[Senate Hearing 106-521]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 106-521

OVERSIGHT OF HCFA'S SETTLEMENT POLICIES: DID HCFA GIVE THREE PROVIDERS 
                           SPECIAL TREATMENT?

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



                                HEARING

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 28, 2000

                               __________

      Printed for the use of the Committee on Governmental Affairs



                    U.S. GOVERNMENT PRINTING OFFICE
64-583 cc                   WASHINGTON : 2000

_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
         U.S. Government Printing Office, Washington, DC 20402




                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
             Hannah S. Sistare, Staff Director and Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                 Darla D. Cassell, Administrative Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                   SUSAN M. COLLINS, Maine, Chairman
WILLIAM V. ROTH, Jr., Delaware       CARL LEVIN, Michigan
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         MAX CLELAND, Georgia
THAD COCHRAN, Mississippi            JOHN EDWARDS, North Carolina
ARLEN SPECTER, Pennsylvania
          K. Lee Blalack, II, Chief Counsel and Staff Director
      Linda J. Gustitus, Minority Chief Counsel and Staff Director
                     Mary D. Robertson, Chief Clerk




                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page

    Senator Collins..............................................     1
    Senator Levin................................................     3
    Senator Thompson.............................................     6
    Senator Durbin...............................................    20

                               WITNESSES
                        Tuesday, March 28, 2000

Robert H. Hast, Acting Assistant Comptroller General, Office of 
  Special Investigations, accompanied by William D. Hamel, 
  Special Agent, Office of Special Investigations, and Robert P. 
  Murphy, General Counsel, U.S. General Accounting Office........     8
Jean Ohl, Technical Health Insurance Specialist, Health Care 
  Financing Administration.......................................    30
Tony Seubert, Payment Specialist, Health Care Financing 
  Administration.................................................    36
Charles R. Booth, Director, Financial Services Group, Health Care 
  Financing Administration.......................................    42
Bruce C. Vladeck, Former Administrator, Health Care Financing 
  Administration.................................................    54

                     Alphabetical List of Witnesses

Booth, Charles R.:
    Testimony....................................................    42
    Prepared statement...........................................    78
Hast, Robert H.:
    Testimony....................................................     8
    Prepared statement...........................................    69
Ohl, Jean:
    Testimony....................................................    30
Seubert, Tony:
    Testimony....................................................    36
Vladeck, Bruce C.:
    Testimony....................................................    54
    Prepared statement...........................................    82

                              Exhibit List

* May Be Found In The Files of the Subcommittee

 1. GCopy of HCFA Regulation, 42 CFR Sec. 401.601 Basis and 
  Scope, regarding debt collection...............................   101

 2. GCopy of HCFA Regulation, 42 CFR Sec. 401.603 Definitions, 
  regarding definition of a claim................................   102

 3. G3/6/97 E-mail from Jean Ohl to Charles Booth regarding LA 
  County settlement as a subversion of regulations...............   103

 4. G2/22/94 E-mail from Charles Booth to Thomas Ault regarding 
  issuance of NPR (Notices of Program Reimbursement) to VNSNY 
  (Visiting Nurse Service of New York)...........................   104

 5. G3/16/94 E-mail from Charles Booth to Judy Stec regarding 
  confidentiality provision in VNSNY settlement agreement........   105

 6. G11/27/96 E-mail from Charles Booth to officials in HCFA's 
  San Francisco Regional Office regarding LA County settlement--
  ``Bruce Vladeck hopes we can move this process faster . . .''..   106

 7. G11/29/96 E-mails from Alysson Blake to Charles Booth 
  regarding LA County settlement--``I don't know what Chuck 
  thinks we can `negotiate' . . . without additional 
  documentation . . .''..........................................   107

 8. G3/7/97 E-mail from Jean Ohl to Charles Booth regarding LA 
  County settlement, requesting OGC (Office of General Counsel) 
  concurrence that settlement be in compliance with State laws...   108

 9. G4/28/97 Letter from Mark Finucane of LA County to Bruce 
  Vladeck thanking him for the LA County settlement..............   109

10. G12/1/94 memorandum from Darrel J. Grinstead of HCFA's Office 
  of General Counsel to Bruce Vladeck advising him that the 
  monetary aspects of the Howard University Hospital agreement 
  have been approved by the Department of Justice................   110

11. G31 U.S.C., Sec. 3711 Collection and Compromise, Federal 
  Claims Collection Act..........................................   111

12. G2/8/94 E-mail from Charles Booth to Thomas Ault regarding 
  exit conference between VNSNY and its fiscal intermediary, 
  United Government Services.....................................   113

13. G4/7/97 Letter from Bruce C. Vladeck to Kevin Thurm regarding 
  ``Settlement of Cost Report Issues with Los Angeles County''...   114

14. G3/27/00 Letter to the Permanent Subcommittee on 
  Investigations from the Department of Justice regarding HCFA 
  settlements....................................................   115

15. GExcerpt from Provider Reimbursement Manual addressing 
  ``Overpayments to Providers''..................................   117

16. GExcerpt from Medicare Intermediary Manual addressing 
  ``Overpayments for Provider Services''.........................   119

17. GExcerpt from the Permanent Subcommittee on Investigations' 
  March 6, 2000, deposition of Charles R. Booth in which Mr. 
  Booth states ``[m]ost every other provider goes through the 
  administrative process''.......................................   122

18. G5 CFR Sec. 2635.502--Standards of Ethical Conduct for 
  Employees of the Executive Branch..............................   123

19. G3/27/00 Letter to the Permanent Subcommittee on 
  Investigations from Robert J. Anello, attorney for Bruce C. 
  Vladeck, regarding GAO's investigation.........................   124

20. G8/1/97 Program Memorandum regarding ``Calculation of Average 
  Cost Per Visit For Home Health Services''......................   128

21. a. GSettlement Agreement between Visiting Nurse Service of 
  New York (VNSNY) and the Department of Health and Human 
  Services, Health Care Financing Administration (HCFA)..........   130

    b. GSettlement Agreement between New York City Health and 
      Hospitals Corporation (NYCHHC) and the Department of Health 
      and Human Services, Health Care Financing Administration 
      (HCFA).....................................................   137

    c. GSettlement Agreement between Department of Health 
      Services, County of Los Angeles (LA County) and the 
      Department of Health and Human Services, Health Care 
      Financing Administration (HCFA)............................   143

    d. GSettlement Agreement between Howard University (HU) and 
      the Department of Health and Human Services, Health Care 
      Financing Administration (HCFA)............................   146

22. GSEALED EXHIBIT: Permanent Subcommittee on Investigations 
  Deposition of Thomas A. Ault, March 16, 2000...................     *

23. GSEALED EXHIBIT: Permanent Subcommittee on Investigations 
  Deposition of Charles R. Booth, March 6, 2000..................     *

24. GSEALED EXHIBIT: Permanent Subcommittee on Investigations 
  Deposition of Bruce C. Vladeck, March 9, 2000..................     *

25. GGAO Report to the Chairman, Permanent Subcommittee on 
  Investigations, Committee on Governmental Affairs, U.S. Senate, 
  ``HCFA: Three Largest Medicare Overpayment Settlements Were 
  Improper,'' February 2000, GAO/OSI-00-4........................   154

26. G3/27/00 Memorandum from Michael Hash, Deputy Administrator, 
  Health Care Financing Administration, to K. Lee Blalack, II, 
  Chief Counsel and Staff Director, Permanent Subcommittee on 
  Investigations, regarding ``Guidance on the Resolution of 
  Medicare Payment Disputes''....................................   210

27. G3/27/00 Letter from Congressman Charles B. Rangel (D-NY) to 
  Senator Susan Collins, Chairman, Permanent Subcommittee on 
  Investigations, regarding Subcommittee's hearing and support of 
  HCFA and Bruce Vladeck.........................................   245

28. G3/27/00 Letter from Congressman Henry A. Waxman (D-CA) to 
  Senator Carl Levin, Ranking Minority Member, Permanent 
  Subcommittee on Investigations, regarding Subcommittee's 
  hearing and LA County settlement...............................   246

29. GStatement for the record of the Visiting Nurse Service of 
  New York (VNSNY)...............................................   248

30. GSubmission for the record of the National Association for 
  Home Care (NAHC)...............................................   252

31. GSubmission for the record of the National Association of 
  Public Hospitals and Health Systems (NAPHS)....................   254

32. G4/10/00 Letter from Robert H. Hast, Assistant Comptroller 
  General for Special Investigations, General Accounting Office, 
  to Senator Susan M. Collins, Chairman, Permanent Subcommittee 
  on Investigations, regarding issues raised at March 28, 2000 
  Subcommittee hearing...........................................   256

33. G4/11/00 Letter from Mark Finucane, Director, County of Los 
  Angeles, Department of Health Services, to the Permanent 
  Subcommittee on Investigations, regarding the Subcommittee's 
  March 28, 2000 hearing and Medicare settlements................   258

34. G5/11/00 Letter from the Department of Health and Human 
  Services (HHS) to the Permanent Subcommittee on Investigations, 
  concern HHS' letter to the General Accounting Office (GAO) 
  regarding GAO's report on HCFA settlements.....................   261

35. G4/30/93 Letter from the Department of Health and Human 
  Services' Office of General Counsel (HHSOGC) to the Office of 
  Government Ethics regarding review of Bruce Vladeck's financial 
  disclosure report and HHSOGC's advisement of Vladeck to take 
  certain actions in order to avoid the potential for conflict of 
  interest.......................................................   268

 
OVERSIGHT OF HCFA'S SETTLEMENT POLICIES: DID HCFA GIVE THREE PROVIDERS 
                           SPECIAL TREATMENT?

                              ----------                              


                        TUESDAY, MARCH 28, 2000

                                   U.S. Senate,    
              Permanent Subcommittee on Investigations,    
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:38 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan 
Collins, Chairman of the Subcommittee, presiding.
    Present: Senators Collins, Thompson, Specter, Levin, and 
Durbin.
    Staff Present: K. Lee Blalack, II, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Karina Lynch, 
Counsel; Brian C. Jones, Investigator; Claire Barnard, 
Detailee/HHS; Elizabeth Hays, Staff Assistant; Linda Gustitus, 
Minority Chief Counsel; Felicia Knight and Steve Abbott 
(Senator Collins); Robert Shea (Senator Thompson); Erin Quay 
(Senator Specter); Judy White (Senator Cochran); Erin Sammons 
and Cathy Bates (Senator Roth); Marianne Upton (Senator 
Durbin); and Laura Stuber (Senator Levin).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. The Subcommittee will come to order.
    Today, the Permanent Subcommittee on Investigations 
convenes this hearing to examine the settlement practices of 
the Health Care Financing Administration (HCFA), the Federal 
agency responsible for the Medicare program. This hearing is 
one in a series held by the Subcommittee during the past 3 
years to examine instances of waste, fraud, and abuse that 
siphon money out of the Medicare trust fund, costing billions 
of dollars and jeopardizing health care for our disabled and 
elderly citizens.
    Previous Subcommittee hearings have focused on Medicare 
fraud prevention and enforcement efforts, flaws in the 
enrollment process, and the ability of criminals to bill 
Medicare for bogus claims. The Inspector General of the 
Department of Health and Human Services recently found that 
improper Medicare payments to health care providers rose to 
$13.5 billion last year. I hope that the IG's report and 
oversight hearings, such as this one, will prompt HCFA to 
strengthen its financial controls. Indeed, I would note, as has 
happened with some of our previous hearings, HCFA last night 
issued new guidance on settlements, perhaps in response to the 
issues we will discuss today. The continuing drain in Medicare 
is all the more urgent given projections that the trust fund is 
threatened with insolvency in just 15 years.
    Last spring, I asked the General Accounting Office to 
investigate HCFA's settlement of debts owed to Medicare. Today, 
GAO officials will discuss the findings of a comprehensive 8-
month investigation in which they examined 96 settlements in 
which HCFA's claims exceeded $100,000. In 93 of those 
agreements, the GAO found nothing improper. For the three 
largest settlements, however, the GAO uncovered many 
irregularities. In these three settlements, HCFA circumvented 
the normal administrative process for resolving reimbursement 
disputes. These three claims represented 66 percent of all 
Medicare overpayment settlements for the 8\1/2\-year period 
reviewed by the GAO.
    Moreover, HCFA accepted payment of only $120 million, or 36 
percent, of the $332 million owed the Medicare trust fund by 
the three providers. Equally troubling, GAO found that HCFA 
agreed to reimburse two of the providers for certain future 
costs without documentation, special treatment that is contrary 
to the regulations and not allowed other health care providers.
    These findings raise serious concerns about the equity of 
the settlements. The three settlements also included highly 
unusual secrecy provisions intended, it appears, to prevent 
other health care providers from finding out about the special 
deals.
    Several officials involved in the settlement negotiations, 
including representatives of the fiscal intermediaries and the 
regional offices of HCFA, told the GAO that the settlements 
were not in the best interest of the Medicare trust fund. 
Despite the strong protests of these individuals, HCFA 
officials in Washington compromised the claims for less than 
their value. Moreover, in a Subcommittee deposition, the 
official who negotiated the agreements testified that he knew 
of no other Medicare provider in the country that had been 
afforded similar treatment.
    Contrary to HCFA's own regulations, no government attorney 
reviewed or approved the three questionable settlements. In 
fact, of the 96 overpayment settlements examined by GAO, these 
three settlements were the only agreements that were never 
reviewed by HCFA's Office of General Counsel.
    The first questionable settlement uncovered by GAO involves 
the Visiting Nurse Service of New York. In September 1991, the 
fiscal intermediary determined that VNSNY's average cost per 
home health visit was about $160, more than three times HCFA's 
limit of about $50 at that time. The intermediary concluded 
that VNSNY owed Medicare approximately $98 million for which 
HCFA ultimately agreed to accept $67 million in settlement in 
1995.
    The second case involves New York City Health and Hospitals 
Corporation, HHC. Between 1983 and 1993, the fiscal 
intermediary disallowed reimbursement for certain costs because 
HHC lacked the documentation necessary to prove that it had 
actually incurred the costs. HCFA settled this case in 1996 by 
accepting $25 million in payment of the $155 million debt.
    The third questionable settlement identified by the GAO 
involves the Department of Health Services, County of Los 
Angeles, LA County. Between 1987 and 1993, LA County's fiscal 
intermediary disallowed its claimed reimbursement for certain 
costs because, again, of missing documentation. In this case, 
HCFA agreed to accept $28 million in satisfaction of more than 
$79 million in overpayments. This agreement was reached in 
1997.
    The GAO's findings raise serious questions about the three 
settlements and the conduct of senior HCFA officials. Today, we 
will attempt to seek the answers to a number of critical 
questions.
    First, why did HCFA officials agree to these settlements in 
the first place?
    Second, why were the standard rules not followed? For 
example, why did HCFA officials not seek the approval of the 
Department's own lawyers as well as the Department of Justice 
before compromising multi-million dollar claims for only 36 
percent of what was owed?
    Finally, did pressure from the individual then serving as 
the administrator of HCFA cause settlements to be reached that 
were not in the government's best interest?
    We will hear testimony this morning from the GAO's Office 
of Special Investigations, various HCFA officials involved in 
the settlement negotiations, and former HCFA Administrator 
Bruce Vladeck.
    Finally, let me make clear the reasons why I am so 
concerned about what appeared to be improper settlements that 
may have cost the Medicare trust fund millions of dollars. As 
many health care providers and my colleagues know, no one has 
fought harder than I have to ensure that Medicare adequately 
reimburses our hospitals and home health agencies for the 
essential services that they provide to our Nation's elderly. 
One of my highest priorities last year was reversing excessive 
cuts in Medicare that were jeopardizing the ability of numerous 
well-run home health agencies and hospitals to care for our 
seniors and our disabled citizens. Thanks to a bipartisan 
effort which involved Senator Thompson and Senator Levin, as 
well as myself, we were successful in restoring some of these 
funds.
    When HCFA enters into improper settlements involving 
millions of dollars, it undermines the efforts of those of us 
advocating better rates of reimbursement. It jeopardizes our 
ability to afford new and better benefits for our senior 
citizens. It endangers the integrity and fairness of the entire 
system and it further strains an already shaky trust fund. For 
these reasons, I am extremely troubled by the GAO's findings.
    I would now like to recognize the Ranking Minority Member, 
Senator Levin, for his opening statement.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Madam Chairman. Today, we are 
looking at how HCFA resolved cost reimbursement disputes in the 
1990's with respect to three of the largest health care 
providers in the Medicare program. Each provider which is a 
subject of this hearing today is a nonprofit institution 
providing health care services in most cases to the poorest 
among us.
    The issues involved in these settlements are complex and 
some of them are legalistically challenging. The Department of 
Justice, HCFA General Counsel, and the GAO have been wrestling 
with the application of the Federal Claims Collection Act for 
years. In doing so, they have been trying to decide what is a 
claim, what is a debt, what is a compromise versus a 
settlement, and so on. These are the issues that lawyers and 
bureaucrats thrive on, and from all appearances, it does not 
look like HCFA did a very good job of clarifying these terms 
and applying them to the procedures required for settling cost 
reimbursement disputes.
    GAO argues that these settlements were improper because 
HCFA ``unilaterally chose not to obtain Justice Department 
approval of the settlements and ignored its own regulations and 
internal guidance,'' arguing that under the Federal Claims 
Collection Act, HCFA should have referred these settlements to 
the Justice Department for approval. This finding of GAO gives 
short shrift to the determination of the Department of Justice 
itself that settlements of cost reimbursement disputes such as 
these are not subject to the Federal Claims Collection Act and 
that in two of these cases, there were no claims by the Federal 
Government or HCFA against the providers. It was the opposite: 
The providers were seeking money held by HCFA that they 
believed HCFA owed them. Now, that is in two of the three 
cases, HCFA was holding money that the providers claimed was 
owed to the providers.
    GAO also argues that the settlements are improper because 
the administrator's participation in the settlement involving 
Health and Hospitals Corporation of New York, or HHC, ``raised 
conflict of interest concerns'' despite the lack of evidence, 
in my judgment, that there was such a conflict. The only fact 
pointed to by the GAO is that the administrator, Dr. Bruce 
Vladeck, had served as a volunteer on the board of HHC prior to 
coming to HCFA about 3 years before he was asked by the 
appointee of Mayor Giuliani to help HCFA reach a settlement 
with HHC. I do not think that is a covered relationship or 
close to it within the meaning of the regulations.
    Nor does the GAO explain how it can assert, based on its 
review of this case and without asking any of the providers for 
their opinions on the settlements themselves, that ``the 
providers were all able to pay the entire overpayment amount, 
that,'' in GAO's words, ``HCFA would have prevailed if the 
matters were litigated.'' How in the name of fairness and 
completeness can the GAO reach those conclusions without 
hearing from the providers about their views of the substance 
of the settlements?
    In fact, Madam Chairman, although given only a few hours to 
read the report, a written statement from one of the providers, 
the Visiting Nurses Service of New York, surely a highly 
respected entity, was submitted to the Subcommittee, and the 
Visiting Nurses Service has taken strong issue with the 
conclusions of GAO. For instance, with respect to GAO's 
strongest conclusion, that ``the settlement agreement with HCFA 
would permit the Visiting Nurses Service's reimbursement for 
costs for which the Visiting Nurses Service would not otherwise 
be entitled,'' the Visiting Nurses Service says, ``This 
conclusory statement is extremely damaging and totally 
inaccurate''--totally inaccurate.
    How in the name of fairness and completeness can the GAO 
then give us a conclusion that these claims were without merit, 
could not have been proven at litigation, without seeking the 
merit of those claims from the providers, about the basis for 
their claims?
    Now, the GAO report then goes well beyond criticizing HCFA 
for doing a poor procedural job in this area. The GAO claims 
that the three biggest settlements were ``improper,'' not only 
in the way they were reached, but also with respect to the 
substance of the settlements themselves. But again, they did 
not ask the providers for their comment about the substance of 
the settlements.
    Then the GAO said this. ``It is unlikely that any of the 
providers could have mounted strong defenses.'' How on earth, 
without asking the providers for their defenses, could GAO 
fairly and objectively conclude that it is unlikely that any of 
the providers could have mounted strong defenses?
    Now, when I asked my staff to do what the GAO had not done, 
ask the providers for their opinions of the settlements, each 
provider stated that they perceived the settlements to be 
``hard fought,'' and involving the expected ``give and take'' 
necessary for settling difficult cases. One provider, Health 
and Hospital Corporation of New York, told us, ``GAO wanted to 
hear about what we got, not what we gave up, and that is 
unfair.''
    Finally, when you look through the list of all the 96 
settlements reviewed by the GAO, the percentages that HCFA 
actually received of monies at issue in these three settlements 
are well within the ballpark of the percentages received in the 
other 93 settlements.
    So unlike their past work, including work for this 
Subcommittee which I found on the whole to be thorough and 
careful, I believe in this case the GAO unfairly omitted the 
other side of the settlement story, that of the providers, as 
to the substance. I emphasize ``of the settlement,'' because 
the GAO report goes far beyond evaluating the procedures, and 
we will hear much of that this morning, whether the procedures 
were proper or not. The GAO report goes to the substance of 
those settlements.
    Madam Chairman, I come to this issue as one who has fought 
the HCFA bureaucracy over the years on numerous occasions on 
behalf of health care providers in my home State. I have at 
least two ongoing battles with HCFA right now because I have 
too often experienced HCFA as a frustrating agency, slow to 
respond, unwilling at times to make accommodations for the 
real-life situations of our health care providers, 
bureaucratic, unwilling even to provide information which is 
requested, much less other materials.
    I believe it is not only the right, but the duty of the 
head of the health care provider or a political official in an 
affected area to try to get the attention of HCFA to address 
longstanding issues. I do not think it is improper for the head 
of a health care provider to pick up the phone and call the 
Administrator of HCFA to inform the administrator of a serious 
financial claim being imposed by HCFA on the provider which the 
provider thinks is unfair or inappropriate. That is what is 
supposed to happen.
    Moreover, I am not concerned by the fact that the head of 
HCFA, upon receiving such a phone call, would contact his 
assistant and direct him to try to resolve the problems 
identified by the call. The administrator would be remiss if he 
or she did not do that. But the GAO report implies that there 
is something improper when that happens.
    We are going to hear some confusing testimony today, 
conflicting versions of what key people have said about the 
process in these settlements. In the end, however, we are going 
to also have to deal with GAO's repeated inference that these 
three providers got more than they should have when I do not 
believe the GAO ever asked the providers for their side of that 
issue.
    So, Madam Chairman, with those tasks facing us, with the 
conflicting testimony and the complicated policy questions at 
issue here, the Subcommittee does indeed have its work cut out 
for us this morning. Thank you.
    Senator Collins. I am very pleased to now call on the 
Chairman of the full Committee, Senator Thompson.

