[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]




RESULTS OF THE HEALTH CARE FINANCING ADMINISTRATION'S FISCAL YEAR 1999 
                       FINANCIAL STATEMENTS AUDIT

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 15, 2000

                               __________

                           Serial No. 106-162

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform



                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
67-152                     WASHINGTON : 2000
                                 ______


                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                    Lisa Smith Arafune, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                Bonnie Heald, Director of Communications
                           Bryan Sisk, Clerk
                    Trey Henderson, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 15, 2000...................................     1
Statement of:
    Brown, June Gibbs, Inspector General, Department of Health 
      and Human Services, accompanied by Joseph E. Vengrin, 
      Assistant Inspector General for Audit Operations and 
      Financial Statement Activities.............................     6
    Hash, Michael M., Deputy Administrator, Health Care Financing 
      Administration, Department of Health and Human Services, 
      accompanied by Michelle Snyder, Chief Financial Officer of 
      Health Care Financing Administration and Director, Office 
      of Financial Management....................................    45
    Jarmon, Gloria L., Director of Health, Education and Human 
      Services Accounting and Financial Management Issues, 
      Accounting and Information Management Division, U.S. 
      General Accounting Office..................................    20
Letters, statements, et cetera, submitted for the record by:
    Brown, June Gibbs, Inspector General, Department of Health 
      and Human Services, prepared statement of..................     9
    Hash, Michael M., Deputy Administrator, Health Care Financing 
      Administration, Department of Health and Human Services, 
      prepared statement of......................................    47
    Jarmon, Gloria L., Director of Health, Education and Human 
      Services Accounting and Financial Management Issues, 
      Accounting and Information Management Division, U.S. 
      General Accounting Office, prepared statement of...........    22
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     4

 
RESULTS OF THE HEALTH CARE FINANCING ADMINISTRATION'S FISCAL YEAR 1999 
                       FINANCIAL STATEMENTS AUDIT

                              ----------                              


                       WEDNESDAY, MARCH 15, 2000

                  House of Representatives,
                    Committee on Government Reform,
   Subcommittee on Government Management, Information, and 
                                                Technology,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Biggert, Ose, and Turner.
    Staff present: J. Russell George, staff director and chief 
counsel; Bonnie Heald, director of communications; Bryan Sisk, 
clerk; Ryan McKee, staff assistant; Louise DiBenedetto, GAO 
Detailee; Trey Henderson, minority counsel; and Jean Gosa, 
minority clerk.
    Mr. Horn. The Subcommittee on Government Management, 
Information, and Technology will come to order.
    Today's hearing is the third in a series of hearings to 
examine the results of financial statement audits of selected 
Federal agencies. Today we'll focus on the Health Care 
Financing Administration. This agency, which administers the 
Medicare and Medicaid programs, helps pay the medical bills for 
millions of Americans, from the youngest and the sickest to the 
oldest and most vulnerable.
    In 1999, the cost of these two programs exceeded $300 
billion. Last week, the Health Care Financing Administration 
released the results of its fiscal year 1999 financial audit. 
The Inspector General of the Department of Health and Human 
Services reported that, as of September 30, 1999, the Health 
Care Financing Administration's financial statements fairly 
presented the agency's financial position in all material 
respects. In accounting terms, that is often called a ``clean 
audit opinion.''
    I commend the Health Care Financing Administration for 
achieving that goal; however, we need to sweep through some of 
the smoke and mirrors that cloud the agency's overall financial 
condition. Because of those longstanding financial problems, 
the reported financial information was technically reliable for 
only 1 day--Thursday, September 30, 1999.
    The Medicare program continues to be vulnerable to fraud, 
waste, and abuse, partly because of the program's lack of 
oversight on a regular basis. For fiscal year 1999, the Health 
Care Financing Administration reported an estimated $13.5 
billion in improper payments. Last Wednesday, the ``Washington 
Post'' reported that the Connecticut General Life Insurance 
Co., a contractor responsible for processing Medicare claims, 
agreed to pay about $9 million to settle allegations it had 
overcharged Medicare for its expenses.
    Yesterday, the ``Washington Post'' reported that the 
Department of Justice is seeking triple damages of $1 billion 
from Vencor, one of the Nation's largest nursing home 
companies, saying it had defrauded the Federal Government's 
health insurance programs.
    On another page of the same newspaper, reporter Steve Barr 
wrote, ``The patients died, but the bills kept coming, and the 
Federal Government kept paying.'' In 1997, the Medicare program 
paid an estimated $20.6 million for health care services to 
people who were dead.
    In a renewed effort to reduce waste and fraud, the 
administrator of the Health Care Financing Administration said 
that she plans to increase the agency's oversight of the 56 
insurance companies that process Medicare claims on behalf of 
the agency.
    These recent examples of fraud demonstrated the great need 
for vigilant oversight. We must ensure the fiscal integrity of 
this program, and I welcome our witnesses, who will give us a 
very close examination of what they have done already in their 
role as the General Accounting Office, as the Inspector General 
of Health and Human Services, and as the agency itself.
    We will start with panel one. If you will stand and raise 
your hands, we will swear you in.
    [Witnesses sworn.]
    Mr. Horn. We had five at the witness table and three at 
backups, the clerk will note.
    We'll just simply begin as the witness list is. We'll start 
with the Honorable June Gibbs Brown, Inspector General, 
Department of Health and Human Services. She's accompanied by 
Mr. Joseph Vengrin, Assistant Inspector General for audit 
operations and financial statement activities.
    Ms. Gloria L. Jarmon will be the next witness, and that's 
coming after Ms. Brown. We'll introduce her then, along with 
Mr. Hash, who will be accompanied by Ms. Snyder.
    There's a statement from Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman.
    I think all of us here today understand what the Medicare 
and Medicaid programs mean to this country. For many Americans, 
particularly the elderly and the poor, these programs are the 
only thing that stand between them and disaster.
    As Members of Congress, we have a fiduciary responsibility 
to ensure that these programs remain solid and dependable for 
this generation as well as the next.
    As the agency with oversight over these programs, HCFA has 
an equally critical role to play; yet, as we'll hear today, I 
believe HCFA's management practices unnecessarily and sometimes 
unwittingly put these programs in jeopardy, and I don't think 
I'm the only one who thinks so.
    For the last several years, the General Accounting Office 
has categorized programs run by HCFA as high risk for waste, 
fraud, and abuse.
    Among other things, the GAO has been unable to estimate the 
national error rate for fee-for-service payments, which has 
resulted in billions lost annually in improper payments; has 
found that HCFA has been slow to deploy tools given to it by 
Congress to correct these problems; and GAO has found that HCFA 
has material weaknesses relating to the management of Medicare 
accounts receivables, financial reporting, and computer 
security.
    I am aware of and commend the steps taken by HCFA to 
address its management problems. In fact, as we will hear, 
estimated improper Medicare payments for this past fiscal year 
were $13.5 billion, down from about $20 billion reported in 
fiscal year 1997, and $23.2 billion for fiscal year 1996.
    Despite this progress, $13.5 billion of waste, fraud, and 
abuse is still too much, particularly given the poor financial 
condition the Medicare program finds itself in right now. This 
wasted money could have been better put to use shoring up the 
solvency of the program or as a down payment on a Medicare 
prescription drug benefit.
    Today's hearing presents this subcommittee with an 
opportunity to review HCFA's financial management practices.
    I trust that our expert panel of witnesses will help us 
work our way through the questions. Their expertise in the 
field of government management will be useful as we explore 
ways to rid our government of waste, fraud, and abuse. I look 
forward to hearing their thoughts on where HCFA is headed as an 
agency.
    Again, Mr. Chairman, I thank you for calling this important 
oversight hearing.
    Mr. Horn. Well, I thank the vice chair.
    I would like to ask if the gentleman from Texas, the 
ranking member, would like to have an opening statement.
    Mr. Turner. Mr. Chairman, I think I will forego my opening 
statement and file it for the record so we can proceed with the 
hearing.
    Mr. Horn. It will be put on the record between my opening 
statement and Mrs. Biggert's as if read.
    Thank you.
    [The prepared statement of Hon. Jim Turner follows:]

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    Mr. Horn. We will now proceed with Ms. Brown, the Inspector 
General.

STATEMENT OF JUNE GIBBS BROWN, INSPECTOR GENERAL, DEPARTMENT OF 
 HEALTH AND HUMAN SERVICES, ACCOMPANIED BY JOSEPH E. VENGRIN, 
ASSISTANT INSPECTOR GENERAL FOR AUDIT OPERATIONS AND FINANCIAL 
                      STATEMENT ACTIVITIES

