[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




               MEDICAID CLAIMS: WHO'S WATCHING THE MONEY?

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 13, 2002

                               __________

                           Serial No. 107-201

                               __________

       Printed for the use of the Committee on Government Reform


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


                                 ______

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                            WASHINGTON : 2003
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

    Subcommittee on Government Efficiency, Financial Management and 
                      Intergovernmental Relations

                   STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                 MAJOR R. OWENS, New York
ADAM H. PUTNAM, Florida              PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                  Bonnie Heald, Deputy Staff Director
                        Justin Paulhamus, Clerk
           David McMillen, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 13, 2002....................................     1
Statement of:
    Calbom, Linda M., Director, Financial Management and 
      Assurance, U.S. General Accounting Office, accompanied by 
      Kimberly Brooks, Assistant Director, Financial Management 
      and Assurance, U.S. General Accounting Office..............     4
    Maddox, Charles C., inspector general, District of Columbia, 
      accompanied by Sidney Rocke, director, District of Columbia 
      Medicaid Fraud Control Unit................................    47
    Mangano, Michael F. Principal Deputy Inspector General, 
      Office of the Inspector General, Department of Health and 
      Human Services, accompanied by John Hagg, Audit Manager, 
      Office of the Inspector General, Department of Health and 
      Human Services.............................................    35
    Smith, Dennis, Director, Centers for Medicaid and State 
      Operations.................................................    24
Letters, statements, etc., submitted for the record by:
    Calbom, Linda M., Director, Financial Management and 
      Assurance, U.S. General Accounting Office:
        Information concerning adopted sanctions.................    66
        prepared statement of....................................     6
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Maddox, Charles C., inspector general, District of Columbia, 
      prepared statement of......................................    51
    Mangano, Michael F. Principal Deputy Inspector General, 
      Office of the Inspector General, Department of Health and 
      Human Services, prepared statement of......................    37
    Schakowsky, Hon. Janice D., a Representative in Congress from 
      the State of Illinois, prepared statement of...............   059
    Smith, Dennis, Director, Centers for Medicaid and State 
      Operations, prepared statement of..........................    26

 
               MEDICAID CLAIMS: WHO'S WATCHING THE MONEY?

                              ----------                              


                        THURSDAY, JUNE 13, 2002

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Sullivan, and Schakowsky.
    Staff present: J. Russell George, staff director and chief 
counsel; Bonnie Heald, deputy staff director; Rosa Harris, GAO 
detailee; Justin Paulhamus, clerk; Chris Barkley, staff 
assistant; Michael Sazonov, Sterling Bentley, and Freddie 
Ephraim, interns; David McMillen, minority professional staff 
member; and Jean Gosa, minority clerk.
    Mr. Horn. A quorum being present, the Subcommittee on 
Government Efficiency, Financial Management and 
Intergovernmental Relations will come to order.
    Each year, the Federal Government spends billions of 
dollars to provide health care for the Nation's most vulnerable 
people, the poor and the disabled. This assistance is provided 
through the Government's Medicaid program. Although it is a 
Federal program, Medicaid is administered by the States through 
56 separate and distinct programs. The program's considerable 
cost is shared by the State and Federal Governments. Last year, 
the Federal Government spent an estimated $125 billion on the 
program. States contributed an additional $95 billion.
    Overall, Medicaid is the Federal Government's third largest 
social program. Despite the size of this program, the Federal 
Government's lack of financial oversight has left it highly 
vulnerable to waste, fraud, and abuse. The Office of Management 
and Budget recently reported to Congress that the Government 
had made $20 billion in erroneous payments last year. That 
amount included $12.1 billion in the State and Medicare 
payments. As appalling as that figure is, no one can even 
calculate the amount of erroneous payments that have been made 
in the Medicaid program.
    Today, we will examine the extent of these problems and 
what steps need to be taken to resolve them. The Federal 
Government
must do a better job of ensuring that the billions of dollars 
dedicated to the Medicaid program are being appropriately 
spent. We owe it to the American taxpayers who provide that 
hard-earned money, and we owe it to those who depend on this 
life saving program.
    [The prepared statement of Hon. Stephen Horn follows:]

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    Mr. Horn. I welcome each of our witnesses today and look 
forward to their testimony. I will now swear in those that are 
both making a presentation to us as well as their assistants.
    [Witnesses sworn.]
    Mr. Horn. We have eight who took the oath, and the clerk 
will note who did. And that is just so we don't have a problem 
in questioning by the staff. It's so we don't have to take 
special oaths simply because we didn't do it to start with.
    We will start with the General Accounting Office and the 
very fine document they have for us. And it is Linda Calbom, 
the Director, Financial Management and Assurance, U.S. General 
Accounting Office. Please present it.

 STATEMENT OF LINDA M. CALBOM, DIRECTOR, FINANCIAL MANAGEMENT 
 AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY 
 KIMBERLY BROOKS, ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND 
           ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE

    Ms. Calbom. Thank you, Mr. Chairman. I am pleased to be 
here today to discuss the results of our review of CMS' 
oversight of Medicaid financial management. My testimony today 
summarizes our report that we issued in February for this 
committee, which discusses the need to improve Federal 
oversight of State Medicaid finances.
    As you well know, the Federal Government and States share 
responsibility for financial management of the jointly funded 
Medicaid program. States are really the first line of defense 
in safeguarding Medicaid finances, since they are responsible 
for making proper payments to providers, recovering misspent 
funds, and making accurate reports of their cost for Federal 
reimbursement. CMS, at the Federal level, is responsible for 
overseeing State financial activities and ensuring the 
propriety of expenditures reported by States for Federal 
reimbursement.
    You asked that we review how well CMS is carrying out its 
responsibilities for financial oversight of the Medicaid 
program. We found that the CMS financial oversight process has 
weaknesses that leave the program vulnerable to improper 
payments.
    The root cause of improper payments is breakdowns in 
internal control. The Comptroller General's Standards for 
Internal Control in the Federal Government require that agency 
managers perform risk assessments, take actions to mitigate 
identified risks, and then monitor and communicate the 
effectiveness of those actions. In addition, the Standards 
provide that agencies should ensure their organizational 
structure is designed so that authority and responsibility for 
internal controls are clear.
    The first chart on my right, and I think it is in your 
packet, Mr. Chairman, shows how all of these areas are key in 
effectively managing proper payments.
    CMS oversight had weaknesses in each of these areas, which 
I will now just very briefly describe. First, our review found 
that CMS had only recently begun to assess areas of greatest 
risk for improper payments and, thus, did not know the full 
nature and extent of its risks, or the most efficient and 
effective controls to mitigate those risks.
    CMS also was not effectively mitigating the controls it did 
have in place. For example, analysts across the 10 regions did 
not consistently conduct focused financial reviews that are 
beneficial in identifying unallowable costs in specific 
Medicaid service areas. Only eight of these reviews were 
conducted in fiscal year 2000 as compared to 90 reviews in 
fiscal year 1992. CMS attributed this decline to lack of 
resources.
    The other chart we brought today demonstrates this. It 
shows that from 1992 to 2000, regional staff responsible for 
Medicaid financial oversight declined by 32 percent, while 
Federal Medicaid expenditures increased by 74 percent.
    Recognizing its oversight deficiencies and resource 
constraints, CMS began efforts in April 2001 to develop a risk-
based approach and revise its control activities. These efforts 
did not, however, integrate information available from State 
financial oversight program activities or consider other 
control techniques that could enable CMS to carry out its 
oversight responsibilities more efficiently and effectively.
    Our review also found that CMS had few mechanisms in place 
to continuously monitor the effectiveness of its oversight. 
Managers had not established performance standards for 
financial oversight activities, and limited data were collected 
to assess regional financial analysts' performance in carrying 
out these activities. In addition, the CMS audit resolution 
procedures did not collect sufficient information on the status 
of audit findings or ensure that they were resolved in a timely 
manner.
    We further found that the CMS organizational structure 
created roadblocks to effective oversight because of unclear 
lines of authority and responsibility between the regions and 
headquarters. As a result, CMS lacked consistency in its 
approach to establish and enforce standards, evaluate regional 
office oversight, and implement changes to improve financial 
oversight.
    In closing, Mr. Chairman, I want to emphasize that while 
CMS is taking positive steps to improve its financial oversight 
of the Medicaid program, the increasing size and complexity of 
the program, coupled with diminished oversight resources, 
requires a new approach. Our report recommends ways CMS can 
revise its risk assessment efforts, restructure its financial 
control activities, improve monitoring, and address 
accountability and authority issues posed by its organizational 
structure.
    CMS' ability to make the kind of changes we are 
recommending will require top level management commitment, a 
comprehensive financial oversight strategy that is clearly 
communicated, and clear expectations for implementation of the 
changes.
    That concludes my statement, Mr. Chairman.
    [The prepared statement of Ms. Calbom follows:]

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    Mr. Horn. Thank you very much. Our next presenter is Dennis 
Smith, the director of the Centers for Medicaid and State 
Operations.