             OPENING STATEMENT OF CHAIRMAN THOMPSON

    Chairman Thompson. Thank you, Madam Chairman. Madam 
Chairman, you have very ably brought out some very troubling 
problems. They are a part of a larger problem.
    Last November, I released a report by the General 
Accounting Office that touted the amount of overpayments made 
by the Federal Government. I found out that only 14 programs in 
all of the Federal Government even bothered to count their 
overpayments. Even then, in just 14 programs, we found that in 
1998, the Federal Government made overpayments totalling $19 
billion. Medicare accounted for $12.6 billion of that number. 
In 1996, numbers are just coming in, and it looks like 
overpayments in the Medicare program rose by almost $1 billion. 
That is no surprise.
    Every 2 years, GAO lists the programs in the government 
most vulnerable to waste, fraud, and abuse. Medicare has been 
on GAO's high-risk list since its inception. With overpayments 
in Medicare now estimated at $13.5 billion, the problem is 
getting worse. In the most recent reports from the Inspector 
General at the Department of Health and Human Services, I have 
learned that Medicare is paying millions of dollars for 
services provided to patients after they have died.
    So, as I say, unfortunately, what you have brought out here 
and will be bringing out today is just a part of a larger 
problem, and these matters that you have demonstrated, and the 
GAO I think very ably has demonstrated, is not just procedural. 
We are talking about millions of dollars here, $332 million 
that was settled for $120 million. Obviously, after the facts, 
you can go back and pick at the individual components and 
elements of any decision that is made, any settlement that is 
made or not made, but if the merits are so much in dispute and 
there are two such sides to this matter, why was it done in 
such secrecy?
    Why were procedures not followed? Why was this not approved 
by the Department of Justice in these large amounts when their 
practice and the law requires anything over $100,000 to be 
approved? Why was their own Office of General Counsel not 
involved in just these three settlements? Only in these three, 
these three huge settlements that constitute 66 percent of all 
Medicare overpayment settlements since 1991, in only these 
three, their Office of General Counsel was not involved. In 
fact, no government attorney at all reviewed these matters. And 
why was pressure brought to bear to get these settlements done 
and done in a way that apparently would not see the light of 
day?
    We will hear testimony as to whether or not this even fit 
the settlement criteria. My understanding is a determination 
has to be made by the people at HCFA as to whether or not it 
fits the settlement criteria, whether or not the provider can 
pay, whether or not HCFA could win, whether or not the cost of 
collection exceeds what they would collect. These 
determinations have to be made. You do not have to have a trial 
to determine whether or not they fit the settlement criteria. 
These are determinations that HCFA has to make based upon the 
information that they have, and that is the determination that 
GAO in turn came in and made after the fact.
    As I say, these are not just procedural matters. These are 
matters involving millions of dollars about which lower-level 
people in these agencies made determinations in secret costing 
apparently millions of dollars. As I said before, the most 
disturbing part of this is it seems to be a part of an overall 
problem where billions of dollars are going down the drain over 
at the Medicare program, billions of dollars that otherwise 
could be used for beneficiaries.
    Thank you, Madam Chairman.
    Senator Collins. Thank you, Senator Thompson.
    The Subcommittee has received two statements that will be 
included in the record. One is from the Visiting Nurses Service 
of New York.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 29 which appears in the Appendix on page 248.
---------------------------------------------------------------------------
    The second statement is a letter from Congressman 
Rangel.\2\ Both will be included in the hearing record, as will 
other statements that are received during the next 2 weeks.
---------------------------------------------------------------------------
    \2\ See Exhibit No. 27 which appears in the Appendix on page 245.
---------------------------------------------------------------------------
    I would now like to call forth our first panel of witnesses 
from the General Accounting Office. Our first witness this 
morning is Robert H. Hast, who is the Acting Assistant 
Comptroller General of the Office of Special Investigations. 
Accompanying Mr. Hast this morning is William Hamel, the 
Special Agent with GAO's Office of Special Investigations, and 
Robert Murphy, the General Counsel for GAO's Office of General 
Counsel. These gentlemen will be testifying regarding GAO's 8-
month investigation of HCFA's process for settling overpayment 
claims with Medicare providers.
    I would first like to welcome all three of you this morning 
and to thank you for GAO's comprehensive, thorough and 
excellent work on this investigation. The work is very much in 
keeping with the tradition of GAO and this Subcommittee has a 
very long tradition of working very closely with the GAO.
    Pursuant to Rule 6, all witnesses who testify before the 
Subcommittee are required to be sworn in, so at this time, I 
would ask that you stand and raise your right hand. Do you 
swear that the testimony you are about to give to the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Hast. I do.
    Mr. Hamel. I do.
    Mr. Murphy. I do.
    Senator Collins. Thank you. Mr. Hast, I am going to ask you 
to proceed with your statement.

 TESTIMONY OF ROBERT H. HAST,\1\ ACTING ASSISTANT COMPTROLLER 
   GENERAL, OFFICE OF SPECIAL INVESTIGATIONS, ACCOMPANIED BY 
      WILLIAM D. HAMEL, SPECIAL AGENT, OFFICE OF SPECIAL 
 INVESTIGATIONS, AND ROBERT P. MURPHY, GENERAL COUNSEL, OFFICE 
       OF GENERAL COUNSEL, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Hast. Madam Chairman and Members of the Subcommittee, 
thank you for inviting me here today to discuss the results of 
our investigation into HCFA's improper settlement of its three 
largest Medicaid overpayments [sic], executed between 1991 and 
1999. At this time, I would like to introduce our other 
representatives seated with me today. They are Special Agent 
William Hamel from my staff and our General Counsel, Robert 
Murphy.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hast appears in the Appendix on 
page 69.
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    As you are aware, the depletion of the Medicare trust fund 
has been the subject of significant scrutiny in recent years 
and we have previously reported that fraudulent and abusive 
practices have raised concerns about the program's 
vulnerabilities. As recently as March 15 of this year, we 
testified about HCFA's financial management and its need to 
further improve its controls and accountability to better 
ensure that improper payments are not made. HCFA, which 
administers the Medicare program, is required to ensure that 
debts owed the program are paid. Historically, rather than 
collect the entire debt, HCFA often enters into settlement 
agreements with providers and accepts less than the full amount 
owed.
    Although we found nothing improper with 93 of the 96 
settlements for overpayments in excess of $100,000 that HCFA 
provided us, we did determine that HCFA acted improperly in 
settling its three largest matters in 1995, 1996, and 1997. 
These three overpayment matters totaled $332 million, or 66 
percent of all Medicare overpayment settlements for which HCFA 
provided us records. HCFA agreed to accept $120 million of the 
$332 million in its settlement of these matters.
    The first of these three settlements was preceded by just 2 
months by a large settlement that was referred to the 
Department of Justice and Justice refused to allow HCFA to 
execute. We determined that then-HCFA Administrator Bruce 
Vladeck had directed the three improper settlements be made and 
that he had a prior professional association with two of the 
three providers just prior to being appointed HCFA 
Administrator.
    In the largest settlement, $155 million in overpayments to 
a hospital that HCFA settled for $25 million, Mr. Vladeck had 
been on the hospital's board of directors, which raised 
conflict of interest concerns. In this instance, we learned 
that Kevin Thurm, then chief of staff to the HHS Secretary and 
current Deputy Secretary, instructed Mr. Vladeck to inquire 
about the status of the overpayments. As a result, Mr. Vladeck 
suggested to Mr. Charles Booth, HCFA's then-Director of Payment 
Policy who Mr. Vladeck had tasked with making the settlement, 
that time was more important than money and instructed him to 
move more quickly to settle, this despite Mr. Booth's protest 
to Mr. Vladeck that quickening the process could cost HCFA an 
extra $8 million to $10 million.
    Remarkably, despite this being HCFA's largest settlement, 
HCFA kept no records or documentation about the settlement, not 
even a copy of the settlement agreement itself. We were 
fortunate that the fiscal intermediary maintained records and 
furnished them to us.
    Mr. Vladeck also failed to disclose his affiliation with 
the other provider, a home health care agency, on his financial 
disclosure forms upon his appointment. We could not resolve 
these issues given his refusal to meet with us.
    HCFA's regulations and internal guidance state that HCFA 
must refer all settlements over $100,000 to the Department of 
Justice for approval in accordance with the Federal Claims 
Collection Act. Two months prior to initiating the first of 
these three improper settlements, HCFA had been notified that a 
HCFA-proposed settlement that was referred to Justice on 
another multi-million-dollar overpayment was rejected by 
Justice. Mr. Booth, the official who negotiated the three 
improper settlements, chose not to seek Justice approval or 
HCFA's own Office of General Counsel review because he told us 
that he was concerned if he did the three large settlements 
would go up in smoke as they were written. He also told us that 
he knew that these settlements were not in the best interest of 
the government.
    Concerning the specifics surrounding the three settlements, 
HCFA appears to have disregarded the permissible settlement 
criteria established by regulation since evidence suggests that 
the providers were all able to pay the entire overpayment 
amount, that HCFA would have prevailed if the matters were 
litigated, and the amount of recovery would have exceeded the 
cost of collecting the multi-million-dollar debts.
    In addition, the agreements were troubling for other 
reasons, as they contained several questionable provisions. The 
terms of two of the settlement agreements, which were to be 
kept confidential, permit future provider reimbursement for 
costs for which they would not otherwise be entitled. These 
provisions do not ensure that the payments made are not 
improper in that they allow billing without auditable 
recordkeeping. HCFA also waived interest and required the 
refunding of interest already paid and permitted repayment in 
installments for one of the agreements, despite contrary 
directions in its internal guidance.
    Mr. Booth disregarded the objections of knowledgeable HCFA 
and fiscal intermediary officials who protested the settlements 
as being bad precedents. Lastly, HCFA officials acted 
imprudently by executing these settlement agreements which 
relinquished the government's right to recover tens of millions 
of dollars without the benefit of any legal counsel review.
    Finally, we are disturbed that after we advised HCFA of our 
specific questions in advance about its collection of 
overpayment process, such as how does HCFA define a claim, when 
does a claim become a debt, who is HCFA's appropriate agency 
official to determine a claim or the applicability of the 
Federal Claims Collection Act to Medicare overpayments, that 
neither its Chief Financial Officer, Michelle Snider, nor its 
Chief Counsel, Sheree Kanner, could answer these questions. 
Even more troubling was that after these interviews, we gave 
HCFA the opportunity to respond in writing to these questions, 
yet its letter to us from the Deputy Administrator, Michael 
Hash, was unresponsive to our questions.
    The chronologies of the three improper settlement and our 
legal analysis of the Federal Claims Collection Act to the 
Medicare program can be found in the report we previously 
issued to you.
    At this time, I would like to submit my statement for the 
record. Madam Chairman, this completes my prepared statement. I 
would be happy to respond to any questions you or other members 
of the Subcommittee may have.
    Senator Collins. Thank you very much for your statement, 
and again, thank you for a thorough, well-documented report.
    I am particularly troubled by four findings: First, that 
HCFA violated its own rules and regulations; second, that the 
agreements included highly unusual secrecy provisions that were 
intended to prevent anyone from finding out about these deals; 
third, that the Administrator of HCFA at that time, Bruce 
Vladeck, pressured subordinates to reach these agreements; and 
fourth, that the agreements included provisions for special 
treatment that were not afforded to other health care 
providers. So I would like to focus on those four points in 
this first round of questioning.
    Mr. Hamel, I want to direct this question to you. One of my 
chief concerns, as I mentioned, is that HCFA appears to have 
circumvented its own regulations in approving these 
settlements. Can you tell us if HCFA ever showed these three 
settlements to its own lawyers in the Office of General 
Counsel?
    Mr. Hamel. No, they did not.
    Senator Collins. And of the 96 settlements that you 
reviewed data from 1991 through 1999, were there any other HCFA 
settlements that were never shown to the Department's own 
lawyers?
    Mr. Hamel. No.
    Senator Collins. So these three settlements, which 
constituted the three largest settlements during the past 
decade, were the only ones that were not shown to HCFA's 
lawyers or to the Department of Justice, indeed, to any 
government lawyer, is that accurate?
    Mr. Hamel. That is correct.
    Senator Collins. As part of your investigation, Mr. Hamel, 
I understand that you interviewed Charles Booth, who is the 
official who negotiated the settlements, is that correct?
    Mr. Hamel. Yes, it is.
    Senator Collins. Did Mr. Booth tell you that he knew at the 
time that he negotiated the settlements of the requirement 
within HCFA's own rules to obtain the approval of the Office of 
General Counsel and the Department of Justice?
    Mr. Hamel. Yes, he told us that.
    Senator Collins. In explaining why he did not seek this 
approval, did Mr. Booth also tell you that if he had shown the 
three agreements to the Department's own lawyers or to the 
Department of Justice, he feared that ``the deals would go up 
in smoke?''
    Mr. Hamel. Yes.
    Senator Collins. Is it also your testimony that Mr. Booth 
told you that if the Department of Justice had objected to the 
settlements that he would be unable to satisfy Mr. Vladeck, who 
was then the administrator?
    Mr. Hamel. Yes.
    Senator Collins. And did he also tell you that he felt at 
the time he negotiated the settlements that they were not in 
the best interest of the Medicare trust fund?
    Mr. Hamel. I will clarify. He said that they were not in 
the best interest of the government.
    Senator Collins. They were not in the best interest of the 
government. Is it your conclusion that Mr. Booth agreed to the 
settlements that he knew were not in the government's best 
interest because of the pressure he was receiving from Mr. 
Vladeck?
    Mr. Hamel. That is the impression he gave us.
    Senator Collins. Mr. Hamel, were you also told by another 
HCFA official, Mr. Seubert, that giving HHC a waiver from the 
supporting documentation requirement was ``unique and set a 
terrible precedent''?
    Mr. Hamel. Yes.
    Senator Collins. And were you also told by an employee of 
Medicare Empire Services, which I understand was the fiscal 
intermediary for HHC, that he was not happy that HCFA had 
excluded HHC from having to document is bad debt costs?
    Mr. Hamel. Yes.
    Senator Collins. Did he also express the concern that an 
exception was being made and that HCFA was holding other 
providers to a different standard?
    Mr. Hamel. Yes.
    Senator Collins. Mr. Murphy, it is my understanding that 
you are the General Counsel of GAO, is that correct?
    Mr. Murphy. I am.
    Senator Collins. I find it very troubling that secrecy 
provisions were included in these three agreements. Are they 
not public claims and would they not usually be subject to the 
Freedom of Information Act?
    Mr. Murphy. Normally they would, Madam Chairman.
    Senator Collins. Did the GAO discover why HCFA and the 
providers wanted to keep these claims secret? If you are not 
the appropriate person to answer that, Mr. Hast or Mr. Hamel 
maybe?
    Mr. Hast. Yes. They felt that if they did not keep them 
secret, it may set a bad precedent. Other providers would want 
the same deal.
    Senator Collins. So the concern was that because there were 
some unusual provisions in these agreements giving special 
treatment to these three providers that would not be available 
to other providers, if that became known, then other hospitals 
and other home health agencies might cite this as a precedent 
in settling their own disputes with HCFA, is that fair?
    Mr. Hast. Yes, I would say that is fair.
    Senator Collins. Related to that issue and one of the most 
disturbing findings of the report, which is really chock-full 
of disturbing findings, is that two of the settlements actually 
permit providers to be reimbursed for future costs regardless 
of whether or not there are documents to support those costs, 
is that correct, Mr. Hamel?
    Mr. Hamel. Yes.
    Senator Collins. Now, I do not understand how that can be. 
Is HCFA actually going to pay claims for which there is no 
documentation, Mr. Hamel?
    Mr. Hamel. Yes.
    Senator Collins. So in two of these agreements, HCFA has 
agreed to pay money out of the Medicare trust fund even if 
there is no supporting documentation to prove that the services 
were provided, is that correct?
    Mr. Hamel. That is correct.
    Senator Collins. Did the fiscal intermediaries find those 
provisions troubling, Mr. Hamel?
    Mr. Hamel. Yes.
    Senator Collins. Could you tell us of the concerns that 
they expressed?
    Mr. Hamel. They were concerned in one instance that, again, 
as Mr. Hast had said, that other providers who were similarly 
situated would want to request the same particular benefit that 
that provider had received. In the other instance, Empire had 
expressed to us concerns that they have to deal with many 
providers and hold them to a standard of providing 
documentation and that they also have to deal with providers 
who are similarly situated, potentially have cost 
disallowances, and they feel uncomfortable lying to them, 
telling them, well, we have to hold everybody to the same 
standard.
    Senator Collins. Are you aware of any other provider 
elsewhere in the country that is receiving this kind of special 
treatment from HCFA in which they are allowed to be reimbursed 
for future costs and yet they do not have to prove that they 
actually incurred the costs?
    Mr. Hamel. No.
    Senator Collins. Mr. Murphy, the General Accounting Office 
report raises an issue of whether conflicts of interest, either 
actual ones or an appearance of a conflict, may have been a 
factor in the settlement of these cases. Could you please 
elaborate on what brought forth the conflict of interest issue?
    Mr. Murphy. Well, our OSI investigators came to the Office 
of General Counsel and asked whether, because the then-head of 
HCFA, Mr. Vladeck, had at one time been a director of one of 
the providers, whether that presented a legal problem from the 
viewpoint of the government's ethics rules, and so that is how 
we got involved in it.
    The bottom line is that with respect to a black letter 
violation, there is not one here. Mr. Vladeck had not been a 
director of the provider for 3 years. The issue is whether 
under the regulations promulgated by the Office of Government 
Ethics he should have raised the issue and consulted with the 
ethics officer in HCFA. The provision reads that an employee 
who is concerned that their dealings would raise a question 
regarding their impartiality, then they should consult with the 
ethics officer.
    In our view, even though he had not been a director for 
several years, this would have raised an issue of his 
impartiality and he should have consulted.
    Senator Collins. Mr. Vladeck, it is my understanding, 
served as a director of HHC up almost to the point that he 
became the HCFA Administrator. I believe he resigned as a 
director the month before he was confirmed, is that correct?
    Mr. Murphy. That is right. He resigned in April 1994. He 
had been a director, I believe, for 2 years prior to that.
    Senator Collins. So in your judgment, given his previous 
relationship as a director of HHC and the magnitude of the 
money involved, it would have been prudent for him to seek 
advice from the agency ethics officer as to whether or not he 
had an appearance of a conflict of interest and should have 
recused himself?
    Mr. Murphy. I agree with your terminology. It would have 
been prudent for him to have done so.
    Senator Collins. I will be asking Mr. Vladeck whether he 
did so. If he did not do so, does it cast a further shadow on 
the impartiality of this decision, given that the rules were 
circumvented?
    Mr. Murphy. Well, I think these provisions of the 
government ethics rules really go to the confidence of the 
public in public servants. Any time public servants act in ways 
that raise questions about their impartiality, it seems to me 
that the underlying purpose of the rules is being constrained.
    Senator Collins. Mr. Hast, the attorney for Mr. Vladeck 
yesterday sent me a letter that raises an issue about the 
propriety of Mr. Hamel's involvement in this investigation 
given work that he had done on this investigation in a previous 
capacity with the Office of the Inspector General. Were you 
aware of that concern and could you comment to us on what 
actions you took?
    Mr. Hast. Yes, I am aware of that concern. When we hired 
Mr. Hamel approximately a year and a half ago at the Office of 
Special Investigations, we just sat down and discussed our 
health care program in our office, and one of the things that 
Mr. Hamel told me is because of prior investigations he had 
done with the HHS IG, he had questions as to how HCFA acted in 
making large settlements. Because of that, we had a meeting 
with the HHS IG and her staff and discussed large HCFA 
settlements and they said that they had not investigated any 
other than the very single settlement that Mr. Hamel had been 
involved in and they had never gone to HCFA and asked them 
about all of their settlements and that they did not have it in 
their work plan for this year and that they saw no reason that 
Mr. Hamel could not participate in an investigation based on 
the work he had done.
    We then went to the Department of Justice and discussed his 
prior involvement in work with the Department of Justice when 
he was with the HHS IG. The Department of Justice and the 
judicial district in which he worked both said that as long as 
he followed certain guidelines, there would be no problem in 
him participating in the investigations.
    We then proceeded to discuss this with your staff, and I 
know that your staff has discussed it with Senate counsel and 
it was determined that we would be able to proceed, and I feel 
that we have fulfilled all our obligations to have Mr. Hamel 
conduct this investigation and I am very, very comfortable with 
how we handled it.
    Senator Collins. Thank you. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    Mr. Hast, you say in your report that ``HCFA would have 
prevailed if the matters were litigated.'' Later on in the 
report, you say ``it is unlikely that any of the providers 
could have mounted strong defenses.'' Those are sweeping 
conclusions on the substance. Your office told us that when you 
talked to the providers about these settlements, you asked only 
about the process, not about the substance. In fact, one 
provider told us ``GAO wanted to hear about what we got, not 
about what we gave up, and that is unfair.''
    Now, how could you make those conclusions that it is 
unlikely that any of the providers could have mounted strong 
defenses without talking to the providers about their views of 
the substance of the settlements, giving them a chance to tell 
you why they thought this money was owing to them?
    Mr. Hast. When we discussed the settlements with the 
providers, there was a give and take and the providers did talk 
about their feelings on the settlements. Our analysis of why we 
felt they could not prevail is based on what the fiscal 
intermediary said, what the other HCFA individuals told us, and 
what the providers told us. In discussing this with our legal 
counsel, our analysis of that is that it was not likely that 
they could have prevailed.
    Senator Levin. Did you put into your report their arguments 
on the substance?
    Mr. Hast. No, we did not.
    Senator Levin. I want to read you something that the 
Visiting Nurses wrote us. Now, they only had a few hours to 
review this report. ``The Visiting Nurses Service of New 
York''--I think you would agree, this is a reputable 
organization?
    Mr. Hast. Yes.
    Senator Levin. ``--is extremely distressed about the March 
2000 GAO report. As part of its attack against the Health Care 
Financing Administration, its allegedly inappropriate 
settlement of disputes with three providers, inaccurate and 
very damaging statements are made in the report about the 
behavior of the Visiting Nurses Service,'' and then it says, 
``This statement seeks to correct some of the most egregious 
and inaccurate allegations in the report.''
    Jumping down to page 2, and I think the Chairman has put 
this report in the record, this statement of the Visiting Nurse 
Service of New York, page 2, ``Contrary to the implication in 
the GAO report, the difference in length between Medicare and 
non-Medicare visits does not make it inappropriate for VNS to 
include such visits in its cost report. We resent and take 
issue with the implication in the report that the settlement 
agreement with HCFA would permit provider reimbursement for 
costs for which the provider would not otherwise be entitled. 
This conclusory statement is extremely damaging and totally 
inaccurate.''
    Now, you have given us a report in which you say that they 
are not entitled to this, that they in their settlement 
obtained something that they were not entitled to receive. 
They, a highly reputable outfit, say that that is totally 
inaccurate, and then they go on and they say this is unfair and 
it is untrue and they say why they were entitled to this 
outcome. This is their position on the substance, and yet not 
one word do we get from the Visiting Nurses Service giving 
their side of the story in the GAO report. Instead, we have 
your conclusion that they would not have prevailed, basing that 
on the fiscal intermediary of HCFA, which of course takes the 
same position that HCFA would have taken and HCFA was arguing.
    Now, I must tell you, I think that that failure to give to 
this Subcommittee VNS's argument on the substance as to why 
they believe they had a good case is unfair. I think it omits 
one side of the story; it fails to give us the arguments that 
they make so that we can see whether or not your conclusion, 
and after all, you base a great deal of your conclusion on a 
sub-conclusion that they would not have prevailed, and yet 
their argument as to why their case was meritorious is not even 
presented to us by the GAO. Why did you not ask them for the 
substance of their argument and why did you not put the 
substance of their argument in your report?
    Mr. Hast. I think in the interview process, we discussed 
the substance of their argument, but I would like to point out 
that they requested the settlement. They are the ones that made 
phone calls to the Director of HCFA asking for the settlement. 
They were not interested in litigating. They wanted to settle 
prior to getting into litigation. Mr. Hamel may have a little 
bit more on the discussion of the substance.
    Mr. Hamel. Well, on the substance, we had substantial 
documentation maintained by HCFA and the fiscal intermediary on 
what VNS's arguments were for why they felt what they did was 
acceptable. We interviewed them. We heard what they believed 
was their case. But at the end of the day, they chose not to 
bring this case forward to the Provider Reimbursement Review 
Board. Instead, they chose to ask for a settlement.
    Senator Levin. Are you suggesting that people who propose 
that a claim be settled do not believe that they have a 
legitimate claim?
    Mr. Hamel. We did not suggest that they did not have a 
legitimate claim.
    Senator Levin. Did you not tell our staff that you did not 
ask the providers about the substance of the settlements, only 
the process? Is that correct, that that is what you told our 
staff?
    Mr. Hamel. I probably did say something to that effect to 
your staff.
    Senator Levin. And yet, you concluded in your report that 
they would have lost on the substance. Even though you did not 
ask them about their arguments on the substance, you did not 
present to this Committee their arguments on the substance, you 
concluded that they would have lost the case on the substance. 
I find that, frankly, startling. I find it a failure on the 
part of the GAO to give us the side of the story of the 
providers here. That is a critical part of the story.
    The process issues are important, by the way. I know we are 
going to be going into the process issues, and we should. But 
to suggest, to find, as you found in your report, that they 
would have lost this case without asking them about the merits 
of their case, without presenting to us what those arguments 
are, it seems to me is one side of the story and there is a 
very important other side of the story.
    We have two other providers, legitimate groups of 
hospitals, numerous hospitals, negotiating for years with 
millions and millions of dollars at stake relative to their 
survival financially with millions of cases, patients, pieces 
of paper who would come into them, and yet the providers are 
not asked, why is it you thought you were entitled to this? 
They were not asked, nor were we told their position. Instead, 
we are given a conclusion, that GAO thinks they would have lost 
on the merits. Therefore, these settlements are improper. I 
think that is wrong. I do not think it is consistent with what 
the GAO has done over the years.
    Now, let me ask you some questions, Mr. Hast. Did you 
conclude that Mr. Vladeck did anything illegal?
    Mr. Hast. No.
    Senator Levin. Did you conclude that Dr. Vladeck did 
anything criminal?
    Mr. Hast. No.
    Senator Levin. You have also suggested that Dr. Vladeck 
would not talk to you, that you invited him in and he would not 
talk to you. His attorney, Dr. Vladeck's attorney, wrote a 
letter to the Committee saying that in October of last year, he 
notified Majority counsel that Dr. Vladeck was available for an 
interview--this is long before your report was completed--and 
he was told, and this is what he represents to us, I do not 
know if he was or not, that the train had left the station, 
that the GAO already was preparing a report.
    Now, why would you not take up Dr. Vladeck's offer to talk 
to him since this was October 1999 and since there was 
apparently a grand jury proceeding? His attorney wanted that to 
be completed, as I understand it. It was completed and then he 
said, OK, we would be happy to have Dr. Vladeck talk to you, 
and yet you did not take up that offer, and yet conclude 
repeatedly that his failure to talk to you led to some kind of 
a negative implication. Why did you not talk to him last 
October?
    Mr. Hast. Between the middle of July and the middle of 
October, we contacted his attorney 15 times. On several of 
those occasions, his attorney told us he would set up an 
interview. The interview was set up. Two weeks would pass. At 
the 11th hour, he would cancel the interview. That happened on 
numerous occasions. We asked the Committee to intercede to see 
if they could get him to come in. The Committee interceded. We 
continued with negotiations back and forth suggesting he would 
cooperate and be interviewed and then having him at the last 
minute decide not to. It appeared to be a delaying tactic.
    We also made an offer to Mr. Vladeck because of his concern 
about the prior case that was a grand jury matter that we would 
ask absolutely no questions about that settlement. We would 
just interview him on the other two settlements that surfaced 
afterwards. He did not come in on that offer.
    We had to process the report. We had a deadline to present 
it to the Committee. We gave him a final offer as to when we 
were able to interview him. The letter saying that he was 
available did not make it so. As we know, he did not really 
come in until a couple days before this hearing, and those were 
continuing negotiations with the Committee.
    Senator Levin. So, basically, you disagree, then, with his 
lawyer's letter that he in October of last year made a clear 
offer to come in and talk to you?
    Mr. Hast. I had no confidence that was a good faith offer.
    Senator Levin. All right. Now, Mr. Murphy, I am puzzled by 
your conclusion on the conflicts of interest matter, and I want 
to read from the letter of the HCFA ethics official to the OGE 
confirming an element of Dr. Vladeck's ethics agreement, and 
here is the relevant paragraph.
    Senator Collins. Senator Levin, I am going to ask you to 
finish with that question so that we can go on to Senator 
Thompson.
    Senator Levin. I am sorry. I did not notice. I will pick 
that up next round. Thank you.
    Senator Collins. Senator Thompson.
    Chairman Thompson. Thank you very much, Madam Chairman.
    Could you explain a little bit about how the initial 
determination was made that these monies were owed by these 
providers? Were these initial determinations made by the so-
called fiscal intermediaries?
    Mr. Hamel. Yes.
    Chairman Thompson. Such as Blue Cross-Blue Shield? Do you 
know who the intermediaries were in these cases?
    Mr. Hamel. Yes. United Government Services, which is a part 
of Blue Cross of Wisconsin, handles Visiting Nurse Service of 
New York. Empire Blue Cross handles New York City Health and 
Hospitals. And Blue Cross of California takes care of LA 
County.
    Chairman Thompson. All right, and what do they do? Do they 
go in and do an audit as such or how do they make the 
determination that these monies are owed by these providers?
    Mr. Hamel. Every year, the providers submit a cost report 
which sets forth the basis for their reimbursement, and every 
year, the fiscal intermediary conducts an audit of that cost 
report and then determines, much like a tax return, sometimes 
there is money owing back and sometimes there is money owing 
to. That audit sets forth usually the basis of an overpayment. 
They are given a notice of program reimbursement, which is like 
a bill, which says you have to liquidate your debt, and 
providers have 180 days to file an appeal before the Provider 
Reimbursement Review Board if they contest it.
    Chairman Thompson. Do you have any history with regard to 
these fiscal intermediaries in terms of whether or not their 
assessments usually hold up or bear out or are challenged or 
overturned or can you generalize in any way with any degree of 
accuracy with regard to the reliability of these fiscal 
intermediaries?
    Mr. Hamel. No. We have never done any review work in that 
area.
    Chairman Thompson. Is part of your determination concerning 
the collectibility of this based upon the analysis of the 
fiscal intermediaries?
    Mr. Hamel. More so of also the HCFA officials in the 
regions.
    Chairman Thompson. All right. So these were not your 
unilateral determinations. As I understand it, you have to 
determine, or HCFA has to determine whether or not a particular 
claim fits the settlement criteria. Some do not even fit the 
settlement criteria and you cannot settle. One of the criteria 
for settlement is whether or not the provider can pay the 
claim, is that right?
    Mr. Hamel. That is correct.
    Chairman Thompson. And one is whether or not HCFA would 
probably win, and another is whether it would cost more to 
collect than you might recover. Those are things that HCFA has 
to make a determination on before it can even fit a settlement 
criteria, is that right?
    Mr. Hamel. That is correct.
    Chairman Thompson. Is that what you relied upon in making 
your determination?
    Mr. Murphy. Senator, if I could follow up----
    Chairman Thompson. Yes, go ahead.
    Mr. Murphy [continuing]. Because one of the things, there 
was a dialogue between the Office of Special Investigations and 
the lawyers in GAO. We do not know whether, if this were 
litigated, and we do not even know whether at the review board 
that HCFA has, whether the providers would have prevailed or 
not. In the end, we do not know whether this was fair or not, 
as Senator Levin has pointed out earlier.
    What we do know is that there are internal controls imposed 
by the Social Security Act, by the HCFA regulations and 
guidelines, and by the Claims Collection Act that are designed 
to assure the American public that decisions are not made 
arbitrarily, that they are made in accordance with the law and 
the regulations as written, and it was those internal controls 
that we found were not followed. So in the end, nobody knows 
whether these were fair or whether they were legal or not, and 
the reason is that the process was not followed.
    Now, what we found was that the fiscal intermediaries and 
HCFA officials pointed out that the providers had not given us 
documentation that would substantiate their claims. Based upon 
that and based upon their opinion, we offered the view that 
they were unlikely to have mounted strong defenses. But in the 
end, we do not know what the litigation risk was because HCFA 
did not assess it.
    Chairman Thompson. That appears to be a reasonable 
conclusion on your part. You are not obligated to go in and 
retry the case and give us 600 pages of the merits and the 
arguments that the lawyers make back and forth. What we are 
interested in here, essentially, is the operational of 
governmental agencies.
    Mr. Murphy. That is right. We were not looking at the 
providers----
    Chairman Thompson. That is what you are----
    Mr. Murphy [continuing]. To see whether their claims were 
valid. We were looking at HCFA officials and what they did.
    Chairman Thompson. With regard to this and these 
settlements, two of the settlement agreements, as has been 
pointed out, permitted the providers to obtain reimbursement 
for future costs that are not otherwise compensable under the 
Medicare program. HCFA also waived interest on the claims and 
permitted repayment in installments for one of the agreement 
despite contrary directions in its internal guidance, is that 
correct?
    Mr. Murphy. That is correct.
    Mr. Hast. In fact, Senator, the president of that home 
health care agency requested the secrecy agreement, according 
to Mr. Booth, because they were worried about bad publicity had 
that agreement been made public.
    Chairman Thompson. You say two of the settlements permitted 
the providers to obtain reimbursement for future costs that you 
already said would not be documented. Those were the two New 
York provider, is that correct?
    Mr. Hast. Yes.
    Chairman Thompson. And I noticed here, we have been talking 
in round numbers, but the New York City Health and Hospital 
Corporation, the HHC that Dr. Vladeck was associated with 
before he went to HCFA, that claim was for $155 million and was 
settled for $25 million.
    Mr. Hast. That is correct.
    Chairman Thompson. Is that correct?
    Mr. Hast. That is correct.
    Chairman Thompson. And in the agreement with VNS, that is 
the Visiting Nurse Service in New York, HCFA allowed VNS to add 
a specified number of hours to its Medicare average for all 
future years regardless of the number of hours that services 
were actually rendered, is that correct?
    Mr. Hast. That is correct.
    Chairman Thompson. And in the agreement with HHC, HCFA 
allowed HHC to continue to bill for bad debts without any 
documentation to support those costs, is that correct?
    Mr. Hast. That is correct.
    Chairman Thompson. And in the case of LA County, HCFA did 
not require LA County to meet recordkeeping requirements 
generally required by Medicare?
    Mr. Hamel. Well, they did not specifically say in the 
agreement that you do not have to, unlike the New York City 
Health and Hospitals agreement. However, HCFA officials in the 
regional office had complained that LA County had been ``a 
problem child'' for them in their oversight and that they 
wanted a provision in the settlement that would ensure or at 
least guarantee that LA County would try to meet those 
requirements, and they did not get that.
    Chairman Thompson. In the 96 settlements you reviewed, how 
many included the kind of provisions referenced in the 
settlement agreements I mentioned?
    Mr. Hast. None of the other ones.
    Chairman Thompson. And these three settlement agreements 
constituted 66 percent of all Medicare overpayment settlements 
since 1991?
    Mr. Hast. That is correct.
    Chairman Thompson. Neither of these three agreements were 
approved by the Department of Justice?
    Mr. Hast. That is correct.
    Chairman Thompson. Neither of these three agreements was 
approved even by the Office of General Counsel within HCFA?
    Mr. Hast. Not even reviewed by the Office of General 
Counsel in HCFA.
    Chairman Thompson. Neither of these three agreements was 
reviewed by any government attorney at any time?
    Mr. Hast. That is correct.
    Chairman Thompson. I believe that is all.
    Senator Collins. Thank you, Senator Thompson. Senator 
Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thank you, Madam Chair, and I would like to 
ask that my opening remarks be made a part of the record.
    Senator Collins. Without objection.
    Senator Durbin. Thank you.
    [The prepared opening statement of Senator Durbin follows:]