    Ms. Brown. Thank you, Mr. Chairman.
    I'm pleased to report to you, as you've all mentioned, that 
the Health Care Financing Administration [HCFA], has made great 
progress in reducing Medicare payment errors, and also in 
presenting reliable financial information.
    I'd like to begin by acknowledging cooperation and support 
received from the Department, HCFA, and the General Accounting 
Office. HCFA's assistance in making available medical review 
staff at the Medicare contractors and peer review organizations 
was invaluable. Also, we worked closely with GAO in carrying 
out its responsibility for auditing the consolidated financial 
statements of the Federal Government.
    My statement today will focus first on our review of 
Medicare payment errors, which we conducted at HCFA's request, 
and then on the fiscal year 1999 financial statement.
    Our review included a statistical sample of 5,223 Medicare 
claims from the population of $169.5 billion in fiscal year 
1999 fee-for-service claim expenditures. Payments to providers 
for 1,034 of these claims did not comply with Medicare laws and 
regulations. By projecting these sample results, we estimated 
that the fiscal year 1999 net payment errors totaled about 
$13.5 billion nationwide, or about 9.97 percent of Medicare 
fee-for-service benefit payments.
    This is the mid-point of the estimated range at the 95 
percent confidence level. The range is $9.1 billion to $17.9 
billion, or about 5.4 to 10.6 percent.
    I mention those details because the sampling is not 
statistically significantly changed from what it was last year, 
because we work with these ranges.
    As in past years, improper payments could range from 
inadvertent mistakes to outright fraud and abuse.
    It should be noticed that medical personnel detected almost 
all of the improper payments in our sample. When these claims 
were submitted for payment to Medicare contractors, they 
contained no visible errors.
    Mr. Chairman, our 4-year analysis substantiates HCFA's 
continued vigilance in monitoring and reducing payment errors. 
This year's $13.5 billion estimate is, in fact, $9.7 billion 
less than that for fiscal year 1996.
    In addition, our audit results clearly show that the 
majority of health care providers submit claims to Medicare for 
services that are medically necessary, billed correctly, and 
sufficiently supported.
    For both fiscal years 1998 and 1999, we estimated that over 
90 percent of the fee-for-service payments met Medicare 
reimbursement requirements; however, our analysis also 
demonstrates that unsupported and medically unnecessary 
services remained pervasive problems. These types of errors 
accounted for more than 70 percent of the total improper 
payments over the 4-years.
    Our chart, which is also attached to the written testimony, 
demonstrates the trends in improper payments by the major types 
of errors we have found. The chart is on the board there. The 
red area indicates unsupported services where we saw a 
substantial increase. The blue indicates medically unnecessary 
services, a continuing problem. The green indicates incorrect 
coding. Finally, the yellow shows uncovered services and 
miscellaneous errors.
    I'd like to talk a little bit about these error categories. 
Unsupported services represents the largest error category 
every year except in 1998, when they dropped dramatically. 
Although these errors increased by $3.4 billion over last 
year's estimate, they remained below the levels found in fiscal 
years 1996 and 1997.
    Unsupported services were largely attributed to three 
provider groups this year--home health agencies were $1.7 
billion; durable medical equipment, or DME suppliers, $1.6 
billion; and physicians, $1.1 billion.
    Medicare regulations specifically require providers to 
maintain records that contain sufficient support to justify the 
diagnosis, admissions, and other services.
    As the second-largest error category this year, medically 
unnecessary services totaled $4.4 billion. For these errors, 
medical reviewers found enough documentation in the medical 
records to make an informed decision that the services were not 
medically necessary. These types of errors in inpatient 
prospective payment system, or PPS hospital claims, were 
significant in all 4 years.
    Incorrect coding was the third-largest coding category. 
Physician and inpatient PPS claims accounted for 90 percent of 
the coding errors over the 4-years.
    For most of these errors, medical reviewers determined that 
the documentation submitted by providers supported a lower 
reimbursement code.
    Now, turning to our audit of the financial statements for 
fiscal year 1999, we are pleased to issue the first unqualified 
or clean audit opinion, both for HHS and for HCFA.
    In achieving this important milestone, HCFA has 
successfully resolved billions of dollars in problems that 
affected our previous audit opinions. In particular, problems 
in Medicare accounts receivable, which are debts that the 
providers owe to HCFA, have been systemic and longstanding.
    This year, HCFA embarked on an extensive effort to validate 
and document receivables, with the assistance of my office and 
two independent accounting firms. The validation effort, 
together with HCFA's aggressive action to require that 
contractors maintain support for this debt, enabled us to 
conclude that the receivables balance was fairly presented and 
sufficiently documented for the first time in 4 years.
    However, the underlying internal control environment and 
accounting systems at the Medicare contractors still need 
substantial improvement. Even such things as a basic double 
entry bookkeeping system are needed, and adequate checks and 
balances to promptly detect errors and irregularities.
    The control weaknesses impair HCFA's ability to reliably 
report activity related to Medicare debt and increase the risk 
that future debt may not be collected timely.
    Our report also discuses our concern that HCFA has not yet 
established adequate financial controls, such as routine 
accounting analysis to detect accounting aberrations or 
sufficient controls over Medicare electronic data processing 
systems.
    To briefly summarize, Mr. Chairman, we're encouraged by 
HCFA's sustained success in reducing Medicare payment errors 
and by the important progress made in resolving prior years' 
financial reporting problems.
    We remain concerned, however, that inadequate internal 
controls or accounts receivable leave the Medicare program 
vulnerable to potential loss or misstatement.
    As HCFA begins the lengthy process to integrate its 
accounting system with the Medicare contractor systems, 
internal controls must be strengthened to ensure that this debt 
is accurately recorded and an adequate debt collection process 
is in place.
    With the year 2000 remediation challenge successfully 
completed, we urge HCFA to focus these critical internal 
controls, while continuing its effort to reduce payment errors 
and ensure provider integrity.
    I appreciate the opportunity to appear before you today and 
I welcome your questions.
    Mr. Horn. Thank you very much for your very full statement.
    [The prepared statement of Ms. Brown follows:]

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    Mr. Horn. Next is the representative of the General 
Accounting Office, Mrs. Gloria Jarmon, Director of the Health, 
Education and Human Services Account and Financial Management 
Issues in the Accounting and Information Management Division, 
the part of the legislative branch which we are proud to have 
your fine staff working for us.
    Please proceed, Mrs. Jarmon.

 STATEMENT OF GLORIA L. JARMON, DIRECTOR OF HEALTH, EDUCATION 
AND HUMAN SERVICES ACCOUNTING AND FINANCIAL MANAGEMENT ISSUES, 
 ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL 
                       ACCOUNTING OFFICE

    Mrs. Jarmon. Thank you.
    Mr. Chairman and members of the subcommittee, I am pleased 
to be here today to discuss our review of HCFA's financial 
management activities for Medicare. Our report on these issues 
is being released today, and copies have been given to the 
subcommittee.
    As Ms. Brown mentioned, over the past 4 years HCFA has 
worked hard to improve its auditor's opinion on its financial 
statements, from the auditors not being able to issue an 
opinion in fiscal year 1996 to the clean opinion in fiscal year 
1999.
    As you know, while getting a clean opinion is an important 
goal that HCFA should be commended for, it is not an end in and 
of itself. The ultimate goal is to keep improving internal 
controls and financial systems that support them and to 
generate reliable, timely, accurate, and useful information for 
decisionmaking on an ongoing basis.
    Our report discuses some of the significant challenges that 
HCFA faces in meeting this goal. I will summarize these 
challenges into three areas.
    First, Medicare contractor oversight--HCFA's over 50 
contractors process about 3.5 million claims, worth an average 
of $650 million each business day, yet HCFA's procedures for 
following up on audit findings and evaluating actions of these 
contractors to correct them were not up to par.
    Audits of HCFA have repeatedly cited these contractors for 
internal control and financial reporting weaknesses, such as 
not safeguarding checks that providers give them for 
overpayments, and incorrectly reporting billions owed to the 
Medicare program for such overpayments.
    Further, HCFA was not routinely analyzing the contractors' 
financial data to find irregularities and assess risks as part 
of daily monitoring, nor did it have up-to-date guidance for 
contractors on key financial matters.
    The second challenge relates to financial reporting and 
related systems issues, which have been material internal 
control weaknesses in HCFA's auditors' reports for several 
years, since 1996.
    HCFA relied on a manually intensive process to prepare 
annual financial statements. It had to make extensive 
adjustments, totaling billions of dollars. In short, HCFA 
obtained a clean audit opinion through a lot of hard work 
because its financial systems were not adequate.
    The auditors reported that HCFA's systems did not fully 
meet the requirements of the Federal Financial Management 
Improvement Act. Basically, this means that HCFA's systems 
cannot reliably produce timely and useful financial information 
for day-to-day decisionmaking.
    The auditors also cited weaknesses related to computer 
security, which is of high concern because of the sensitivity 
of the data in HCFA and its contractors' systems.
    The third challenge relates to controls over Medicare 
accounts receivable. These receivables represent amounts due 
back to the Medicare program for things like overpayments to 
health care providers and other entities.
    For fiscal year 1999, HCFA spent a lot of time and effort 
on this problem. It entered into an inter-agency agreement with 
the Department's Office of Inspector General, as mentioned by 
Ms. Brown, to help validate accounts receivable balances, and 
it wrote off billions of dollars of receivables that it 
considered invalid, uncollectible, and/or unsupported.
    While these actions greatly improved HCFA's accounts 
receivable balance at year end, the basic control problems 
related to these accounts--namely, knowing what should be 
collected and from whom--remain. For this reason, the auditors 
still reported the Medicare accounts receivable issue as a 
material internal control weakness.
    We know that HCFA's management recognizes that these 
problems are serious, and it has shown a commitment to making 
things better; however, with billions of dollars at risk, we 
cannot overstate the importance of safeguarding Medicare 
assets. The serious financial management weaknesses mentioned 
and described in more detail in our report stress the need for 
HCFA to have a very comprehensive strategy to direct its 
financial activities and assess its human capital needs related 
to these activities.
    In responding to our report, HCFA's management outlined its 
ongoing and planned initiatives to address the problems 
highlighted in our report. Top management's continued support 
of these initiatives and sustained actions will be key to its 
success in resolving these problems. We plan to continue to 
monitor HCFA's progress in implementing its financial 
management improvement efforts.
    Mr. Chairman, this concludes my statement. I'd be happy to 
answer any questions from you or other members of the 
subcommittee.
    Mr. Horn. Thank you very much, Mrs. Jarmon.
    [The prepared statement of Mrs. Jarmon follows:]

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    Mr. Horn. We now move to the agency. Representing the 
Health Care Financing Administration this morning is the Deputy 
Administrator, Mr. Michael Hash, and he is accompanied by Ms. 
Michelle Snyder, the Chief Financial Officer of the Health Care 
Financing Administration.
    Welcome.

