norm.
I would like to review for you a few examples about how
some of our customers are using this advanced technology in the
fight against fraud and abuse. The first example is an actual
case for one of our Medicaid customers that serves over 600,000
recipients at a cost of approximately $2.3 billion per year.
Using the Medstat system, this State identified many
pharmacists who are billing for a higher pill count per
prescription than was ordered by the provider.
This problem was detected using normative algorithms and
looking at frequency of distribution and comparing providers
against peer groups based on diagnosis and other kinds of
health care information. The Medstat system helped the State
Attorney General's office develop their case and this State is
hopeful that it will recoup millions of dollars in this single
case alone.
This same State used the Medstat system to identify abuse
of home health care billing services. The State found that
there are some home health agencies who are providing services
to patients who had been designated to be in a nursing home.
The State estimates that it will recover $25 to $50 million
from this single case of health care fraud as detected with
these computer systems that we're up here talking about today.
For another system, for another customer, our State
identified a chiropractor who was enticing patients into the
practice, offering free initial consultations and then in fact
billing for the maximum limit of chiropractic benefit as
offered by the program in that State. At the time that each of
these patients reached their maximum allowed benefit, the
chiropractor moved the patient into physical therapy and
continued to bill for that patient. This chiropractor was
successfully prosecuted, was sentenced to 8 months in jail and
was ordered to pay restitution.
I have actually brought a demo of how this system works
with me today. But I also am out of time. I would invite any of
the committee members at the break of the question and answer
session to perhaps step forward and I can show you how these
technological tools are working.
I would like to thank you very much for inviting me and the
Medstat Group to present to you today. Thank you.
[The prepared statement of Jean MacQuarrie follows:]
Prepared Statement of Jean MacQuarrie, Vice President for Business
Development and Fraud and Abuse Practice Leader, The MEDSTAT Group
My name is Jean MacQuarrie, Vice President at The MEDSTAT Group,
headquartered in Ann Arbor, Michigan. For the past 18 years MEDSTAT has
provided information systems to the health care industry. Our software
applications analyze health care utilization, cost, access, quality,
eligibility and clinical outcomes. Fraud and abuse detection and
investigation is a core component of our product line. I am the Fraud
and Abuse Practice Leader at MEDSTAT. For the past eight (8) years I
have worked in the development and utilization of information
technology to help mitigate the impacts of health care fraud.
Much like Medicare, because of the sheer size of the Medicaid
Program, health care fraud is very difficult to detect and to prove.
The majority of all Medicaid physicians and other health care providers
are legitimate. These tens of thousands of honest providers submit
hundreds of millions of claims each year for services provided to the
Medicaid population. Hidden among these legitimate claims are millions
of fraudulent claims. One of the great difficulties in identifying
false claims is that the volume of legitimate claims camouflages them.
It is literally like looking for needles in a haystack. However, as
experts who will testify here today will state, these needles amount to
billions of dollars of inappropriate payments made each year in the
Medicaid program.
I am going to discuss how new and advanced health care analytic
information systems can be deployed to significantly improve fraud and
abuse detection and investigation results over the methods that are
used by most state agencies today. There are a few State Medicaid
programs that have recognized that these advanced technologies can
improve their fraud mitigation programs and they have implemented new
solutions or are in the process of procuring new systems.
The vast majority of states, however, continue to review provider
billing using an information technology infrastructure that was
developed in the 60's and 70's. The Medicaid Management Information
Systems (MMIS) provide the software and data files that enroll
providers, enroll beneficiaries, pay claims, provide management
reporting and audit processed claims using an application called the
Surveillance and Utilization Review System (SURS). The SURS systems are
used by many states as their entire fraud detection solution. These
systems produce large stacks of quarterly reports that rank providers
and suppliers on various dimensions of utilization of health care
procedures. These systems were designed to look for billing
irregularities, not fraud, and the reports they generate are labor
intensive to review. It is not cost effective or timely to use state
personnel to try and detect fraud by reviewing claims reports from
conventional SURS technology. Our recommendation is that state Medicaid
programs move swiftly to replace or augment their SURS applications
with advanced health care analytic systems that provide comprehensive
methods for detecting and investigating fraud, waste and abuse.