              PREPARED OPENING STATEMENT OF SENATOR DURBIN
    Madam Chairman and Senator Levin, thank you. I appreciate the 
opportunity to join you today. I have supported your continuing 
efforts, Chairman Collins, to examine weaknesses in the Medicare 
program which threaten the integrity of this critical safety valve that 
ensures the delivery of health care to 39 million seniors and disabled 
individuals in our country--a program which paid out $169.5 billion 
last year. Under your leadership over the last 3 years, this 
Subcommittee has undertaken several important inquiries into various 
deficiencies in how the program operates which make it susceptible to 
fraud and abuse and to explore solutions to address these problems.
    Earlier this month, the HHS Inspector General released new figures 
about Medicare program losses--funds wasted through fraud, mistakes and 
other problems. In 1999, such losses inched up to $13.5 billion after 
falling for 2 consecutive years. Nearly 8 cents out of every dollar 
paid by Medicare last year was wasted. The program paid out $169.5 
billion last year. In 1998, the program lost 7 cents on every dollar, 
or about $12.6 billion. In 1996, the first year the comprehensive 
Medicare audit was done, overpayments accounted for 14 cents of every 
dollar spent, or $23 billion. In 1997, 11 cents on the dollar, or $20 
billion, was lost.
    I applaud the continued success of Operation Restore Trust, an 
effective anti-fraud program launched by President Clinton and one of 
our witnesses today, Dr. Bruce Vladeck when he was at HCFA's helm. When 
the results of the first comprehensive audit of 1996 payments was 
published, Dr. Vladeck explained how HCFA worked shoulder to shoulder 
with the auditors and welcomed their findings as a roadmap for further 
improvements. In a USA Today article Dr. Vladeck then wrote, ``In its 
31 years, Medicare has vastly improved the health and welfare of 
seniors and disabled citizens. We are the world's largest health-care 
insurer, processing 800 million claims a year at a far lower 
administrative cost than any private company. But only in the last 5 
years have modern accounting principles and the standards that go with 
them been applied--making Medicare run more like a business.''
    Today's hearing takes a somewhat different tack than some of our 
previous inquiries, focusing attention on some of the complexities in 
how this massive program interacts financially with those who provide 
and deliver health care services to program beneficiaries.
    I have reviewed GAO's Report to be released today and the written 
statements submitted by those who have been invited to testify. GAO's 
report raises some particular issues about the processes involved in 
recovering overpayments. I certainly hope today's forum will be an 
opportunity to hear fully from witnesses and put these issues in 
context and proper perspective. I wish to associate myself with the 
concerns outlined in the opening remarks of Senator Levin. I am 
troubled that the providers in the cases examined are not here to 
present their perspectives. I am particularly concerned that some of 
GAO's assertions and conclusions may convey mistaken or inaccurate 
impressions about the propriety of what actually occurred in these 
cases and about what happens in the routine administrative cost 
adjustment procedures used in the course of dispensing Federal funds to 
providers and recouping overpayment amounts when such are identified.
    I hope we can create a clear, accurate, and fair record today and, 
as a result, examine whether there are any bases for seeking 
legislative changes or other corrective steps to clarify any legal 
ambiguities in collecting amounts owed to the government and to improve 
the processes for prompt recovery of overpayments. Above all, we must 
ensure that the vital reputation of the Medicare program remains strong 
and untarnished.
    I welcome and look forward to hearing from the panelists.