STATEMENT OF MICHAEL M. HASH, DEPUTY ADMINISTRATOR, HEALTH CARE 
   FINANCING ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN 
   SERVICES, ACCOMPANIED BY MICHELLE SNYDER, CHIEF FINANCIAL 
 OFFICER OF HEALTH CARE FINANCING ADMINISTRATION AND DIRECTOR, 
                 OFFICE OF FINANCIAL MANAGEMENT

    Mr. Hash. Thank you, Chairman Horn, Congressman Turner, 
Mrs. Biggert, and other members of the committee. I want to 
thank you for the opportunity to come here today to discuss our 
efforts to get Medicare's financial house in order and to fight 
and continue our fight against waste, fraud, and abuse.
    With me, as you noted, Mr. Chairman, is Michelle Snyder, 
HCFA's Chief Financial Officer and the Director of our Office 
of Financial Management.
    I would also like to acknowledge, in the effort that we 
have been talking about this morning, the invaluable assistance 
of our IG at the Department of Health and Human Services and 
the staff at the General Accounting Office for their highly 
constructive assistance in our efforts.
    First, let me say that we are pleased that we were able to 
obtain a clean opinion this year. As you know, that represents 
a lot of hard work and confronting some very difficult issues.
    We've worked with a number of CPA firms and with the IG's 
office to clean up our books, and so that we can delete bad 
debt and aggressively pursue the money that is owed to us. We 
are continuing a wide range of additional efforts to strengthen 
financial management and accounting systems and, importantly, 
we are developing an automated, integrated, and dual entry 
accounting system that we all agree is needed.
    The audit also found examples of system weaknesses and 
human errors that need to be addressed. For example, funds that 
should have been credited to one of our trust funds were 
instead posted to another. And, while no taxpayer money was 
lost, we are working hard to fix what is broken and to make 
sure that these types of problems do not occur again.
    We have also made progress in improving system security for 
the sensitive information that is included in our data bases, 
and we expect to make more progress on this front now that we 
have cleared the Y2K challenge.
    Meanwhile, our payment error rate is holding steady. That's 
both good news and bad news, I think. The rate is a lot better 
than it was when it was first measured 4 years ago, and it is 
proof that last year's dramatic reduction was not a one-time 
phenomenon. It can and is being sustained.
    It is noteworthy because this year's audit sample includes 
many more claims for known problem areas, including home health 
and durable medical equipment, but we all agree that the error 
rate has to come down further, and we're working hard to make 
that happen.
    We are focusing our immediate attention on the 
documentation problems that increased the error rate in this 
year's findings. To that end, we are contacting all physicians, 
home health agencies, and medical equipment providers to 
explain the seriousness of this issue and how to avoid common 
errors that they are making.
    We also are testing new documentation guidelines for 
physician services that should be easier to use, and we are 
establishing toll-free lines where providers can get answers to 
billing questions.
    While much remains to be done, we have made significant, I 
think, and sustained progress. With your support, we will 
continue to do so, Mr. Chairman.
    I want to assure you that we are attacking our financial 
management challenges and problems with the same focus and 
energy that we brought to bear on our Y2K challenge, and we 
intend to be just as successful.
    Thank you, again, for inviting me to be here. I would be 
happy to answer any questions that you or other members of the 
subcommittee may have.
    [The prepared statement of Mr. Hash follows:]

