[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
               MEDICARE PROGRAM EFFICIENCY AND INTEGRITY

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 18, 2007

                               __________

                           Serial No. 110-30


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


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                    COMMITTEE ON ENERGY AND COMMERCE

    JOHN D. DINGELL, Michigan,       JOE BARTON, Texas
             Chairman                    Ranking Member
HENRY A. WAXMAN, California          RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts      J. DENNIS HASTERT, Illinois
RICK BOUCHER, Virginia               FRED UPTON, Michigan
EDOLPHUS TOWNS, New York             CLIFF STEARNS, Florida
FRANK PALLONE, Jr., New Jersey       NATHAN DEAL, Georgia
BART GORDON, Tennessee               ED WHITFIELD, Kentucky
BOBBY L. RUSH, Illinois              BARBARA CUBIN, Wyoming
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                HEATHER WILSON, New Mexico
ELIOT L. ENGEL, New York             JOHN B. SHADEGG, Arizona
ALBERT R. WYNN, Maryland             CHARLES W. ``CHIP'' PICKERING, 
GENE GREEN, Texas                        Mississippi
DIANA DeGETTE, Colorado              VITO FOSSELLA, New York
    Vice Chairman                    STEVE BUYER, Indiana
LOIS CAPPS, California               GEORGE RADANOVICH, California
MIKE DOYLE, Pennsylvania             JOSEPH R. PITTS, Pennsylvania
JANE HARMAN, California              MARY BONO, California
TOM ALLEN, Maine                     GREG WALDEN, Oregon
JAN SCHAKOWSKY, Illinois             LEE TERRY, Nebraska
HILDA L. SOLIS, California           MIKE FERGUSON, New Jersey
CHARLES A. GONZALEZ, Texas           MIKE ROGERS, Michigan
JAY INSLEE, Washington               SUE WILKINS MYRICK, North Carolina
TAMMY BALDWIN, Wisconsin             JOHN SULLIVAN, Oklahoma
MIKE ROSS, Arkansas                  TIM MURPHY, Pennsylvania
DARLENE HOOLEY, Oregon               MICHAEL C. BURGESS, Texas
ANTHONY D. WEINER, New York          MARSHA BLACKBURN, Tennessee       
JIM MATHESON, Utah                   
G.K. BUTTERFIELD, North Carolina     
CHARLIE MELANCON, Louisiana          
JOHN BARROW, Georgia                 
BARON P. HILL, Indiana               
                                     
_________________________________________________________________
 Dennis B. Fitzgibbons, Chief of 
               Staff
Gregg A. Rothschild, Chief Counsel
   Sharon E. Davis, Chief Clerk
   Bud Albright, Minority Staff 
             Director

                                  (ii)
                         Subcommittee on Health

                FRANK PALLONE, Jr., New Jersey, Chairman
HENRY A. WAXMAN, California          NATHAN DEAL, Georgia,
EDOLPHUS TOWNS, New York                 Ranking Member
BART GORDON, Tennessee               RALPH M. HALL, Texas
ANNA G. ESHOO, California            BARBARA CUBIN, Wyoming
GENE GREEN, Texas                    HEATHER WILSON, New Mexico
    Vice Chairman                    JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado              STEVE BUYER, Indiana
LOIS CAPPS, California               JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
ELIOT L. ENGEL, New York             SUE WILKINS MYRICK, North Carolina
JAN SCHAKOWSKY, Illinois             JOHN SULLIVAN, Oklahoma
HILDA L. SOLIS, California           TIM MURPHY, Pennsylvania
MIKE ROSS, Arkansas                  MICHAEL C. BURGESS, Texas
DARLENE HOOLEY, Oregon               MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          JOE BARTON, Texas (ex officio)
JIM MATHESON, Utah
JOHN D. DINGELL, Michigan (ex 
    officio)