In the last ten years, hardware and software technologies have both
improved dramatically. Advanced and intelligent health care analytic
methods have also been developed. These methods are being used today to
measure the effectiveness of the health care delivery system. With
these methods and technologies companies are performing tele-medicine,
measuring the effectiveness of drugs on specific illnesses, evaluating
the outcomes of different treatment protocols and making a real
improvement in the way health care services are provided. We can use
these same information technologies and health care analytic methods to
help in the fight against health care fraud and abuse. The MEDSTAT
Group, the company that I represent, provides this type of technology
to state Medicaid programs as well as large employers, insurers and
managed care plans across the country.
There is no ``one silver bullet'' technology that will eliminate
all fraud, so it is important to apply these technologies and methods
both prospectively and retrospectively. Some submitted claims can be
identified as being fraudulent at the time the claim is submitted,
before it is paid. For instance, if a provider submits a claim for a
wheel chair for a deceased person, or for speech therapy for a nursing
home comatose patient, the claim should be rejected, and not be paid.
These types of claims, however, get paid every day. The reason is that
many claims payment systems do not have access to death records and
many claims payment systems do not store the cognitive status of
patients in nursing homes.
In addition to ``pre-payment fraud edits'', it is also critically
important to analyze data ``retrospectively''. It is generally
understood that most health care billing fraud is not conducted by
physicians, but is perpetrated by suppliers and ancillary individuals
who set out to make money from the vulnerabilities in the health care
delivery system. Truly fraudulent providers and suppliers are very
creative in the way that they steal money from the Medicaid program.
They study the payment manuals; they submit bills for seemingly
legitimate services that will pass pre-payment edits. It is only by
looking at all services collectively that the fraudulent pattern
emerges. For instance, if an ambulance transport provider submits a
bill for a transport to the emergency room, along with the
administration of advanced life support, the submitted claim will pass
all edits and the transport company will be paid. However, by looking
at all bills submitted by that same transport provider, over time, it
may be detected that 1) 100% of all their transports required advanced
life support--and that's not very likely--or 2) an inordinate number of
their patients were not from the same geographical location as the
transport company, or 3) that many of the patients that they
transported didn't receive any other services on the same day as the
transport. These types of frauds can be detected using retrospective
data analysis.
Retrospective data analysis, ``data mining'', can be deployed in
several ways. Each of the following can and should be applied, as they
find different kinds of frauds:
Rules-based algorithms--that are based on having health care
experts define legitimate and non-legitimate ``rules'' of
billing and having the application software ``mine'' the data
looking for exceptions to the rules. A rule might identify any
provider who bills for more than 20 or 24 hours in a work day,
frequently.
Anomaly-based detection--that combines expert-based rules with
advanced health care methodologies and/or computer-based
statistical methods to ``mine'' the data looking for anomalies
in the data. This method might identify providers who are
significantly different in their billing pattern that their
peers, resulting in their pattern falling inside or outside of
a cluster.
Neural-based detection--that results in the computer
application ``learning'' through advanced technological
processes intended to mirror the non-linear thinking of the
human brain. Neural-based detection technology learns from its
own processing of the data to understand complex patterns
within a particular data set. Thus, ``normal'' and ``abnormal''
patterns of behavior can be automatically established to aid in
the detection of fraudulent activity.
One major advantage of deploying retrospective data analysis is
that as fraud scams are identified, they can be documented and the
algorithms that were used to detect them can be ``programmed'' into the
payment system, stopping the scam and preventing further payout for the
same fraudulent scheme. Another benefit is in identifying the most
suspicious of the providers. Most states have a limited budget to
ferret out fraud in the Medicaid program. It is important that the
state staff focus on the most egregious providers. With advanced
analytic software, fraudulent providers can be pinpointed more quickly
and with greater likelihood of identifying ``real'' fraud, thus
focusing investigative resources on the tasks that will produce the
highest return on the government's investment of time and money.