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    Mr. Horn. Ms. Snyder, do you want to add anything at this 
point, or just respond to questions? What would you like?
    Ms. Snyder. I will be responding to questions.
    Mr. Horn. OK. Because of the complexity of this situation 
and the money involved, we are going to have 10 minutes per 
member. I'll start, Mr. Turner will be next, and Mrs. Biggert 
will be next. Then, if we need more time, we'll go back and 
have another 10-minute round.
    I read Mr. Barr's quote there on how they were still paying 
out the payments to the dead, and I guess my query is this, Mr. 
Hash: the Social Security Administration faces the same type of 
problem, that they might still be grinding out checks. Is there 
a coordination between the Medicare file and Social Security so 
that we wouldn't be paying checks to dead people?
    Mr. Hash. Yes, there is, Mr. Chairman. There are two 
sources of information about deceased beneficiaries--one is the 
Social Security Administration and, one can be from our health 
plan, our Medicare-Plus-Choice plans.
    In the instance that Mr. Barr referred to and that you are 
talking about, those systems did not work properly. We've taken 
steps to modify the reporting system on beneficiary death, and 
we believe that those errors will not reoccur, and we have 
recovered the funds that were paid inappropriately as a result 
of those system errors.
    Mr. Horn. Yes. It came right to mind that Social Security 
does this, and, of course, we built the whole idea of Medicare 
on top of Social Security, so I hope those agencies are talking 
to each other in their computers.
    Mr. Hash. They are, Mr. Chairman.
    Mr. Horn. OK. Now, both the Inspector General and the 
General Accounting Office have reported various examples of 
instances resulting from inadequate controls and the oversight 
of the Medicare program. Now, we also have learned about a bank 
participating in the Medicare program, which was making a 
practice of withdrawing funds prematurely from the Federal 
Reserve System, which allowed the bank inappropriately to earn 
interest of $13.2 million. So I guess I would ask the Inspector 
General, Ms. Brown, could you describe how this happened and 
how it was discovered? I think we have a chart here on that.
    Ms. Brown. Yes. Mr. Vengrin actually ran the audit which is 
still in progress, I might add--and I'd like him to give you 
the detail on that.
    Mr. Vengrin. Mr. Chairman, there are two instances where 
the bank did premature draw-downs during a 10-day period in 
February 1999. There were instances where the bank actually 
needed $60 million. They drew down excessively between $110 and 
$450 million. We computed the interest on that at $740,000.
    This review was done at the request of Michelle Snyder, the 
CFO, who did learn about this. I believe this instance here was 
learned from the contractor. The other one I'm going to 
describe to you was learned by the FDIC auditors, who did 
notify HCFA.
    We do believe that the bank has monthly limits. This 
particular bank services nine Medicare contractors. At their 
disposal, under the letter of credit system, they can draw down 
approximately $3 billion. It is going to be our recommendation 
to Health Care Financing that they consider periodic caps other 
than a monthly basis that would preclude banks from doing this.
    The second instance was during a 7-year period, from fiscal 
year 1993. This bank withdrew funds 1 day to 2 days in advance 
of when they needed cash. For example, Mr. Chairman, if the 
contractor notified the bank that basically it was going to 
electronic transfer $60 million and also it needed money to 
cover current cleared checks, if the bank actually needed this 
money on a Friday they would prematurely draw it down on 
Thursday. This practice, the bank estimated earned the bank 
approximately $12.5 million in interest.
    The bank, on its premature draw-down a day early, sent the 
money over and sold it to another bank, earning interest.
    That is a clear violation, Mr. Chairman, of the agreement 
that HCFA has with this bank; namely, that these funds should 
not leave the Medicare account. In fact, they did.
    Our review is still ongoing, sir, and we should have the 
final results in a couple weeks. We're trying to go back and 
secure the records for the prior period to compute the 
interest.
    Mr. Horn. Just so we're clear on how this process works, 
the FDIC found it when they went through the bank records; is 
that correct?
    Mr. Vengrin. Again, there are two separate issues. The 
latter one, sir, I believe the facts are the FDIC auditors did 
note it when they were at the bank and they did notify HCFA.
    Mr. Horn. Now, that bank would regularly draw down to pay 
the various bills of what? The intermediaries? Or was the bank 
the intermediary?
    Mr. Vengrin. As the contractors processed their check 
electronically, they would forward that information to their 
bank. The bank would consider both the electronic wire that 
they needed plus the cleared checks minus any deposits.
    So on Thursday afternoon they would ascertain exactly how 
much cash they needed, and they would pull this down 1 day in 
advance from the Federal Reserve.
    Mr. Horn. Now, you're telling me that the regulations of 
the Health Care Financing Administration are quite specific on 
this; that you only get from the Federal Reserve the funds you 
need to pay the bills? Is that it?
    Mr. Horn. My understanding, Mr. Chairman, is that is in the 
contract that the banks have with us and with our 
intermediaries and carriers.
    Mr. Vengrin. I confirm that, Mr. Chairman. It is clear.
    Mr. Horn. So you are saying every bank that is doing this, 
getting the money to go out to the intermediaries to pay the 
bills of the hospitals, the doctors, and so forth, that they 
all should know that, that anything else is a violation? In 
other words, you're saying they can take the money out of the 
Federal Reserve the night before, and then they're supposed to 
issue the checks?
    Let's say they take it out Thursday night and they issue 
the checks on Friday, but they're not supposed to keep running 
interest game on the float.
    Mr. Hash. Absolutely not. And not only is that a violation 
of our contract, but, as I understand it, Mr. Chairman, it is 
also a violation of banking laws and, in fact, when it came to 
the attention of the FDIC, it was because the bank, as I 
understand it, was having difficulty meeting its obligation to 
get the money to the Federal Reserve Bank each day. It was late 
in transferring the money. As the bank examiners looked more 
carefully, they determined that, in fact, the money had been 
deposited overnight in another account, in another interest-
bearing account, and that interest was being kept by the bank 
and it was causing them to be late to make their deposits in 
the Federal Reserve system.
    Mr. Horn. Without objection, I would like the language that 
is in the Medicare regulations put at this point in the record 
so it is very clear that those regulations exist.
    And you're saying all banks have signed off on that?
    Mr. Hash. It is in their contract language, Mr. Chairman.
    Mr. Horn. And how often is that reviewed?
    Mr. Hash. I beg your pardon?
    Mr. Horn. How often is that reviewed, that contract?
    Mr. Hash. I think the contracts have been pretty stable 
over the life of the Medicare program. In fact, this bank has 
been a depository bank for the program since 1978. We do look 
at those contracts on an annual basis, but I think the 
substance of those contracts has not significantly changed over 
the years.
    Mr. Horn. OK. But in all the audits by either the Health 
Care Financing Administration--let's ask if GAO had ever done 
those audits, and if the Inspector General. This is the first 
time it has come up, I take it?
    Mr. Hash. Yes, sir.
    Mr. Horn. But the tip-off was the FDIC auditors.
    Mr. Vengrin. Right.
    Mr. Horn. So they had never discovered it either; is that 
correct?
    Mr. Vengrin. That's correct, sir.
    Mr. Horn. Yes. And have they looked at other banks in the 
country now?
    Mr. Vengrin. I don't know whether they are, sir, but we are 
expanding our review and we've got pilots in three additional 
banks, and we're in there right now. Plus, after the results of 
this survey, we will reassess and expand it even further to 
make sure other banks are not doing this.
    Mr. Hash. If I may, Mr. Chairman, when this matter came to 
our attention from the FDIC, we brought it immediately to the 
attention of the Inspector General's office and we did ask them 
to expand their review of these practices at other contracting 
banks, and we also sent letters reminding all of our banking 
contractors of these particular requirements. So we have tried 
to followup aggressively on this once it was uncovered.
    In the first instance, it took place, as Mr. Vengrin 
described. Actually, what brought it to our attention was the 
providers who were served by a particular intermediary were not 
getting paid in a timely basis, and when they inquired about 
not being paid it turned out that that was a result of the 
banks not properly processing the electronic funds transfer in 
a timely manner, and that's how that happened to come to our 
attention.
    Mr. Horn. Because of letting another bank use the money 
overnight and thus gaining the interest for bank one, does that 
mean that they were slow in getting the needed money to the 
providers?
    Mr. Hash. I'll let Mr. Vengrin speak to this, because he 
knows more of the details than I, but I believe that the 
instance that I was talking about, which was the 10-day period 
of drawing down too much money, was a systems failure of the 
bank.
    Mr. Vengrin. That is correct. In the instance that you just 
described, Mr. Chairman, what happened, as Mr. Hash was 
alluding to, was they encountered trouble with the banking 
institute, because when they made electronic transfer, actually 
they were short of funds because bank B delayed getting the 
money back. So this set off the whistles and bells with the 
Federal Reserve System that money should have been there but 
was not, because of this delay getting the money back overnight 
from bank B.
    Mr. Horn. Now, do we know if the Federal Reserve System is 
depending strictly on the FDIC auditors, or do they have their 
own auditors?
    Mr. Vengrin. I believe it is depending on the FDIC.
    Mr. Horn. So where are we with the FDIC? Have they looked 
at all of these banks just to check them, or is that the 
Inspector General doing it?
    Ms. Brown. Well, I'm afraid I can't speak for what the FDIC 
is doing, but we have let everyone know that is concerned in 
this that we are expanding our review to see whether this is an 
anomaly, which I think it is, but it is possible that that has 
happened in other banks, and we want to make sure that that 
hasn't become a practice.
    Mr. Horn. Well, can the Inspector General reveal what bank 
it is, or are they under review by the U.S. Attorney?
    Ms. Brown. They are not at this point. It is Highland Bank 
in Chicago.
    Mr. Horn. And they have been a long-time bank for 
depositories----
    Ms. Brown. Yes, they have.
    Mr. Horn [continuing]. To pay the bills. And do you know 
how far back that practice goes?
    Ms. Brown. We're going back to 1993, and it appears to have 
gone back that far, at least.
    Mr. Horn. And when did they start? Are they considered an 
intermediary or simply the funding of the intermediaries?
    Ms. Brown. Strictly the people who arrange for the funds. 
The money is transferred to them, and then they are supposed to 
electronically, that same day, distribute the money that is 
needed as a result of the contractors work. Contractors let 
them know the exact amount that they are going to have to 
disburse, and they are supposed to take that exact amount out 
of the Federal Reserve and have it available for payment.
    Mr. Horn. Do we know whether or not, when the money goes 
from the Federal Reserve to the bank in Chicago, and then goes 
to a variety--maybe a dozen or more--intermediaries that are 
paying the bills under either part A or part B of Medicare, how 
do we know they aren't keeping the money and not paying the 
hospitals or the doctors and making a little money off of it?
    Ms. Brown. The money never goes to the contractor. The 
money is available. The contractor makes it known how much is 
to be transferred, and the bank electronically transfers that 
amount for payment.
    Now, there is another account where there are a few paid by 
check, but relatively few. Most of the money is electronically 
transferred.
    So the bank is the only one who really has possession of 
the money, other than the Federal Reserve, and, of course, the 
recipient.
    Mr. Vengrin. Mr. Chairman, if I could embellish Ms. Brown's 
statement----
    Mr. Horn. Yes.
    Mr. Vengrin [continuing]. HCFA does monitor the Federal 
Reserve draw-down on a monthly basis and compares monthly 
expenditures on a report called a 1522/21, so they do monitor 
that. There is a tie-in to the draws, as well as the 
expenditures paid.
    Mr. Horn. Yes, Mr. Hash?
    Mr. Hash. I want to say, since we've named the particular 
institution, Mr. Chairman, that that institution is withdrawing 
from participation as one of our contracting banks.
    Mr. Horn. And has that already happened, or what?
    Mr. Hash. It has happened. They served eight of our 
contractors, and I believe they have ceased serving seven of 
them. The remaining one they are serving is only to, I think, 
next month, and it happens to be a contractor that is otherwise 
leaving participation in the Medicare program.
    Mr. Horn. OK. Any other comment, Ms. Snyder?
    Ms. Snyder. No, sir.
    Mr. Horn. OK. I now yield to the ranking member, Mr. 
Turner, for 13 minutes. That's what we took here.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Hash, I'm interested in the use of sampling. I 
understand that the contractors are utilizing sampling. In many 
cases, I'm told by some of the providers that sampling 
methodology, when applied to an individual provider, can be 
very burdensome, and oftentimes of questionable validity.
    Who sets up the standards for sampling techniques used on 
an individual provider?
    Mr. Hash. Mr. Turner, what you are referring to is some of 
our program integrity activities, where we may be doing 