    Senator Durbin. I would like to ask as a preliminary 
question, Mr. Murphy, you are General Counsel at GAO, so I am 
assuming correctly you are an attorney. Mr. Hast and Mr. Hamel, 
are either of you attorneys?
    Mr. Hamel. No, sir.
    Mr. Hast. No.
    Senator Durbin. The reason I ask that is that I found 
really troubling the line of questioning which my colleague, 
Senator Levin, has raised. This report is unusual, and I have 
seen scores or maybe hundreds of GAO reports, particularly in 
that it focuses on that three largest Medicare overpayment 
settlements were improper, and yet questioning by Senator Levin 
has led me to conclude that you are not being as forthcoming as 
you should in terms of the GAO efforts to fully investigate the 
merits of these claims before drawing some rather sweeping 
conclusions as to whether or not they were improper.
    There is an instruction given in courts of law across 
America which says that the jury may take into consideration 
the failure of the moving party or prosecutor to either call a 
witness or to bring forward testimony, and the jury may 
conclude that if they have not called such a witness or 
elicited such testimony, that it is likely that that testimony 
or witness would not have helped the government, would not have 
helped the movant.
    I find it interesting that not only did you not question 
the substance of the agreements and settlements that are the 
reason for your investigation, but that we are not calling any 
of those parties today before this Committee to talk about 
whether or not this was, in fact, fair or proper. How can you 
draw conclusions as sweeping as saying that had these matters 
been litigated--let me quote directly--``Providers were all 
able to pay the entire overpayment amount. HCFA would have 
prevailed if the matters were litigated. The amount of recovery 
would have exceeded the cost of collecting each of these multi-
million-dollar debts''--if you, in fact, did not get into the 
substance of the claims that were before you?
    Mr. Hast. Well, I think we did get into the substance of 
the claim, and I would like to just clarify a little bit. When 
we talk about improper settlements, we are talking about the 
lack of internal controls by HCFA or following their own 
internal controls caused these settlements to be made by HCFA 
improperly, not talking about what the hospitals or the home 
health care agency did, but the improperness of the settlements 
is the failure of HCFA to follow its own internal guidance in 
how they settled the claim----
    Senator Durbin. Oh, but that is not what you say.
    Mr. Hast. Let me----
    Senator Durbin. I will let you finish, but that is not what 
you said.
    Mr. Hast. I will go to the second part of it, also. When we 
talk about litigation risk and we talk about the fact that we 
believe they would prevail, when we spoke to the health care 
providers, they basically gave no excuses. Their excuse for not 
being able to keep documentation is there is just too much of 
it. We cannot do it. I mean, they did not come up with reasons 
that we found to be credible.
    When we said that we believe they are able to pay the 
entire amount, in two of them, HCFA had already withheld the 
money, so they had the money. If they did not give it back, 
they had been paid in full by those two providers. The home 
health care agency had set up a reserve of about two-thirds of 
the money, $56 million, so most of the money to pay it back was 
either already in HCFA's hands and they would not have had to 
return it, or it was in the health care----
    Senator Durbin. Mr. Hast, following procedural guidelines 
is one thing. Going to the substance, and you have raised some 
questions which I would bet we could have 2 days of hearings 
with any one of these parties over, whether they had an ability 
to pay, whether there were underpayments by HCFA that might 
have been claimed as set-offs. This could go on for a long 
time. It is a lot of money. One of these cases was pending over 
11 years, if I am not mistaken, before HCFA.
    And what you have found are, as I can conclude here, three 
technical and procedural questions which are raised by GAO in 
their report, and, therefore, you have concluded that had you 
taken this to court, the government would have won, in your 
words, if litigated, the government would have succeeded. I 
just find that very troubling, to reach those conclusions.
    This is the Sherlock Holmes barking dog. This dog is 
nowhere to be found, neither in your investigation nor in this 
Committee hearing, and for you to reach these conclusions and 
to really cast a shadow over the efforts of Mr. Vladeck as well 
as career employees at HCFA I think goes a little bit beyond 
what the GAO has done in any report that I have seen.
    Let me ask Mr. Hamel this question. Mr. Hamel, this has 
really become kind of a personal crusade for you, as I gather. 
First, you worked on this case with the Department of Health 
and Human Services, is that correct?
    Mr. Hamel. First of all, it has not been a crusade. Second 
of all, there was only one matter which I did have an 
affiliation with of the three.
    Senator Durbin. But did you not work on this first with the 
Department of Health and Human Services?
    Mr. Hamel. Well, I take exception to the matter as if GAO's 
matter was all three combined. I worked on one of the three 
matters.
    Senator Durbin. Let us stick with that one. Did you not 
work on that case with the Department of Health and Human 
Services?
    Mr. Hamel. Absolutely.
    Senator Durbin. And then you took the same case over to the 
U.S. Attorney's Office in their investigation, is that correct?
    Mr. Hamel. I am not going to comment on that.
    Senator Durbin. Excuse me?
    Mr. Hamel. I cannot comment on that matter. I can talk 
about the Inspector General's work, but I cannot comment on 
matters involving the U.S. Attorney's Office.
    Mr. Murphy. Senator, I think he is referring to Rule 6(e) 
in the Rules of Criminal Procedure and his ability to discuss 
grand jury matters because of that rule.
    Senator Durbin. OK. Well, I am going to ask Madam Chair, 
then, that we make as part of the record here a letter from 
March 27, the year 2000, sent, I believe, to both the Chairman 
and Senator Levin, and it was sent by the attorney who 
represented Mr. Vladeck, I hope I pronounce his name correctly, 
Robert Anello with a New York law firm, Morvillo, Abramowitz. 
The only reason I make this part of the record, or ask that it 
be made part of the record, is it states clearly that Mr. Hamel 
was involved in the investigation of this case with the U.S. 
Attorney's Office for the Southern District of New York, and if 
he does not want to comment for whatever reason, that is 
entirely his prerogative. But I would ask that this be part of 
the record.
    Senator Collins. Senator Levin [sic], it has already been 
marked as an exhibit and will be included in the record.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 19 which appears in the Appendix on page 124.
---------------------------------------------------------------------------
    Senator Durbin. Then not commenting on whether or not you 
would confirm or deny what has been said here by this attorney, 
you pursued this case again with the General Accounting Office, 
is that correct?
    Mr. Hamel. A portion of it, yes.
    Senator Durbin. OK. Let me ask you this. Are you an 
attorney?
    Mr. Hamel. No.
    Senator Durbin. I will ask Mr. Murphy then, as an attorney, 
if you were representing a client before a grand jury and you 
were asked to submit to an investigation by the GAO while that 
investigation was underway with the grand jury, would you have 
any second thoughts about testifying before the GAO while there 
was a pending grand jury investigation?
    Mr. Murphy. There is no doubt in my mind that I would not 
want my client testifying in front of GAO.
    Senator Durbin. Neither would I, and I think that is one of 
the reasons Mr. Vladeck did not, and to use this against him at 
this point, suggesting that there was something untoward or 
suspicious, I think is wrong. I think it also should be a 
matter of record, as noted--let us assume for the record that 
it is true, we can ask you for your own comments--that in 
October 1999, Mr. Vladeck's attorney let the GAO know that he 
was available if they wanted to ask questions and was told, and 
I quote here from the letter, ``the train had left the 
station.'' The GAO did not want to hear him. Is that correct? 
Mr. Hast, do you know?
    Mr. Hast. I think I commented before that we had given him 
a deadline at which time our report was going to be written. By 
that time, he was negotiating with the Committee and the 
Committee had told us they would continue to try to interview 
Mr. Vladeck, which they did, but that we would close out our 
report with the information we had at that time. But the 
investigation by the Committee was ongoing. They continued to 
negotiate with Mr. Vladeck and we would not have been able to 
write our report until last Thursday had we waited until the 
time that they finally produced Mr. Vladeck to give any type of 
deposition.
    Senator Durbin. So you had a publication deadline that you 
were faced with?
    Mr. Hast. Yes.
    Senator Durbin. And you have heard Mr. Murphy's testimony 
here that, as an attorney, he would not have suggested to Mr. 
Vladeck to submit to the GAO questioning if there was a case 
pending before a grand jury. I am just asking, based on that, 
the suggestion that he was uncooperative by not speaking to the 
GAO really does not tell the whole story, does it?
    Mr. Hast. I would stand by that on two out of the three. I 
understand that in the one, which I think he knew was already 
closed, to be perfectly honest with you, but on the other two 
that had only surfaced through the GAO investigation, there was 
no pending investigation by the Department of Justice and I 
could see no reason for him as a former public official not to 
explain to us his actions in those two settlements.
    Senator Durbin. Can I ask you one other question? You say 
in your report that you conducted your investigation from May 
through December 1999, and if Mr. Vladeck's attorney agreed 
that he was willing to provide information to the GAO in 
October 1999, apparently that was before you had concluded your 
investigation.
    Mr. Hast. Our investigation concludes once we have finished 
our vetting process, which as I am sure you know takes a period 
of time. That period from October to November was moving it 
through the GAO process.
    Senator Durbin. So you were moving through your internal 
procedural process----
    Mr. Hast. Yes.
    Senator Durbin [continuing]. But again, your procedural 
process, I do not think, should go to the question of the 
substance of this issue. I think Mr. Vladeck did the prudent 
thing. As an attorney, that is what I would have advised him to 
do, and to suggest that he was not cooperative, I do not 
believe is altogether accurate.
    Can I mention one other thing? This Federal Claims 
Collection Act, which I do not know much about but I am 
learning, is apparently controversial. There is a HCFA memo 
which we have been given where they go to great length to 
suggest that your conclusion about its application in this case 
may be wrong. Are you familiar with that, Mr. Murphy?
    Mr. Murphy. Yes. I actually saw that just a few days ago, 
Senator. I have read it.
    Senator Durbin. Do you understand that even within HCFA, 
there is some question as to whether the first conclusion of 
the GAO of impropriety here may not even apply?
    Mr. Murphy. I read that letter, yes, sir, or that memo.
    Senator Durbin. So certainly within HCFA, there is--and 
perhaps with other agencies--there is some difference of 
opinion as to whether the Federal Claims Collection Act even 
applies to this case.
    Mr. Murphy. I cannot argue with that, because I have read 
that legal memo.
    Senator Durbin. OK.
    Senator Collins. Senator Durbin, your time has expired, as 
you can see from the light there.
    Senator Durbin. I am sorry.
    Senator Collins. The light on the table apparently is not 
working as it should.
    Senator Durbin. Thank you, Madam Chair.
    Senator Collins. We have a number of other witnesses to get 
to. I know there are additional questions. I am going to 
suggest we do one final very brief round of 3 minutes each.
    Mr. Hast and Mr. Murphy, I want to follow up on a point 
that Senator Durbin just raised. I want to show you Exhibit 
1,\1\ which is an excerpt from HCFA's own regulations 
concerning debt collection, its own regulations, and as you can 
see, it clearly states that HCFA refers all claims that exceed 
$100,000 or such higher amounts as the Attorney General may 
prescribe, and that has not happened, to the Department of 
Justice or the GAO--I realize GAO has been taken out of it 
now--but for the compromise of claims. As far as you know, was 
this regulation in effect at the time that the three claims we 
are discussing were being compromised?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
    Mr. Murphy. It was in effect, Madam Chairman.
    Senator Collins. And was it HCFA's usual practice to refer 
to the Department of Justice claims over $100,000 for which 
settlements were being proposed?
    Mr. Murphy. It was their practice to refer claims that had 
been determined by fiscal intermediaries over $100,000 to the 
Department of Justice.
    Senator Collins. And these claims were way over $100,000, 
correct?
    Mr. Murphy. They were.
    Senator Collins. Mr. Hast, did GAO's investigation 
determine that this was, therefore, not in keeping with HCFA's 
usual practice that these three very large claims, the largest 
in the last decade, were not referred to the Department of 
Justice when their own regulations very clearly state that they 
should be?
    Mr. Hast. That is exactly what we found.
    Senator Collins. Mr. Hast, an issue has been raised about 
whether it is likely that the providers would have prevailed in 
litigation had they gone forward. Now, I realize, as Mr. Murphy 
said, that none of us knows for certain what would have 
happened had we gone forward, had the claims gone through the 
normal process and not been circumvented, but would it not have 
been very unlikely that providers would be able to prevail when 
they did not have the documentation to support the claims that 
were in dispute? Mr. Hast?
    Mr. Hast. Yes, that was our opinion.
    Senator Collins. And was that the basis for your conclusion 
that they were unlikely to prevail?
    Mr. Hast. Yes, that was.
    Senator Collins. And your opinion in this matter was shared 
by the fiscal intermediaries, is that not correct?
    Mr. Hast. By the fiscal intermediaries and by HCFA 
officials in the regions.
    Senator Collins. So the lower-level HCFA officials, the 
regional officials who knew the providers, plus the fiscal 
intermediaries who handle these kinds of claims at the first 
level agreed that they thought they could prevail?
    Mr. Hast. That is right.
    Senator Collins. I am going to ask you one final question. 
Mr. Hast, do you believe that these settlements were in the 
best interests of the government?
    Mr. Hast. Because of HCFA's lack of following their 
internal controls, there is no way to positively know that. But 
HCFA, Mr. Booth, who negotiated the settlements for HCFA and 
did that for a living, told us they were not in the best 
interest of the government, and individuals that worked in the 
regions that reviewed overpayments for over 20 years told us 
they believed they were not in the best interest of the 
government, as did the fiscal intermediaries. The people that 
do this for a living believed this was not in the best interest 
of the government.
    Senator Collins. Thank you, and thank you very much for 
your testimony this morning.
    Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    The fiscal intermediaries are agents for HCFA, right?
    Mr. Hast. Yes.
    Senator Levin. And they make certain assessments as to what 
they believe is owing to HCFA from these providers, is that not 
correct?
    Mr. Hast. That is correct.
    Senator Levin. And you have given us a chart, I believe you 
have that in front of you, of all of the HCFA overpayment 
settlements? \1\
---------------------------------------------------------------------------
    \1\ Chart referred to is a GAO work product--not publically 
available.
---------------------------------------------------------------------------
    Mr. Hast. Yes, I do.
    Senator Levin. That is the 96 that have been referred to?
    Mr. Hast. I do.
    Senator Levin. And when you go down all these alleged 
overpayments by the intermediaries, in most if not all cases, 
HCFA ended up agreeing that their fiscal intermediaries' 
assessment of overpayment was not either provable or was not 
perfect. They ended up settling all these cases, did they not, 
or just about all these cases?
    Mr. Hast. Some of them were bankruptcies and so forth, but 
yes.
    Senator Levin. They settled most of them?
    Mr. Hast. They settled most of them.
    Senator Levin. So, for instance, take a look at number 
nine, Century City Hospital, California. The fiscal 
intermediary said that there was an overpayment of $239,000, 
but they ended up paying the hospital $180,000, right?
    Mr. Hast. That is correct.
    Senator Levin. As a matter of fact, was there not a 
confidentiality agreement in that one? Take a look at your last 
column there.
    Mr. Hast. I would say yes.
    Senator Levin. Thank you.
    Mr. Hast. There were about six other ones that had them, 
yes.
    Senator Levin. There were other confidentiality agreements 
besides these three, were there not?
    Mr. Hast. Out of the 96, there were six or seven.
    Senator Levin. So this was not unique?
    Mr. Hast. Unusual, not unique.
    Senator Levin. Right. Is it not true that there were other 
confidentiality agreements, just to be straight?
    Mr. Hast. It is true.
    Senator Levin. Thank you. Look at number ten, Cleveland 
Clinic. The fiscal intermediary said there was an overpayment 
of $648,000, correct?
    Mr. Hast. Yes.
    Senator Levin. HCFA ended up paying $300,000, right?
    Mr. Hast. Yes.
    Senator Levin. And there was a confidentiality agreement 
there, right?
    Mr. Hast. There was.
    Senator Levin. And then look at number 13, Howard 
University. The so-called fiscal intermediary said that Howard 
owed them $58 million, right, owed the government?
    Mr. Hast. That is right.
    Senator Levin. And then it ended up that Howard paid the 
government $10 million, is that correct? Is that correct, 
without going into the whole history, because you have only got 
3 minutes.
    Mr. Hast. It is correct.
    Senator Levin. Thank you. Now, take a look at all of these 
claims, National Medical Enterprises, number 15. The fiscal 
intermediary said $2.6 million was owing the government, right?
    Mr. Hast. Yes.
    Senator Levin. But the government ended up paying $2.4 
million, right?
    Mr. Hast. Yes.
    Senator Levin. So case after case after case, we figure 
that the amount of payments ended up to be about the same 
percentage as the payments in these cases. By the way, you can 
make your own assessment, but I do not want to run out of time 
here.
    Mr. Murphy, I am puzzled by your conclusion on the 
conflicts of interest issue. The HCFA ethics official asked the 
OGE to confirm certain elements of Dr. Vladeck's ethics 
agreement, and here is the relevant paragraph. This is when he 
was hired, OK, because he had these prior connections. He is 
required by 5 CFR for a period of 1 year--1 year--following his 
resignation to consider the need for a recusal from personal 
and substantial participation in an official capacity in any 
particular matter. That was approved by the Office of 
Government Ethics, is that correct?
    Mr. Murphy. Absolutely, yes.
    Senator Levin. And how many years after his resignation was 
his involvement, to the extent there was involvement here that 
had taken place?
    Mr. Murphy. I think it was almost 3 years.
    Senator Levin. All right.
    Senator Collins. Senator, your time has expired. Senator 
Thompson.
    Chairman Thompson. Well, that being the case, then, why was 
Mr. Vladeck trying to stay out of this? My understanding was 
that he was kind of giving instructions as to what to do kind 
of behind the scenes, but he did not want to be out front on 
it, is that not correct?
    Mr. Hast. That is correct.
    Chairman Thompson. Well, if there was no conflict of 
interest problem under the law, then it has to raise the 
question. Perhaps, just perhaps Mr. Vladeck thought that 
although there might not be a technical conflict of interest 
under the law that it might not look too good for an 
administrator who had been previously on the board of this 
entity to be pressuring these people to go against their own 
rules and procedures and secretly cut a deal for $25 million 
for a claim of $155 million. Perhaps he thought that might not 
look very good. I agree with Mr. Vladeck. That does not look 
very good, and I think it is very important that we keep our 
eye on the ball.
    An official in a department, especially a lower-level 
official in a department, cannot cut a deal on his own behalf 
with regard to a claim that the government has for a few cents 
on the dollar in hopes that maybe ultimately when all the 
trials are conducted, perhaps these people did not owe the 
government all that much money anyway, or that after we have 
hearings on the subject, maybe we can attack the GAO because of 
their motivations or something like that. Government officials 
cannot do that. They cannot go against their own rules. They 
cannot hide these deals from the attorneys. They cannot keep 
these things out of the hands of the Justice Department or 
their own attorneys. They cannot stand back behind a tree and 
pressure others to do their work for them when it goes against 
the interest of the government. That is what all of this is 
about, and I think you have done a fine job in pointing that 
out. Thank you very much.
    Senator Collins. Thank you, Senator. Senator Durbin.
    Senator Durbin. Thank you, Madam Chair.
    I tried to read this Federal Claims Collection Act, which 
is your number one reason for arguing that this whole process 
by HCFA was unfair and improper, and I will tell you, this is 
really a challenge for any law student, lawyer, or law 
professor to try to figure out what this law means. We have 
seen one paragraph of it, just two or three paragraphs down, 
completely conflicting instructions in terms of whether or not 
these matters need to be submitted to the Department of 
Justice. There is a lengthy memo here from HCFA saying that 
refers to compromises. This was a settlement before an 
administrative hearing and it does not apply. So there is 
clearly a difference of opinion, and you have made your case on 
this. I really think that if that is what you are relying on to 
convict or condemn, that it is a thin read.
    May I ask specifically, it has been stated in your report 
and again at this hearing that Mr. Booth said, ``the 
settlements were not in the best interest of the government.'' 
I am quoting from your report, not quoting from Mr. Booth 
because you did not put it in quotation marks. Were those his 
exact words?
    Mr. Hamel. I have to take a look in the report.
    Senator Durbin. Well, I am anxious for you to do it, 
because he is going to be here in a little while and he says in 
his statement that he will give before this Committee under 
oath, ``I believed at the time the settlements were 
appropriate.'' So he has either had a change of heart or 
perhaps what you are representing to the Committee is not what 
he said.
    Mr. Hamel. No, he said they were not in the best interest 
of the government. I do not know whether he quoted it with 
quote marks around it in the report. That is what I was looking 
for.
    Senator Durbin. But those were his words, they were not in 
the best interest of the government?
    Mr. Hamel. That is correct.
    Senator Durbin. Was that the extent of his statement? He 
did not go any further?
    Mr. Hamel. Oh, well, there was substantive discussion about 
settlements, but we asked him at the end of the day, were these 
in the best interest of the government and he said no.
    Senator Durbin. In the context of, if we could have 
received more money from these providers, it would have been 
better for the government, or in the context that it was 
illegal or improper to reach these settlements? Give us a 
context for that statement that has been oft quoted.
    Mr. Hast. I think that Mr. Booth told us that he believed 
he was asked to go outside the normal procedures and he was 
uncomfortable with being asked to go outside the normal 
procedures and he did it as an accommodation for Mr. Booth. He 
said that both he and Mr. Ault were uncomfortable with it and 
they knew full well that these needed to go to their OGC.
    Senator Durbin. Well, we will have a chance to ask him 
directly because his statement, which will be under oath, 
suggests otherwise.
    Secondly, the question of who would have prevailed if this 
case had gone to court, I think has been beaten to death here 
and need not go any further, but I think the fact that these 
providers are not here today and they were not brought into 
this to a level to judge the substance really raises a question 
about that.
    Finally, let me just say, the last point that you make 
about the ethics here, I am anxious to hear Mr. Vladeck because 
your conclusion says, ``More importantly, his participation in 
the largest of these settlements raise conflict of interest 
concerns which we could not resolve given his refusal to meet 
with us,'' and I think it has been at least indicated by his 
attorney that he was prepared to meet with you, and that is the 
third point that you made of the three.
    I think he could have erred on the side of prudence and 
submitted this to an ethics evaluation because of his past 
connection and then some conclusion might have been reached. 
But to base the whole case on that question, or really coming 
down to that question, really is not what I have seen in the 
past from the GAO and I certainly hope that subsequent 
testimony will clarify this. Thank you.
    Senator Collins. Would you like to respond to that, Mr. 
Hast, or would you just as soon be excused at this point?
    Mr. Hast. No, we stand behind what we have submitted in 
this report.
    Senator Collins. Thank you for your testimony.
    I would now like to call forth our second panel of 
witnesses this morning. Both of these witnesses are currently 
employed in the regional offices of the Health Care Financing 
Administration.
    Our first witness is Jean Ohl, who is a Technical Health 
Insurance Specialist in HCFA's San Francisco Office. Tony 
Seubert is a Payment Specialist at HCFA's regional office in 
New York. Both these individuals participated in the settlement 
negotiations that resulted in the eventual compromise of 
Medicare claims in the cases involving LA County and the Health 
and Hospitals Corporation of New York.
    Would you please stand so that I can swear you in. Do you 
swear that the testimony you are about to give to the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Ms. Ohl. I do.
    Mr. Seubert. I do.
    Senator Collins. Thank you. First of all, I want to thank 
you very much for being here today. I realize that this is very 
difficult for you, and indeed, Ms. Ohl's lawyer has expressed 
concerns to the Subcommittee staff about possible retaliation 
for her testimony. I want to give you my personal assurance 
that if there is any such action taken against either of you 
for telling the truth before us today, that I will personally 
get involved. We count on our civil servants to do what they 
believe is right and to tell the truth to members of Congress, 
and I just want you to have that personal assurance. I know it 
is very difficult, nonetheless, to be here today and I 
appreciate your willingness to help us better understand the 
circumstances of these settlements.
    Ms. Ohl, do you have a statement you would like to make?
    Ms. Ohl. No, Madam Chairman, I do not have a statement.
    Senator Collins. Mr. Seubert, do you have a statement you 
would like to make?
    Mr. Seubert. No, I do not.
    Senator Collins. Thank you. I am going to proceed right to 
questions, then. I am going to ask each of you to be sure the 
microphone is right in front of you. They are very directional 
and it is difficult for us to hear you if you are not speaking 
directly into the microphone.
    Ms. Ohl, how long have you worked for HCFA and what is your 
current position?