                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     1
Hon. Nathan Deal, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     3
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     4
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................     5
Hon. Lois Capps, a Representative in Congress from the State of 
  California, opening statement..................................     7
Hon. Tim Murphy, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     8
Hon. Tom Allen, a Representative in Congress from the State of 
  Maine, opening statement.......................................     9
Hon. Hilda L. Solis, a Representative in Congress from the State 
  of California, opening statement...............................    10
Hon. Jim Matheson, a Representative in Congress from the State of 
  Utah, prepared statement.......................................    11
Hon. Darlene Hooley, a Representative in Congress from the State 
  of Oregon, opening statement...................................    11
Hon. Jan Schakowsky, a Representative in Congress from the State 
  of Illinois, opening statement.................................    12
Hon. Barbara Cubin, a Representative in Congress from the State 
  of Wyoming, opening statement..................................    13
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................    14

                               Witnesses

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and 
  Medicaid Services..............................................    15
    Prepared statement...........................................    19
    Answers to submitted questions...............................   111
Mark E. Miller, executive director, Medicare Payment Advisory 
  Commission.....................................................    30
    Prepared statement...........................................    32
    Answers to submitted questions...............................   115
Stuart E. Wright, Deputy Inspector General for Evaluation and 
  Inspections, Office of Inspector General, Department of Health 
  and Human Services.............................................    66
    Prepared statement...........................................    69
    Answers to submitted questions...............................   123
Daniel S. Fridman, Senior Counsel to the Deputy Attorney General 
  and Special Counsel for Health Care Fraud, Department of 
  Justice........................................................    80
    Prepared statement...........................................    82
    Answers to submitted questions...............................   118

                           Submitted Material

Eric Sokol, director, and Stephen Azia, counsel, Power Mobility 
  Corporation, statement.........................................   158


               MEDICARE PROGRAM EFFICIENCY AND INTEGRITY

                              ----------                              


                       WEDNESDAY, APRIL 18, 2007

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:35 p.m., in 
room 2123 of the Rayburn House Office Building, Hon. Frank 
Pallone, Jr. (chairman) presiding.
    Members present: Representatives Green, DeGette, Capps, 
Allen, Schakowsky, Solis, Hooley, Matheson, Deal, Cubin, Pitts, 
Murphy, Burgess, Blackburn and Barton.
    Staff present: Erin Bzymek, Yvette Fontenot, Brin Frazier, 
Amy Hall, Christie Houlihan, Bridgett Taylor, Robert Clark, and 
Kristine Blackwood.