enhanced medical reviews of a particular provider because of a 
pattern we've discerned in their billing, and we go in and 
actually audit the claims or a sample of the claims to 
determine whether they can be supported by the medical record.
    That process is governed by a statistically valid sampling 
methodology, which we would be happy to supply for the record. 
It has been reviewed independently by statisticians, and it is 
found to be an appropriate tool from which we can extrapolate 
to the universe of claims that a particular provider has filed 
with us.
    Mr. Turner. So you just go in and take one sample, and, 
based on that sample, the provider would be advised that they 
owe back X number of dollars? That's basically the way it 
works, as I understand it.
    Mr. Hash. I believe that's correct, Mr. Turner.
    Mr. Turner. It just seems to me, from some of the 
discussions I have had with providers, that you could do a 
sampling process twice and come up with entirely different 
numbers; that there's not any way of really verifying that the 
sampling technique is all that accurate.
    Mr. Hash. My understanding of how this process works is 
that when the sampling is done and the extrapolation is 
computed, that a provider has the option of having all of their 
claims more intensively reviewed or to accept the results of 
the sample. Most providers have accepted the results of the 
sample, but they're not bound to accept that result. They have 
the option for a more-thorough review of all their claims.
    Mr. Turner. But if they exercise that option, which is 
quite a lengthy process, and during that interim they're still 
charged back for the amount that the sample reveals they owe 
the Government. Isn't that the way it works? And so it is very 
difficult for an individual provider to want to exercise that 
option of having all their claims reviewed.
    Mr. Hash. I'm not totally certain of the detail of that, 
Mr. Turner, but I would be happy to get you a more-definitive 
answer.
    I believe that they have the option to have a more-
intensive review. During the pendency of that review, what I'm 
uncertain about is whether the extrapolated amount is beginning 
to be offset from the future claims that they may be 
submitting. I don't know.
    I would like to get a more-complete answer for the record, 
if I may, Mr. Turner.
    Mr. Turner. For example, I would be interested in knowing 
what the policy is if the sample is taken and the provider 
immediately shows that certain individual payments that you put 
in the sample were simple errors--somebody forgot to make an 
entry, or something that didn't represent any fraud or really 
any actual over-payment, but just a clerical oversight--whether 
those can be corrected and that sample adjusted and the 
extrapolated number changed in short order.
    Mr. Hash. The answer to that I'm more confident is yes. 
And, clearly, this process is not designed to make a judgment 
that, in fact, the ones that are in error are in error because 
of intentional fraud. They just happen to be erroneous for 
various reasons, some of which you have just suggested. But it 
is not a judgment that, in fact, the errors are the result 
necessarily of intent or wilful defrauding.
    Ms. Snyder. If I could add, Mr. Turner, this statistical 
sampling methodology was well discussed and well reviewed, both 
by the provider community as we went through this process, and 
the statisticians who worked with us in figuring out how to 
select and assess those samples.
    Mr. Horn. Ms. Snyder, you're going to need to put that 
microphone within 2 inches of your mouth. That's the only way 
we can hear you.
    Ms. Snyder. The statistical sampling methodology, as I was 
saying, was well reviewed by the provider community. This 
statistical sampling methodology was presented to the provider 
community as we started to move to that type of sampling 
technique. We worked through it with them. We had a number of 
meetings with different groups. There were a number of 
independent statisticians who looked at this to say it was a 
sound methodology.
    If I might, it's the same type of methodology that is used 
by the Office of the Inspector General in doing the statistical 
error rate.
    So we've tested this in a number of ways in a number of 
sort of formats, and so we are pretty confident that it is a 
good way of projecting those overpayments as a way of also 
saving resources, and working through it pretty quickly.
    There are also, within the process, itself, opportunities 
to correct the kind of errors that you mentioned. If we get 
into that and we find out it was simply the document was 
missing, they can submit that. If, for some reason, a plan or 
something that needed to be there as a process matter isn't 
there, we accept that. That does modify the amount of the 
overpayment.
    It is not perfect, but, we think, in light of resources and 
the dollar volume that is involved, it is a good way to 
estimate the overpayments.
    Mr. Turner. When there is an overpayment determination made 
after the provider has exercised whatever options they have to 
appeal, what is the options for how to handle the repayment of 
the overpayment? I know there are many providers who complain 
about the fact that once they have been assessed an overpayment 
they really, in some cases, can't even figure out financially 
how to handle it. So are there options that you have for the 
providers there?
    Ms. Snyder. Yes, sir, there are. From the agency 
perspective, though, I must say our preferred option is that we 
have a continuing business relationship with them to net that 
overpayment out of the next month's payments that are due to 
them, and we do collect a lot of our debt through offsetting 
collection and have been pretty successful.
    But when we have folks that are having financial 
difficulties, we do work with them to do what we call 
``extended repayment'' plans, where we look at their financial 
ability to repay, and I think an example of that where we've 
used it quite a bit is with our home health agencies, where, as 
many of you probably know, there were difficulties there 
because of changes in payment methodology.
    So we do work with people to try to do extended repayment 
plans. If we have to have an extended repayment plan, we like 
to do it within 12 months. We have gone up to 3 months, and in 
some cases even longer than that, so we do try to work with the 
provider and consider their financial viability.
    Mr. Hash. If I may, on the home health I think what Ms. 
Snyder meant to say was up to 3 years, because in the case of 
home health agencies who had overpayments as a result of the 
interim payment system, I'm sure you may be aware that we have 
provided many of them with up to a 3-year and some longer than 
3-year opportunity, the first year of which has been interest 
free.
    Mr. Turner. How many home health agencies do we have in 
this country today, as compared to, say, 3 years ago, before 
the changes were implemented?
    Mr. Hash. I think we were, 3 years ago--and these are round 
figures. I would be happy to get more specific for the record; 
3 years ago we had 10,500 agencies, and now we have about 
7,500.
    Mr. Turner. You have an initiative that I understand will 
begin this summer with four companies that will take a look at 
the durable medical equipment providers. Why were those 
providers selected, as opposed to any others, for this 
particular emphasis?
    Mr. Hash. I think, in part, the Inspector General may want 
to respond to this, as well, but this is an area where we have 
uncovered significant problems in billing, particularly in the 
documentation area. Durable medical equipment items are 
generally--not all of them, but many of them need to be 
accompanied by something called a ``certificate of medical 
necessity,'' which is a document that is executed by a 
prescribing physician that details what he believes an 
individual patient needs, and that that document must be 
present in the records to justify a claim for certain items of 
medical equipment and supplies.
    We've had problems in documentation that have been pretty 
significant. As a matter of fact, I think this year's audit 
indicates that that is a significant problem.
    We have a select group of contractors who process only 
claims associated with durable medical equipment, and what we 
are going to do--we are going to eventually do this for all of 
our contractors, but, beginning this summer, we are going to 
put into place a procedure for calculating an error rate, and 
we are going to take the same approach that the Inspector 
General's annual error rate activity on the national basis 
does--draw a sample of claims from each of these durable 
medical equipment contractors--intermediaries or carriers, I 
should say--and determine their error rate using the same 
statistical methodology that is being applied to generate the 
error data that we have been talking about here this morning.
    That is really for two purposes: in order for us to be able 
to work with those contractors to improve and correct the 
reasons for the errors that we find, and it also gives us an 
opportunity to focus our oversight activity and contractor 
management on those areas where error rates are a significant 
performance problem.
    Mr. Turner. I've read that the total Medicare claims in 
this country are much lower than had previously been estimated. 
Is that because of the aggressive work that you have done to 
try to attack overpayments, or are there some other elements 
that resulted in the estimates of total Medicare payments being 
lower?
    Mr. Hash. Mr. Turner, I think the answer to that is that it 
is a multi-faceted set of reasons for why estimates of Medicare 
expenditures have not, in reality, been as high as previously 
estimated.
    A significant portion, we believe, is related to a greater 
scrutiny and intensity of our review of claims processing, 
which we think has had an effect of making providers more 
knowledgeable about proper ways to bill and more sensitive to 
the accuracy of their coding and those kinds of activities.
    We also think that there are significant changes in the 
economy, in general, that have affected Medicare expenditure 
rates. For example, for the last several years we have had 
extraordinarily low inflation rates, which means that the cost 
of medical care that Medicare pays for has not risen as rapidly 
as was anticipated a number of years ago.
    We also have had some changes in our payment systems that 
have probably slowed down the processing of claims in some 
regards, and that has caused, in various accounting periods, 
for things to lag over into another accounting period and to 
produce a lower outlay of expenditures.
    So I think the most accurate answer is that there are a 
number of factors that are contributing to the lower growth in 
Medicare expenditures. No one has been able to pull out from 
that experience exactly what portion is attributable to fraud 
and abuse activities, although we think it has played a 
significant role.
    Mr. Turner. Thank you. Thank you, Mr. Chairman.
    Mr. Horn. I thank the gentleman for those good questions, 
and now I yield 13 minutes to the vice chairwoman of the 
committee and the gentlewoman from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman. Is there something 
special about 13 today? [Laughter.]
    We've heard testimony today focusing on the payment errors, 
incorrect coding, and non-covered services and the lack of 
medical necessity. Mr. Hash, you just said you don't know what 
part of some of these categories would be attributed to fraud. 
But I am concerned, in a report by the GAO which was done in 
October, I think, of 1999, that there is a growing trend in 
Medicare fraud that has a criminal element coming in with 
absolutely no medical experience, licenses, and training who 
are getting into the Medicare program for the sole purpose of 
bilking the system.
    In this report that was released, it looked at fraud in 
three States--Florida, North Carolina, and my home State of 
Illinois--and they reviewed seven cases and found as many as 
160 sham entities submitting fake Medicare claims, ranging from 
$795,000 to more than $120 million.
    The GAO said, ``Criminals previously involved in other 
types of crime are now migrating into the health care fraud 
arena.''
    I wonder if you could comment on this, and then I have just 
a couple of questions to ask you on that.
    Mr. Hash. Yes, Mrs. Biggert. We have been trying to address 
that kind of problem by strengthening the enrollment process--
that is to say, the process that providers and other people who 
are rendering services to Medicare beneficiaries must go 
through in order to obtain a billing number, a provider number, 
which allows them to bill the program.
    We are, for example, doing site visits for certain kinds of 
providers where we think the prevalence of unscrupulous and 
unqualified providers is very high.
    For example, we are now doing site visits for people who 
are applying to get a provider number as a durable medical 
equipment supplier. We are also putting into place a regulation 
which will allow us to, in effect, go back and recertify 
providers to make sure they continue to meet the requirements 
of the law and regulations.
    So we have, I think, a significantly aggressive program to 
tighten up on the procedures for admission into billing into 
the program, and I would be happy to also furnish more detail 
about that.
    I don't know if you want to add anything to that, but we 
figure the most important thing is to keep people out of the 
program who don't meet certain basic qualifications, and we 
have been trying to do a much more effective job of that.
    Mrs. Biggert. Well, specifically, do you require background 
investigations on all new providers?
    Mr. Hash. In the case of suppliers of durable medical 
equipment, we are doing the checks to determine whether they've 
had any record of fraud or abuse with our programs or any other 
criminal activity.
    Mrs. Biggert. Is that for every provider, or is that a 
sampling?
    Mr. Hash. In the case of durable medical equipment, I 
believe it is virtually all of the ones who are applying now to 
get a number for that.
    We are also in the process of going back and reviewing 
durable medical equipment suppliers to make sure that they are 
a bona fide business entity, that they are, in fact, meeting 