 STATEMENT OF DENNIS SMITH, DIRECTOR, CENTERS FOR MEDICAID AND 
                        STATE OPERATIONS

    Mr. Smith. Thank you, Mr. Chairman. Our deputy 
administrator and chief operating officer, Ruben King-Shaw, was 
not available today because of a personal medical emergency. I 
will do my best to fill his shoes.
    Thank you very much for the opportunity to discuss some of 
the things that we are doing at CMS. I appreciate the 
opportunity to have the benefit of the experts on both sides of 
me, the GAO and the OIG, and some of our partners out there.
    Again, as GAO explained, the first line of defense really 
is the States themselves that administer the program and are 
responsible for setting reimbursement rates, for monitoring 
those, etc.
    I think a large part of the stepped-up efforts that you 
have seen really came out of, in large part, the Y2K efforts as 
well. As States were updating their computer systems, they were 
also taking the opportunity to update their MMIS systems and 
their service systems, which is the utilization review. It 
really is the first line of defense in making sure those 
payments are accurate from the very beginning, having systems 
in place where you can identify the outliers, and then followup 
to make sure that where there have been overpayments those are 
investigated for the reasons why.
    As you know, there can be a number of different ways that 
inappropriate payments can be made: An individual is not 
eligible, services are billed for that were not really provided 
in the first place, etc. Those things really have to be 
identified at the State level, and we have seen improvement 
over the past couple of years where States have improved their 
systems, upgraded their computer systems. As you know, the 
Federal Government pays an enhanced match for States as they 
upgrade their systems, and those Federal funds, clearly, are 
very important to updating those systems themselves.
    The States also operate the Medicaid fraud control units 
out of, I believe, almost all States are operating their 
systems out of their Attorney General's offices. Having those 
strong enforcements at that State level, obviously, is also 
very critical to it to know that where there has been fraud 
found that those cases will be prosecuted.
    In terms of the strengthening of the management systems, we 
appreciate GAO's guidance. We also appreciate what I think are 
some very positive findings in terms of getting our feet on the 
ground, and I don't think that you will find any daylight 
between the administration and the GAO in terms of commitment 
to updating the financial integrity of this system. The 
administration has, maybe a little too quietly, put some new 
controls into place, doing a number of things that are just 
good sound management tools to make sure that we are 
monitoring.
    When you have the hearing next year, I think that you will 
hear about and see a great deal of improvement as we have put 
these systems into place. We have structured work plans and we 
have done risk-assessments. The regional offices have done 
risk-assessments: where is the greatest risk out there? What 
should we be targeting? Etc. The work plans themselves are now 
in effect, and, again, the monitoring, I can assure you that we 
take this very seriously.
    I think also a year from now, when we look back in terms of 
what the GAO has referred to in the previous report in terms of 
the decline in disallowances that were taken previously, those 
deferrals and disallowances are now up considerably. And, 
again, the will is there and the commitment is there to make 
certain financial integrity is well-grounded out there in terms 
of the managers and staff understanding the commitment to 
financial integrity.
    So I am pleased to hear some of the positive comments that 
we are making progress, and, as I said, a year from now I think 
you will see a great deal more progress.
    There are a number of commitments that are summarized. I 
won't go through them all in terms of your having a large panel 
here, but our written statement for the record describes a 
number of the initiatives that we have.
    In particular, in your own State, Mr. Chairman, we are 
doing data matches between the Medicaid and the Medicare 
systems themselves. If you find a provider who is ripping off 
one program, chances are pretty good they are ripping off the 
other program as well. So getting the two different programs to 
talk to each other is, we believe, a great potential for 
success. So we have a pilot program going on.
    We also have pilot programs with nine States that are going 
on, and we think that will grow in terms of payment accuracy. 
We are very pleased to have our State partners join us in that 
and believe that also will yield a great deal of benefits.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Smith follows:]

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    Mr. Horn. Thank you, that is a thorough presentation.
    Let me move now to Mr. Mangano, the Principal Deputy 
Inspector General, Office of the Inspector General for the 
Department of Health and Human Services.

  STATEMENT OF MICHAEL F. MANGANO, PRINCIPAL DEPUTY INSPECTOR 
GENERAL, OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF HEALTH 
 AND HUMAN SERVICES, ACCOMPANIED BY JOHN HAGG, AUDIT MANAGER, 
OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN 
                            SERVICES

    Mr. Mangano. Thank you, Mr. Chairman, I am pleased to be 
with you here this morning to describe how our office is 
working with the States and the Centers for Medicare and 
Medicaid Services to protect taxpayer dollars against Medicaid 
fraud, waste, and abuse. My written testimony focuses on how we 
are joining forces with the State Medicaid Fraud Control Units 
to fight fraud, with the State auditors to identify suspected 
cases of abuse, and three recent reviews we have completed on 
State abuses with Medicaid payment systems, and Medicaid 
prescription drug pricing.
    Each State is required to have a program integrity unit 
dedicated to detecting and investigating suspected cases of 
Medicaid fraud. Most States fulfill this requirement by 
establishing a Medicaid Fraud Control Unit, which I will call 
MFCU for short. Our office has the responsibility to oversee 
the grants to and the operations of these units.
    As the chart in my testimony demonstrates, in the last 
fiscal year those units accounted for over 1,000 convictions 
and a total of $253 million that was recovered back to the 
Medicaid program. Our office also conducts joint investigations 
with MCFUs. Last year, we worked together on 179 criminal and 
41 civil cases, and achieved 47 convictions.
    Over time, we have learned the same abuses perpetrated 
against Medicare are often committed against Medicaid, so we 
have launched another important cooperative program to partner 
with State auditors. This program allows us to provide broader 
coverage than our resources would allow us to do by sharing our 
methodologies and experiences in investigating the Medicare 
program with State auditors who are looking at the same kind of 
issues in the Medicaid program. Our role ranges anywhere from 
sharing methodologies with the States that they can use 
themselves in their Medicaid fraud investigations, up to 
joining those teams ourselves and becoming a full-fledged 
partner in doing a particular audit.
    To date, we have ongoing partnerships with 25 States, and 
we have identified over $246 million of misspent funds. Some of 
the reviews focused on issues like unbundling clinical 
laboratory services, outpatient physician services, hospital 
transfers, durable medical equipment, and managed care.
    Our office also conducts a number of audits and evaluations 
in areas of suspected abuse. One recent series of reviews 
examined the use of States' manipulating schemes that exploited 
a loophole in Medicaid's upper payment limit regulations. This 
manipulation used intergovernmental transfers to artificially 
generate excessive Federal matching funds for enhanced payments 
to certain providers.
    Very briefly, the States were able to pay nursing homes, 
hospitals, and certain other health care providers up to the 
amount that Medicare pays for the same service. But in six of 
the States that we examined, they required the city and county 
nursing homes to transfer back to the State most, if not all, 
of that enhanced payment. When it was returned, some went back 
to the general fund for the State; some of it was used for 
Medicaid. And when it was, it also generated additional Federal 
matching funds. And some of it was used for other purposes. But 
practically none was kept by the nursing homes to increase the 
quality of care for the beneficiaries it was intended to serve.
    A related abuse we are now examining involves Medicaid 
disproportionate share payments to hospitals that provide care 
to a large number of Medicaid beneficiaries and uninsured 
people. We found that some of the hospitals that did get to 
keep some of their enhanced payments did not receive or were 
required to return their disproportionate share payments back 
to the State. We are currently reviewing this problem in 10 
States.
    Finally, our recent work on the Medicaid prescription drug 
pricing clearly shows that Medicaid is paying far too much 
compared with other payers. Most States pay pharmacies an 
average of 10 percent below the average wholesale price, which 
we call AWP, plus an additional fee for the cost of dispensing 
the drugs. We found, however, that those pharmacies actually 
paid an average of 22 percent below AWP for the brand name 
drugs and 66 percent below AWP for the generic drugs. Had the 
State Medicaid agencies actually paid at these lower rates, 
they would have saved the program $1.5 billion a year.
    Mr. Chairman, fraud and abuse practices are harming the 
Medicaid program. We pledge our commitment to work with our 
partners at the State and Federal levels to root out these 
problems and ensure that taxpayer dollars are spent on high 
quality services for the benefits they are intended to serve.
    This concludes my testimony, and I will be happy to answer 
any questions at the appropriate time.
    [The prepared statement of Mr. Mangano follows:]

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    Mr. Horn. Thank you. We will wait until two more presenters 
have finished, and then we will open it up to the ranking 
member and the questioning.
    So let us start with the next presenter. I believe we also 
have a new Member also wish us, Mr. Sullivan, who we are 
delighted to have with us. He is a new Member from Oklahoma 
here, and I am sure that in Oklahoma and other places that your 
constituency will have some of these problems. So we are glad 
to have you here.
    Mr. Sullivan. Thank you.
    Mr. Horn. We will now go then to Mr. Maddox, who is the 
Inspector General of the District of Columbia, and he is 
accompanied by Sidney Rocke, Director of the District of 
Columbia Medicaid Fraud Control Unit.
    So Inspector General.