 OPENING STATEMENT OF HON. FRANK PALLONE, JR, A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. I want to call this meeting to order.
    Today we are having a hearing on ``Medicare Program 
Efficiency and Integrity.'' I will recognize myself for an 
opening statement initially.
    Since it was enacted, the Medicare Program has been a 
reliable source of health care for our Nation's seniors and 
disabled and it goes without saying that if it were not for the 
Medicare Program, some of our most vulnerable populations would 
have little, if any, way to access important medical care. 
Accordingly, we must make every effort to ensure that the 
Medicare Program remains intact and available for future 
generations who will undoubtedly come to rely upon its 
services, and part of our efforts must focus on ensuring that 
all of Medicare's payment policies are both fair and efficient. 
Currently, I don't believe that is the case. It should come as 
no surprise to anyone that many of us in Congress have strong 
concerns about payments to Medicare Advantage plans.
    I have to admit, I am perplexed by the disparity in 
payments between these private plans and traditional Medicare. 
It makes little sense to me why Medicare payments for Medicare 
Advantage enrollees are on average 12 percent higher than what 
Medicare pays for beneficiaries enrolled in traditional 
Medicare. It flies in the face of the intent behind the program 
as I believe MedPAC, which has done substantial work in this 
area, will attest to later today. These excessive payments are 
wasteful and result in unnecessary costs for the program as 
well as for its beneficiaries and the American taxpayers, and 
some of my good friends I assume on the other side of the aisle 
are going to argue that the Medicare Advantage Program provides 
value to the Medicare Program in the form of greater savings 
and enhanced benefits for enrollees but it seems to me that no 
matter how you try to sell it, it is just lipstick on a pig. 
The evidence just isn't there to back up these assertions.
    The Medicare Advantage program is not the only area in 
which we would likely achieve greater value out of Medicare 
dollars we spend. I am looking forward to hearing from our 
witnesses today on what other areas we should focus our 
attention on improving payment efficiency within the Medicare 
Program.
    But I do believe that eliminating overpayments and improper 
payments will only go so far. There is another side to this 
coin that involves ensuring the integrity of the Medicare 
Program. I admit my concern about ensuring Medicare Program 
integrity is somewhat parochial. This past year there were a 
couple of instances in my home State of New Jersey where 
providers were accused of improper billing which may have cost 
the Medicare and Medicaid programs hundreds of millions of 
dollars. In the first instance, the University of Medicine and 
Dentistry of New Jersey, UMDNJ, which is the Nation's largest 
health science university, overcharged Medicare and Medicaid to 
the tune of at least $4.9 million. Millions more could be owed. 
It was revealed by a Federal probe that the university was 
improperly billing for services at its outpatient clinics. As a 
result, the university could have been prosecuted, which would 
have made it ineligible for Federal funding and would have 
effectively shut down one of the largest health care providers 
in the State. Now, fortunately, this did not happen. In another 
instance last year, it was revealed that St. Barnabas Health 
Systems, which is the largest health care provider in the State 
of New Jersey, settled allegations that it inflated charges 
under the Medicare outlier payment system, which reimburses 
providers for patients whose costs are unusually high due to 
serious illnesses. Under this agreement, St. Barnabas has 
agreed to pay back $265 million.
    It is important to note that the improper behavior is not 
all about the monetary cost to Medicare, it is about access as 
well. I think it is clear that when the integrity of the 
Medicare Program or participating providers are called into 
question, beneficiaries' access to care in jeopardized. In New 
Jersey, for example, if UMDNJ were forced to close, many low-
income and elderly who rely upon the university for treatment 
services would have had nowhere else to turn.
    That is why I think it is so important that we take the 
issue of Medicare Program integrity seriously. I will be 
interested to hear from our witnesses from both the Department 
of Health and Human Services Office of the Inspector General 
and the Department of Justice as to what steps they are taking 
to prevent similar circumstances from happening again. Needless 
to say, today's hearing is very critical. We have a 
responsibility to ensure the preservation of the Medicare 
Program for our Nation's seniors and disabled.
    I would like to thank all of our witnesses for being here 
today. I look forward to your testimony. Obviously what you say 
is going to be very important to what we do in the next few 
weeks, and thank you again for being here.
     I now recognize our ranking member, Mr. Deal.
    Mr. Deal. Thank you.

  OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    I think we all know that Medicare is a program that 
services about 44 million beneficiaries and costs about $450 
billion. In a program of this size and importance, it is 
obviously vital that this committee maintain vigilant oversight 
to ensure that beneficiaries are being provided with high-
quality health services and that the taxpayers are protected 
from funding fraud or abuse. During my tenure in Congress, we 
have certainly found areas in the program in need of reform and 
also tried to make changes to the program to help contain the 
exponential cost growth. Without reform, the projected growth 
of the program threatens Medicare solvency into the future 
absent a significant cost increase to the taxpayers. The 
efficiency of Medicare is important to ensure beneficiaries 
receive appropriate high-quality health care and that taxpayers 
and beneficiaries receive the maximum benefit from their 
dollars.
    One area of inefficiency which has always been a concern 
for me is the area of imaging. MedPAC's March payment policy 
report summarized the problem well by stating, and I quote, 
``We have observed rapid and sustained growth in the volume of 
imaging services for Medicare beneficiaries which has led to 
concerns about quality and patient safety and potential overuse 
of imaging services.'' The volume of imaging services per 
Medicare beneficiary experienced a dramatic 9 percent growth in 
2005. In a 2006 survey, 19 percent of physicians reported that 
their practice expanded imaging services in the last year. 
Additionally, MedPAC reports that the average annual growth and 
the volume of imaging services per beneficiary between 2000 and 
2004 was 10.3 percent with the most dramatic growth occurring 
in MRI services. This kind of growth has been coupled with 
mounting concern about overutilization of imaging services and 
self-referrals.
    A case being prosecuted by the Illinois attorney general 
highlights this very well. The attorney general contends that 
more than 20 Chicago-area radiology centers engaged in a 
widespread scheme to win referrals for MRIs by paying illegal 
kickbacks to doctors. Cases like this highlight the need for 
close scrutiny into the area of imaging to ensure fraud and 
abuse are not one of the contributing factors to volume growth.
    It is my belief that the payment reductions made in the 
Deficit Reduction Act were a blunt instrument to address the 
imaging issue, and I hope the committee will take a more 
thorough look at this area to craft an imaging policy that 
prevents both overutilization and protects patients from 
receiving needless and potentially harmful scans.
    I am sure today's witnesses will call attention to other 
areas within the Medicare Program in need of reform to ensure 
the program's effectiveness into the future. It is important 
that we continue to reform the Medicare Programs and ways to 
focus on providing beneficiaries with continued high-quality 
health services.
    Hearings like this also highlight that despite our best 
efforts, there are some inherent weaknesses in Government-
provided health care. Recognizing this, I hope the committee 
will look beyond Government provision of health care to broad-
based patient-focused reforms which would improve health care 
delivery in both the public and he private markets.
    I thank our witnesses for appearing today and I look 
forward to your testimony.
    I yield back the balance of my time.
    Mr. Pallone. Thank you.
    Next I would recognize our vice chair, Mr. Green, for 5 
minutes.