appropriate requirements.
    Mrs. Biggert. Is there, then, a requirement for site 
inspections of all new DMEs?
    Mr. Hash. We are doing that now. Yes, ma'am. That's my 
understanding.
    Mrs. Biggert. Of all sites?
    Mr. Hash. All new ones who are applying for a Medicare 
provider number.
    Mrs. Biggert. OK. And what about community health centers?
    Mr. Hash. We are also doing site visits there, both for 
ones who are already billing us, as well as the ones who are 
applying to become a part of our program.
    As you know, the statue has provided that these 
organizations must provide four core services laid out in the 
statute. We determined that a number of them have not met those 
requirements, and if they were already in the program, we have 
lifted their certification. If they were applying, we did not 
allow them to receive Medicare certification.
    There are also some changes that need to be made in the 
design of the partial hospitalization benefit that community 
mental health centers are often providing, and in the 
President's 2001 budget proposals there are some important 
legislative recommendations to tighten up the design of this 
particular benefit.
    Mrs. Biggert. Well, we have been talking about Medicare, 
but what about the Medicaid program? The Inspector General has 
reported the need for estimating the amount of improper 
payments being made in the Medicare program. Why isn't this 
being done?
    Mr. Hash. Well, the payments under Medicaid, of course, are 
made by State agencies, and some of them have contractors who 
actually make the payments. We have, in fact, launched an 
effort, through our regional office in Atlanta, of Medicaid 
fraud and abuse activities around the country. We have a 
website that shares best practices in identifying waste, fraud, 
and abuse in Medicaid. We've run a number of national 
conferences associated with Medicaid fraud. We've tried to 
bring together the State fraud units, the attorneys general, as 
well as the Medicaid program administrators to work together to 
establish stronger protections against fraud.
    With respect to your specific question, we are now working 
with the States to see if we can get them to apply a 
methodology of calculating an error rate in the administration 
of the Medicaid programs.
    Mrs. Biggert. Thank you.
    Ms. Brown, you were talking about the bank, and that's the 
Highland Community Bank? Is that the name of it?
    Ms. Brown. Yes.
    Mrs. Biggert. OK. Do you believe that if you had criminal 
prosecutorial powers--in other words, if you had the laws that 
would allow you to prosecute criminally, would that help you?
    Ms. Brown. Well, we do, of course, prosecute a great many 
criminally every year, and also have civil settlements with 
many of those folks that, for one reason or another, good 
reason, they are meant to stay in the system to provide the 
service and there aren't other alternatives.
    We not only get a monetary collection----
    Mrs. Biggert. I guess I was thinking of full law 
enforcement authority within your agency. Do you have that now?
    Ms. Brown. We have law enforcement authority, but the full 
law enforcement is done through a blanket deputization from the 
Department of Justice. We have about 300 criminal investigators 
that are out doing this type of thing.
    Between 1997 and 1999, while we were getting the HCFA 
funding, which was provided by Congress, we won or negotiated 
over $2.2 billion in judgments, settlements, and administrative 
impositions of fines, and collected $1.6 billion back to the 
trust fund from that amount.
    We had 1,085 defendants that were convicted for health care 
fraud and related crimes, and 8,697 individuals and entities 
have been excluded. My office processes the exclusions, where 
those entities can no longer work in any government health care 
system. So it is effective not only with Medicare, Medicaid, 
but Tri-Care from Department of Defense, VA, and other types of 
medical programs.
    Mrs. Biggert. When providers who are unscrupulous use 
recruiters to obtain beneficiary identification numbers so that 
these providers can bill for services, there is no statute to 
prohibit such a practice, is there?
    Ms. Brown. Well, we use a variety of statutes, even RICO, 
which would be conspiracy. We have found such things as a room 
about this size filled with medical records from floor to 
ceiling which we have subpoenaed. Not one of those medical 
records are true records. They have all been actually produced 
by this criminal element who were providing no services but 
were taking extensive care to actually develop medical records 
against which they could charge millions and millions of 
dollars to Medicare.
    There are many cases like that. Many of them have nothing 
to do with honest providers. These are people who have found, 
in the past, at least, it was easy to get into the system and 
get a Medicaid number so that they could start billing, or 
Medicare number, and they could start billing as a provider.
    We have a very small percentage who are not actually 
medical professionals who have been providing honest services, 
or even dishonest services. Most of these that we find that 
have conspiracies are not medical folks or real providers, but 
people who have gotten into the system, as you mentioned.
    Mrs. Biggert. How have you discovered them?
    Ms. Brown. We have a variety of ways, some even from our 
congressional Representatives that send us leads. We get about 
50,000 calls a month on our hotline, which we screen. We have 
an active, large group of people who answer this hotline. 
They're really speaking to an individual, even with Spanish-
speaking operators where that is appropriate.
    We have a lot of things that are referred from the 
auditors, when they go in and find that there not only are 
discrepancies, where they should get money back, but it appears 
there could be something more behind that. They turn that over 
to the investigative units who followup.
    We do a lot of analysis of the payment trends. If we see 
something, for instance, that there is a 1,000 percent increase 
of a certain type of payment and not an epidemic that would 
give a reason for this kind of thing, we look into it and see 
whether it is an audit issue, whether or not it might be an 
investigative issue, or there is some new billing scam that is 
going on.
    Mrs. Biggert. Would you agree that there is a growing 
criminal element trying to make a profit off of the Medicare?
    Ms. Brown. I think the Medicare program was developed by 
people who really wanted to provide service to the 
beneficiaries, and they did not take all of the precautions to 
keep everybody out who would want to bilk the program. It 
became well known that there is a lot of money here, and it was 
pretty easy to get a provider number and start billing. We even 
have cases where people learned about it in jail from jail 
mates, came out and did business together--had no medical 
background whatsoever, but learned about the ease of getting 
into this system.
    Now, as we developed these cases, of course, we had 
extensive meetings with HCFA, and many of the precautions that 
HCFA is now undertaking, which were described by Mr. Hash, were 
as a result of that.
    The first time I think it was HCFA folks that went out and 
checked about 10 new DME applicants they found about 7 of them 
were just fronts--you know, an entire store or something where 
somebody had an extra telephone in the back room that they used 
to answer any questions about their DME business. They had no 
business, no supplies, no legitimate contacts of any kind.
    Mrs. Biggert. Is there anything else that you think that we 
can be doing legislatively to help?
    Ms. Brown. Well, we have presented different possibilities. 
Most of them take funding. And so if we can get the budget for 
them, there are a number of additional things that we can do 
that I think would certainly help a great deal.
    We are getting back in my office in the last 2 years, $98 
and $99 for every $1 spent, or at least savings of that nature. 
And HCFA certainly has seen this decline in the inflation of 
what they have to pay out for Medicare.
    So I think that the combined efforts are really producing a 
lot of results, and they are very cost effective, and for both 
of our offices additional funding would allow us to do more. 
That is always the constraint.
    Mrs. Biggert. Thank you.
    Thank you, Mr. Chairman.
    Mr. Horn. Thank you very much.
    I am going to ask Ms. Jarmon, on behalf of the General 
Accounting Office, you stated that the Health Care Financing 
Administration has not yet established an adequate foundation 
for control and accountability over Medicare programs, 
financial operations, and you further stated that the Health 
Care Financing Administration lacked two key components to 
successful financial management reform. Could you elaborate on 
some of the problems you have found and what the Health Care 
Financing Administration should be doing in the short term to 
address those problems?
    Mrs. Jarmon. We believe there are several key initiatives 
that are ongoing, and, like we said, if successfully 
completed----
    Mr. Horn. You might want to move that microphone closer.
    Mrs. Jarmon. OK. The two things that we were referring to 
there was the need for a very comprehensive plan or strategy to 
address the audit findings that have been reported over the 
past years, because, like I mentioned in my statement, several 
of their weaknesses have been reported since 1996, the key 
weaknesses that we saw related to oversight of the contractors, 
financial reporting and systems problems, and the problems with 
the EDP controls, and the computer security controls. But I 
know that HCFA has an initiative underway to develop a 
comprehensive plan to look at their human resource needs, and 
we just think it is very important that those initiatives are 
completed timely and that the results are seriously considered 
to address these longstanding problems so that we are not here 
next year talking about the same material weaknesses.
    Mr. Horn. And you are saying, from GAO's eyes, that the 
administration there is taking the advice and implementing it; 
is that correct?
    Mrs. Jarmon. I think many of the initiatives that they have 
started are relatively recent or over the last 6 or 7 months, 
and we are encouraged by those, but I think it is too early for 
us to say what the results will be.
    Mr. Horn. How about it, Mr. Hash? Are you going to address 
the GAO concerns?
    Mr. Hash. Well, Mr. Chairman, we actually think the glass 
is at least half full. We have embarked on a number of efforts 
to address financial management concerns, both within the 
offices of HCFA, as well as, importantly, in our contractors.
    On the longer-range track, because of our attention to Y2K, 
we have not been able to implement as quickly as we would like 
an automated dual entry accounting system at all the 
contractors, which can also interface with HCFA's systems in 
the central office, which would be a much more effective way of 
monitoring financial controls across our contractors.
    We expect to have that in place by 2004, but, in the 
meantime, we have undertaken a number of efforts to put into 
place special automated systems related to accounts receivable. 
We are also particularly addressing, within that, the area of 
Medicare secondary pay. These are liabilities owed by other 
insurance companies or employers because the Medicare is the 
payer of last resort. That is a significant part of our 
accounts receivable, and we are taking a number of steps to 
address that.
    We are also hiring a number of CPA firms to go out and do 
independent reviews of financial controls at contractors. In 
the course of this year, I believe we will be visiting 25 of 
our contractors that represent over 80 percent of all the 
Medicare dollars, and we will be doing financial audits of 
their financial systems to ascertain what kinds of changes need 
to be put into place to be sure that they are accurately 
reflecting financial affairs and that they are following proper 
procedures.
    In my longer written testimony, I outlined a number of 
significant initiatives to strengthen internal financial 
controls.
    Mr. Horn. Ms. Brown, as Inspector General is there anything 
else you would like to see them do?
    Ms. Brown. Well, I think that HCFA is taking some good 
steps in the right direction. As Mrs. Jarmon said, it is too 
early to evaluate the results of those things.
    I do want to add that I was quite appalled. I think, of the 
whole financial statement process, the most astonishing thing 
to me was that there was essentially no financial system at 
these contractors, because it was not specified expressly in 
the contracts. They do not even have double entry bookkeeping 
systems. They do not have subsidiary ledgers, so that if there 
are amounts owed back to the Government, they did not even have 
records, in some cases, of who owed that money. So, of course, 
it would be impossible to ever collect it.
    I am sure the Congress had the intent of getting 
experienced, reliable people from the private sector when they 
set up the system of only using insurance companies to pay 
these claims. There must have been an assumption that they 
would use the same kinds of financial controls. They do not. 
And I think HCFA and the Department have, for a number of years 
now, asked for greater flexibility in who they contract with, 
and that would certainly go a long way in making this more 
competitive.
    They are taking steps now to try to get the contractors, 
even though it might not be a specific provision in the 
contract, that they have to use generally accepted accounting 
principles, as would anybody in the private sector. Up until 
now, they are not available.
    Mr. Horn. Mrs. Biggert asked the question on what laws do 
we need here, and I guess I would ask, can the administration 
implement that by administrative regulation so you do need 
legislation?
    Mr. Hash. With respect to the financial control matters, I 
think we have administrative discretion to do contract changes. 
With respect to the broader issue that the Inspector General 
spoke to, which is the shrinking pool of contractors that, 
under the law, we are allowed to do business with, it is a real 
impediment for us. For, I think, 5 or 6 years running, the 