STATEMENT OF CHARLES C. MADDOX, INSPECTOR GENERAL, DISTRICT OF 
 COLUMBIA, ACCOMPANIED BY SIDNEY ROCKE, DIRECTOR, DISTRICT OF 
              COLUMBIA MEDICAID FRAUD CONTROL UNIT

    Mr. Maddox. Thank you, Mr. Chairman, Mr. Sullivan. It is a 
pleasure to testify before the subcommittee today regarding the 
oversight role of the D.C. Office of the Inspector General in 
deterring waste, fraud, and abuse in the Medicaid program.
    Because we conduct our oversight through a combination of 
investigations, audits, and inspections, the OIG has a unique 
perspective about the challenges that States must overcome in 
order to ensure that the Medicaid program does not lose funds 
needlessly. In addition, our experience also has taught us 
important lessons about ways that oversight entities can be 
most helpful to administrators and to the legislation. I am 
pleased to say the D.C. OIG has enjoyed an extremely 
constructive partnership with local executive and legislative 
branches of the D.C. government to achieve a measure of 
progress that I believe establishes the Nation's Capital as a 
leader in finding new ways to address waste, fraud, and abuse 
in this most important program.
    Consistent with several key findings published in the 
General Accounting Office's recent report on Medicaid financial 
management and the need for better oversight of State Medicaid 
claims, we have used our audits, inspections, and 
investigations divisions to accomplish four objectives: 
Developing a comprehensive oversight strategy, identifying 
problems and performing risk assessments, taking action to 
mitigate risk, and monitoring the effectiveness of those 
actions.
    We have developed a comprehensive oversight strategy by 
deploying the resources of three distinct divisions: For 
instance, in 1999, our audit division found that the D.C. 
Public School System was not in compliance with Federal or 
District regulations with respect to the way Medicaid records 
were maintained. Because this problem continues to interrupt 
the flow of reimbursement of Medicaid payments to the District, 
we will conduct another audit in fiscal year 2002 focusing on 
chronic problem areas, such as transportation of special 
education students.
    Another example of our team approach is our 3-month 
inspection of our District's surveillance and utilization 
review unit, which is part of the Department of Health, that is 
responsible for monitoring the Medicaid claims processing 
system for indications of fraud and abuse. We have made several 
recommendations for improvement of this critical link between 
governmental units that process bills and those that prosecute 
false claims.
    Although our auditors and inspectors review issues that are 
related to effectiveness and efficiency of Medicaid program 
management, our Medicaid Fraud Control Unit [MFCU], carries the 
primary responsibility of working with the District's agency, 
the Medical Assistance Administration [MAA], which is 
responsible for administering the program. The MFCU's mission 
is to investigate and prosecute financial fraud committed 
against the Medicaid program by large health care providers as 
well as solo practitioners.
    I am proud to say that after a 17-year hiatus in the 
District of Columbia Mayor Anthony Williams and former U.S. 
attorney Wilma Lewis joined me to create the MFCU. With strong 
legislative support from the City Council, we have been able to 
seek enforcement using criminal, civil, and administrative 
remedies.
    The MFCU receives a variety of leads, tips, and 
intelligence regarding possible fraud in the Medicaid program. 
We build on this information through extensive use of data 
mining techniques. The MFCU can manipulate extensive claims 
data to look for aberrational patterns that may indicate fraud. 
For example, a small pharmacy that is responsible for filing a 
highly disproportionate amount of prescriptions may warrant a 
greater scrutiny. Of course, this capability requires an 
investment in manpower, training, and technology, but we 
believe the effort is worthwhile in the long run.
    In working individual cases, our MFCU remains sensitive to 
the need for systemic reform. In fact, the two are often 
intertwined. For example, the MFCU recently investigated 
allegations of fraud in the Medicaid taxi voucher program. We 
discovered that the program rules were incomplete and out of 
date and lacked internal controls. This can greatly undermine 
any attempt to prosecute for intentional fraud, since money is 
paid in a seemingly improper way, but a prosecutor may have 
difficulty showing a deceptive act that violates a particular 
government expectation.
    However, difficult terrain for a prosecution can often be 
fertile ground for an audit. With this in mind, the MFCU 
referred the matter to the OIG's audits division for a 
comprehensive audit of the program.
    In all our reports, we require that affected agencies 
comment on our recommendations and begin implementation of 
corrective action within a designated timeframe. Within the 
last year, we have begun a process for tracking compliance on 
priority recommendations, and we will direct our findings to 
the Mayor's office for continued monitoring.
    Moreover, we are providing these services based, in part, 
on feedback we solicit from District leaders. As a result of 
this communication, we are better able to use our limited 
resources to address priority issues.
    Both locally and nationally, experience has shown that 
fraud cases are lengthy and give the target ample opportunity 
to hide or spend all of the stolen funds. Although the 
government may eventually obtain a restitution order or 
judgment, this is of little practical value if no assets can be 
located. Payment suspensions can be a vital safeguard in 
preventing this outcome.
    Our MFCU strives to keep the Medicaid program informed of 
the progress of the cases. Whenever appropriate, we provide 
information about overpayments we have calculated and evidence 
of fraud against the program. As a result, an appropriate MAA 
can suspend payments to the provider for the duration of the 
case. In this way, we mitigate damages by preventing further 
losses during the pendency of the case. Naturally, we are 
careful to avoid undermining the fraud investigation in any 
way.
    Experience has taught us that agencies make optimal 
progress when top-level managers are committed to preventing 
waste, fraud, and abuse of the Medicaid program. We have taken 
several steps to ensure ``buy-in'' at every stage of our 
investigations, audit and inspections. Our most successful 
effort has been to secure a Mayor's order requiring agency 
heads to respond within a certain timeframe to our report 
recommendations and to any OIG referrals sent to them regarding 
noncriminal allegations. As a result, many agencies are much 
more responsive in terms of timelines and substance. In 
addition, our auditors and inspectors engage top-level 
management from the beginning to the end of each of our 
reviews.
    Furthermore, the MFCU has provided training to the MAA on 
the basics of health fraud prosecutions and audit techniques. 
We share our expertise, and, in so doing, cultivate improved 
working relations among agencies.
    Although the GAO report did not recommend specific actions 
regarding provider relations, I would like to comment on the 
importance of conducting regular outreach to the provider 
community. In the MFCU, our outreach is premised on the belief 
that the vast majority of providers are honest and want to see 
a Medicaid program free of fraud and abuse. We meet with 
provider groups and trade associations to explain the 
government's concerns and to provide some basic advice on 
avoiding problems.
    We also encourage buy-in by underscoring common interests 
in the fight against fraud. For example, many Medicaid programs 
nationwide are being hard hit by false claims for OxyContin. 
This issue encapsulates many of the problems facing government 
health care. Patients will often pretend to be in pain to 
obtain a prescription for this powerful narcotic. They may 
alter or forge any prescription they get and then sell the 
narcotics on the street. Sometimes they steal prescription pads 
off of doctors' desks. Sometimes they conspire with doctors to 
dispense the drugs illegally. In the latter case the physicians 
may receive payment from Medicaid for medical exams that never 
occur or are very unnecessary.
    The vast majority of physicians are outraged at this abuse, 
but are also determined to preserve their ability to prescribe 
OxyContin when necessary. We wrote a letter to the Medical 
Society of D.C. stressing our common ground on this issue. Our 
letter was reprinted in the Society's newsletter and 
distributed to doctors throughout the District. In this way, we 
believe we have addressed a problem in a proactive fashion 
before it becomes an epidemic.
    In conclusion, taken together, our strategic allocation of 
resources to assess risk, monitor corrective actions, and 
engage top-level management has brought much-needed focus to 
our oversight efforts. In fact, most of these efforts were 
initiated only since my tenure as Inspector General in 1999. 
With the continued cooperation of the City's leaders and the 
diligent work of the OIG, I am extremely optimistic we will 
realize even more cost savings, restitution payments, and 
prosecutions that will improve the fiscal integrity and 
financial management of the District's Medicaid program.
    This concludes my statement, sir.
    [The prepared statement of Mr. Maddox follows:]

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    Mr. Horn. Thank you. Mr. Rocke, do you have anything to add 
to that, or are you going to be doing so in the question 
period?
    Mr. Rocke. Precisely. I would be happy to address any 
questions you may have, but I have no additional comments at 
this point.
    Mr. Horn. OK, I now yield to the ranking member, Ms. 
Schakowsky.
    We have a vote on the floor. Both of us will have to be 
over there and then recess. So you will have your opening 
statement right now, and then, if you would like, you might 
want to just start with some of the questions and I will try to 
get over, vote, and get back, so we don't keep you all morning.
    Ms. Schakowsky. Thank you, Mr. Chairman, and thank you 
panelists. I appreciate your testimony and the work that went 
into it.
    I share everyone's concern about the financial management 
of the Medicaid program, and the reason is that every single 
dollar of improper payment to a health care provider is a 
dollar that is not spent on those who most desperately need our 
help and need health care.
    Medicaid is a critical piece of our public safety net. 
However, it is a safety net with a lot of holes for people to 
fall through. The public thinks of Medicaid as a low-income 
health insurance program, but it is really not. If you are not 
poor and disabled, poor and old, or poor and pregnant, you 
don't qualify. Only 40 percent of those in poverty qualify for 
Medicaid. Nonetheless, Medicaid is critical to those who do 
receive it.
    Twenty-five percent of children under 5 rely on Medicaid 
for health care coverage. I think that is a really stunning 
number in the United States, meaning that many children live in 
poverty and can't afford other kinds of health insurance. 
Eighteen percent of children between 5 and 18 rely on Medicaid 
for health insurance. Over 15 million children in total rely on 
Medicaid. Without those services, those children would go 
without health care.
    These are the same children who are often forced to skip 
meals, because there is no food in the house, and who sleep in 
apartments with inadequate heat and no air-conditioning. These 
are the children who are the most likely to need health care.
    On the other side of this equation are a few doctors and 
hospitals who are either too inefficient or careless to avoid 
billing twice for services or providers who scam the system by 
billing for services never performed. Choosing between the two 
is an easy call. The problem is, what do we do about it?
    The decentralized nature of the Medicaid system means 
efforts to address the problem will always be uneven. Half of 
the States spend no more than one-tenth of 1 percent of program 
expenditures on anti-fraud activities. There is more Federal 
money available, but that would require the State to spend more 
of its funds as well. If the Federal Government is paying 50 
cents of every Medicaid dollar, as it is in Illinois, there is 
little incentive to spend money on fraud.
    I hope our witnesses--well, this statement was to be given 
prior to your testimony--tell us what can be done to reduce the 
level of improper payments and what you are doing.
    Medicaid fraud threatens the welfare of the patient and 
strains the capacity of the doctors and hospitals providing 
services by taking dollars away that would otherwise be 
available for patient treatment. States struggle with the 
increasing costs of medical services, severe constraints on 
reimbursable costs, and ever-declining allocations for 
administrative expenses.
    Just last month, the House passed a welfare reform bill 
that cut the administrative funds for Medicaid. That means less 
money for eliminating improper payments and less money for 
benefits. That just does not make sense.
    I would like to thank you all for taking the time to be 
here today.
    [The prepared statement of Hon. Janice D. Schakowsky 
follows:]