Let me show you a few examples of how rules-based data mining can
bring data to life, identifying patterns in the data that would be very
difficult to detect if it weren't for the power of the technology and
the imbedded health care knowledge.
Scenario 1
One of our customers is a large Medicaid program that oversees the
healthcare services for 600,000 recipients at a cost of approximately
$2.3 billion per year. Using the MEDSTAT system, state officials were
able to identify pharmacy providers who were overbilling Medicaid by
dispensing and billing for a higher pill count than were ordered by the
providers. The MEDSTAT system was used to investigate these providers
and develop evidence for use by the state Attorney General office,
which is pursuing a class action suit to recoup these overbillings. If
successful, the suit is expected to recoup millions of state dollars
paid to these pharmacies.
Scenario 2
Additionally, this same State used the MEDSTAT system to identify
and investigate abuse and waste in home health services. The State
found that some home health agencies were continuing to provide
services to patients that should have been in a nursing home. The State
is seeking to move these patients into nursing homes, where
appropriate, and will prosecute those cases that involve abusive
billing practices. Based on initial assessment, the State expects to
recoup $25 to $50 million in savings from this one case alone.
Scenario 3
For another customer, our system identified a chiropractor that was
offering a ``free'' initial consultation and then charging for the
second visit as if it was the first. In addition, this chiropractor was
charging the maximum allowed ($1000 annually) for chiropractic service
and then was switching the patient to ``physical therapy'' so that
additional treatment would be covered by insurance. The MEDSTAT system
was also used to identify all patients of this chiropractor, who was
billing under multiple provider names and identification numbers. This
chiropractor was successfully prosecuted and was sentenced to 8 months
in jail plus restitution.
Demo Scenario 4
A fourth situation is exemplified in the system demonstration I am
about to show you. [System is demonstrated, time permitting]. In this
instance, the system is highlighting a potential abuse for further
investigation. The system in this case is helping us discern the
providers who are ordering an inordinate number of prescriptions for
their patients.
Demo Scenario 5
Another situation also is exemplified in the system. [System is
demonstrated, time permitting]. In this case, a podiatrist is
identified who should be investigated based on his/her billing patterns
in terms of 1) the number of services billed per patient, 2) the
utilization of procedures that no other podiatrist uses, and 3) using
the same unusual services on each patient, at the same frequency.
In addition to the application of health care analytic systems and
technologies to improve State Medicaid program results in fraud and
abuse detection, there is an administrative approach used by many
states that could be improved upon. In many states, the same fiscal
agent and/or computer application (MMIS) that edits claims for
legitimacy and payment is also used to audit those same claims for
legitimacy (SURS). This is somewhat like the fox watching the hen
house. HCFA has recognized a similar problem in the Medicare program
and has moved to address it. Through the Medicare Integrity Program
(MIP) Program Safeguard Contractor (PSC) program, Medicare has stepped
out to aggressively contract with different vendors to provide fraud
and abuse detection services from those that provide the claims payment
function. The MEDSTAT Group is part of a HCFA-qualified MIP/PSC team.
HCFA has recently stated its interest in allowing state Medicaid
programs to also separate the MMIS payment function and the SURS audit
function. Some states, like New Hampshire, are implementing this
separation of functions now. Other states find it difficult to separate
these functions and are contracting with the same vendor to provide the
payment and the audit software. We encourage Congress to support the
position that each state should contract separately for these important
applications.
In summary, we believe that Congress can help states in this most
important battle against fraud and abuse. Congress can encourage state
Medicaid programs to incorporate advanced information technology
solutions to help them in their fraud and abuse mitigation efforts. As
is clearly shown with the few examples that I have presented, the
investments made by State Medicaid programs for these applications will
more than pay for themselves while at the same time, identify
fraudulent and abusive providers and conserve funds for the true
service mission of the Medicaid program.
The MEDSTAT Group appreciated this opportunity to share our
suggestions with you today.
Mr. Upton. Thank you.
I know we're sort of running out of time. I'm going to
yield first to Mr. Burr.