Administration has submitted to the Congress legislation asking 
for authority to have greater flexibility more like the Federal 
acquisition regulations that exist for other agencies to 
identify appropriate and qualified entities to contract with us 
for claims processing.
    Mr. Horn. Well, I have never seen it, so do me the favor of 
getting together with the Inspector General and sending me the 
language you need.
    Mr. Hash. I would be happy to do that, Mr. Chairman.
    Mr. Horn. Because when it comes to economy and efficiency, 
we have got jurisdiction. I realize you have got authorizing 
committees and they sometimes, for one reason or another, have 
other things to do.
    I think it is very important that you have the legislative 
language you need, so let us know about it.
    Mr. Hash. Could I just followup, Mr. Chairman, for a moment 
about actions that were taken that I did not mention a moment 
ago that the Inspector General's comments triggered in my 
memory?
    One of the things we are doing is amending our contracts 
with all of our contractors to make it a contractual obligation 
to submit to us detailed plans of corrections related to audit 
findings, to give us a plan with timeframes and milestones for 
meeting and correcting those deficiencies, and to actually make 
that a part of their contractual obligation, which has not been 
in the past and, I think, importantly, the development for all 
contractors of an error rate methodology that will help us to 
determine the performance level of our contractors by taking a 
sample and subjecting it to the kind of analysis that the 
Inspector General does on a national basis.
    So those are, again, I think, important tools to strengthen 
accountability in financial management by our contractors.
    Mr. Horn. Well, that is very helpful.
    Now, you mentioned 2004. Why cannot we speed that up? What 
does it take to speed it up?
    Mr. Hash. Let me ask Ms. Snyder to talk about what is 
involved in the design of this, but it will be a system that is 
double entry automated accounting system. It will also 
interface with the new financial management system within HCFA. 
So we are actually putting together both a new financial 
management system for contractors, as well as for HCFA.
    And the goal here, of course, is to make sure that we can 
roll up in a comparative way information about performance of 
the contractors across the country. We can compare fairly one 
contractor to another.
    Mr. Horn. So you would use the software, I take it, and 
develop it for all of the various intermediaries?
    Mr. Hash. That is correct. And, unfortunately, Mr. 
Chairman, I do not believe it is an off-the-shelf product. It 
is one that has to be designed, and I think that accounts for 
the time.
    Part of the delay is, of course, associated with our Y2K 
obligations, and obviously put us behind. We are looking at 
whether or not off-the-shelf products could meet our needs in 
this area, and therefore accelerate our time table, but maybe 
you would like to elaborate a little bit on the plans for this 
system.
    Ms. Snyder. The Administrator and the Deputy Administrator 
have charged me and the Chief Information Officer, Dr. 
Cristoff, who I know has appeared before you many times----
    Mr. Horn. Right.
    Ms. Snyder [continuing]. To develop the integrated general 
ledger accounting system.
    Dr. Cristoff and I are absolutely committed to doing this 
the right way, which I think has a lot to do with the schedule, 
the estimation of 2004.
    We have pulled together that project team. We brought in a 
senior systems expert to head that team, someone who had had a 
lot of experience over at the Social Security Administration. 
So Dr. Cristoff and I think we have the right resources in 
place.
    The thing that makes this a long-term problem is just the 
fact that we have business at so many different entities. If we 
had a central mainframe kind of operation, it would be a pretty 
easy thing, but what we have is distributed processing over 
many different locations and many different sites.
    We are going about this very carefully. We are using 
Clinger Cohen to estimate what is the best way to go about 
this, how should we do it. We are looking very, very carefully 
at the commercial, off-the-shelf software that is out there 
that has been approved and certified by the joint Federal 
management improvement program.
    We do not want to reinvent the wheel. If we can get 
functionality out of something that is already there, we are 
going to use it. In fact, as an interim step we are going to 
try to look at, over the next year, commercial, off-the-shelf 
software that is on the schedule so that we can get some 
control over the accounts receivable in an automated fashion 
sooner than 2004.
    But I think the reason for the longevity is the complexity 
of the project, the fact we just want to do it right, and we 
want to follow all the technology guidelines.
    And it is a two-part--I think this is important, too. At 
the same time we are doing the contractor piece, we are looking 
at our financial accounting system in our headquarters and in 
the HCFA system, itself, because those two things have got to 
be able to work together if we are going to be able to produce 
the audited financial statements from an accrual perspective.
    Mr. Horn. Well, I am glad to hear that you are going to try 
to get it off the shelf, because I think I can go back to my 
freshman year here in 1993-1994, where the FAA blew $4 billion 
before the plug was pulled. There was no management in that 
project. I could walk through the door and you could tell right 
away there was no management. Everybody had their new bright 
idea at 7 a.m., the next morning and there was no focus, no 
time table, no nothing.
    And then, of course, the IRS blew $4 billion and did not 
get anything out of it.
    So I wish you well, but what it takes is on-the-site 
management that says, ``Folks, we just cannot have every idea 
in here. We have got to do this by this time, et cetera.''
    If you manage it well, it ought to work. But I know what 
you are going through, and we have asked the General Accounting 
Office to go look throughout the executive branch on both the 
capacity, the generation that both the hard frames as well as 
the software is and see if we cannot upgrade the executive 
branch, and we ought to do that.
    You mentioned, Mr. Hash, that you said the Y2K obviously 
held you up a little, but I would hope in that Y2K exercise 
that you would say, ``Hey, do we really need this? Get rid of 
that system, and merge this,'' and so forth. I would hope it 
would be a constructive exercise when you look at it from that 
perspective.
    Mr. Hash. Absolutely, Mr. Horn. We clearly learned--I think 
there are a lot of silver linings to the Y2K experience, 
particularly in the ADP area, and I think the extensive 
attention, renovation, testing, and retesting has really helped 
renovate all of this in a way that hopefully this kind of 
project will benefit from, just as you indicated, because I 
think our systems, claims processing systems, have never been 
so thoroughly renovated as over the last 2 years, and that has 
got to--will pay dividends, I think, in putting in this 
management information system for financial controls.
    Mr. Horn. Before I yield to Mr. Ose, let me ask, you 
mentioned the Atlanta website. Is that just for waste, fraud, 
and abuse in that area?
    Mr. Hash. No, sir. It is a website, a national website, and 
it is not just in Atlanta, by any means. Atlanta happens to be 
the regional office that heads up our efforts on Medicaid 
waste, fraud, and abuse.
    That website has been contributed to by State fraud units, 
by Medicaid agencies, by States attorneys general, and a host 
of law enforcement and programmatic people, and what it 
includes are information about successful investigations, best 
practices, ways in which you can more appropriately target your 
law enforcement and oversight responsibilities to get the most 
yield from the resources that are available.
    So it is a tool to actually bring together and strengthen 
the efforts of a multiple group of folks who are involved in 
waste, fraud, and abuse for Medicaid.
    Mr. Horn. Besides WWW or whatever, what comes next in 
access to it? Or just send it to us.
    Mr. Hash. I will send it to you for the record. I do not 
want to misstate it.
    Mr. Horn. Thank you.
    Mr. Hash. It also has a compilation, importantly, of State 
laws that have been passed to address fraud and abuse in 
Medicaid, and that is very important, because other States, who 
are trying to strengthen their Medicaid fraud activities, want 
the benefit of the laws, themselves, as tools, and this website 
includes information about laws that States have passed to 
provide more effective tools to law enforcement.
    Mr. Horn. Well, let us know what the access is on it.
    The gentleman from California, Mr. Ose?
    Mr. Ose. Thank you, Mr. Chairman.
    I think I would like to direct my questions to Mr. Hash, 
initially.
    One of the things we struggle with up here is that 
oftentimes it seems that the interpretations HCFA puts out for 
Congress' intentions diverge from what we on the Hill think 
might have been the point. I am trying to find out--and I did 
not see it in the testimony--who is responsible for making such 
interpretations? In other words, who do I call up and say, 
``No, I disagree with your interpretation''?
    Mr. Hash. Well, in our regulation or in our guidance, where 
we exercise administrative discretion under the law, then the 
accountable individuals are the administrator of our agency and 
the Secretary of the Department.
    Mr. Ose. Pardon my ignorance. What would those people's 
names be?
    Mr. Hash. Secretary Shalala and Administrator DeParro.
    I mean that in the sense of, when we make regulations in 
the Medicare program, they are technically regulations of the 
Secretary. Under her authority, under the law, she is issuing 
them, so the process of developing those regulations, while 
they start in the Health Care Financing Administration if it is 
on Medicare--and we are certainly accountable for that--they 
are also reviewed by the Department of HHS, as well, because 
they represent the Secretary's use of her authority under the 
law to implement the Medicare program.
    Mr. Ose. The reason I bring it up, there is not a single 
Member of Congress on any side of any aisle who has not heard 
the horror stories that constituents or their parents have been 
faced with when various service providers say, such as Vencor 
or other convalescent hospital and nursing home facilities, are 
put in a position where they have to cut therapeutic services 
and the like in order to continue to cover their basic housing 
costs of operation.
    I do not believe it was the intention of Congress to, in 
effect, provide with one hand various services and take away by 
administrative fiat with another hand, and I am just curious 
what your audit--what role the audit process plays in 
reconciling congressional intent with administrative ruling on 
these reimbursement rates.
    Mr. Hash. Well, in terms of the audit, I would yield to my 
colleagues from Inspector General's office, but, with respect 
to implementation, for example, of the prospective payment 
system for skilled nursing facilities that you may have been 
referring to, Congress included a very significant change in 
the Balanced Budget Act to how we pay for services in nursing 
facilities. That law was quite prescriptive in its design of 
what the payment system is.
    For the most part, I think you would find that, in 
publishing the regulation that implemented that payment change, 
the law was largely self-executing. In other words, the law was 
very specific about exactly how that new payment system should 
be operated, and we did not exercise discretion. We did not 
have under the law very much discretion at all with respect to 
that payment system.
    Mr. Ose. I am also aware of Congresswoman Northup's letter 
last fall that, in the space of about 2 hours, collected over 
180 signatures on the floor of the House, challenging the 
interpretations that had been implemented relative to the 1996 
BBA, and I think was a great contributor to the additional 
funding the House put forward last fall in the--I do not recall 
if it was the BBRA, or whatever you call it. I lose the 
acronyms after a while.
    But it is my intention to inspect congressional intention 
there so that you will respect congressional intention there. I 
appreciate the information that you have provided so far.
    I want to move on to the other two questions I have.
    One of the things we struggle with, particularly in my 
District, is that being so efficient to date, as it relates to 
the operational side of various providers, our cost base is 
relatively low, compared to, say, New York or Florida or 
whatever, and I am wondering whether or not--and this might be 
more accurately directed to Ms. Brown--I am wondering whether 
or not you have any data comparing reimbursement rates for 
Medicare services amongst such regions--for instance, this one. 
I apologize for picking on Illinois. It is not my intention to 
pick on Illinois, but do you have a comparison of the 
reimbursement rates provided in California with, say, Illinois 
or Alaska or New Mexico for any given service?
    Ms. Brown. That would be HCFA's responsibility to determine 
the rates by region.
    Mr. Ose. Back to you, Mr. Hash.
    Mr. Hash. Yes, sir. We do have information about the rates 
that are paid in different parts of the country. Obviously, 
each one of the provider categories has, generally, its own 
payment policies, and they vary quite dramatically, but----
    Mr. Ose. By region?
    Mr. Hash. No, no. I mean just the basic way we pay 
hospitals or nursing homes or home health agencies or 
physicians or the durable medical equipment suppliers. All of 
those are different payment systems, but all of them have 
embedded within them procedures for adjusting them to reflect 
the various costs that are associated geographically, usually 
on the basis of wage cost, because wage costs frequently make 
up such a large portion of the cost of the service. We have a 
national wage index that provides for payment adjustments in 
many areas, based on the cost of labor to provide the services.
    So we do not have in the Medicare program uniform national 