 TESTIMONY OF JEAN OHL, TECHNICAL HEALTH INSURANCE SPECIALIST, 
              HEALTH CARE FINANCING ADMINISTRATION

    Ms. Ohl. I joined HCFA in 1978 as an Audit and 
Reimbursement Specialist in the Division of Medicare. From that 
position, I moved into Audit and Reimbursement in Medicaid. In 
1992, I became Manager over the branch that contains the Audit 
and Reimbursement Section. And in September 1999, I moved out 
of management into my current position, which is a technical 
health insurance specialist specializing in fraud and abuse and 
other special projects.
    Senator Collins. So you have been with HCFA for more than 
20 years, is that correct?
    Ms. Ohl. That is correct.
    Senator Collins. At the time of your involvement with 
HCFA's settlement with LA County, what was your job title and 
responsibility?
    Ms. Ohl. I was Branch Manager over the branch that was 
Program Safeguards in the Division of Medicare.
    Senator Collins. How did you first become involved in the 
negotiations with LA County to resolve the disputed 
reimbursement claims?
    Ms. Ohl. In mid-October 1996, one of my staff on my Audit 
and Reimbursement Section, Gary Terada, was asked by another 
individual in Medicaid to look at a letter that was sent him by 
LA County explaining that Medicare had owed LA County Hospital 
some reimbursement. Mr. Coupar, who was the individual in 
Medicaid that came to Mr. Terada, because Mr. Coupar did not 
know any of this, and had asked Mr. Terada to look into this, 
and as Branch Manager, Mr. Terada kept me informed.
    In early November, then, another letter came in from LA 
County, again as a result of some information that Mr. Terada 
had passed back to Mr. Coupar, and this early November letter 
again discussed some of these issues. Then in mid-November, we 
received in the regional office an E-mail from Mr. Booth in 
central office HCFA asking us what we were doing about--if we 
were doing anything, even, with respect to a settlement on LA 
County.
    Senator Collins. At some point during the settlement 
process, did Mr. Booth inform you that he was taking the matter 
away from the regional office and that he would handle the 
settlement negotiations from HCFA's central office in 
Washington?
    Ms. Ohl. He wrote an E-mail saying that he believed they 
could move it faster than the fiscal intermediary could because 
of a lack of documentation.
    Senator Collins. And this is the issue where LA County 
provided some documents but they did not support the claims 
that were in dispute, is that correct?
    Ms. Ohl. They were not able to provide acceptable 
documentation to support what they had claimed on their cost 
report and which they had under appeal at that time with the 
PRRB.
    Senator Collins. Was it unusual for you to lose 
jurisdiction over the settlement of a claim in your region? Was 
it unusual for it to be taken out of the region and to be 
handled by Washington?
    Ms. Ohl. Well, actually, this is an independent appeal 
process that HCFA is not to interfere in. It is a provider's 
due process, and HCFA is--tries to stay out of it so it keeps 
its independence. We are very conscious about the appeals 
process being independent.
    Senator Collins. Do you recall in your 22 years working for 
HCFA any other case in which it was taken out of the region and 
handled at Washington?
    Ms. Ohl. I do not.
    Senator Collins. So this was the only case that you 
remember in your 22 years at HCFA?
    Ms. Ohl. This was very unusual, yes, the only one I 
remember.
    Senator Collins. And did Mr. Booth ever tell you that he 
was under direction from Mr. Vladeck, HCFA's Administrator, to 
resolve the dispute?
    Ms. Ohl. Yes, he did. He said he was doing this as a 
personal favor to Mr. Vladeck.
    Senator Collins. He said that he was handling it as a 
personal favor to Mr. Vladeck?
    Ms. Ohl. That is correct.
    Senator Collins. Did he mention that part of the purpose 
was to get more money for LA County?
    Ms. Ohl. Yes, he did.
    Senator Collins. What is your understanding of the Federal 
Claims Collection Act? Do you believe that the Justice 
Department does need to sign off on settlements exceeding 
$100,000, based on your experience?
    Ms. Ohl. Yes, they do.
    Senator Collins. So in your opinion, had you been handling 
this case in the normal course, had it not been so highly 
unusual, in fact, unique in your career, the LA County 
settlement would have been referred to both the Office of 
General Counsel and the Department of Justice for review and 
approval?
    Ms. Ohl. Yes, that is correct.
    Senator Collins. Ms. Ohl, did you and the other officials 
in the regional office think that the LA County settlement was 
a good deal for the Medicare trust fund?
    Ms. Ohl. No. In fact, I had documented my concerns in an E-
mail to our central office and I stated in that E-mail that I 
did not think this was in Medicare's best interest----
    Senator Collins. Let----
    Ms. Ohl. And I was not alone in this. The whole regional 
office is very much behind me in this position.
    Senator Collins. So all of your colleagues who are familiar 
with this case agreed with you that this was not in the best 
interest of the Medicare trust fund?
    Ms. Ohl. Those of us working in the Medicare program, that 
is correct.
    Senator Collins. And they were upset about what was 
happening?
    Ms. Ohl. That is correct.
    Senator Collins. Could I show you the E-mail that you sent 
to Mr. Booth responding to his request for comments on the 
draft of the proposed agreement.\1\ Now, again, is it accurate 
that you sent this E-mail because you wanted to be on record 
that you were very dissatisfied with this settlement, you 
thought it was a bad deal for the government?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 3 which appears in the Appendix on page 103.
---------------------------------------------------------------------------
    Ms. Ohl. Yes.
    Senator Collins. And you told my staff that you were 
shocked when you saw the proposed settlement and the terms of 
the settlement. Why was that?
    Ms. Ohl. I was shocked because the original amounts that 
were claimed on the hospital cost reports for LA County totaled 
about $12 million that were under appeal with the PRRB. And, 
additional documentation that LA County had provided to central 
office had shown various issues that they felt were a little 
bit higher than that. They had eventually raised that amount to 
somewhere around $32.5 million. And, I thought that was the 
last I had heard of what figures we were talking.
    So in early March 1997, when we got the proposal to look at 
the settlement agreement, it had $51 million in there, and I 
was very surprised--extremely surprised, to say the least. I 
went back to my staff to ask for an explanation, to see if he 
could explain it. He was able to come up with some documents to 
show me that in mid-January 1997, Mr. Booth had sent some 
documents LA County had provided to the fiscal intermediary to 
get a background explanation of what the issues were, and in 
there, the figures actually totaled about $53.6 million. So, 
actually, further on in this very same E-mail, I asked for an 
explanation of my assumption being that the $51 million 
settlement was on the $53.6 million, because that is all I knew 
about.
    Senator Collins. Was one of your concerns, and I believe it 
says in the E-mail that the basic dispute between LA County and 
the fiscal intermediary is one of recordkeeping and billing 
requirements or the lack of supporting documentation, rather 
than a difference in policy interpretation?
    Ms. Ohl. That is correct. The biggest portion of this was 
bad debts. LA County had actually several times delayed their 
hearing on that particular issue because they did not have 
documentation to support their position, and they had actually 
sent letters to the PRRB asking for delays because they did not 
have documentation.
    Senator Collins. So were you essentially warning Mr. Booth 
that LA County could not prove its claims for reimbursement 
under Medicare?
    Ms. Ohl. They would not be able to, in my opinion or the 
opinion of the fiscal intermediary, to be able to justify all 
of what they were claiming.
    Senator Collins. Did you believe LA County was getting 
special treatment?
    Ms. Ohl. Yes, I did.
    Senator Collins. Are you aware of any other providers in 
your region that have received this kind of special treatment?
    Ms. Ohl. No, I am not.
    Senator Collins. Is that part of the reason why you were so 
upset about this settlement?
    Ms. Ohl. I believe that was the major reason. A process 
like this circumvented the normal procedures and allowed 
special consideration. If something like that were to get out, 
it would set very bad precedents and we would be inundated with 
additional requests, and it was clearly outside the authority 
we in the regional office would have to deal with these.
    Senator Collins. Is it fair, Ms. Ohl, to say that you 
thought HCFA was simply giving LA County the money without 
regard to whether they were entitled legally to reimbursement 
under Medicare?
    Ms. Ohl. I cannot say what documentation LA County finally 
provided to central office, but all of the documentation that 
we had seen in the regional office or that our fiscal 
intermediary had seen clearly did not support the amounts that 
were being claimed in these numbers.
    Senator Collins. Thank you. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    When we say LA County, is that like a group of hospitals?
    Ms. Ohl. They have, I am not sure of the number, but it is 
eight to ten hospitals.
    Senator Levin. And they have a lot of health care centers?
    Ms. Ohl. Yes, they do.
    Senator Levin. Could there be as many as 40 or 50 health 
care centers?
    Ms. Ohl. I am not sure what you mean by health care 
centers, but they have a lot of outpatient departments 
associated with each of those hospitals and there are probably 
even more than that number.
    Senator Levin. The figures we have are that there are about 
3 million outpatient visits a year at these facilities and that 
they total 54. Would that sound within the ballpark?
    Ms. Ohl. I would not know, sir.
    Senator Levin. Could that be possible? I mean, could it be 
millions of outpatient visits a year?
    Ms. Ohl. It could definitely be. LA County is tremendously 
large.
    Senator Levin. And there was a problem, a dispute, whatever 
you want to call it, a billing difference that covered years 
starting in the early 1980's?
    Ms. Ohl. There were actually two different types of 
problems we were dealing with. We were dealing with LA County's 
inability to actually submit claims for services provided, and 
that was actually in another part of the division that I did 
not have first-hand knowledge on. The part that I was looking 
at was the audit side, where it talked about the reimbursement 
and identification of costs involved. With bad debts, that 
falls under my area, and that would be the coinsurance, the 
deductible portion of the claims that should have been billed. 
And yes, they did have problems actually submitting claims.
    Senator Levin. And this problem that existed for about--
since the early 1980's, so there was an ongoing problem about 
billings and reimbursements with a whole bunch of hospitals 
here, is that correct?
    Ms. Ohl. My understanding on that side, on the claims side, 
is that LA County was developing new computer systems and 
billing systems that were supposed to be ready in 1992 or 1993. 
Again, it is not my primary area of responsibility, but those 
are--I had been told by the contractor rep for Blue Cross of 
California at the time.
    Senator Levin. Now, HCFA had actually had money in its 
hands which the Los Angeles Hospital claimed, is that correct? 
In other words, was there not, once this process began, a 
decision by HCFA to hold up on certain reimbursements, to hold 
back on certain reimbursements, is that correct?
    Ms. Ohl. HCFA does not hold back on reimbursement. It 
pays--when the claim comes in, it makes an interim 
determination and pays that amount. There is a final 
settlement, and that goes on through the cost report at the end 
of the fiscal year. Then the fiscal intermediary is responsible 
for settling that cost report through an audit-type process and 
that audit process would make adjustments for any costs that 
the auditors would find to be not Medicare-related, 
inappropriate, unreasonable, unnecessary, and that would be an 
adjusted amount. Then there would be a claim that would go out 
called an NPR, the Notice of Program Reimbursement, and at that 
point in time is when Medicare, if there was an overpayment, 
would demand payment back on that.
    Senator Levin. In addition to demanding payment back, they 
also would withhold money that would be otherwise owing to the 
hospitals, is that correct?
    Ms. Ohl. Only withhold after giving the provider an 
opportunity to pay or ask for an extended repayment plan, and 
if neither one of those were met, then they would be put on 
withhold.
    Senator Levin. Was about $53 million then withheld here 
from these hospitals?
    Ms. Ohl. I could not say. I do not know where the $53 
million came from.
    Senator Levin. You do not know how much money was withheld, 
if any, from these hospitals?
    Ms. Ohl. I am trying to understand how to--try to figure 
out how to explain the process to you, sir. The cost report may 
have actually even come up with an underpayment and a payment 
may have been made at that point in time. I do not know. I did 
not go back in the history and see that process. The $53 
million figure came from LA County, I presume. I do not know 
what it is based on, nor do I know if it was ever even included 
in the cost report for there ever to have been a withholding on 
it.
    Senator Levin. So you do not know whether there was an NPR 
relative to these hospitals?
    Ms. Ohl. There is an NPR related to them, but the NPR, in 
that, there is only $12 million in dispute.
    Senator Levin. Is it fair to say there were a lot of 
unresolved reimbursement claims between HCFA and the hospitals?
    Ms. Ohl. Unresolved reimbursement adjustments on the cost 
report.
    Senator Levin. Right, and that they had been outstanding, 
these differences, disputes, for many, many years?
    Ms. Ohl. That is correct. In fact, they were actually 
scheduled to be heard by the PRRB and delayed at the request of 
LA County.
    Senator Levin. And the unresolved claims had gone back as 
far as the early 1980's, is that accurate, do you know?
    Ms. Ohl. I have heard as early as 1981, but I believe at 
this point in time things had been settled up until about 1986, 
1987, 1988, so there is really only at this point in time going 
back to the latter part of the 1980's.
    Senator Levin. Let me read you a letter which was received, 
I believe yesterday, from Congressman Waxman, that I would ask 
to be made part of the record.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 28 which appears in the Appendix on page 246.
---------------------------------------------------------------------------
    Senator Collins. Without objection.
    Senator Levin. ``It has come to my attention that the 
Senate Governmental Affairs Subcommittee is conducting a 
hearing tomorrow concerning how HCFA settled certain Medicare 
claims in 1996, including some claims relating to public 
hospitals in LA County. I thought it might be useful to give 
you some context on this issue.''
    ``During the 1995-96 period, LA County was in a period of 
severe fiscal crisis with alarming implications for the 
continued viability of the public hospital system. There were 
threats of bankruptcy and some were even suggesting that the 
county would have to walk away entirely from their obligations 
to serve the poor. There was probably not a member of the LA 
delegation of either party who was not aware of the serious 
threat posed to continuing health care services to the many 
poor and uninsured persons who were served by these 
providers.''
    ``During that period, the California State administration 
under Governor Wilson supported and forwarded to HCFA proposals 
for a waiver of certain Medicaid requirements, and during the 
discussions of the county and State with HCFA, the severity of 
the problem facing the LA health system was undoubtedly 
impressed on HCFA and other officials in the administration. 
Many members of the delegation, I am sure, urged HCFA officials 
to act appropriately and responsively in whatever areas were 
before them to aid the county in avoiding what loomed as a 
public health disaster. In other words, we wanted to assure 
that inattention or bureaucratic delays in resolving resolvable 
issues were avoided to the extent possible.''
    Were you familiar with the effort on the part of the 
California delegation and the governor to get this matter 
resolved because of the financial circumstances of the 
hospitals?
    Ms. Ohl. I knew on the Medicaid side of our regional office 
that they were working in trying to see what could be done, but 
I did not know the details related to that.
    Senator Levin. Thank you. Thank you, Madam Chair.
    Senator Collins. Thank you. Senator Thompson.
    Chairman Thompson. Thank you very much.
    Mr. Seubert, let me ask you some questions, and I have 
several questions and I will try to get through them as fast as 
I can here. I understand that you have worked for HCFA since 
1976?

  TESTIMONY OF TONY SEUBERT, PAYMENT SPECIALIST, HEALTH CARE 
                    FINANCING ADMINISTRATION

    Mr. Seubert. That is correct.
    Chairman Thompson. You are currently a Payment Specialist 
in the New York Regional Office?
    Mr. Seubert. Correct.
    Chairman Thompson. You previously worked in overpayment 
review for many years, is that right?
    Mr. Seubert. I did.
    Chairman Thompson. You became aware of the settlement 
negotiations between the New York City Health and Hospital 
Corporation, HHC, and HCFA. As I understand, in the spring of 
1996, Chuck Booth called the regional office to tell you about 
a meeting that was being set up at your office with Empire, the 
fiscal intermediary, and HHC to discuss the appeals, is that 
correct?
    Mr. Seubert. That is correct.
    Chairman Thompson. What was the purpose of this meeting?
    Mr. Seubert. As I understood it, the purpose was to 
initiate a discussion between the provider, Health and Hospital 
Corporation, and HCFA to see if there could not be some 
settlement reached or some breaking of the logjam.
    Chairman Thompson. When Mr. Booth arrived in New York, did 
you offer to help him in any way?
    Mr. Seubert. I did.
    Chairman Thompson. What was Mr. Booth's response?
    Mr. Seubert. Mr. Booth cautioned me. I think his words 
were, ``Do yourself a favor, stay away from this.''
    Chairman Thompson. What did you think Mr. Booth meant by 
that statement?
    Mr. Seubert. I took it to be a caution that this was highly 
sensitive in nature and that there would be some rocky shoals 
and that I might be wise to give it some distance and just sit 
at the table.
    Chairman Thompson. Did you attend that first meeting?
    Mr. Seubert. I did.
    Chairman Thompson. Did you find the meeting to be unusual 
in any way?
    Mr. Seubert. I did, Senator.
    Chairman Thompson. Why was it unusual?
    Mr. Seubert. Similar to the situation that I just heard 
Jean Ohl explain in California, the bad debt issue was a 
prominent issue under discussion. Bad debt is a relatively 
straightforward issue. It is a matter of producing 
documentation to substantiate a provider's claim for 
reimbursement. Essentially, it is to show that there was, in 
fact, treatment made and that that claim for payment had gone 
unpaid and that all necessary action had been made to collect 
that debt.
    It became apparent during the course of discussion that the 
fiscal intermediary, Empire Blue Cross, felt very strongly that 
the documentation requirements had not been met. At some point 
during the discussion, Mr. Booth offered a suggestion that 
something called the disproportionate share percentage be 
inserted in lieu of actual hard documentation for bad debts, 
and that was very unusual.
    Chairman Thompson. And why was that unusual?
    Mr. Seubert. Well, it would be a proxy in lieu of 
documentation. Normally, Medicare, we work as an entitlement 
program----
    Chairman Thompson. In other words, was he suggesting a 
settlement on behalf of HCFA that was based on no empirical 
data?
    Mr. Seubert. That is correct, no supportable document, or 
no supportable, auditable documentation.
    Chairman Thompson. Did anyone else find that meeting to be 
unusual?
    Mr. Seubert. Yes, Senator.
    Chairman Thompson. Who?
    Mr. Seubert. Well, the auditors I spoke to at Empire Blue 
Cross and the Director of Audit and Reimbursement were somewhat 
disturbed by it.
    Chairman Thompson. Would this be a Mary Adam from Empire?
    Mr. Seubert. She was and still is the Director of Audit and 
Reimbursement at Empire.
    Chairman Thompson. Was she one of the ones who expressed 
shock or surprise?
    Mr. Seubert. Yes.
    Chairman Thompson. At Mr. Booth's comments and methodology 
for resolving the bad debt claim?
    Mr. Seubert. Yes.
    Chairman Thompson. Is it my understanding that you did not 
attend additional meetings related to the settlement 
negotiations?
    Mr. Seubert. That was the only meeting I attended.
    Chairman Thompson. Why?
    Mr. Seubert. To be candid, I was kind of disturbed by the 
outcome of the meeting and the direction it was taking, and 
frankly, I did not want to be sitting somewhere like here 
today. [Laughter.]
    Chairman Thompson. Well, I would rather be sitting here 
with your story than some of the other stories that we are 
going to hear.
    Do you believe that HCFA gave HHC special treatment?
    Mr. Seubert. I do.
    Chairman Thompson. Were they trying to cut a special break 
for HCFA?
    Mr. Seubert. It appeared so. Well, not for HCFA, but for 
the Health and Hospital Corporation.
    Chairman Thompson. I am sorry, for HHC. What has been your 
experience with regard to HHC?
    Mr. Seubert. They were a troubled provider chain. At any 
point in time, there were about a dozen hospitals, sometimes 
more, sometimes a few less depending on who was still in 
business, but when I say troubled, their documentation or their 
ability to produce documents to substantiate costs that were 
claimed by the Medicare or in the Medicare program were less 
than good.
    Chairman Thompson. What is HHC's history at HCFA, how they 
have been treated?
    Mr. Seubert. Well, they had a record for appealing almost 
everything. I think at the time that this settlement was 
reached, there was somewhat in excess of 100 appeals pending 
and they were tardy in allowing us in to perform audits and 
they were tardy in producing documentation. They were a problem 
provider, which is not to say that they did not have a lot of 
work to do. In terms of our dealings with them, though, they 
were unable to substantiate costs with frequency.
    Chairman Thompson. Did they have a reputation as to how 
they were treated at HCFA?
    Mr. Seubert. I think they were treated with kid gloves over 
the years because they did deal with a large number of inner-
city hospitals and a poor population.
    Chairman Thompson. Were you concerned that the settlement 
was not proper?
    Mr. Seubert. I was.
    Chairman Thompson. Explain that a little bit.
    Mr. Seubert. I was concerned with two things. We have 
already talked about the Federal Claims Collection Act, and I 
think that that was still a factor. My understanding is that 
under the Federal Claims Collection Act, any time there is in 
excess of $100,000 in controversy, and HCFA did have a claim 
substantially in excess of that amount, that the Department of 
Justice was supposed to sign off on any agreements that were 
reached.
    I do think there was collection made on the original debt 
and some of that might not have been totally under the Federal 
Claims Collection Act. But it is my understanding that part of 
the debt was still outstanding and the part that was collected 
was under appeal. In fact, the whole amount was under appeal to 
the Provider Reimbursement Review Board, but as Jean Ohl 
testified, normally, HCFA's position is one of non-involvement 
in the process once an appeal is initiated before the Provider 
Reimbursement Review Board.
    Chairman Thompson. But they were involved in the process in 
this case big-time?
    Mr. Seubert. Yes.
    Chairman Thompson. Do you think HCFA has the authority to 
agree to compensate HHC for bad debts in the past or into the 
future without requiring HHC to provide proof of the costs that 
they were claiming?
    Mr. Seubert. In the past, I would say yes, as long it is 
under the threshold of $100,000 because there was precedent for 
settlements being reached based on secondary evidence. Into the 
future, I would say absolutely not.
    Chairman Thompson. Have you ever seen the actual settlement 
agreement with HHC?
    Mr. Seubert. I did, subsequently.
    Chairman Thompson. From what you know of the settlement, do 
you think it was a good deal for the Medicare trust fund?
    Mr. Seubert. I will only address the bad debts, because 
that is the only thing I had a discussion about with the folks 
at Empire Blue Cross, and that was the largest part of the 
settlement. I spoke to the Empire auditors at length about it, 
and based upon the discussions I had with them, I would say 
resoundingly, no, it was not a good deal.
    Chairman Thompson. Did HHC have any proof whatsoever for 
bad debts?
    Mr. Seubert. My understanding is they had some and they 
were compensated for the proof that they presented. The issue 
revolved around those debts that were unsubstantiated.
    Chairman Thompson. Did you think HHC would have prevailed 
on the merits of its appeals if they had gone before the PRRB?
    Mr. Seubert. Well, clearly, no. I have not looked at their 
audit papers, but if something is unsubstantiated, again, this 
is an entitlement program and the burden is on the provider in 
the first instance to submit documentation. If documentation 
does not substantiate the claim, it cannot be supported upon 
appeal.
    Chairman Thompson. There is a provision on page 2 of the 
settlement agreement,\1\ paragraph 1(b), which as I understand 
it binds HCFA to compensate HHC for a certain percentage of all 
future bad debt claims without requiring HHC to prove that they 
incurred those costs. Are you familiar with that part of the 
agreement?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 21b. which appears in the Appendix on page 137.
---------------------------------------------------------------------------
    Mr. Seubert. I am. I have read that part of the agreement.
    Chairman Thompson. What is your view of this clause of the 
HHC agreement?
    Mr. Seubert. I find it mystifying. Barring an approved 
waiver agreement, it basically carves out an exception for 
Health and Hospital Corporation as opposed to all other 
providers in the Medicare program.
    Chairman Thompson. Do you believe this settlement subverts 
the audit process?
    Mr. Seubert. I do.
    Chairman Thompson. Well, I do not know of anything that I 
can add to that, other than to thank both of you. We have seen 
these problems that HCFA has had in times past and now we are 
understanding why. But we also see that there are some people 
on the inside trying to do the right thing, and I want to tell 
you how much I appreciate it and associate myself with the 
statements of the Chairman.
    Senator Collins. Thank you, Senator. Senator Durbin.
    Senator Durbin. Thank you, Madam Chair.
    I just have a few brief questions. I want to clarify here. 
The GAO report states that HCFA agreed to accept about 36 
percent of the total principal at issue in the LA County case 
and the Visiting Nurses case. Is that your understanding?
    Mr. Seubert. Senator, I am unfamiliar with those two cases. 
The only one I have a familiarity with is the Health and 
Hospital Corp.
    Senator Durbin. Do you have any familiarity with those?
    Ms. Ohl. I have not seen the GAO report, so I cannot 
comment on what it might have said.
    Senator Durbin. Well, the reason I raise that question is 
that I am told that, according to the numbers in the statement 
from Mr. Booth, the total amount at issue in Los Angeles County 
and HHC was $273 million. Is that your understanding?
    Ms. Ohl. In Los Angeles County, what was claimed on the 
cost report and that was under appeal was closer to the $12 
million figure I referenced earlier. And then as Mr. Booth 
asked for additional documentation from LA County, those issues 
grew in numbers and I cannot discuss what made them up because 
I never saw any documentation.
    Senator Durbin. Then I will pursue this question with Mr. 
Booth. I do not want to put you on the spot on something you 
are not familiar with, but it is my understanding that the 
total amount at issue in LA County and HHC was $273 million and 
the settlement was for $181 million, recovery of about 67 
percent, and that the Visiting Nurses matter was settled for 
over 70 percent of the disputed claim. I just want to make sure 
that that is clarified.
    But could I ask you this, Ms. Ohl, if you would. I read in 
the testimony we are going to receive from Mr. Vladeck that 
this Los Angeles County situation was, he characterized, a 
potentially massive public health crisis and might have forced 
hospitals to close and outpatient facilities to close, as well, 
due to lack of funds. Do you think that is a fair 
characterization?
    Ms. Ohl. I am not familiar with the details at that time. 
LA County, in fact, I mentioned it in my E-mail, that it does a 
lot of indigent care, a lot of that type of stuff, but I do not 
understand--from the documentation and discussions I had with 
Blue Cross of California, there is evidence that some of the 
amounts in those figures were for patients or individuals who 
were not Medicare beneficiaries. So I did not understand how we 
could use Medicare trust fund dollars to pay for those, and I 
suggested alternatives in my E-mail, such as grant program.
    Senator Durbin. Again, that raises the question about why 
the GAO did not go into more depth in terms of the substance of 
this claim, and I do not understand that still, why they did 
not do so after they made some rather sweeping conclusions 
about whether the amount of settlement was adequate. But thank 
you very much for your testimony.
    Senator Collins. I want to thank you both for being here 
today and for your complete and candid responses to 
questioning.
    Senator Levin. May I ask one more question?
    Senator Collins. If it is quick.
    Senator Levin. Thank you, Madam Chairman.
    There was a claim that HHS had against HCFA, is that not 
correct?
    Mr. Seubert. HHC, Health and Hospital Corp.
    Senator Levin. I am sorry. HHC had a claim against HCFA 
because HCFA had withheld a significant amount of money, is 
that right?
    Mr. Seubert. It was an appeal. They had an appeal of monies 
that they claimed against HCFA.
    Senator Levin. But that money was basically withheld by 
HCFA, was it not?
    Mr. Seubert. I believe it was partially withheld. I believe 
some was still outstanding and some had been----
    Senator Levin. Do you know about how much money? Would it 
be in the $100 million range?
    Mr. Seubert. I think initially, the amount in controversy 
was in the $100 million range, but how much was still 
outstanding, I am not certain of, Senator.
    Senator Levin. But is it possible that there was $100 
million that HCFA had withheld that HHC was claiming? Is that 
possible?
    Mr. Seubert. It is.
    Senator Levin. Because sometimes we talk about 
overpayments, claims and so forth. In this case, I understand, 
money, a significant, large amount of money, had been withheld 
by HCFA which HHC claimed, and that is what the dispute was 
about. In ordinary parlance, it was a claim that HHC had 
against HCFA for money which had been withheld by HCFA.
    But we talked to Rick Langfelder, of HHC about the 
documentation. He said that HHC had given HCFA a room full of 
documents on their bad debts. Did they give a large number of 
documents on bad debts?
    Mr. Seubert. My understanding is, yes, it was a--because 
there were at least 12 hospitals involved and bad debt, by its 
very nature, particularly on the outpatient side, involves one 
record for each claim paid, so there was quite----
    Senator Levin. Does HHC have 11 hospitals, three skilled 
nursing facilities, and service perhaps 5 million outpatients a 
year?
    Mr. Seubert. That sounds accurate.
    Senator Levin. And the settlement in question here covered 
about 11 years, is that correct, from 1982 to 1993?
    Mr. Seubert. My understanding was 1983 to 1993, yes.
    Senator Levin. Eighty-three to----
    Mr. Seubert. Eighty-three to 1993 was my understanding.
    Senator Levin. Thank you both for coming forward.
    Senator Collins. Again, I very much appreciate your 
testimony and your coming forward and explaining the 
circumstances of these cases to us. Thank you.
    Mr. Seubert. Thank you, Senators.
    Senator Collins. Our next witness this morning is Charles 
Booth, who is currently the Director of the Financial Services 
Group for the Health Care Financing Administration. Mr. Booth 
executed the three overpayment settlements at the center of the 
Subcommittee's investigation. He has been an employee of HCFA 
since 1977, but actually originally joined the Medicare program 
at its inception in 1965 when he was employed by the Social 
Security Administration.
    I would now like to administer the oath to you. Do you 
swear that the testimony you are about to give will be the 
truth, the whole truth, and nothing but the truth, so help you, 
God?
    Mr. Booth. I do.
    Senator Collins. Thank you, Mr. Booth. Mr. Booth, would you 
like to proceed with your statement?