Mr. Burr. Mr. Chairman, I thank you for yielding.
I apologize to these witnesses because I'm already 35
minutes late for a lunch that is my lunch, and I need to go to
it. But I wanted to hear your testimony.
Let me take this opportunity to ask, is there still anybody
in the room from HCFA?
Mr. Chairman, I would make a note there is no one here from
HCFA and----
Mr. Upton. We have one hand in the back, a late entry.
Mr. Burr. I would only make this note.
Mr. Upton. A graduate of Wake Forest, I'm glad he does his
homework.
Mr. Burr. This issue is important enough that we're holding
a hearing, this is taxpayer money we're trying to account for,
we've got some of the companies here who have developed
software and hardware to help us detect what has become a very
complicated and sophisticated scam project across the country
of Medicaid moneys, both State and Federal taxpayer money.
I think that this committee would be smart to recommend in
the future that any time we hold a hearing that the agencies,
if they're allowed to testify, are required to stay and listen
to what the individuals that we've pulled together who we
perceive to have something to pertinent to tell the committee
members, that the agencies would be nice enough to stay and
have the information shared with them, so we don't have to rely
on them going back and reading it.
And again I thank these witnesses and yield back my time.
Mr. Upton. Thank you, Mr. Burr; and we appreciate your
assistance in this hearing today.
I, too, have an event that started 35 minutes ago, so I
will be a little bit short.
I would say that we are going to keep the record open. We
have a number of different subcommittees that are meeting
today, full committees as well. There may be a number of
members that have additional questions, and we will ask--I will
can ask unanimous consent that any of us may submit questions
to you, and if you can respond in a prompt fashion, that would
be good.
We want all of the States to have the tools, and from the
first panel, we heard that a number of States are using
technology that is 10, even 20 years old. How difficult--how
easy has it been for you all who have marketed some of this
technology and obviously have a self interest to make sure that
it proceeds well, but at the same time you also have an
interest for the taxpayer money as well--I would have to think
that in virtually every case you're going to save the
taxpayers' money, you know, by the sale of your technology. How
easy has it been to open up some of the doors and actually get
your technology accepted within the States thus far?
Mr. Adams, we will start--maybe we will just go down the
panel.
Mr. Adams. Well, the technology we used, based on the
business model that we employ, is our own technology, so
basically what we take from the State is the raw data, and we
have to then process it.
Mr. Upton. Did you--I think Kentucky was the main example
that you cited.
Mr. Adams. Right.
Mr. Upton. Did Kentucky come to you? Or did you make the
sales pitch to them?
Mr. Adams. There are people in Kentucky that are aware of
the capability that had been developed in Maine, and that is
how the nexus was made, essentially.
Mr. Upton. And what would be the--do you have a guess in
terms of the savings? You talked quite a bit about you're able
to provide a full spectrum, particularly going after
overpayments to providers. Would you have some idea in terms of
the States how much money you have been able to save the
States? Can you calculate it?
Mr. Adams. We expect we can return to Kentucky in the near
term--that means, measured in months, maybe 6, something like
that--in the neighborhood of $25 million, which is a lot of
money. But while it's a lot of money, we are absolutely
convinced that it's the tip of the iceberg and that there's an
enormous amount more there. From all we've seen, the 10 percent
figure is not wrong.
Mr. Upton. Mr. Viola.
Mr. Viola. Yes. We also do work on a service basis like Mr.
Adams does, so we take the claims from the client and load it
onto our systems and process the data.
In terms of getting involved with the individual States,
we've been pretty aggressive in pursuing meetings with as many
of them as possible. And in the 17 I think I alluded to in my
testimony they all have an enthusiastic embrace of the
possibilities of what could occur but tend to be stymied
somewhat by either the internal workings that slow down the
process or some of the funding issues that would allow them to
acquire and use the technology properly.
We tend to also focus, as I mentioned, on the
organizational issues. Because to simply apply technology and
not consider how the end results will be used in the
organization and making sure you get cooperation from all the
parties probably won't optimize the way that technology would
be used. So we do spend some time trying to do that as well.