rates where we pay the same amount for a service everywhere in 
the country.
    Mr. Ose. Do the adjustments accurately reflect inflation or 
the ability of a region, for instance, where they have had 
significant HMO investment and involvement, significant savings 
generated by that--I guess I am more accurately asking what are 
the adjustments based on.
    Mr. Hash. The adjustments typically are based on either the 
relative cost of wages in the particular locality--and we have 
a wage index that does that--and they are adjusted with respect 
to inflation, as measured by several different indices--the 
CPI, or there is a medical care inflation index. Those are 
typically the kinds of adjustments that payments get made, or 
that are made to payments.
    I am trying to answer this in the most specific way I can. 
If you are asking why typically there are differences in 
payments between rural and urban areas, much of that is the 
result of, in the Medicare program, historic differences in the 
costs that have been reported for those services in those 
different areas, and that has been kind of the basis.
    As you look around the country and compare costs for 
medical care in different marketplaces, they vary, as I know 
you know, very dramatically from one area to another.
    One of the best illustrations of the range of variation is 
we calculate a per capita cost for Medicare in each of the 
counties, over 3,000 counties around the country. We have done 
that for purposes of the method for paying for managed care 
organizations. But what that number shows to you is that on a 
monthly basis the range is from something like $230 a month to 
as much as nearly $800 a month per person in terms of the 
Medicare expenditures that are made on a county-by-county 
basis. So that produces different payment rates.
    Mr. Ose. I would submit to you, at least as it relates to 
the seven rural counties that I represent, that the algorithm 
you use to come to that payment level does not equitably 
reflect, if you will, a minimum survival level for provision of 
adequate medical services. That has resulted in a reduction in 
the level of medical care available in many of the rural 
counties that I represent.
    I would hope that you would convey that back to your 
colleagues, and perhaps we could have some attention focused on 
that.
    Mr. Hash. I agree. It is an important issue, and one which 
we need to pay attention to, because providing access to our 
beneficiaries who reside in rural areas is an important concern 
and objective of our program, and we definitely want to work to 
make sure that there is not only adequate access, but that the 
quality of care that beneficiaries receive who live in rural 
areas also meets the highest standards.
    I think in some of these cases, if I may, the differences 
relate to the way in which the statute is designed, and that 
really calls on all of us to take a look at those payment 
systems and see whether they need to be revised in light of the 
experience that some rural health care providers are having.
    Mr. Ose. I appreciate your comments. The reason I broach 
this subject is that I would hate to get us in a position 
where, for financial reasons, we find ourselves quite literally 
denying medical service to those folks who live in rural areas.
    Mr. Ose. Mr. Chairman, if I may, one other question and 
observation.
    In my District, we have a very efficient number of HMOs, 
and you can like them or dislike them, but they are a fact of 
life. Oftentimes, under the prospective payment system, they 
end up in a situation where they will self-report having 
received an overpayment from Medicare and attempt to return 
such funds to Medicare, as the law requires.
    The thing that I find most incredible is that, in the 
situation I am familiar with related to some $7 million, the 
provider has proffered the money back to--having identified it 
by themselves, proposed returning the money, and they find 
themselves in a dispute with Medicare over whether they can 
return the money and the circumstances under which they can.
    The thing that is so aggravating is that, instead of being 
able to return the money and going on about business, having 
self-identified it--it had gotten past all the other auditors--
they now find themselves in the position of spending scarce 
resources battling with Medicare over legal issues that they 
brought to the table in a good faith effort, rather than 
providing medical services to their participants.
    I cannot tell you how aggravating--I mean, I love 
attorneys. Do not get me wrong. But I cannot tell you how 
aggravating it is to take scarce resources and quibble over 
this, that, or the other thing when we could use those 
resources to provide medical care.
    So I am curious whether or not, either in the course of the 
regular audit or the operational side, Mr. Hash, whether we 
have any information regarding the aggregate cost that arises 
in circumstances of this nature across the country, where a 
provider has self-reported overpayment and then ends up in the 
position of battling to return the money, having to spend money 
to battle rather than money to provide medical service.
    Mr. Hash. Well, I share the frustration that you have just 
voiced on behalf of folks in your District, because there has 
been, I think, in the past an issue about the procedures for 
the acceptance, on the traditional fee-for-service side of 
Medicare, by our contractors of voluntarily returned amounts.
    What we did last year--in fact, it will be a year next 
month--in April 1999 we sent out guidance to our contractors, 
the fiscal intermediaries and carriers, and informed them that 
they were to take checks or cash or whatever the instrument was 
to convey the money and to deposit it into their account, and 
then, subsequently, we would determine the proper allocation or 
crediting of that to the proper trust fund, and so forth.
    But the failure of contractors to have had procedures in 
place to accept and deposit such refunds or voluntarily 
submitted funds is something we have tried to correct, and we 
believe that now there is an understanding among our 
contractors that these returned moneys are to be deposited into 
their accounts and that they are to be recorded, and then we 
will make a determination later about the appropriateness of 
where they should be credited.
    Mr. Ose. I think my question was more oriented toward do 
you have any sense of the amount of money that is being 
expended to battle over this between, say, Medicare or HCFA and 
the providers, contractors? Do you have any----
    Mr. Hash. In the case of voluntary returns, I would hope 
that there are no fights going on. Once it was--my 
understanding was the fight was the contractors were not 
accepting the checks. I think we have gotten past that.
    There may be issues about overpayments that have come up in 
the Inspector General's experience with respect to compliance 
plans that have been entered into by organizations because of 
settlement agreements or one kind of thing that may result in 
disputes about returned money, but a voluntarily self-
disclosed, self-returned amount should be accepted by our 
contractors and should not be the occasion of an ongoing 
dispute about it.
    Mr. Ose. Perhaps we could visit more about this privately.
    Mr. Chairman, my last observation would be--and I am not 
normally given to this, but as recently as 14 months ago I was 
on the private side dealing with all these questions emanating 
from Congress and the State legislature.
    My private experience tells me that, as a buyer of goods 
and services, you tend to get what you pay for. And I have to 
take exception. I know it does not emanate from the 
distinguished persons testifying here, but I have to take 
exception to some of the claims emanating from other parts of 
the Administration that the medical community is not doing its 
job.
    The reality is that the medical community is in a position 
where they are receiving less and less for their services, and 
the spin, if you will, that is coming out of that, from some 
portions of the Administration, is that doctors are not 
providing the same level of care that they have historically 
provided, and it has resulted in a higher mortality rate 
because of errors or omissions or what have you.
    Well, the reality is that if HCFA, by virtue of its 
interpretations of Congress' intentions, reduces reimbursement 
rates to providers. The doctors are going to be in a position 
where they cannot provide therapy or they cannot have nurse 
assistants in the operating rooms for thoracic surgery and the 
like, and the result is a higher mortality rate.
    There is an inescapable connection between what we are 
willing to pay for inservices and the level of service that a 
doctor can provide. It is inescapable.
    I submit that for the record.
    Mr. Horn. Well, I agree with what the gentleman has said so 
eloquently. There is no question about it, as far as I am 
concerned.
    I now yield 16 minutes to the gentleman from Texas, the 
ranking member, Mr. Turner. See, you get more and more time 
with the more time my colleagues take.
    Mr. Turner. I am going to yield to you, Mr. Chairman. At 
this time, I do not have any further questions.
    Mr. Horn. OK. Are there any other questions then? The 
gentlewoman from Illinois?
    Mrs. Biggert. OK. I just want to go back to the issue of 
site inspections and provider numbers.
    An example is that two doctors submitted in excess of 
$690,000 in Medicare claims and listed nothing more than a 
Brooklyn, NY, Laundromat as their office location. In Florida, 
over $6 million in Medicaid funds were sent to a medical 
equipment company that provided no services whatsoever, and one 
of these companies listed their address that would have put the 
business in the middle of the Miami International Airport. I 
know we have all heard about that.
    Another one, a medical equipment company, provided adult 
diapers, which were not covered under Medicaid and were priced 
at 30 cents apiece, to nursing home patients, but they billed 
Medicare $8 an item after coding these diapers as an item under 
Medicaid.
    So my question is: is there mandatory site inspection? Now, 
you said you do have it. Is it mandatory, or is it just that 
you could do it if it looks like it is necessary?
    Mr. Hash. It is my understanding that we are currently site 
visiting any applicant who applies for a provider number as a 
durable medical equipment supplier.
    Mrs. Biggert. And that is only the new ones?
    Mr. Hash. And we are putting into place a process whereby 
we will be visiting current ones to validate that they are, in 
fact, bona fide businesses and appropriately qualified.
    Mrs. Biggert. Well, then, why did these happen?
    Mr. Hash. I beg your pardon?
    Mrs. Biggert. Well, then, why would these cases come up?
    Mr. Hash. I am speaking also specifically of Medicare. I do 
not know how many of your examples related to Medicaid.
    Mrs. Biggert. They were all Medicare.
    Mr. Hash. Medicare?
    Mrs. Biggert. Yes.
    Mr. Hash. Then they should not be happening now. I think we 
have been working on this. We started, actually, the stepped-up 
attention to provider qualifications as a part of the operation 
to restore trust that the Inspector General's office and our 
agency entered into back in 1995, and part of the outgrowth of 
that was that we identified several. Perhaps some of the ones 
you named are ones that we actually identified and removed from 
the program and instigated collection procedures for.
    We are, obviously, zero tolerance for letting people into 
the program who are not qualified and who are intent to defraud 
the taxpayers and the Medicare beneficiaries, and we think we 
are making progress on that.
    As I say, I think many of those examples are ones that we 
actually identified, ourselves, through our stepped-up 
attention to the qualification of suppliers.
    Mrs. Biggert. And then I think in the paper just yesterday 
was the Medicare program paid an estimated $20.6 million for 
health care to people that are dead. How is this found?
    Mr. Hash. That was a systems problem that related to the 
notification of the death of beneficiaries and the failure of 
that notification to have triggered the timely suspension of 
capitation payments to HMOs. We have, we believe, corrected 
that systems problem, and we have collected all of the 
overpayments, or are in the process of collecting the 
overpayments associated with that mistake.
    Mrs. Biggert. Thank you.
    Mr. Chairman, before we conclude--I do not know if you have 
more questions--I think that I would like to thank all the 
participants for their testimony, but I still believe that we 
need to really address the issue of the Medicare and Medicaid 
fraud and abuse at a different time, so I would ask at some 
time that we do schedule a hearing on this issue separately and 
look at the GAO report that was issued in October.
    Mr. Horn. Thank you. That is a good suggestion. We will do 
that.
    Any other questions?
    [No response.]
    Mr. Horn. OK. I want to thank you all for coming. There 
have been very good questions here that have gotten a lot of 
these important issues. I particularly thank all of you that 
have been so knowledgeable in this, and we are depending on you 
to be the ones that figure out a way that we do not defraud the 
government, in particular.
    Obviously, we want to help you, if it takes additional 
legislative language.
    I want to also thank the staff on both the Democratic side 
and the Republican side for putting things together for this 
hearing: J. Russell George is the staff director and chief 
counsel for the majority; Louise DiBenedetto is the chief 
auditor on loan from the General Accounting Office for the 
subcommittee and the counsel for this hearing, and that is the 
distinguished member of the staff on my left and your right; 
Bonnie Heald, director of communications; Bryan Sisk, clerk to 
the subcommittee; and Ryan McKee, staff assistant.
    And for the democratic staff we have Trey Henderson, 
counsel to Mr. Turner and the subcommittee there, and Jean 
Gosa, minority clerk, and our faithful court reporter, who I 
think can now hear what people are saying. Thank you. That is 
Mike Willsey.
    Thank you very much for coming.
    With that, we are adjourned.
    [Whereupon, at 11:48 a.m., the subcommittee was adjourned.]