TESTIMONY OF CHARLES R. BOOTH,\1\ DIRECTOR, FINANCIAL SERVICES 
          GROUP, HEALTH CARE FINANCING ADMINISTRATION

    Mr. Booth. Thank you, Madam Chairman. Madam Chairman and 
members of the Subcommittee, good morning. My name is Charles 
R. Booth. I am a career Federal employee and have worked for 
the Federal Government for 40 years. I am Director of the 
Financial Services Group, Office of Financial Management in the 
Health Care Financing Administration. In that position, I am 
responsible for the management of the agency's current 
administrative budget and spending. I have held this position 
since July 1977--1997, excuse me.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Booth appears in the Appendix on 
page 78.
---------------------------------------------------------------------------
    From 1984 through 1994, I was the Director of the Office of 
Payment Policy in the Bureau of Policy Development. In about 
1988, the name of the office was changed from the Office of 
Reimbursement Policy and the name of the bureau was changed 
from the Bureau of Eligibility, Reimbursement, and Coverage, 
but the functions were essentially the same.
    I directed a staff to determine the administrative policies 
for reasonable cost reimbursement, reasonable charge payment, 
and payment under a variety of fee schedules as Congress 
enacted them over the years. In addition, when disputes arose 
about the meaning of various policy interpretations, my staff 
and I responded to those inquiries. Some of those disputes 
involved the Office of the General Counsel of Health and Human 
Services. I was the person they consulted about HCFA's views on 
whether to settle or appeal certain cases, including those that 
arose from decisions issued by the Provider Reimbursement 
Review Board.
    In November 1994, there was a reorganization within the 
Bureau of Policy Development and my role changed somewhat. I 
assumed more responsibilities for hospitals but no longer had 
the payment policy responsibility for physician services, home 
health agencies, or skilled nursing facilities. I held that 
position until July 1997.
    A dispute arose in the early 1990's between the Visiting 
Nurses Service of New York, VNS, and its fiscal intermediary, 
United Government Services. United Government Services had 
reviewed certain costs for this home health agency which it 
wanted to disallow. Because the consequences were very 
significant, United Government Services discussed them with 
members of my staff and me. Representatives from VNS also met 
with us. Those meetings occurred in the fall of 1993. There 
were also a variety of phone calls with United Government 
Services representatives and other phone calls with an attorney 
representing Visiting Nurses Services.
    Visiting Nurses clearly wanted to reach some compromise 
with United Government Services before any final decisions were 
made. United Government Services asked us in late February 1994 
if HCFA was in agreement with its proposed action. After 
checking with Thomas Ault, who at the time was the Director of 
the Bureau of Policy Development and my immediate superior, we 
said we were.
    United Government Services issued its decisions, those are 
Notices of Program Reimbursement, at the end of February 1994. 
Within a few days, Mr. Ault directed me to find a way to settle 
this issue. He asked me to meet with representatives from 
Visiting Nurses Services to find some middle ground because the 
amount at issue was too great. He indicated this needed to be 
accomplished quickly.
    As a result, I met with representatives from Visiting 
Nurses Service and United Government Services on or about March 
10, 1994, and we reached an agreement. The settlement agreement 
was drafted by United Government Services, was reviewed at 
length by Visiting Nurses Service, United Government Services, 
and me, and finally signed in April 1995.
    The main issue in this dispute was whether the length of 
time Visiting Nurses Services claimed for nurses aides' visits 
was reasonable. Visiting Nurses served a large Medicaid 
population as well as a large Medicare population. The aides 
provided services to the Medicaid population that went beyond 
those for which Medicare would normally pay. These included 
homemaker services such as food shopping. While the average 
length of the Medicare visit was a little over 3 hours, the 
average length of the Medicaid visit was about 12 hours. 
Visiting Nurses Services claimed that we should average all the 
aide visit time for all patients and that Medicare should pay 
the cost based on that average for aide visits provided for 
Medicare beneficiaries.
    United Government Services contended the aide visits for 
Medicaid beneficiaries were not like those provided to Medicare 
beneficiaries and that Medicare should pay only for the time 
the aides spent with Medicare patients, carving those out from 
the other visits. Costs for several years were at issue. United 
Government Services was proposing to disallow about $93 
million. As a result of the settlement, Visiting Nurses 
Services paid the Government approximately $67 million.
    In late January 1996, Mr. Ault, still my immediate 
supervisor, gave me a note dated January 19, 1996, from Rick 
Langfelder to his boss, Maria Mitchell. Mr. Ault told me to 
look into it, contact Mr. Langfelder, find out what was going 
on. Mr. Langfelder worked for the New York Health and Hospitals 
Corporation, HHC, an agency of the New York City Government 
that operated several hospitals. It was not clear from the 
January 19 note what the issues were.
    I did contact Mr. Langfelder, met with him and others from 
HHC in February 1996. There were several issues HHC had with 
its fiscal intermediary, Empire Blue Cross, going back to the 
early 1980's. We discussed these issues again in May. However, 
by then, I had heard directly from Bruce Vladeck, the 
Administrator of the Health Care Financing Administration from 
May 1993 until September 1997. Dr. Vladeck inquired about what 
progress was being made to settle the issues raised by HHC. He 
was obviously disappointed by the lack of progress in settling 
these issues and expressed his strong desire to see more 
progress.
    I met again with Langfelder and the others from HHC at the 
HCFA regional office in New York. That meeting took place in 
June. Representatives from Empire also attended. I had called 
William Toby, the Regional Administrator in New York, to ask if 
we could use space in his office as I believed it would be 
better to meet there than at HHC. Tony Seubert attended the 
meeting for Mr. Toby. We discussed the issues and HHC's 
estimate of the value of those issues but made little progress 
toward resolution.
    Dr. Vladeck inquired about the status of the negotiation 
soon after the June meeting. He advised me that he needed to 
``report to the 6th floor.'' I took that to mean the 
Department's Office of the Secretary, but Dr. Vladeck provided 
no further description. Parenthetically, it is common within 
the agency to refer to the 6th floor as meaning the Office of 
the Secretary.
    He was clearly not happy that very little progress had been 
made at the June meeting. I recall sending him an E-mail saying 
that I believed that if we moved quickly to settle the issues, 
we would end up paying more money. His reply was that he wanted 
it settled very quickly, that it was worth the extra money. I 
took this to be his clear direction to settle the issues.
    An agreement was reached in mid-August. That meeting was 
also at the regional office. Empire drafted the settlement 
agreement, which was reviewed by all the parties and signed in 
mid-September. The issues settled were worth approximately $200 
million and Empire paid HHC approximately $130 million.
    In November 1996, I received a phone call from an analyst 
in the Office of Research and Demonstrations of the Health Care 
Financing Administration advising that Dr. Vladeck wanted me to 
look into a dispute between the Los Angeles County Hospitals 
and their fiscal intermediary, Blue Cross of California. I had 
a short discussion with Dr. Vladeck in late November or early 
December 1996, when he advised me that the time pressure was 
not quite so severe. It was very clear to me that this was a 
directive from Dr. Vladeck that he wanted this matter settled, 
as well.
    I contacted representatives from Los Angeles County, had 
discussions with representatives from Blue Cross of California, 
and reached a settlement agreement with county representatives 
in late February 1997. As with HHC, there were several issues 
in dispute. I drafted a settlement agreement along similar 
lines as the HHC agreement and sent it to representative from 
Los Angeles County, the fiscal intermediary, and the HCFA 
regional office in San Francisco. The agreement was revised 
somewhat and signed and Blue Cross paid Los Angeles County 
about $51 million. The value of the issues in dispute was about 
$73 million.
    I believed at the time and I believe now that I was acting 
under the express direction of Mr. Ault in the first instance 
and Dr. Vladeck in the latter two. I believed at the time the 
settlements were appropriate. I now know that I should not have 
agreed to or signed those settlements without the involvement 
of the Department's Office of General Counsel and agreement 
from the Department of Justice. At no time did I intend to 
violate any rules, regulations, or laws.
    I have spent 33 years of my 40-year career working for the 
Medicare program, and I have tried to work for the best 
interests of Medicare beneficiaries and the Medicare program 
during this period. Thank you. I will try to respond to any of 
your questions.
    Senator Collins. Thank you, Mr. Booth.
    Mr. Booth, you just mentioned that you have been with the 
Medicare program since its inception, for more than 30 years. 
During that time, were there other occasions in which the 
Administrator of HCFA called you and directed you to settle 
cases like these three?
    Mr. Booth. No, Madam Chairman, there were not.
    Senator Collins. So----
    Mr. Booth. May I say, there were other situations in which 
people came to see me saying the administrator sent them. I 
normally did not believe them. These were the only three where 
now--in the first instance, in VNS, I dealt only with Mr. Ault 
until after the agreement was made. In the second 2, I dealt 
with Dr. Vladeck directly.
    Senator Collins. In your deposition, you said that the 
request came from Mr. Ault but clearly he was acting at the 
behest of Mr. Vladeck, is that correct?
    Mr. Booth. I thought I said that was my belief.
    Senator Collins. OK.
    Mr. Booth. But Dr. Vladeck had no contact with me on the 
VNS matter until after the VNS matter had been settled.
    Senator Collins. But did on the other 2?
    Mr. Booth. But did on the other 2.
    Senator Collins. On those 2, those were the only times in 
your more than 30-year career when the direction clearly came 
from the administrator?
    Mr. Booth. Yes, but let me say that I was in the policy 
position from 1984 to basically July 1997. Those are the only 
times the administrator would have come to me under those 
circumstances. I had other responsibilities in other aspects of 
the program prior to that, so I think the characterization 
that--I mean, other administrators came to me to do other 
things, but not settlements.
    Senator Collins. Not settlements? And in your deposition, 
you said to the Subcommittee that these were clearly outside of 
our normal practice because of the way in which you were asked 
to do them. Do you stand by that statement?
    Mr. Booth. Yes, Madam Chairman, I do.
    Senator Collins. I would like to ask you some details about 
the HHC case and to flesh out the testimony that you have given 
us. Now, it is my understanding, based on your deposition and 
your testimony, that in the spring of 1996, Mr. Vladeck asked 
you to look into the outstanding Medicare appeals involving HHC 
and that he asked you to give him periodic status reports. Did 
he explain to you why he wanted status reports?
    Mr. Booth. Not at first. After about the second one, he 
said that he needed to report to the 6th floor.
    Senator Collins. And you have explained that that is where 
the Secretary's office is?
    Mr. Booth. Yes, Madam Chairman.
    Senator Collins. And in the common parlance of HCFA, when 
you refer to the 6th floor, you are referring to the 
Secretary's office?
    Mr. Booth. Normally, yes.
    Senator Collins. In July 1996, did Mr. Vladeck send you an 
E-mail commenting on the pace at which the negotiations were 
moving?
    Mr. Booth. I thought that E-mail was probably in June, but 
I would not dispute that it was June or July.
    Senator Collins. Did he express his hope or his opinion 
that the pace was too slow and he wanted you to pick up the 
pace of the negotiations?
    Mr. Booth. It was clear that he wanted the matter settled 
and he wanted it settled very quickly.
    Senator Collins. In response to the concerns that Mr. 
Vladeck expressed to you about the pace not being fast enough, 
did you advise him that if you rushed the process, it could end 
up costing HCFA and additional $8 to $10 million?
    Mr. Booth. Yes, Madam Chairman, I did.
    Senator Collins. And what did Mr. Vladeck reply when you 
expressed this concern that if you hurried the process, the 
Medicare trust fund could end up paying $8 to $10 million more 
money?
    Mr. Booth. I cannot remember the quote exactly, but the 
essence was that time was more important than money.
    Senator Collins. Did that exchange leave you with the 
impression that completing the settlement quickly was more 
important than the actual amount of the settlement, than trying 
to maximize the amount that the government would recover?
    Mr. Booth. Yes, but may I add that the government actually 
had the money.
    Senator Collins. Had the money, because it had been 
withheld.
    Mr. Booth. Right. In the cost settlements from 1983 through 
1992, at least, and in some cases I think 1993, when the costs 
were settled and the Notices of Program Reimbursement were 
issued, the fiscal intermediary then took whatever money was 
owed, if there was money owed, based on the intermediary's 
assessment of the value of the issues. And so all the money 
that we were discussing during the settlement negotiations was 
in the Medicare trust fund.
    Senator Collins. And after Mr. Vladeck expressed concern to 
you about the speed of the negotiations, how long was it, 
approximately, before you reached an agreement with HHC, do you 
recall?
    Mr. Booth. The agreement was reached in mid-August----
    Senator Collins. So it was within a few weeks?
    Mr. Booth. So within a few weeks, but three to six.
    Senator Collins. And as a result of the agreement, HCFA 
agreed to reimburse HHC or to pay HHC for roughly $130 million 
of the $155 million in dispute, is that correct?
    Mr. Booth. My recollection is that there was approximately 
$200 million in dispute, not 155. But we did agree to pay $130 
million.
    Senator Collins. So what you are saying is the amount 
forgiven may be even more than I realized based on the GAO 
report, which was an estimate of $155 million? Your 
recollection is that the total amount in dispute may have been 
about $200 million, is that correct?
    Mr. Booth. Yes, but we paid 130 out of 200, not 130 out of 
155. So we got a better deal than I think at least the GAO 
testimony this morning would have led me to believe. And I had 
given the GAO those numbers when I had met with them as early 
as May 1999.
    Senator Collins. Was the primary issue in dispute that HHC 
did not have the proof to document its claims for reimbursement 
of bad debts under Medicare?
    Mr. Booth. Yes.
    Senator Collins. And did this settlement with HHC 
essentially cut them a break by reimbursing the hospital for a 
percentage of the bad debt costs without HHC having to prove 
that they actually incurred the costs?
    Mr. Booth. No.
    Senator Collins. Tell me what the settlement did.
    Mr. Booth. It was clear that Medicare beneficiaries 
received both inpatient and outpatient services. When a 
Medicare beneficiary receives a service for which there is a 
deductible and the Medicare beneficiary is unable to pay that 
deductible or unwilling to pay that deductible, then there are 
some things that the provider, in this case, HHC, needs to do. 
They need to document whether or not the patient is indigent, 
and if the patient is not indigent, they are then required to 
send the patient at least two letters demanding payment of that 
deductible or coinsurance.
    What the issue was, was whether or not Health and Hospitals 
Corporation in this case, and LA County in the other, could 
actually produce proof that they had sent those letters or 
whether they had proof that they had asked the right questions 
to determine whether or not the patient was indigent. It was 
not, in my view, a question of whether or not the services had 
been rendered and the costs had been incurred. The 
intermediaries in both cases had paid interim payments for the 
bills as they were processed. That led me to believe, at least, 
based on my discussions with both of the intermediaries 
involved and with the providers, that the costs, indeed, had 
been incurred. It was the question of not being able to prove 
that all the documentation was available.
    Senator Collins. Mr. Booth, in your deposition, your sworn 
deposition before the Subcommittee staff, you said, quote, ``In 
a couple of areas, we allowed past poor practices to be carried 
into the future, and by basically not requiring documentation, 
we were giving them a break.'' Do you stand by that statement?
    Mr. Booth. Yes, Madam Chairman, I do. The practices were 
poor because they did not have all the documentation that the 
intermediary felt was necessary.
    Senator Collins. Do you feel that Mr. Vladeck pressured you 
to get the HHC deal done?
    Mr. Booth. Yes, Madam Chairman, I do.
    Senator Collins. Did you know that Mr. Vladeck, prior to 
becoming the Administrator of HCFA, served as a director of 
HHC?
    Mr. Booth. I do not know whether I knew that or not. I do 
not think it would have been relevant one way or the other.
    Senator Collins. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    GAO has said that you told them that you knew at the time 
that the settlements were not in the government's best 
interest, is that true?
    Mr. Booth. No, sir.
    Senator Levin. Did you believe at the time that these 
settlements were in the government's best interest?
    Mr. Booth. Yes, sir, I did.
    Senator Levin. Did you hear the GAO testify today?
    Mr. Booth. Yes, Senator Levin, I did.
    Senator Levin. And you are telling us under oath that you 
deny that you ever told the GAO that you believed at the time 
that these settlements were not in the government's best 
interest, and in fact, you did believe at the time that they 
were in the government's best interest, is that correct?
    Mr. Booth. Yes, sir. I told them that, in retrospect, since 
I did not follow the procedure that I should have to get the 
Department of Justice lawyers involved, that in retrospect, 
there were certainly defects in the settlements.
    Secondly, I told them that I have never dealt with a 
settlement of any kind with--no matter who was involved or how 
many people were involved, that I was ever totally happy with. 
I still question whether I paid too much for my last car. And 
it is in that light that I question whether or not we got the 
best deal for the government. But I have done that with 
virtually every settlement I have ever been involved in. This 
is not different from that in terms of the substance of the 
settlement.
    Senator Levin. But I want to be real clear, because this 
is, it seems to me, critical, whether or not you at the time 
believed that this settlement was in the best interest of the 
government. You are testifying here today under oath, I 
believed at the time the settlements were appropriate, is that 
correct?
    Mr. Booth. Yes, sir.
    Senator Levin. And you did not tell the GAO that, at the 
time, you did not believe that the settlements were 
appropriate, is that true?
    Mr. Booth. That is correct.
    Senator Levin. Did you intentionally not send these 
settlements to the Department of Justice or the Office of 
General Counsel at HCFA because if you had, they would have 
gone up in smoke?
    Mr. Booth. No, sir.
    Senator Levin. Did you hear GAO testify that that is what 
you told them?
    Mr. Booth. Yes, sir, and what I told them was that had I 
thought about sending them to the Department of Justice or 
involving the Office of General Counsel, that we would have 
probably lost a fair amount of time. I, frankly, did not 
consider sending them because of the pressure of time to settle 
them, and it is only in retrospect, when I thought about it, 
that I told them that had--I think the question they asked was, 
well had you sent them to Justice, what would have happened? I 
said, they may well have gone up in smoke.
    Senator Levin. But you did not think about sending them at 
the time and then decide at the time not to because at the time 
you felt that they would have been rejected?
    Mr. Booth. I did not think that, that is correct.
    Senator Levin. Now, did Dr. Vladeck tell you to settle for 
a specific amount in the HHC case?
    Mr. Booth. No, sir.
    Senator Levin. Did he tell you to settle for a specific 
amount in the LA County case?
    Mr. Booth. No, sir.
    Senator Levin. Did he tell you to settle for a specific 
amount in the Visiting Nurses case?
    Mr. Booth. No, sir. He did not tell me anything about the 
Visiting Nurses case.
    Senator Levin. I want to just make sure I understood what 
you have told us here this morning. You said there was not a 
question in your mind then or now as to whether the services 
were provided or whether the costs were incurred. The question 
was whether they could prove that the documentation was 
available for that proof, is that correct?
    Mr. Booth. In the two hospital cases, yes, sir.
    Senator Levin. In the two hospital cases, is that correct?
    Mr. Booth. Yes, sir.
    Senator Levin. So you do not question that the services 
were provided or the costs incurred. What was missing was the 
documentation and the availability of the documentation 
relative to those two issues, is that correct?
    Mr. Booth. On the bad debt issue for those two hospitals, 
or two groups of hospitals.
    Senator Levin. And you have clarified something which I 
earlier tried to clarify with a witness and I do not think I 
succeeded. Let me try again. There was in the hands of HCFA or 
its agent $200 million, approximately, that belonged to HHC--
excuse me, that was claimed by HHC, it did not belong to it--
that HHC claimed, is that correct, that had been withheld from 
HHC?
    Mr. Booth. Yes. They had filed appeals with the Provider 
Reimbursement Review Board claiming that we owed them 
approximately $200 million for the issues we settled. They had 
other cases before the Provider Reimbursement Review Board that 
New York Health and Hospitals Corporation either did not want 
to settle or we said were not worth what they thought they were 
worth and therefore we took them off the table.
    Senator Levin. But that money had been withheld from them, 
is that not correct, the $200 million?
    Mr. Booth. Yes, sir.
    Senator Levin. So when there was a settlement for a hundred 
and--what was the amount----
    Mr. Booth. One-hundred-thirty million.
    Senator Levin [continuing]. $130 million. Then $130 million 
of money which had been withheld from HHC was then transferred 
to HHC, is that correct?
    Mr. Booth. Yes, sir.
    Senator Levin. So that in common parlance, there had been 
not an overpayment--I am not talking technically here. I am 
talking in common parlance. HHC claimed there had been an 
underpayment of $200 million and that was settled for $130 
million, is that correct, just in common parlance?
    Mr. Booth. Yes, sir.
    Senator Levin. Now, does HHC have approximately 11 
hospitals and three skilled nursing facilities, do you know? 
Does that sound about right?
    Mr. Booth. I do not know. It sounds about right.
    Senator Levin. All right. Does it sound about right that 
they service about 5 million outpatient visits a year?
    Mr. Booth. Yes. I think we talked about 4.5 million to 4.75 
million at the time of the settlement.
    Senator Levin. All right. So let us round it off, 4 to 5 
million outpatient visits a year. And the period of----
    Mr. Booth. That is total. That is not just Medicare.
    Senator Levin. That is total?
    Mr. Booth. Right.
    Senator Levin. About how many of those visits would be 
involved in Medicare, in these claims, half of them, a third? 
Give us a rough idea, a million?
    Mr. Booth. I would guess 15 to 20 percent.
    Senator Levin. So maybe a million?
    Mr. Booth. I would say a little less than a million, but I 
would not----
    Senator Levin. Say three-fourths of----
    Mr. Booth [continuing]. I would not argue you.
    Senator Levin. All right. Take a million just for the sake 
of discussion. This period of time that the settlement covered 
was about 10 years, is that correct?
    Mr. Booth. Yes, sir.
    Senator Levin. And so there would have needed to be paper 
proof, if I understand this, documents, for services which had 
been provided and you feel were provided for something like a 
million outpatient Medicare visits per year for about 10 years, 
does that sound about right?
    Mr. Booth. Yes, sir, that is correct.
    Senator Levin. About 10 million documents?
    Mr. Booth. More or less.
    Senator Levin. Did anybody tell you to hide what you were 
doing?
    Mr. Booth. No, sir.
    Senator Levin. Did anybody tell you not to go to the 
General Counsel's office?
    Mr. Booth. No, sir.
    Senator Levin. Did anybody tell you not to go to the 
Department of Justice?
    Mr. Booth. No, sir.
    Senator Levin. Did anybody tell you to do anything illegal 
or unethical?
    Mr. Booth. No, sir.
    Mr. Booth. Were you aware of the regional employees' 
objections to the settlements?
    Mr. Booth. I was not aware of Mr. Seubert's objections to 
the settlement. I was aware of Mr. Ohl's objection to the 
settlement in early March, basically after the settlement 
agreement had been reached and everybody knew--not everybody, 
but at least LA County and the administrator knew what the 
settlement was. What we were dealing with at that point was the 
paperwork.
    Senator Levin. Thank you, Madam Chair. Senator Thompson.
    Chairman Thompson. Mr. Booth, you know Mr. Seubert, do you 
not?
    Mr. Booth. Yes, sir.
    Chairman Thompson. How long have you known him?
    Mr. Booth. At least 20 years.
    Chairman Thompson. Twenty years? You heard him testify a 
few minutes ago, did you not?
    Mr. Booth. Yes, sir.
    Chairman Thompson. He said, I do not know if he said it 
here or in our staff interviews, he said he took some advice 
that he got from you, fatherly advice from someone that he 
liked and respected so I assumed that you and he had known each 
other for some time. Now, you heard him testify that when you 
went to New York to talk about the HHC settlement, that he 
initially offered his assistance. Do you remember that?
    Mr. Booth. I do not quite remember it that way, but he 
certainly attended the meeting on behalf of the regional 
office.
    Chairman Thompson. You do not remember that he offered 
assistance?
    Mr. Booth. No, sir.
    Chairman Thompson. Do you recall his testimony a few 
moments ago that you told him that this settlement was one that 
he would be better off staying away from?
    Mr. Booth. Well, yes, sir, I do recall his testimony. I 
take issue with the characterizations, at least.
    Chairman Thompson. What do you remember about that 
conversation?
    Mr. Booth. I told him that I had been asked by Dr. Vladeck 
to settle this matter and that we would handle the substance of 
the settlement at the central office. There was certainly no 
intent on my part to warn him in any manner.
    Chairman Thompson. But you had been told by Dr. Vladeck to 
settle the case and that central office would handle it, is 
that what you are saying?
    Mr. Booth. Yes, sir.
    Chairman Thompson. But not that it would be best if he 
stayed away from it? That is a very nuanced kind of position, 
Mr. Booth. You have been consistent in that respect, anyway. 
GAO says that you told them that you felt like at the time you 
needed to go to the Justice Department. You say now that at the 
time you did not feel that way, but you do now. GAO said that 
you said if you had gone to the Justice Department for 
approval, it would have gone up in smoke. You said you did not 
say that, but you see in retrospect, or you told them that, in 
retrospect, if you had gone to the Justice Department, that it 
probably would have or may have gone up in smoke. You did not 
see anything wrong with the procedure at the time, but in 
retrospect, you now see something wrong with the procedure.
    You have been around for a long time. I am sure you have 
performed good service, and a lot of people, I guess, in your 
position have to be survivors. Now you find yourself here, 
having allowed yourself to be used by Mr. Vladeck the way you 
did in conflict in three material ways with not just one, but 
two GAO people who investigated this case. It is a sad 
situation.
    But even more incredible is the negotiated settlements that 
allowed health care entities to continue the practices that 
caused the overpayments in the first place. We are not just 
talking about the past here. We are talking about things that 
we are living under now. In the agreement with VNS, HCFA 
allowed VNS to add a specified number of hours to its Medicare 
average for all future years, regardless of the number of hours 
that services were actually rendered. In their agreement with 
HHC, HCFA allowed HHC to continue to bill for bad debts without 
any documentation to support those costs. In the case of LA 
County, HCFA did not require LA County to meet recordkeeping 
requirements generally required by Medicare.
    The impact of these provisions, of course, is immeasurable. 
It is, of course, sometimes pointed out that these people are 
serving deserving constituencies. I think other Medicare 
recipients who are being deprived of these monies are deserving 
constituents, too, and perhaps we are seeing an evolving of a 
new concept. We have heard about too big to fail. Now perhaps 
we are getting into a new concept, too mismanaged to fail. If 
the situation is bad enough and they are serving a deserving 
constituency, then we just circumvent the process if we can get 
by with it.
    So we have got a lot of work to do on this side of the 
table and I am sure that we will be all involved in this matter 
for some time to come. I want to thank the Chairman again for 
having these hearings.
    Senator Collins. Thank you, Senator.
    Mr. Booth, you may be excused.
    Mr. Booth. I am sorry, could I comment on a couple of 
things that Chairman Thompson said, because, first of all, in 
the Visiting Nurses Service, while there was the allowance of 
additional hours for some period of time, the Balanced Budget 
Act of 1997, which changed the nature of reimbursement for home 
health agencies, would have abrogated that agreement at that 
time.
    In the New York Health and Hospitals Corporation case, the 
agreement going forward was very distasteful to the people at 
New York Health and Hospitals Corporation. They not only--they 
had to prove their costs, but using the disproportionate share 
formula, which was a formula that was derived by the Congress 
to come up with a proxy for low-income patients, would or 
should have caused them to move rapidly to establish better 
recordkeeping so that they could prove all of their bad debt 
costs. I actually thought that was, while it was creative, 
unusual, unique--I hope unique--I do not think it was the worst 
deal that we could have made under the circumstances, given the 
necessity, in my view, to settle the matter.
    And there was assurance by the County Hospitals in Los 
Angeles that they had a system that would go into place in July 
1997 for bad debts that would have allowed them to claim those 
costs properly and be reimbursed for them properly.
    I do not dispute the characterization that the Chairman has 
made, Chairman Thompson has made in the matter, but I did think 
it important for the completeness of the record to make that 
comment about the individual cases.
    Chairman Thompson. Well, you said something very 
interesting, though, that got right to the heart of it--given 
the necessity to settle the matter. All this, given the 
necessity to settle the matter. There was no necessity to 
settle the matter except for the direction of Mr. Vladeck. That 
is what all this is about. You cannot take an invalid concept 
and base anything that you might do after that on the 
compelling nature of the invalid concept. There was no 
necessity to settle any more than there was a necessity to 
settle any other case, this being one of the very, very few 
that the administrator personally gets involved in, the one 
that really is shocking to these other career people who take a 
look at it, and the one that you shepherded through. Now, I 
respect your need to protect yourself at this stage of the 
game, Mr. Booth, but that is all I have got to say about it.
    Senator Collins. Mr. Booth, you are excused. I am eager to 
get to----
    Senator Levin. I am hoping, in light of that last comment, 
could I ask one question of Mr. Booth?
    Senator Collins. Senator Levin, your time had expired 
whereas Senator Thompson still had 3 minutes left on his, and I 
do want to try to conclude the hearing by 1 o'clock. If we have 
additional questions for Mr. Booth, we can put them in the 
record and I am sure that he will answer them.
    So, Mr. Booth, you are excused.
    Mr. Booth. Thank you, Madam Chairman.
    Senator Collins. Thank you for your testimony.
    Our final witness today is Bruce C. Vladeck. Mr. Vladeck is 
currently a professor at the Mount Sinai School of Medicine and 
a Senior Vice President for its health system. From May 1993 
until September 1997, Mr. Vladeck served as the Administrator 
of the Health Care Financing Administration. HCFA compromised 
the three overpayment claims that are the subject of our 
hearing today during Mr. Vladeck's tenure as administrator.
    Pursuant to Rule 6, I will ask that you stand and be sworn 
in. Do you swear that the testimony that you are about to give 
the Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Vladeck. I do.
    Senator Collins. Thank you. Mr. Vladeck, you can proceed 
with your statement.