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[GRAPHIC] [TIFF OMITTED] T6610.046

    Ms. Schakowsky [presiding]. I will ask one question. I am 
sorry, is it Calbom?
    Ms. Calbom. Yes, Calbom.
    Ms. Schakowsky. Maybe you said this, I heard the rest of 
the testimony, but what is the estimate not of what we have 
recovered, but what is the potential for cost recovery in the 
Medicaid program; in other words, an assessment of the level of 
fraud that is out there?
    It appears to me, and Mr. Mangano mentioned a dollar 
figure, that is a tiny percent of the Medicaid cost, and it 
seems like an underestimation or an understatement of what is 
really out there.
    Ms. Calbom. I think that is one of the big issues, that 
there has not yet been an estimate of what the amount of 
improper payments is in the Medicaid program. Of course, there 
has been an estimate in Medicare but not yet on Medicaid.
    I know that CMS is working on some pilot programs, Mr. 
Smith was mentioning that, and trying to come up with a way to 
do this. Because the programs are all different, it can be 
difficult, they tell us, to come up with an assessment that can 
be used across the States. Right now, there isn't an 
assessment.
    You cannot figure out how to tackle the problem if you 
don't know how big it is, and you don't exactly know where all 
your pockets are, where the biggest problems are. So we think 
that is the first thing that needs to be done.
    Ms. Schakowsky. There is no effort under way currently, or 
dollars allocated or assignments given, to making that 
assessment yet?
    Ms. Calbom. There are some efforts under way, and Mr. Smith 
might want to expound upon that.
    Ms. Schakowsky. I would appreciate it.
    Mr. Smith. Thank you very much. Medicaid now is spending 
about $240 billion. So even if it is only 1 percent, that is 
$2.4 billion. If it is the error rate that Medicare is, and 
Medicare is about 6 percent, so assuming a 5 percent error rate 
is talking about real money.
    Ms. Schakowsky. But are there efforts to not just come up 
with an aggregate figure but understand where most of the fraud 
occurs, etc?
    Mr. Smith. I want to reiterate one of the other points as 
well. The fraud in the system you are going to find by a 
handful of people. The vast majority of the providers, the 
doctors, the hospitals, the nurses, the therapists who 
participate in the Medicaid program are good, honest people who 
are----
    Ms. Schakowsky. Let us take that for granted, OK.
    Mr. Smith. Again, I don't know that we have a nationwide 
estimate on the percentage of providers that have had claims 
disallowed, under appeal, etc. There is also a great deal of 
difference between fraud and errors.
    Ms. Schakowsky. And that is why I am asking the question. 
What are you doing to distinguish between the last two points 
that you made and to determine just exactly what is going on?
    Mr. Mangano. If I might add, I think I can get to your 
point. Over the last 2 years, the CMS has been putting together 
a demonstration project. Right now, I believe in this year, it 
is up to nine States, where they are trying to come up with a 
methodology to identify what the improper payment rate is for 
that particular State. Next year, I believe the plan is to go 
to 15 States.
    The difficulty here is that every State is a little 
different in the Medicaid program. So coming up with a 
nationwide figure on what the abuse level is, is very 
difficult. They are trying to work on some methodologies that 
will come up with some models for all States to use. So over 
time, I believe they will coming up with the answer you are 
looking for, and that is what is the error rate or the improper 
payment rate across the country. But right now, it is in the 
early stages of that.
    Mr. Smith. And to followup and to be clear, there is no 
national Medicaid error rate at this point. But in our nine- 
State pilot we hope to come up with a payment accuracy 
measurement that would give you what you are looking for. Right 
now, we have nine and we intend to expand it to 15 States next 
year.
    Ms. Schakowsky. I am going to have to go vote, but I would 
say that I am interested in that figure only to the extent that 
it is helpful, then, for us to develop a plan on how to address 
it. I really am much more concerned about the plan and how to 
stop it. But it does seem, as Ms. Calbom said, as a first step 
we have to know how big is this problem.
    I thank you, and I am going to have to go vote, so this 
committee stands in recess.
    [Recess.]
    Mr. Horn [presiding]. The subcommittee will come to order, 
and the two votes we just finished probably will not occur 
again, and so I thank you for your patience.
    Let me just ask you a few questions and then others, I'm 
sure, will have other questions. In terms of the GAO report, 
which is very fine, what can the Centers for Medicare and 
Medicaid Services do to improve its oversight of Medicaid 
expenditures?
    Ms. Calbom. Mr. Chairman, again, if you look at this little 
chart you have in front of you, I can speak to it along those 
lines because this is really the model for what you need to do 
to manage improper payments, and there is something in each of 
these areas that we have found that needs to be done.
    I will start with the risk assessment area. As I was 
mentioning when you were voting, the biggest thing that needs 
to be done is find out how big the problem is. They need to 
measure their improper payments in the program. I know you have 
introduced some legislation that has been supportive along 
these lines. If you don't know how big the problem is, you 
don't know what kind of resources you should devote to trying 
to fix it.
    Also, in the risk assessment area, there are a lot of 
things that the States have been doing to measure their risks, 
too, and we would like to see CMS take a look at what the 
States have been doing and factor that into their own risk 
assessments.
    Control activities are what you need to do to try to manage 
the risks. And you have to know where the pockets of the 
problems are so that you can put more of your resources there. 
You need to know what kind of programs have the highest risk so 
that then you can put the controls in place that specifically 
focus on those programs. And there are some really good new 
techniques out that I know the IG has used, and Mr. Maddox was 
talking about as well, where you can use computerized 
techniques to look at huge data bases of information. You can 
match it against other data bases to look for improper 
payments, or even erroneous payments. Those kinds of tools 
would help CMS, in light of the fact that they have such 
limited resources in particular.
    Information and communications. One of the things we found 
is that this whole risk assessment activity that CMS has been 
trying to carry out at headquarters has not been communicated 
to the field. Now Mr. Smith is saying that is starting to 
happen, and we are happy to see that, because you have to get 
everybody on board with it.
    The next area is monitoring, which is absolutely critical. 
If you don't take a look at whether or not your activities are 
helping, then it doesn't make any sense to put the money into 
it. And that gets back to measuring. How large are improper 
payments, are the activities we are carrying out helping, are 
they lowering improper payments? If they are not, we can do 
something different. But it is a whole cycle that is 
continuous.
    And then what encircles the whole thing is the control 
environment. What you need there is the tone at the top. 
Everybody has to know this is a big priority. Everybody has to 
be held accountable for it. And it should be, frankly, part of 
their performance assessment. So we would like to see some 
performance measures put in place. We would like to see the 
lines of accountability between headquarters and the field. Not 
that there should be a direct line, but people have to know 
they are accountable for doing these activities to help manage 
these improper payments.
    Mr. Horn. And you are touching on this, but can you 
elaborate on why it is important to estimate the level of 
improper payments in the Medicaid program; and can you tell me 
the difference between improper and erroneous?
    Ms. Calbom. I'll take the second question first.
    I think those two terms are fairly synonymous. I think OMB 
uses ``erroneous payments,'' we use ``improper payments.'' 
Improper is meant to mean both fraudulent-type activities as 
well as inadvertent-type errors.
    But as far as why we need to measure it, you know----
    Mr. Horn. Well, why would the U.S. attorney want to do 
anything? I'm looking for language and wondering--because some 
of the U.S. attorneys don't do much of anything.
    Ms. Calbom. Well, where there is fraud, that gets turned 
over to the U.S. attorneys ultimately. We have seen cases where 
the U.S. attorney has declined to prosecute because the dollar 
amount is too small. We hate to see that----
    Mr. Horn. What is their idea of small?
    Ms. Calbom. I believe it differs depending on what 
jurisdiction you're in.
    Mr. Horn. What's the worst case that you know of that GAO 
sent over to the U.S. attorneys?
    Ms. Calbom. I don't have an example of that because, 
typically, what happens is we find some fraud, we turn it over 
to the IG investigative group, and then they would typically be 
the ones that followup. So I haven't seen a particular case how 
it came to its outcome. I don't have a good example.
    Mr. Horn. Well, let's ask the IG, Mr. Mangano.
    Mr. Mangano. First of all, these cases can be prosecuted 
either in Federal court, which the U.S. attorney would have 
responsibility for, but many of the cases that are investigated 
by Medicaid State fund control units are tried in local courts 
as well, State courts and local courts. So there is the two 
venues. When we do get the allegations from either the General 
Accounting Office, or from other sources, we will conduct the 
investigation and work with the proper legal authority--for us, 
it is always the U.S. attorney--and bring those cases to trial.
    If the U.S. attorney believes that the case is too small or 
they have other priorities at the time and can't get to it, we 
have other authorities that we can use to administratively 
adjudicate the case. If the U.S. attorney believes that they do 
not want to continue with it, they would decline that case and 
give it to us. We would pursue it administratively, and we have 
done that a number of times.
    Mr. Horn. Well, what is the worst decision in your--you 
don't have to tell us which U.S. attorneys, but did you feel 
this was wrong? Because, obviously, deterrence is helpful here.
    Mr. Mangano. I would say that the way I would answer it is 
not a threshold of money, because money differs depending on 
the judicial district that's involved. What might be a small 
case in California might be a huge case in Utah because the 
dollars are different. But I think where we have been 
disappointed, and only a very few instances of it, is where a 
U.S. attorney decided to not continue with a case. Either they 
felt the evidence wasn't strong enough or were not in a 
position at that time to pursue the case. That gets under our 
craw a little bit, particularly if the case isn't declined so 
that we can take it up.
    If the U.S. attorney holds on to a case too long, the 
statute of limitations runs out; and, therefore, there is 
nothing that we can do.
    Mr. Horn. What is the statute of limitations on those?
    Mr. Mangano. Most of them are 5, 6 years. So from the time 
the incident occurred. But I have to hasten to say, though, 
there are very few instances that are like that.
    Mr. Horn. Mr. Maddox.
    Mr. Maddox. Yes, Mr. Chairman. One of the unique situations 
we have in the District--I mentioned in my testimony when we 
started in the District is that I worked very closely with the 
mayor and the council and, in particular, the former U.S. 
attorney Wilma Lewis. To speak to the issue which we were just 
talking about, whether or not the U.S. attorney would find 
interest in a particular case, whether it was a large dollar 
amount or de minimis amount, that we agreed that, to avoid 
that, the U.S. attorney allowed us to incorporate our MFCU 
authorities to prosecute our own cases; and the majority of our 
employees in MFCU are attorneys and have been deputized as 
special assistant U.S. attorneys.
    So, regardless of the dollar amount, if we think that the 
issue is egregious enough and if we want to send a message, we 
don't have a problem of whether or not the U.S. attorney finds 
the case effective to prosecute.
    Mr. Horn. Thank you.
    Based on your knowledge of other Federal programs, how 
costly is it to estimate improper payments? What else comes 
under your jurisdiction there?
    Mr. Maddox. With respect to----
    Mr. Horn. Different programs.
    Mr. Maddox. Different programs.
    Mr. Horn. The way it is done another way. Social Security 
might be one way, so forth.
    Mr. Maddox. I'm not sure I understand where you are going 
with the question, Mr. Chairman. How costly it would cost to 
prosecute it or----
    Mr. Horn. Well, I'll go down to GAO and the knowledge of 
other Federal programs. You have a broad gaze across the 
executive branch, and some are done in other ways. So I'd just 
be curious whether that ought to be put into the Medicaid 
operations.
    Ms. Calbom. You're asking about estimating the level of the 
problem in the program?
    Mr. Horn. Well, that's OK, too. But is there other ways in 
the executive branch where they can either disbar someone from 
having the--whatever you want to call it. You can call it 
permitting, if the doctor is the problem, and often it is, and 
if the person is just a group----
    I remember when this committee went up to New York in 1994, 
and it was just one big mess all over New York. And that was--
the U.S. attorney did take that one. Because it was so blatant 
they couldn't do anything, and they did do it, and a few people 
are in jail.
    But I'm thinking of just other ways, Federal benefit 
payments go out and are misused. Are there any agencies where 
there might just be an administrative action rather than going 
into the judicial arena and the U.S. attorney?
    Ms. Calbom. I guess the types of actions that I can think 
of that agencies take--of course, it is a little different with 
Medicaid because you have the providers, but if it is something 
that is an internal thing you ought to get rid of the people. 
That's the bottom line there.
    As far as when you're dealing with third parties, you know, 
I'm not sure. I'd have to think about that.
    Mr. Smith. Mr. Chairman.
    Mr. Horn. We will be glad to have a little space in the 
record for your thoughts. So take your time.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6610.047
    