I should add that so far there have been very few takers on
that part of our service.
Mr. Upton. Now, the cluster that you showed on the TV
screen, is that in practice now? I mean, was that just--I think
it was Texas you talked about.
Mr. Viola. Actually, we didn't run into any States in
particular in the presentation. Some--we've done work for Ohio,
for New Jersey, some pilots for Georgia and a pilot for New
York. And some--that's a conglomeration of some of the data
from those particular pilots.
So the data--the processing is done now with that
technology. As a consulting firm, we typically don't build our
technology. We tend to look at who has good products out in the
marketplace, and we try to work together. The IT tool that we
showed that on is a pretty good example of link analysis, and
this is a pretty good example of data mining.
We also used the HOPS Technology from HOPS in Miami. The
reason we use that is it an extraordinary fast processor and,
as many of us have described, there's a large number of claims
and to do the processing effectively we need some good
horsepower to do it.
Mr. Upton. Mr. Glynn, you talked about nearly 5,000
suspects in Texas. I think that would have to be pretty good to
open up the door for you.
Mr. Glynn. We're finding it a very good selling point.
And to answer your first point on the level of activity, we
are finding that in recent, you know, months literally--
certainly in the last 12 months--there's a distinct increase in
activity. There are numerous States that are currently looking
at fraud and abuse. And obviously the evidence that we can show
of success in Texas and in California helps to make the
purchasing process easier and justify and support the
opportunity.
Mr. Upton. Ms. MacQuarrie, you admitted that the States are
fairly outdated in terms of their equipment. Do you see a trend
toward using what you all can provide? And what incentives are
there for the States to upgrade their equipment?
Ms. MacQuarrie. We have seen also a great increase in the
interest in acquiring new technologies within the States. We
have been out there and talked to many, many of them. And HCFA
is trying to pave the way for States to acquire these new
technologies.
However, there's a procurement process within each State
where the actual SURS system that you heard a lot of testimony
about today has traditionally, over the course of the past 20
years, been a part of the greater Medicaid processing system
called the MMIS. So most States buy their SURS systems from the
fiscal agents, whose main line of business is paying claims,
not finding fraud. And when we're out there dealing with the
States we find that they are struggling in some cases to be
able to buy these kinds of technologies from nonMedicaid claims
systems vendors, which I don't think any of the panelists here
today are. Our business is finding fraud, not paying claims.
So HCFA came out just about a year ago with some direction
to States that it was all right to start to begin to break
these two systems apart and acquire fraud systems from fraud-
knowledgeable and expert companies, but it's been rather slow
in coming and not all entities are comfortable in doing that
yet. So that has been one obstacle, but we do find the interest
has gotten, you know, much more acute and that States are
moving forward and looking forward to these kinds of advanced
technologies.
Mr. Upton. Well, I appreciate that comment. And as we
pursue some legislative remedies to try and strengthen the hand
of HCFA, that will serve as a good reminder for us to try and
provide that type of incentive for all States, particularly as
we try to keep up with these thieves that we all want to catch.
Ms. MacQuarrie. Yes. And I think in your opening remarks
you made a comment about the great advancement in technology
year to year. The PCs that we bought last year, you know, are
out of date this year.
I think the same holds true in acquiring these kinds of
systems in that HCFA requires that their SURS system be
certified. The certification process alone takes more than 6
months. And by the time the systems that vendors like those who
are sitting before you today are deploying new and advanced
technologies, the certification process can slow down the
States.
So although many States are moving in this direction, for
every month and every year it takes for them to acquire these
technologies it's that many more hundreds of thousands or
millions or billions of dollars that are going, you know, to
the fraudulent problem out there.
Mr. Upton. Well, again, we appreciate your testimony. We
look forward for additional input.
I'm told Mr. Bryant has no additional questions at this
point. But we are all going to submit in likelihood questions
from both sides and look forward to your responses back. And we
will now excuse all of you. Thank you very much.
Ms. MacQuarrie. Thank you.
[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]