TESTIMONY OF BRUCE C. VLADECK,\1\ FORMER ADMINISTRATOR, HEALTH 
                 CARE FINANCING ADMINISTRATION

    Mr. Vladeck. Thank you very much, Chairman Collins, 
Chairman Thompson, Senator Levin. I am appearing at the 
invitation of the Subcommittee to discuss the process by which 
HCFA has negotiated and resolved disputes with Medicare 
providers. I have submitted a written statement to the 
Committee and I believe you have also received a letter from my 
counsel Mr. Anello,\2\ and I understand that both of those will 
be made part of the record for this hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Vladeck appears in the Appendix 
on page 82.
    \2\ See Exhibit No. 19 which appears in the Appendix on page 124.
---------------------------------------------------------------------------
    Senator Collins. They will be.
    Mr. Vladeck. Thank you.
    From 1993 until 1997, it was my privilege to serve as 
Administrator of HCFA. I am proud of my service and proud of 
what my colleagues and I accomplished during that time. I 
certainly would not claim that I made no mistakes during my 
service, nor that the agency, which with very limited resources 
administers two of the largest and most complex programs of the 
Federal Government, was without flaw, but we made significant 
progress. The agency was in much stronger shape when I left 
than when I arrived, and most important, Medicare and Medicaid 
were in significantly better financial shape and working better 
to serve their beneficiaries.
    I understand the GAO and perhaps some members of this 
Subcommittee are questioning some of the settlements undertaken 
while I was administrator. I am here to answer questions about 
my role in those settlements and what I understood about the 
role of others. I also understand this Subcommittee's Chair may 
recommend changes in the law or changes in regulation to 
clarify the process by which disputes between HCFA and 
providers are resolved. If the objective of that effort is to 
provide greater certainty and a more expeditious and fair 
handling of disputes, I applaud your efforts and will assist 
you in whatever way I can.
    When I first appeared before the Senate Finance Committee 
for confirmation in May 1993, I acknowledged that HCFA was an 
agency that had long been criticized for being unresponsive to 
health care needs, an agency that was slow to heed problems in 
the health care system, and one that too often appeared focused 
on form over substance. As I approached the tasks of 
administrator, I resolved to be ever mindful of the impact of 
the agency on actual people. I sought to address charges of 
bureaucratic inertia that previously had been leveled against 
the agency.
    I repeatedly tried to convey the message, both inside the 
agency and without, that the primary responsibility of HCFA was 
to ensure that its beneficiaries had access to high-quality 
care when they needed it. The only ones who could actually 
provide that care were not Federal employees or insurance 
companies, but the doctors, hospitals, and other health care 
providers who were thus our partners in fulfilling our core 
missions to meet the basic health care needs of our most 
vulnerable populations, the poor, the disabled, and the 
elderly.
    We were fortunate at HCFA to have a staff of very talented, 
knowledgeable, and experienced officials, many of whom had been 
with HCFA since its creation. The settlement process was 
overseen skillfully and energetically by Charles Booth, from 
whom you just heard, a longtime employee of HCFA who had been 
involved with the program since its inception. He was capable, 
tough, and I understood then and believe today of the highest 
integrity. Mr. Booth, in turn, worked directly with HCFA 
employees in our central and regional offices and contractor 
employees throughout the country.
    I think it is important for the Subcommittee to have some 
sense of the scope of these activities. Medicare paid close to 
40,000 providers each year on a cost-related basis. Each 
provider filed an annual cost report, triggering a process that 
included intermediary review and determination and not 
infrequently a series of appeals and dispute resolution 
procedures.
    The Subcommittee's letter of invitation and the GAO report 
asked that I address four specific payment disputes, but only 
three have been discussed today.
    As I testified in my deposition, I did not recall the 
details of any of the settlements because I was not involved in 
negotiating the settlements, nor was I advised at the time 
about the details of the negotiation. I did, however, press for 
timely resolution of those disputes.
    In Los Angeles County, we were facing a potential public 
health crisis precipitated by a change in Medicaid policy. We 
were faced with the very real prospect of closure of the 
Nation's largest public hospital, along with service reductions 
in a trauma system serving millions of people. I believed then 
and I believe now that lives were literally at stake.
    The New York City Health and Hospitals matter involved a 
potential disruption in services to the primary provider of 
care for low-income people in many parts of the city which 
neither the State nor the city were seeking adequately to 
address. These disruptions would have closed clinics, created 
intolerable waits in emergency rooms, and led to the reduction 
of services for premature infants, for AIDS patients, and for 
the mentally ill.
    The Visiting Nurse Service dispute involved a conflict 
between the requirements imposed on providers by New York State 
and the services reimbursable by Medicare for dually eligible 
Medicare-Medicaid beneficiaries. These beneficiaries are among 
the frailest and most disabled of all Americans and should not 
have been caught up in a lacunas between two Federal programs. 
In each of these cases, I was advised and believed that our 
failure to act promptly could result in an intolerable 
reduction or loss of medical and health services to some of our 
most vulnerable citizens. But I left the specific negotiation 
and resolution of the matters to the good judgment of HCFA 
staff, who are better equipped than I to settle the matters.
    In each of the settlements that has been discussed today, 
no one on the senior staff expressed to me at the time any 
reservations as to whether the agreements were in the best 
interest of the United States. However, as the Administrator of 
HCFA, I bear ultimate management responsibility for those 
resolutions.
    Let me address at the outset and in the conclusion of my 
opening statement a number of concerns that have been raised 
here today. First, concerns have been raised about the fact 
that in three of the settlements, I received calls from 
providers and others about the need to expeditiously resolve 
outstanding reimbursement disputes. During the 4\1/2\ years I 
served as administrator, I received dozens of calls from 
providers, from members of Congress, from State officials, and 
others interested in the resolution of outstanding disputes of 
one kind or another. In each case, I sought to facilitate 
solutions by passing the matters on to the appropriate staff at 
HCFA and asking that they develop appropriate responses. I did 
not direct the staff to come up with a particular result and I 
did not get involved in reimbursement settlement negotiations.
    Second, concerns have been expressed that the three 
settlements did not involve HCFA's General Counsel or the 
Department of Justice. As I testified in my deposition, I 
frankly did not know whether or not they did go through General 
Counsel or DOJ, or for that matter, what their final resolution 
was. However, if I had thought about it at the time, my view 
would have been that DOJ logically would not have been the 
appropriate body to resolve any of the policy issues or 
principal concerns in these three settlements, a position, I 
understand, that is supported by material that has been made 
available to the Subcommittee both by HCFA and by the 
Department of Justice.
    These matters did not involve claims and litigation or 
litigation-related concerns which DOJ would be uniquely 
qualified to handle. In each of these cases, HCFA had the 
unique ability, and I believe responsibility, to consider the 
fundamental health care issues involved, to speed the 
resolution of outstanding reimbursement issues, and to free up 
funding that was critical to the provision of services. My job 
as administrator was to act on significant matters involving 
policy decisions. Also, as a matter of policy, I did not 
consult with the Department of Justice but did so only on 
advice of General Counsel.
    Third, concerns have been raised about whether the dollar 
value of three of the settlements was adequate because they 
involved amounts significantly less than the amounts originally 
asserted by the fiscal intermediaries. Although I was not 
involved in these specific negotiations, it is a fact that 
where a provider disputes an intermediary's determination of an 
amount owed, that amount is never final until there is an 
evaluation of the policy issues, either through a settlement 
with HCFA by the Provider Reimbursement Review Board after a 
hearing, by the Administrator of HCFA in the case of a review 
of a PRRB decision, or by a court where the administrator's 
decision is appealed. Indeed, even after an NPR is issued, 
providers are instructed that they should attempt to reach a 
resolution by way of settlement prior to an actual PRRB 
hearing.
    Where complex policy issues are involved, it is fair and 
accurate to say that the intermediary's number may be viewed as 
simply the intermediary's number and certainly is not 
considered a debt owed to the government. In the three 
settlements at issue, I do not believe the providers think they 
received sweetheart deals and the Subcommittee can ask the 
providers about that themselves.
    Fourth, it has been suggested that I may have had a 
conflict of interest in urging resolution of two of these 
matters because prior to service at HCFA, I twice served as an 
unpaid board member of the New York City Health and Hospitals 
Corporation and I may have served very briefly in an advisory 
role to a subsidiary research organization affiliated with the 
Visiting Nurse Service. I have been involved in public health 
issues for over 25 years and have served in numerous paid and 
unpaid positions and also worked in numerous unpaid efforts for 
which I held no formal position, all directed at the same 
objective of delivering health care services to the public, 
primarily to the poor and the elderly.
    Those remained my objectives when I became HCFA 
Administrator. It should not be a surprise that I have 
acquaintances and relationships throughout the health care 
community nationally, including providers. Indeed, I would 
argue that had I not had such relationships, I would not have 
been qualified to fill the position. But to suggest that 
because of prior unpaid service I had any personal interest as 
opposed to the public interest in mind when I acted on behalf 
of HCFA is outrageous and untrue and I believe no one who knows 
me would make that allegation.
    Finally, we have already discussed the issue of my being 
identified as a reluctant witness because I did not talk 
directly with the GAO investigator when he sought to interview 
me in the summer of 1999, and we already established the 
reasons for that, on advice of counsel. We have also made it 
clear that as of October of last year, we expressed a complete 
willingness to meet at any time with either the General 
Accounting Office or with Subcommittee staff, and I was not 
asked to actually meet with Subcommittee staff until February, 
when I arranged to appear voluntarily to give a deposition 
earlier this month.
    I answered fully at the time all the questions put to me to 
the best of my recollection, as I would happily have done in 
October or November or December. I am here to answer any 
additional questions the Subcommittee might have today and I 
appreciate the opportunity to do so. Thank you.
    Senator Collins. Mr. Vladeck, how did you first become 
aware of the dispute between HHC and HCFA?
    Mr. Vladeck. I am not sure. I was aware back to the time of 
my service at HHC that as a matter of course, HHC had always 
had a large number of reimbursement appeals on Medicare issues 
pending. The issues associated with the settlement in 1996, I 
became aware of sometime in the early part of 1996.
    Senator Collins. So as a result of your service on the 
board, you were aware that there had been ongoing disputes 
between HCFA and HHC on many payment issues, is that correct?
    Mr. Vladeck. That is correct.
    Senator Collins. But on the specific issue that we are 
reviewing today, did you first become aware as a result of a 
call from the Chairman of the Board of HHC?
    Mr. Vladeck. I do not believe so, but I really--my 
recollection is very fuzzy of how the process started.
    Senator Collins. In your deposition, you stated that you 
had a conversation with Maria Mitchell, the Chairman of the 
Board, in the spring of 1996.
    Mr. Vladeck. Yes, but I also said in my deposition that I 
did not recall in that conversation having discussed Medicare 
appeals issues.
    Senator Collins. Were you also contacted by union leaders 
who were concerned and were seeking Federal funds for HHC?
    Mr. Vladeck. I was not contacted directly by union leaders, 
but they had been in contact with some of my colleagues at the 
Department who informed me of those communications.
    Senator Collins. Did you personally meet with union 
leaders, AFSCME officials, at their headquarters in downtown 
Washington to discuss possible sources of Federal funding for 
HHC?
    Mr. Vladeck. Yes, I did.
    Senator Collins. Did you or anyone from the Secretary's 
office subsequently discuss the idea of using the Medicare 
reimbursement appeals process as a potential funding source for 
HHC?
    Mr. Vladeck. I would not characterize it that way, but we 
did talk about whether it would be possible to expedite any 
settlements in a way that would increase the cash flow into 
HHC, yes.
    Senator Collins. As I understand it, after deciding to 
explore this possible remedy for HHC's budget problems, you 
contacted Mr. Booth and told him that there was a fiscal crisis 
at HHC, is that correct?
    Mr. Vladeck. That is correct.
    Senator Collins. Did you ask him to look at the pending 
appeals to see what he could do about it to get some help to 
HHC?
    Mr. Vladeck. Well, I asked him to look at pending appeals 
to see how much of the backlog he could clear up, which I 
presumed would also provide some financial assistance, yes.
    Senator Collins. It is my understanding that you also asked 
Mr. Booth for periodic updates on his progress related to this 
matter, is that correct?
    Mr. Vladeck. That is correct.
    Senator Collins. And how often did he report to you?
    Mr. Vladeck. I do not recall.
    Senator Collins. In your deposition, you said that he 
reported to you every couple of weeks. Does that refresh your 
memory?
    Mr. Vladeck. I have no--that sounds reasonable to me.
    Senator Collins. Well, that is what you said under oath in 
your deposition.
    Mr. Vladeck. I do not disagree with that.
    Senator Collins. Why did you ask for these status reports?
    Mr. Vladeck. Well, I was receiving inquiries from various 
other folks in the Congressional delegation and the Department 
of Health and Human Services about the status of those 
discussions and I wanted to be able to report to them.
    Senator Collins. So you wanted to be able to report to whom 
in the Department?
    Mr. Vladeck. Well, most of my communications went through 
either John Monahan, who was Director of Intergovernmental 
Affairs, or Kevin Thurm, who I guess was still then the Chief 
of Staff of the Department.
    Senator Collins. For the Secretary of HHS?
    Mr. Vladeck. That is correct.
    Senator Collins. So you were essentially reporting to the 
Secretary, is that correct?
    Mr. Vladeck. Yes.
    Senator Collins. Did you convey to Mr. Booth that there 
``time constraints and a need to move expeditiously'' on this 
matter?
    Mr. Vladeck. Yes, I did.
    Senator Collins. Mr. Booth testified today that he advised 
you that if he rushed the process, it would cost the 
government, cost the Medicare trust fund, an additional $8 to 
$10 million. Did you hear that testimony today?
    Mr. Vladeck. Yes, I did.
    Senator Collins. Do you dispute that testimony that----
    Mr. Vladeck. I do not recall it, but I do not dispute it. I 
have always found Mr. Booth to be a very honest man.
    Senator Collins. And Mr. Booth said that your response was, 
in essence, that time was more important than money. Do you 
recall giving him that----
    Mr. Vladeck. Again, I do not recall saying that directly, 
but I would not dispute it at all.
    Senator Collins. Mr. Booth also testified that he felt 
pressured by you to settle the HHC dispute, and he said in his 
deposition that HCFA ``could have struck a better deal had we 
not hurried.''
    Mr. Vladeck. If I can make an analogy--in a medical 
analogy, sometimes when a patient is desperately ill, you 
administer a drug with side effects when if the patient were 
not so ill you would not have to accept the side effects. I 
thought holding out another 6 months to achieve an additional 
$5 or $10 million in settlements that had been pending for a 
decade, when doing so would have meant the closure of important 
public health services, was not an appropriate position for the 
agency and appropriate public policy. And so, yes, I believed 
then and I believe now that it was more important to keep those 
services available than it was to squeeze every last nickel out 
of those settlements.
    Senator Collins. Well, there are many other hospitals and 
home health agencies in my State and throughout the Nation that 
are also under very severe fiscal constraints and are having a 
very difficult time, are operating in the red. Why single out 
HHC for special treatment? Is that not unfair to other 
hospitals and other home health agencies that also have payment 
disputes with Medicare, that also are running in the red, that 
are also under tremendous pressure and that are also doing the 
very valuable work of serving our elderly and disabled 
citizens?
    Mr. Vladeck. I would hope as a matter of practice that HCFA 
would never have payment disputes pending that were 10 years 
old for any provider, yes, Senator.
    Senator Collins. I would agree with that, but why should 
this provider be moved to the head of the line?
    Mr. Vladeck. Because this provider came to our attention as 
one that had already issued layoff notices and at which the 
data would suggest served as poor and needy a population as any 
in the United States, except perhaps for that of the LA County 
Health Department.
    Senator Collins. All of us agree that the mission of 
Medicare is essential. None of us wants to see seniors or 
disabled people or the poor lose their access to services. But 
is it fair to give special treatment to one provider when 
hospitals all across the Nation are providing the kinds of 
services that you have just described?
    Mr. Vladeck. I never directed anyone, nor do I believe that 
what HHC received in this settlement was special treatment, as 
you are characterizing it. I do not think they got special 
treatment.
    Senator Collins. Well, we have heard from everyone who has 
testified today that this was an unusual situation. Mr. Booth 
says it was the only time in his more than 30 years that the 
administrator asked him to settle a matter. The lower-level 
HCFA officials from the regions have testified that they were 
shocked by the terms of the settlement. The GAO reviewed 96 
settlements, every settlement over $100,000, and found that 
these three did, in fact, receive special treatment. So you are 
contesting that the standard process was followed in these 
three cases?
    Mr. Vladeck. No, I am saying the standard process was not 
acceptable in these three cases and it is not acceptable in 
many other cases and that is why we sought to change it, and 
that is why I, again, as I said in my statement, would be happy 
to work with the Subcommittee on making further changes in the 
process.
    Senator Collins. You mentioned that you served as a member 
of the board of directors of HHC. Could you tell us what years 
you served?
    Mr. Vladeck. I do not recall exactly without the documents 
in front of me, but I served, I believe, from approximately 
1986 to approximately 1989, and then from sometime in 1991, I 
guess, until I resigned immediately before joining the Federal 
Government.
    Senator Collins. So you were on the board immediately prior 
to becoming the Administrator of HCFA, is that correct?
    Mr. Vladeck. That is correct.
    Senator Collins. I want to tell you what my concern is 
about the conflict of interest issue. The whole purpose of our 
ethics laws and regulations is to foster public confidence in 
the integrity and the impartiality of decisions made by 
government officials, and that is why the regulations include 
provisions that encourage public officials, if they have any 
doubt about how a reasonable person would pursue their actions, 
whether it would be perceived as a conflict of interest, 
whether or not it is an actual conflict of interest, but 
whether there is a perception of a lack of impartiality, there 
is a process set up that encourages public officials to avoid 
the appearance of a conflict by getting advice from the 
designated agency ethics official.
    Did you do that in this case? Did you consider doing it? 
Did you receive authorization from your agency ethics official 
to get so involved in a reimbursement dispute that involved a 
hospital on which you had sat on the board immediately prior to 
coming to HCFA?
    Mr. Vladeck. Madam Chairman, I believe Senator Levin has 
already entered into the record a document from the ethics 
office of the Department of Health and Human Services \1\ of 
which I was aware that made it quite explicit that any 
disqualification on my part on Health and Hospitals Corporation 
issues would last for 1 year after my appointment as 
administrator, in addition to which I do not believe the 
question has ever been raised before you have raised it 
implicitly right now in the course of all these investigations 
as to whether I consulted with anyone on the appropriateness of 
my working on this HHC issue.
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    \1\ See Exhibit No. 35 which appears in the Appendix on page 268.
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    Senator Collins. That is what I am asking.