    Mr. Smith. Mr. Chairman, in terms of the Medicaid program 
itself, the States certainly can take action--the State and 
Medicaid program can take administrative action against the 
provider. All providers have to sign the provider agreement, 
and if you find that--so the State itself can terminate that 
provider agreement.
    In the case of different types of provider, there are 
different levels of sanctions that you can take against a 
provider without going into the court system themselves.
    Generally, there are appeals that a provider can have an 
appeal, etc. But the Medicaid program you can take 
administrative action.
    Mr. Horn. Do you see any difference in the States on the 
percent that they put up to match to Medicaid? Is it any higher 
in fraud or anything or misuse or however you want to call it?
    Mr. Smith. Mr. Chairman, I really could not--we would have 
to take a look at that State by State at this point. I don't 
have the comparisons that I could offer to you.
    Mr. Horn. Well, let's just go back and take a look at it. 
I'm not looking for some huge thing.
    Mr. Smith. Be happy to, Mr. Chairman.
    Mr. Horn. Is there a feeling there that the more money they 
put in, the more the fraud is?
    Mr. Smith. Again, certainly that would be the suspicion so 
you would look at the cases--you would look at the States with 
the highest Medicaid expenditures--New York, California, Texas, 
Illinois. Nine States spend more than half the Medicaid money. 
Also, as I suggested, cross-matching with the Medicare program 
where, if the provider is taking advantage of one program, the 
likelihood is pretty good that they are taking advantage of 
that other program as well. So having matching between the 
programs would be--we think has great potential.
    Mr. Horn. Information provided the General Accounting 
Office in this recent study indicated that staff resources 
devoted to Medicaid financial oversight has declined 
significantly over the past decade, even though the program 
continues to grow. How are you addressing that problem?
    Mr. Smith. Mr. Chairman, that is an area that we are 
looking at and have already taken some steps. A couple of 
different things, and one I also believe in, looking at where 
all the people are, rather than just automatically assuming you 
need more.
    First, let me point out that my partner is the Inspector 
General's Office, because in fact they do a lot of work for us 
that does not show up in our FTE levels. So looking at the 
whole picture, I would like to include what the IG is doing.
    Second, we have taken a couple of steps internally too--we 
have formed what we call the National Institutional 
Reimbursement Team. This team of eight people, four from 
central office, four from regional office, that this group now 
is looking at all of our institutional State plan amendments, 
whereas that had been scattered through the regional office. 
But that team has a number of advantages to it.
    First, consistency in making our decisions about State plan 
amendments. So we are being more consistent. No doubt you have 
heard concerns from States that there have been regional 
variations, that sort of thing. So having formed the National 
Reimbursement Team also then frees up personnel in the regional 
offices and central office as well.
    So we want to make sure we are using all the resources that 
we have at our disposal first. But I certainly can assure you 
that the Administrator and Secretary will make certain that we 
have the resources that we need to address the effort.
    Again, I think we've already seen a lot of progress in just 
the Office of the Director itself. But a couple of--Bill 
Osowski, who is background and financial management, is now 
directly in my office. We have done a lot to strengthen the 
financial management team itself. A lot of it is simply to 
assure people in central office and in the regional office and 
the States that financial management is important and a 
priority, and I think we have very strongly signalled that by 
the personnel that we have to oversee and hold people 
accountable. So we are getting that message out there and will 
continue to press that message.
    Mr. Horn. In your testimony, you noted the nine States that 
were involved in the pilot programs to develop a method of 
estimating improper Medicaid payments. Are any States now using 
that developed methodology?
    Mr. Smith. No, sir. There are two efforts going on at the 
same time. One--we are developing one for the fee for service 
and managed care. The Lewin Group has a contract with us to 
develop that. The other nine States, they are looking at their 
own methodologies so, at this point in time, we don't feel we 
can assume that there is one way to do it. So we are looking at 
different options and trying to sort of prime the pump in terms 
of encouraging States to come up with different methodologies 
that then we can test out. But we are still at the beginning of 
that.
    Mr. Horn. Which State Medicaid agencies are doing a good 
job of ensuring that claims are paid properly and which are 
not?
    Mr. Smith. Well, as a former Medicaid director of Virginia, 
I would like to say that Virginia does a very good job.
    Mr. Horn. We will consider that, and I think it would. So 
go ahead.
    Mr. Smith. I really couldn't give a rundown State by State. 
I think, for my own personal experience, Medicaid directors 
themselves are deeply committed to combating fraud and abuse in 
the system. They understand how it hurts the program when you 
do have abuse in the system.
    Again, there are other partners to bring into it, also. 
Looking at the fraud control units at the State levels, States 
have single State auditors as well, so--again, oftentimes 
independent of the administration at the time. So we have 
another level of accountability there.
    I would--again, there are pockets--and that's part of what 
our risk assessment has been about, to identify areas. So I 
think that you look at particular areas that have kind of had 
outliers or specific problems and then you look at those 
particular problems. So I think that the States themselves 
across the board, when you--they have also joined our efforts 
in that reform of financial management technical assistance 
group with the States, so the States have been very willing 
partners looking for new, improved ways.
    Again, commitment of resources is often at the heart of it. 
In today's technology, the commitment to update your 
surveillance utilization programs, etc., those are resources 
that you have to ask your State legislatures for. So it's hard 
to measure why--so the commitment isn't just the Medicaid 
director or the Medicaid program. You have to bring the other 
partners into it as well.
    Just to be fair to the States, often these are not their 
decisions alone on how to target resources or not.
    But we've been very pleased with the reception that we have 
gotten from the State Medicaid directors in terms of 
participation with our financial management tag. We have a 
fraud and abuse tag, the alliance for program integrity. We 
have enthusiastic support from the States, in my opinion.
    Mr. Horn. Let's just pick on one State where the claims are 
paid appropriately or inappropriately, and that's the State of 
California, of which I am a citizen. I won't get bent if there 
is something wrong there, so you will make brownie points.
    Mr. Smith. Well, in California, I'm very pleased that 
California is joining us in the pilot to match claims with the 
Medicare program. So, again, I've--you know, I think all States 
are looking for ways to improve their systems. There are many 
upon different decisionmakers in how to target resources. And I 
think every State would say, yes, we know that we can do 
better. That's the best I can do for you.
    Mr. Horn. What does the General Accounting Office think of 
California?
    Ms. Calbom. We haven't really done any specific work 
looking at the particular States, Mr. Chairman, on this.
    Mr. Rocke. Mr. Chairman, I don't know if you are interested 
in hearing any more on the original alternative remedies, 
alternatives to prosecution, but there are a few points we 
could make if you are interested.
    As Mr. Maddox pointed out, one of the unique things about 
our unit is that we're trying to break the mold and do some 
things that are different from Medicaid fraud units across the 
country. When we receive a case from a tip or referral from 
another agency, we don't view it as a criminal case or a civil 
case or administrative case. It is simply a case, and we see 
where the case takes us. We are very comfortable with bringing 
cases criminally in court when that's appropriate or civilly 
for civil damages, or using the administrative remedies that 
are available both in the District and federally.
    Sometimes that's the quickest and easiest way to stop the 
flow of blood. Even if you don't necessarily get the money 
back, at least you stop the damages from being aggravated.
    One of the other unique things is we're comfortable with 
doing all of these things at once, simultaneously, as a 
parallel case.
    Earlier this year I made a presentation to the Medicaid 
fraud control units around the country pitching the idea of 
parallel cases. The reception was a generally positive one, 
although there was some hesitancy. There are some folks who 
say, ``I do criminal cases and nothing but that.'' There are 
folks who see things only through the prism of the 
administrative process. What we like to think is that the best 
approach is that you have a number of arrows in your quiver and 
you reach back and pull whichever one is appropriate for that 
case--sometimes two or three of them at the same time. It is a 
unique approach and, frankly, has been successful so far.
    Mr. Horn. Well, that's very good.
    How much did the District of Columbia's Medicaid Fraud 
Control Unit collect in the fiscal year 2001?
    Mr. Rocke. 2001, I believe about $250,000, off the cuff.
    The important thing to keep in mind, I have to say out of 
fairness, is that we were just created in fiscal year 2000, so 
we spent the previous 6 months getting carpets and other 
materials.
    We were very successful that year. We gained even more in 
restitution and recoveries in the following 6 months. And, 
quite frankly, we are confident that we were going to do quite 
well. I wish I could tell you about the cases that are in the 
pipeline right now. It is a long pipeline in terms of fraud 
cases. Typically they take 3 years.
    Mr. Horn. Were there any convictions after the $250,000?
    Mr. Rocke. We've had a number of convictions, and I have to 
be clear on that. We've had five convictions. Four of them have 
been patient abuse convictions.
    One of the things I was very----
    Mr. Horn. I'm sorry, what's that?
    Mr. Rocke. Patient abuse.
    Mr. Horn. What do you mean by that?
    Mr. Rocke. We prosecute cases in which the residents of the 
nursing home have been physically attacked or financially 
abused by the employees of that nursing home. Frankly, I was 
very pleased with Mr. Mangano's testimony that he pointed out 
that a lot of the work that we do doesn't bring back a dime to 
the system but it protects some of our most vulnerable 
citizens. There is a financial aspect to it because, if an 
elderly resident is being beaten up, that is not good care and 
not a good use of taxpayer money to pay for that caregiver.
    In today's Post, one of our cases is featured. We got a 
conviction yesterday--to bring you up to speed--yesterday we 
had a conviction of a caregiver in a group home who took a 69-
year-old retarded woman, threw her to the floor, bashed her 
face in essentially; and she had to go to the hospital and get 
stitches. It was a horrible incident, regardless of who the 
victim is, made even worse by the fact that Medicaid dollars 
are funding these sorts of situations.
    So we have had four of those kinds of convictions because 
we have also had a fraud conviction. The pipeline is usually 3 
years. I found that unacceptable when we established our unit 
because we knew that nobody would hear from us basically for 3 
years. So what we did was look for some smaller cases, cases 
that traditionally would fall under the threshold that we have 
been talking about before.
    We found an instance of an optometrist in the District of 
Columbia that had been ripping the system off for years. 
Unfortunately, most of the claims had been lost due to the 
statute of limitations. We were still able to rescue about 
$1,000 worth of theft, and we prosecuted him for that.
    Mr. Horn. Well, could you pull the plug of the benefits 
going out to some of these people that misuse the whole system?
    Mr. Rocke. Sure. That was one of the reasons why we 
prosecuted him, was the criminal sanction. Because we wanted 
the word out that even if you steal $1,000 in Medicaid you are 
putting your license in jeopardy.
    But automatically, by law, once you are convicted of 
stealing from the Medicaid program, even a nickel you are 
excluded from the program for 5 years. So not only do we not 
have to face claims from this provider, but he can't go across 
the river to Virginia or to Prince George's County, Maryland. 
He was excluded from the program nationwide.
    So these are the approaches that Mr. Maddox and I have 
tried to implement that we think are a little different. And 
the cooperation of the U.S. attorney's office, they understood 
that sometimes it is not just the numbers that are important, 
it is the deterrent effect. It is making the statement. And I 
believe every optometrist in the District of Columbia has heard 
about this case. We'd like to think they take it to heart.
    Mr. Horn. Well, just a few more examples and maybe they 
will.
    Mr. Rocke. We are trying; and, as I said, we have a number 
of cases in the pipeline. I'd like to talk about them, but I'd 
be in trouble if I did.
    Mr. Horn. Yeah, well, you are on the right track, no 
question about it.
    When you look at those typical kind of cases, does it 
really--you said it yourself, and I see it all the time with 
the IRS, that you have got somebody that gets away with murder, 
in fiscal matters or whatever, and just goes somewhere else, as 
you said, but you have apparently closed that plug up. Was that 
a matter of law or--when you said they can't get away with 
going into Virginia or Maryland once they've been taken care of 
in the District of Columbia?
    Mr. Rocke. It is. It is a part of the Social Security Act. 
By operation of law, when you are convicted of stealing from 
Medicaid or Medicare program, the minimum exclusion is 5 years. 
In fact, we work very closely with HHS IG's office because they 
help maintain the actual physical files printed in the Federal 
Register when you're excluded, when you're known as an excluded 
provider.
    The good thing about that is every program is aware of it 
theoretically across the country, and employers should be 
checking that list. That is one of the things that I do. I do a 
lot of outreach to the industry and make sure they check these 
lists look to see what the background is of the employees they 
are hiring, see if they are excluded.
    Obviously, you shouldn't hire anyone who is on that list. 
Most providers don't want to. Sometimes they don't do their 
homework, and that is one of the things that we accomplish 
through outreach.
    Mr. Horn. Do some try to change their name or get a 
relative or uncle or cousin or something and they do the dirty 
work and they are told ``how I did it in the District of 
Columbia?''
    Mr. Rocke. Are you sure you haven't prosecuted fraud 
before? That is exactly what they do. They will use a straw 
man. They will use a front.
    As a matter of fact, I had a conversation with our single 
State agency just last night about an individual whose provider 
number was shut down because of suspected fraud. Now his 
brother is billing for similar services from the exact same 
location. It doesn't take Sherlock Holmes to realize what is 
probably going on there, and we are trying to urge them to take 
this into account and shut down that particular provider 
number.
    One of the frustrating things as a prosecutor is you can 
lead a horse to water but you can't always make it drink. We 
provide information when we can to the various State agencies 
to take action. We can't require people to do the right thing. 
We urge them to; and, frankly, we think that some progress is 
being made. But, as Mr. Maddox pointed out in his testimony, 
buy-in is critical. People have to take fraud seriously and 
have to take steps to address the issue in a very serious way.
    Mr. Horn. In Mr. Maddox's testimony, he mentioned that the 
Medicaid program is inundated with false claims for a pain 
medication called OxyContin. Is that about what it is?
    Mr. Rocke. Yes.
    Mr. Horn. What is the Medicaid Fraud Control Unit doing to 
address this problem?
    Mr. Rocke. OK. Well, what we are trying to do is, frankly, 
get ahead of the curve. OxyContin is a problem nationwide. It 
is a part of the drug diversion problem. Percocet, Dilaudid, 
other narcotics that are diverted from legitimate uses into 
drug abuses, into illegal narcotics sales. OxyContin is just 
the latest twist on this. There is nothing new about it except 
it is much stronger than Percocet, much more prone to addiction 
and much more prone to abuse.
    What we have tried to do is make sure it did not reach an 
epidemic here in the District of Columbia. Unfortunately, in 
parts of our neighbors--Virginia, West Virginia, rural areas of 
Pennsylvania--it is a very, very serious problem.
    We addressed the District of Columbia Medical Society and 
talked about the fact that we're doing our statistical analysis 
to look for anomalies, warn them about the fact that a lot of 
patients are out there malingering, pretending to have this 
particular pain or some sort of an ailment that would require 
the prescription. They get the prescription, and then they sell 
it, and they go to four, five, other particular doctors and do 
the same thing.
    Another variation is the scheme that they work with doctors 
sometimes--and that's a very unfortunate situation that rarely 
happens, but when it happens it does a lot of damage. If a 
corrupt doctor who is known throughout the county to simply 
write scripts--what we thought we would do is work with the 
Medical Society of D.C. and explain this problem. They are 
mortified by it. Let them know that these fraud schemes are out 
there, not to be taken advantage of, and to give implicitly the 
message to the few bad doctors that are out there that we're 
looking at this issue.
    We are aware of the fact that there are patients out there 
who strike a deal with the doctor and say you can pretend to 
examine me if you write a script. That is the worst of all 
worlds. The illegal drugs are getting on the street, and the 
Medicaid program is paying for a bogus exam.
    We wanted that word out there. I was pleased with the 
reception we got from the Medical Society. They printed our 
letter in their newsletter. They invited me to discuss the 
issue with their executive board.
    We think that is the important thing that we're doing that 
is different. We try to get ahead of the curve instead of 
simply reacting to these fraud cases.
    Mr. Horn. Mr. Mangano, anything to add as Inspector 
General?
    Mr. Mangano. In terms of the OxyContin case, we have a 
number of cases in primarily the Northeast as far down as the 
District of Columbia. I think we have had an arrest or 
conviction of 27 people for this. Our investigations are 
focusing not just on the people, the Medicaid recipients who 
get these scripts and sell them, but also the physicians that 
are actually writing the script and the pharmacists involved in 
it who are actually filling the orders of the persons that they 
know are improper. So the OxyContin one is fairly significant.
    With respect to the operation of the exclusion list, every 
year we compile this list. We have a total list of all those 
persons who have been convicted of fraud against the Medicare 
Medicaid program, and they are included in our exclusion list. 
Last year, we added 3,700 new names to that list of persons who 
were excluded. That list is made available to all the Medicare 
insurance carriers.
    Mr. Horn. 3,700 you said?
    Mr. Mangano. 3,700 new ones, 3,770. Those are distributed 
to the Medicare contractors who have it available to them.
    We also distribute the list to every State. The Medicaid 
agencies have it, etc. It is a ready list of persons who 
shouldn't be doing business with the Medicare and Medicaid 
programs.
    I think one of the good pieces of news is that about a year 
ago we conducted a program evaluation, and we took all the 
persons that had been convicted of crimes in the Medicare 
program and Medicaid on that exclusion list and matched them 