    Mr. Vladeck. And the answer is, yes, I did. And the fact is 
that a year earlier, on an unrelated New York State policy 
matter, I had recused myself from working on an 1115 Medicaid 
waiver application from New York State because of the extent 
and nature of my involvements with many organizations--permit 
me to finish, please--in New York State prior to my appointment 
as administrator, and I was advised in writing by the HCFA 
ethics officer that my decision to recuse myself in that 
instance was not justified by the law, was not required, and 
was an excessive reaction to the issues of appearance. And 
while it did not speak specifically to the HHC issues, I 
understood that guidance in the context of the earlier ruling 
about New York to be pretty clear guidance on whether or not I 
should disqualify myself on New York State matters.
    Senator Collins. Senator Levin.
    Senator Levin. In each of the settlements which were 
discussed today, in any of them, did you direct anybody as to 
what the settlement should be, how much, whether it should be 
handled administratively, or whether it should be settled?
    Mr. Vladeck. No, sir. I did not make such directions.
    Senator Levin. So the details of any agreement or 
settlement were not ones that you in any way got involved in, 
is that correct?
    Mr. Vladeck. I first became aware of the details of each of 
these settlements on March 9 of this month when I gave a 
deposition to the Subcommittee.
    Senator Levin. So that when the GAO says that you 
instructed him, being Booth, to settle the hospitals' claims, 
your instruction was to do what, precisely?
    Mr. Vladeck. My instruction was a procedural one, and I 
believe in the case of my conversations with Mr. Ault in the 
VNS instance, which--where my memory is somewhat clearer, I was 
quite explicit, but I think it was implicit in my instructions 
to Mr. Booth, with whom I worked very closely over a number of 
years, that he was to use his best judgment on the substance of 
the matter, but that I wanted the process to come to closure as 
soon as possible.
    Senator Levin. Did anybody on your senior staff express to 
you opposition to the agreements as being not in the best 
interest of the United States at the time they were made?
    Mr. Vladeck. No, sir.
    Senator Levin. Did anybody inform you that there was a HCFA 
regional employee who had objected to the settlement with LA 
County?
    Mr. Vladeck. Not at the time, sir.
    Senator Levin. At the time. Did you know at the time that 
neither HCFA's General Counsel nor the Department of Justice 
were involved in the settlement?
    Mr. Vladeck. No, sir.
    Senator Levin. Are you aware of an administrative 
resolution of Medicare payment disputes document which 
apparently is an HHS or a HCFA document which we have now 
received which says basically that where the money has been 
withheld, that then it is not a government claim against the 
provider but a provider claim against the government?
    Mr. Vladeck. I became aware of that particular document 
during the hearing today, sir.
    Senator Levin. Would you explain to us the difference, 
because people sometimes, particularly GAO acts as though there 
was a claim against these hospitals. As a matter of fact, the 
hospitals had a significant claim against HCFA, is that not 
correct?
    Mr. Vladeck. That is my understanding, yes, sir.
    Senator Levin. Is it not correct that HCFA had withheld a 
significant amount of monies which the hospitals claimed?
    Mr. Vladeck. That is correct.
    Senator Levin. And in the case of New York, I believe that 
was around $200 million?
    Mr. Vladeck. That was the number I have heard today, yes, 
sir.
    Senator Levin. And that is money that New York claimed?
    Mr. Vladeck. That is correct.
    Senator Levin. And New York settled that with HCFA for $130 
million?
    Mr. Vladeck. That is what I understand.
    Senator Levin. And that is claims, as I understand it, that 
had been in existence or had grown over a 10- or 11-year 
period, is that correct?
    Mr. Vladeck. That is correct.
    Senator Levin. And these were claims involving, do we know 
how many visits, how many Medicare outpatient visits?
    Mr. Vladeck. Well, again, the conversation and your 
interchange with Mr. Booth suggests it was many million, and 
that must have been----
    Senator Levin. Does that sound about right to you----
    Mr. Vladeck. Yes.
    Senator Levin [continuing]. For that sum of money?
    Mr. Vladeck. Yes.
    Senator Levin. As I said before, I have had my own 
frustrations with HCFA, trying to get information, answers to, 
what I consider to be reasonable questions. I have had a major 
dispute with HCFA recently over a decision that they made 
relative to a nursing home in my State. I think HCFA is all wet 
on the subject, and I have said so publicly and I am very 
critical of HCFA. I have been trying to get information about 
reimbursements from HCFA for a month, and I cannot get that 
information from HCFA.
    Members of Congress constantly are hopefully representing 
their constituents, and I want to read to you, something that 
one of our colleagues said, at the time of your confirmation. 
Senator Grassley in the Finance Committee asked you the 
following question. ``I wonder if you intend to make it a 
priority to reduce administrative hassles which providers in my 
State complain about endlessly, and maybe not just in my State, 
but I only know about my State.'' And your answer was that you 
would try to make the whole system user friendly for providers. 
Do you remember that question and that answer?
    Mr. Vladeck. I do not remember that particular interchange, 
but certainly the substance, I remember very well.
    Senator Levin. Do you believe it was important and is 
important for HCFA to be responsive to, in a fair way and in a 
timely way and in a non-bureaucratic way and in a reasonable 
way, to claims of providers, to dispose of them one way or the 
other? Do you believe that HCFA has a responsibility because of 
the beneficiaries who are really behind those providers?
    Mr. Vladeck. Yes, sir.
    Senator Levin. I just want to read into the record one 
paragraph about the Visiting Nurses Service matter, and that is 
the final paragraph of their statement they gave the Committee 
today. ``Contrary to the GAO report, the agreement with HCFA 
does not permit Visiting Nurses Services to add a specified 
number of hours to its Medicare average `regardless of the 
number of hours of service actually rendered.' Instead, the 
agreement caps the non-Medicare home health visits that can be 
included in the cost apportionment methodology as the lesser of 
the actual non-Medicare home health aide visit length or the 
actual Medicare home health visit length plus 1.63 hours.'' Are 
you familiar with that portion of the settlement?
    Mr. Vladeck. Again, that was contained in a document that 
was shown me in my deposition. I was not----
    Senator Levin. Because the GAO treated that as some kind of 
a special treatment that was given to the Visiting Nurses by 
HCFA, never asks HCFA their position on the matter, does not 
tell us the Visiting Nurses' position on the matter, but we are 
just told by GAO, oh, they get special treatment. Do you 
consider that, from what you have heard today, to be an 
appropriate settlement?
    Mr. Vladeck. Senator, again, having seen the settlement for 
the first time only about 3 weeks ago and having been away from 
the issues for a number of years, I think that Mr. Booth and 
the people, Mr. Ault and the people he worked with on that 
settlement, did an excellent job. I think it is not only an 
eminently reasonable settlement but I think it is very good 
public policy.
    Senator Levin. Finally, overall, do you believe that your 
conduct in taking calls, taking comments, directing Mr. Booth 
to try to settle the outstanding cost reports, were proper?
    Mr. Vladeck. Yes, sir.
    Senator Levin. Thank you, Madam Chairman. Senator Thompson.
    Chairman Thompson. Thank you very much, Madam Chairman.
    Mr. Vladeck, you certainly accomplished your goal of 
becoming more user friendly, I think, with regard to three of 
these entities, anyway. I want to try to see if I can get this 
right. Mr. Booth testified that he worked out the details of 
these settlements the way he did because of the pressure he was 
receiving from you and that there could have been worse deals 
struck considering the circumstances and the pressure that was 
being applied. You heard him testify basically to that a few 
minutes ago, right?
    Mr. Vladeck. Yes, sir.
    Chairman Thompson. And your testimony is that you applied 
direction, or however you would characterize it, told him you 
wanted to get it settled, but you had nothing to do with the 
details of the settlement?
    Mr. Vladeck. That is correct.
    Chairman Thompson. So we have the perfect demilitarized 
zone where nobody is really responsible for both the decision 
to make this particular settlement and, in fact, carrying out 
the details of the settlement.
    Mr. Vladeck. Senator, may I say something in that regard? 
Again, I saw none of these three settlements prior to this 
month. I was not involved in the details of the negotiation. I 
was not aware of the substance of the negotiation. But having 
seen them within the last month and having had quite a lot of 
opportunity to think about them and to revisit the 
circumstances, I think all three of the settlements were 
reasonable, were in the best interests of the program and of 
the United States, and I think Mr. Booth and his staff should 
be commended for the creativity and thoroughness with which 
those settlements were negotiated.
    Chairman Thompson. Well, I understand your position, but 
you can also understand why one might conclude that you are not 
exactly a disinterested party in this, and we have heard the 
testimony of some people who I think are basically a 
disinterested party who have been with HCFA for a long time and 
they have their own assessments of it.
    Mr. Seubert said that, in the first place, HCFA's central 
office should not single-handedly settle anything that exceeds 
the amount specified in the FCCA and that HHC was not required 
to provide any documentation for the costs for which they were 
compensated. He also said he did not think that HCFA had the 
authority to agree to compensate HHC for bad debts into the 
future without requiring HHC to provide proof of the costs that 
they were claiming. So that is his analysis of it. Do you take 
issue with his view of that particular point?
    Mr. Vladeck. Yes, sir.
    Chairman Thompson. Ms. Ohl testified--we saw her E-mail 
with regard to the LA County situation--that because the 
agreement with LA County did not include a requirement that LA 
County keep sufficient records, HCFA was likely to be facing 
another settlement of this type in 8 to 10 years from now. She 
stated further that unless Medicare can get some agreement that 
LA County in the future will meet Medicare documentation 
requirements or not claim the costs, this is not a settlement 
where both parties realize some benefit. It is more of a grant 
and should be called that without the compromise being called a 
Medicare reimbursement settlement under the Medicare 
regulations. Do you take issue with her analysis on that case?
    Mr. Vladeck. Yes, sir.
    Chairman Thompson. If you were not involved in the details 
of the settlement of these cases, how can you make an 
assessment now as to how wise or unwise the settlements were?
    Mr. Vladeck. Well, as I said a few minutes ago, Mr. 
Chairman, I have had quite a lot of opportunity in the last 
month to review those documents and many associated documents 
and to talk to--to read the GAO report and to think about the 
history of this and so forth and I think I now have enough 
information to form an opinion on these. The issues raised that 
you just described are all issues that I am familiar with in 
generic terms that were policy issues that we dealt with quite 
frequently during my tenure. In each of the two instances I 
believe you just cited, the staff person took a position that 
was, in effect, a policy position where I disagreed at the time 
and still disagree with the policy view they were enunciating 
and I think I understand what the issues are and I disagree 
with their views.
    Chairman Thompson. Well, it does not seem to me like it is 
as much a matter of a policy issue. We have already heard 
testimony about the millions of documents that are involved in 
these cases. These are people who spent a long, long time 
dealing with the details and the merits of these cases and 
these claims. They have their opinions based upon that. You say 
that when it was all going on, you were not involved in the 
details. You just knew that these people were on hard times and 
these settlements had taken too long and you wanted them 
settled.
    So again, I ask you, in terms of sitting down and figuring 
out--have you gone through all these documents that we have 
been hearing much about?
    Mr. Vladeck. I believe I was shown 20-some-odd documents in 
my deposition and there have been a number of other documents 
shared with the Committee and with us and obviously I have had 
the GAO report for the last 24 hours, so I have seen quite a 
lot of paper around this.
    Chairman Thompson. The GAO report has been criticized 
because it did not get into the substance, so you did not learn 
much about the substance from that, did you?
    Mr. Vladeck. No, I did not. That is correct.
    Chairman Thompson. OK. I think that we can all sympathize 
with the notion of cutting red tape and moving settlements 
along, but the problem that many of us have, obviously, is that 
whether you are dealing in a court of law, whether you are 
dealing with an administrative process, a formal one or an 
informal one involving settlements, that there are procedures. 
That is why we call ourselves a Nation of laws and not of men. 
A person cannot look at a situation--even the President cannot 
look at a situation and say, I feel, based on whatever 
information I am getting or telephone calls I am receiving, 
there is an injustice and a problem out there, so I dictate 
that we cut a check for several million dollars of taxpayers' 
money, in effect, something like that. We cannot do that.
    We are talking about procedures here, and when you are 
talking about settling a case, whether we like it or not, we 
are talking about lawyers. We are talking about lawyers. We all 
know that they are involved in every aspect of our life, and we 
regret that in many respects, having been one once upon a time. 
When you are settling a case, you are talking about essentially 
the merits of the case on both sides, and there are always two 
sides, and you cannot do that, you cannot analyze the merits of 
any case or any matter unless you have someone who is trained, 
an objective person trained to analyze those merits and come to 
some determination.
    Maybe a bad lawyer will reach the wrong determination, but 
the American people can see that the right procedure is being 
followed and somebody is looking at it from a legal standpoint. 
Is this a decent deal? Maybe it is not the best, but is this a 
decent and fair deal for the taxpayers of the country? Do you 
not see the problem?
    Mr. Vladeck. Senator, I think it is unacceptable that these 
three settlements were not reviewed by HCFA's General Counsel. 
It is astonishing to me that they were not. I do not understand 
why they were not. I never had any knowledge that they were not 
until 3 weeks ago. I think that was a very serious violation of 
procedure and I think whatever steps need to be taken 
administratively to make sure it never happens again should be 
taken.
    It is inconceivable to me that I personally would have made 
a major decision involving such an issue when I was at the 
agency without consulting General Counsel. It was my 
understanding that as a matter of standard practice, General 
Counsel always was consulted in these negotiations. I was not 
aware, again, until 3 weeks ago, that General Counsel had not 
been consulted in these three incidences. I was astonished to 
learn it. I was shocked to learn it. I think it is very 
unfortunate and I think it should not be permitted to happen 
again. I agree with you entirely.
    Chairman Thompson. Whose responsibility do you think it was 
that counsel was not consulted?
    Mr. Vladeck. I believe it was Mr. Booth's responsibility.
    Chairman Thompson. Well, perhaps Mr. Booth will have an 
opinion on that that we can get at a later time. Thank you, Mr. 
Vladeck.
    Mr. Vladeck. Thank you, Senator.
    Senator Collins. Senator Levin, I am going to give you the 
opportunity to either have 3 more minutes of questions or if 
you want to make a concluding statement, whichever your 
preference is.
    Senator Levin. Well, just briefly, I think we have learned 
a lot this morning about HCFA procedures. It is obvious that a 
procedure was not followed here. The person who says that he 
should have followed it, Mr. Booth, said it was an innocent 
omission on his part. He was not directed by anybody not to go 
to the General Counsel's office.
    But the key question to me, in addition to that, is whether 
or not these settlements were in the best interest of the 
United States. That, to me, is the key question, and that 
question can only be answered, it seems to me, after listening 
to the providers as well as to the people who opposed this 
settlement.
    The GAO talked to people who opposed the settlement, did 
not ask--did not ask the providers their position on the 
substance of the settlement. So what is missing substantively 
here is the providers' side of the story and I think that is a 
real omission on the part of the GAO.
    We have an expert here who says that, based on his 
judgment, that those settlements were in the best interest of 
the United States from what he has seen, although he was not 
involved in the details. Mr. Booth says over and over again, 
and I think he is a highly credible witness, that he believed 
at the time they were in the best interest of the United 
States. We have situations here where hospitals had hundreds of 
millions of dollars withheld from payments that they claimed 
were owing to them, hundreds of millions of dollars, folks, in 
New York, and that was ultimately settled for $130 million.
    So this is not where HCFA was claiming that New York owed 
it money. This was a situation where, for years, there were 
festering claims that New York hospitals had against HCFA and 
finally were settled, $130 million of what turned out to be the 
hospitals' money that had been withheld by HCFA, and that fact 
is relevant.
    And so on the substance, it is obviously not for us to 
judge the substance of settlements. But the Visiting Nurses 
Services, in their letter, it seems to me, is powerfully 
eloquent about what a mistake it is not to get the other side 
of the story on the substance, and the GAO did reach a 
conclusion on the substance because they said that these claims 
would not have been successful had they been litigated. How 
they can reach that conclusion when they did not ask the 
providers for their side of the story on the substance is 
inexplicable to me. I think it was wrong and I would hope that 
all of the providers, after they have had an opportunity, which 
they have had for 24 hours now, to read the GAO report, would 
be offered the opportunity by our Chairman to submit any 
statements for the record that they might feel are appropriate.
    So this is an appropriate oversight issue on the process 
and I think there is no doubt that there are procedural 
omissions here which, if we can correct by law or regulation, 
we ought to correct. The General Counsel clearly should have 
been shown these settlements. She was not. If we can correct 
that, we ought to do it. But we should not, it seems to me, 
blend that issue with whether or not these were substantively 
excessive settlements without getting the providers, in two 
cases who had hundreds of millions or tens of millions of 
dollars tied up by HCFA, an opportunity to give us their side 
of the story.
    Thank you.
    Senator Collins. Thank you, Senator Levin.
    There is no doubt that HCFA's appeals process is 
cumbersome, it is expensive, it is complex, it is bureaucratic. 
Those facts argue for reform of the process to make it more 
customer friendly, to ensure that decisions are made more 
expeditiously. Those facts do not argue for subverting the 
process for three providers who were fortunate enough to have 
the administrator give personal attention to their overpayment 
disputes.
    When I began this hearing, I said that I was troubled by 
four findings by the GAO, findings that were substantiated by 
depositions taken by the Subcommittee staff. I remain very 
troubled by those four findings.
    First, it is absolutely clear that HCFA violated its own 
regulations, its own rules and procedures in the settlement of 
these three cases. Everyone agrees that there was no review by 
any government lawyer of the settlement of these claims. That 
is not in dispute. Most people agree, and HCFA's own 
regulations make very clear, that it was the rule and the 
custom of the Department to obtain the approval of the 
Department of Justice for the settlement of claims over 
$100,000. Similarly, HCFA's own regulations make very clear 
that an overpayment is considered a debt and thus is implicated 
by the Federal Claims Collection Act.
    Second, it is indisputable that the agreements contained 
highly unusual secrecy provisions. If HCFA felt so comfortable 
with the results of these settlements, why were they kept 
secret? Why were confidentiality provisions included so that 
other providers would not find out about the special treatment 
given these three providers?
    Third, it is indisputable, whatever his motive, that Mr. 
Vladeck, who was administrator at the time, did pressure 
subordinates to reach agreements. He did not dictate what 
should be in those agreements, but the record is replete, and 
even Mr. Booth under oath said today that he felt pressured to 
reach the agreements.
    And finally, there is no doubt that the agreements included 
provisions for special treatment that were not given to other 
health care providers, and I think that is unfair.
    The Subcommittee will continue to pursue this issue. I am 
looking at legislative solutions and I look forward to 
continuing to work with HCFA, with the GAO and other interested 
parties.
    This hearing is adjourned.
    [Whereupon, at 1:15 p.m., the Subcommittee was adjourned.]
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