against persons who were submitting bills to the Medicare and 
Medicaid program and only found a handful of individuals who 
were on both lists, which told us that, unless some other 
nefarious means were being used, that the Medicare-Medicaid 
programs were doing a pretty good job of keeping those persons 
out of the program.
    Mr. Horn. Can you explain the ``upper payment limit'' and 
the intergovernmental transfer mechanism being used by the 
States?
    Mr. Mangano. Sure. What had happened was the Medicaid upper 
payment was a device that was given to the States to enable 
them to pay more than they would ordinarily pay into the 
Medicaid program for services. The upper payment limit is the 
amount that Medicare pays for that service. In every State in 
the country that I can think of, Medicare pays more than 
Medicaid does for the same service. That service is available 
for nursing homes, hospitals and certain other providers in the 
State.
    If you like, I would be happy to go through the State of 
Pennsylvania and explain how it works.
    Mr. Horn. Don't whisper it in my ear. Just put it on the 
record.
    Mr. Mangano. The State says we need to increase the quality 
of care in nursing homes or hospitals, so what we're doing to 
do is increase the payment to the amount that Medicare pays. 
Sounds good. Here is how the pool of money then works.
    The State of Pennsylvania took every nursing home in the 
State--private, State operated, and nonstate operated, which 
were generally county nursing homes--and they said, OK, in our 
State we are paying an average of $146 a day for a Medicaid 
patient. We are going to raise that up to the Medicare level. 
So we will add up every Medicaid beneficiary in our State and 
figure out what is the incremental amount needed for everyone. 
We will put them in the pool of money that says this is how 
much money we need to raise that enhanced payment for the 
hospital or the nursing home.
    Let's just take nursing homes in Pennsylvania. That's the 
scheme they used. What they did then was said now we have this 
money. We do not have to, under law, distribute it to every 
nursing home. We can pick and choose who we're going to send it 
to. So they decided to send it just to the nursing homes that 
were operated by the counties. There were only 23 of them in 
the State. The State had 670 nursing homes; 23 were county 
operated. So you might say, why would they do that? Why would 
they only give it to the county nursing homes? They had a deal 
worked out with the county administrators that they would get 
the money back to the State.
    In my testimony, I have the appendix of how this Ponsi 
scheme worked. What would happen is that these 20 counties that 
ran these nursing homes would figure out--they would ask the 
State for X amount of dollars, which would use up the entire 
State-enhanced payment amount on these 20 homes. They went to a 
bank, the same bank in the State, they got a bank note to cover 
it. In this case, it was just under $700,000,000. They took 
that amount and gave it to the State. They gave it to the 
Department of Public Welfare.
    The Department of Public Welfare then transferred back to 
the county within 24 hours the same amount of money, plus $1.5 
million more to cover their interest payments and the payments 
they needed to make to the county commissioners association. 
They submitted a bill to the Medicaid program federally and the 
Medicaid program had to pony up their 54 percent share for $393 
million. The county, which had gotten their full payment back 
from the State, went back and paid off their bank notes.
    Now the State has all this money that they got from the 
Federal Government. So one might think, did they distribute 
that to the nursing homes? No, what they did was put it into 
several pockets. Half went to Medicaid purposes in the State. 
Once they put it into the Medicaid program, they can match 
additional Federal money. Twenty-one percent was spent for 
nonMedicaid services, and about 29 percent was spent for we 
don't know what. It went into the general fund. We don't know 
how they used that money.
    By doing this, the State effectively changed their State 
Federal match from 54 percent to 65 percent. This was free 
money from the Federal Government to do this. From 1992 to 
1999, the State came up with $5.5 billion of enhanced payments 
of which $3.1 billion was Federal money.
    Now there is a happy ending to this, and that is that I 
have to compliment CMS because they did take a good, quick 
action on that. There has been a series of regulations produced 
over the last year in which, by closing off most of this 
scheme, it will save the Federal taxpayers about $79 billion 
over the next 10 years. So the happy ending is that most of it 
is cutoff.
    The only thing that is not cutoff is that the States still 
don't have to use the money for the intended purpose that it 
was put together for.
    Mr. Horn. Fascinating. If you put it in fiction, nobody 
would believe it. It's amazing.
    Is anybody else trying to be like Pennsylvania? Or have you 
taken that little turn?
    Mr. Mangano. When the scheme came to light in 1993, there 
were 12 States that were doing this. As soon as word got out, 
by the year 2000, 28 States were involved with it. As it became 
public what the scheme was about and that we and CMS were 
working hard to resolve it, States became aware of it. They all 
started submitting amendments to their State plan to do exactly 
the same thing. So that, in the year 2000, the States had 
submitted bills for $10 billion on which the State was only on 
the hook for $5.8 billion of it.
    Mr. Horn. Well, did the disease get cured? Nobody is doing 
that now?
    Mr. Mangano. Mostly. It is because the CMS in their 
regulations came up with a plan to phase this out over time. 
There are three--actually, now four--different pay pools that 
have been put together.
    CMS said that we realize that by allowing people have a 
pool that included all of the private providers, all of the 
county and city operators and State and we had that big pool of 
money, it is too much money. What it said was they were going 
to narrow the pools down so that the only pool would be either 
all privates, all counties or all States. And then there was a 
phasing process.
    Actually, the Congress acted to give these States who were 
in this scheme the longest period of time to get out of it. 
They gave them an 8-year transition period.
    CMS came up with two different phases. Those who were in it 
before October 1999 would have 5 years, and those that were in 
it after that would have 2 years, and there was one additional 
one that allowed the people that came in right on the 
borderline, to have actually only 1 year to participate in the 
scheme. So most of this problem has been solved.
    The only thing we would like to have seen gone further was 
the requirement that the money be actually used for the 
beneficiaries for the purpose it was actually intended to. So 
if the money was to be derived from nursing home patients, the 
money would actually have to be used on the nursing home 
patients. But the States have a great deal of flexibility in 
this program, and they can determine its use.
    Mr. Horn. In your testimony, you stated the revised 
regulations involving the upper payment would save about $55 
billion in Federal Medicaid funds over the next 10 years. 
What's being done to ensure that those savings are realized? 
Are there additional further reforms needed?
    Mr. Mangano. That was based on the projection of those 
people who were in the system as well as those who would have 
come into the system over time. As I recall, it was the CBO 
that came up with those projections for the next 10 years--I'm 
sorry, it was the CMS actuary that came up with that 
projection.
    The way that it will be enforced, I believe, and Mr. Smith 
can correct me if I am wrong, is that the State plans have to 
be approved by CMS and they will be casting a watchful eye over 
anything that looks like this in the future.
    Mr. Smith. That's correct, Mr. Chairman.
    Again, I mentioned our National Institutional Reimbursement 
Team. So all State plan amendments dealing with institutional 
payments, of which a UPL amendment would fall into that 
category, would be reviewed by the team. And any State plan, 
the regulation--the final regulation is now in effect. So any 
plan amendment has to be in compliance with the new regulation. 
If it's not in compliance, it would be disapproved.
    I think another one of the reforms that I think has been 
very important is that States are now not able to draw down 
Federal funds until their State plan amendment is actually 
approved. They can only go back to the first day of the 
quarter.
    One of the problems historically has been States would send 
in State plan amendments and action was not really taken on it. 
That put everybody in a very difficult situation. The State 
thinks that it's OK and goes ahead and changes its program 
accordingly, and at some point in time CMS at the time might 
have come back later and questioned the State plan amendment.
    We have instituted processes in the system now to assure 
that doesn't happen again, to where they are handled within a 
certain period of time and specific action is taken.
    On UPL, California is one of those States, Mr. Chairman, 
that had been using UPL through a waiver and is on one of the 
longer transition periods. So California will continue to draw 
Federal funds under UPL that will be phased out over an 8-year 
period of time.
    Mr. Horn. Well, take me through this a little more, 
California, UPL. Get it in the record.
    Mr. Smith. I'm sorry. The upper payment limits that allowed 
the States to draw funds--not only what Medicare would pay but 
in fact above what Medicare would pay--in many respects, as Mr. 
Mangano was describing to you, California had been using that 
through a waiver that had been granted. I can't tell you the 
precise date, back to the early 1990's.
    But, again, now all States have to come into compliance 
with the final regulation. California will have the benefit of 
the 8-year transition, though, because they had gotten into the 
system so early. The rationale there was that State budgets had 
been already based the assumption that those funds would be 
available to them. So the States that had relied on them for 
some time had longer transition periods.
    But when California received it--I believe California is 
unique in the respect that it was through a waiver that--what 
they called in California the ``selective provider contracting 
program.'' It is a specific waiver that allows them to contract 
with hospitals in California. But, as I mentioned, that program 
will be phasing out as the State comes into compliance.
    Mr. Horn. Now, most Governors are having financial problems 
now just because of various and sundry things, not Medicaid 
necessarily. But I suspect they will start moving around, doing 
creative ways of moving the dollars from one place to the other 
place to try and get a balanced budget, which most of them have 
to have under their constitutions. So are we looking for that 
and seeing anything here that would--where they would want to 
move Medicare funds, Medicaid funds and balance things out?
    Mr. Smith. We are looking, Mr. Chairman. Again, I think 
that the strength of our reimbursement team will help us to 
identify those early on.
    Again, in the past, part of this would start to occur, but 
because it might have been disbursed--the plans were disbursed 
among the regional office, you might not have picked up the 
pattern until it was established. So the review team will help 
us identify early on whether or not it is simply moved to 
another area. But we are--we have some ideas about where that 
might move to, and we are certainly looking for them.
    Mr. Horn. Mr. Maddox, in your Inspector General level with 
the District of Columbia, let me get a few things on the record 
here. In your testimony you stated that lengthy fraud cases 
give guilty defendants time to hide or spend all of the stolen 
funds. To combat this problem, provider payments can be 
suspended until the case is resolved. How often is this 
mechanism used?
    Mr. Maddox. I will let Mr. Rocke address that question, Mr. 
Chairman.
    Mr. Rocke. Right now, we have about four cases where that 
issue is coming into place. It is a case-by-case decisionmaking 
process.
    One aspect that's very, very important to us is, as I said 
before, is to stop the flow of bad money. But there are some 
countervailing points. We may have an undercover investigation 
ongoing. We may have other police or legal aspects of the case 
that a suspension would interfere with. So it is always a case-
by-case decision as to whether we can effectively cutoff the 
flow of money without alerting the target of the investigation 
or undermining our case.
    But what I try to do is always keep that option in the 
forefront as a possibility, keep the single State agency 
informed of the progress of the case so that, if they choose to 
go forward with a suspension, they are given all the evidence, 
all the ammunition to support that suspension. At the same 
time, they're very careful to talk with us and work with us to 
make sure that they don't take any steps that would undermine 
our case.
    Mr. Horn. Well, I don't want to uncover your thing. God 
bless you for cleaning house.
    Mr. Rocke. We are trying.
    Mr. Horn. Are there any legislative actions that Congress 
should consider that would restore Medicaid's financial 
integrity? All of you down the line, anything you see or have 
heard this morning that maybe there is a weakness here 
somewhere in Congress and should we do anything more about 
restoring Medicaid's financial integrity? How about the General 
Accounting Office?
    Ms. Calbom. I think, Mr. Chairman, the action that you have 
taken already introducing legislation to require improper 
payments to be reported is a huge first step, because that 
really is what you need to do, as I said earlier, to know how 
big your problem is and what kind of resource you need to throw 
at that problem to take care of it.
    Mr. Horn. Yes, that's H.R. 4878; and we haven't got it on 
the books yet. It's going through the process. And you think 
that will help on improper payments by Federal agencies?
    Ms. Calbom. I think that would be a tremendous help.
    Mr. Horn. OK. Well, we will take your word for it and see 
if we cannot use you as a bat on the head to some of our 
colleagues. So thank you.
    Mr. Smith? What's your opinion?
    Mr. Smith. Mr. Chairman, I don't have any recommendations 
for you today. We do have tools out there. We do have Medicaid 
as a matching program. It does require the States to put their 
dollars up so the money doesn't flow unless the State is 
willing to put its resources into it. But we do have a lot of 
tools out there. We are trying to improve coordination and 
communication so that all the parties who are involved in these 
discussions are talking to each other and taking advantage of 
it.
    A part again of our approach has been to be out there in 
the States and be visible to the States to know that we are 
watching and, certainly, if we come back to you at a later time 
with other recommendations for legislation.
    Mr. Horn. Mr. Mangano, Inspector General, do you see any 
more legislative actions Congress should consider?
    Mr. Mangano. I don't think so at this time.
    The fundamental issue here is the difference between 
Medicare and Medicaid programs. Medicare is a national program 
with national rules and regulations, and the CMS can have 
people tow the line in terms of reforms that are needed. 
Medicaid, being a jointly funded Federal-State program but 
managed by the States, in many of the cases CMS can only 
provide an encouragement factor.
    As an example, in the testimony I talked about Medicaid 
drug pricing. Clearly, the States and the Federal Government 
are getting fleeced on the amount money that we are paying for 
drugs, but every State can decide how much they are going to 
pay for those drugs. So we are in a position and CMS is in a 
position to encourage them to make those changes and reduce 
those price, etc.
    Given that kind of scenario, I think the kinds of reforms 
that Mr. Smith and Ms. Calbom have talked about in terms of you 
actually manage the program and getting better information, 
getting that information analyzed at a national level, as well 
as at the State level, and acting on that information, is 
probably the best way to go at this point.
    Mr. Horn. I want to put in the record to back you up, this 
is entitled Outrageously High Drug Prices. The source is the 
Life Extension Network 2002, and let me just give you an 
example: U.S. price, Cipro, $87.99; European price, $40.75. 
Paxil, $83 U.S. price; $49 in Europe. And Prozac, $91 U.S. 
price; and $18 European price. And on and on and on. We'll put 
this in the record just because it's enough to make us all mad.
    Of course, a lot of pharmaceutical people will come in and 
cry and whine and say, oh, everything costs $300 million to get 
our research and so forth. They've got to wake up on this, and 
we have to get that law moved this next few months in terms of 
the Federal Government subsidizing those things.
    Of course, a lot of it is just overuse; and I don't know 
how you stop that. When a professional says, gee, we have to 
have this, or the patient is sitting in the office and sees the 
big, huge ads in medical journals, health journals, you name 
it, or they go to the doctor and say, why can't you do it for 
me, that's supposed to be the best thing since sliced bread, 
and that kind of thing.
    I just have one more question; and that is, you are doing 
the match between Medicaid and Medicare. Who provided the 
software for that? Did the agencies here, or how do you--and is 
it comparable?
    Mr. Smith. Mr. Chairman, I believe that we had developed 
the software through a contract; and that was funded with 
Medicare funds.
    Mr. Horn. So there is comparability across the States.
    Mr. Smith. Yes.
    Mr. Horn. I'm all for it.
    I remember 20 years ago I made that suggestion on another 
Federal program and said, for Heaven's sake, just get them the 
new software and see if they can work with it and not just have 
it hung out there.
    So I thank you all for what you have done and keep up the 
good work. With that----
    Mr. Maddox. Mr. Chairman?
    Mr. Horn. Yes.
    Mr. Maddox. Mr. Chairman, I have one question you asked 
about Federal legislation. As you know, many of the Federal 
laws that apply to Federal agencies also apply to the District 
of Columbia. There are two such laws that I think would be very 
beneficial to us, one being obstruction of an audit, which is a 
felony.
    Mr. Horn. I'm sorry. I missed the first part.
    Mr. Maddox. Obstruction of an audit. It's not a felony in 
the District, and I think that would go a long way in helping 
us complete our audits. The other is false statements. Title 
18, USC 1001, applies to the Federal side but not to the 
District. Those are two investigative tools that are badly 
needed.
    Mr. Horn. So we need to expand that to----
    Mr. Maddox. The District of Columbia.
    Mr. Horn. We did not treat it like a State in terms of 
Medicaid?
    Mr. Maddox. Not in those two instances. The false statement 
act with regard to the District is a misdemeanor. It is only 
written a statement where there is a warning. Otherwise----
    Mr. Horn. Get us a letter from you on that situation so we 
can talk to people around here.
    Mr. Maddox. I certainly will. Thank you, sir.
    Mr. Horn. OK. That is a good suggestion.
    Let me thank the individuals who have been responsible for 
this hearing. The staff director and chief counsel is doing 
other things right now, J. Russell George.
    Bonnie Heald is the deputy staff director. Put your hand 
up, Bonnie.
    Then the individual that has really struggled with this and 
done a great job as usual, and that is Rosa Harris who is a GAO 
detailee. It's great having her here.
    Then Justin Paulhamus is the majority clerk. He is right 
back there with all the equipment.
    Chris Barkley is part of our new subcommittee staff.
    Michael Sazonov, subcommittee intern; Sterling Bentley, 
subcommittee intern; Freddie Ephraim, subcommittee intern.
    The minority staff here is out 100 percent: David McMillen, 
professional staff, and Jean Gosa, the minority clerk; and we 
thank you both for all you have done.
    The court reporters, Pam Garland and Joe Strickland, we 
thank you for all your fine catching the language, which is 
very difficult for us to hear, so we can read it from you.
    I want to thank you all again; and, with that, we are 
adjourned.
    [Whereupon, at 12:05 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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