   OPENNIG STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for holding this 
hearing on efficiency and integrity of the Medicare Program. I 
know the subcommittee is working hard to determine the best way 
to reform the physician payment under Medicare, and this 
hearing will provide us with important information on how we 
seek to accomplish that goal. The harsh budget realities 
dictate that any effort to reform this would have to be 
accompanied by increased efficiency within the Medicare Program 
and continued commitment to ensuring the integrity of the 
program.
    I am pleased to see that MedPAC continues to press for care 
coordination and increased efficiency within Medicare. There is 
no question that care coordination would facilitate better 
health care outcomes for Medicare beneficiaries. A study 
published last year by Health Affairs concluded that nearly 20 
million Medicare beneficiaries, or 50 percent of the 
beneficiary population, have five or more required medical 
treatments. We also know that 20 percent of the Medicare 
population has five or more chronic conditions and these 
beneficiaries account for two-thirds of all Medicare spending. 
Care coordination for these beneficiaries with multiple chronic 
conditions would improve efficiency within the Medicare Program 
and improve health outcomes for those beneficiaries who too 
often receive conflicting information and duplicative services 
from providers addressing different health care needs.
    To address this issue, we are putting finishing touches on 
legislation that would provide a geriatric assessment and 
chronic care coordination benefit under Medicare part B. Under 
the bill, the high cost Medicare beneficiaries with multiple 
chronic conditions will be eligible to participate in a new 
voluntary care coordination benefit. A chronic care manager of 
the beneficiary's choosing would implement a care coordination 
plan with the beneficiary's other providers who would utilize 
clinical decision support, health information technology, 
medication management techniques and beneficiary education to 
ensure that the most appropriate health care is delivered with 
consideration given to the full range of the beneficiary's 
health condition. This legislation offers us a good start to 
begin addressing the structural problems of the current 
Medicare payment system and that has kept the Medicare Program 
from adapting to the chronic needs of our seniors.
    To increase efficiency, we also have to take a look at the 
Medicare Advantage program. MedPAC's most recent report 
confirmed that Medicare Advantage are paid on average 12 
percent more than traditional Medicare with private fee-for-
service plans under Medicare part C receiving 19 percent more 
than traditional Medicare payments. To be sure, MA plans are 
quick to point out that they offer additional benefits to their 
enrollees and that is true, but I remember vividly the deal we 
struck with the Medicare Advantage plans. All along Medicare 
Advantage plans claimed that they would provide additional 
benefits and increase efficiency at the same or lower cost than 
traditional Medicare. It was never meant to be part of the deal 
to pay them more for these services. All Medicare beneficiaries 
end up paying for these overpayments due to ever-increasing 
part B premiums. On behalf of all Medicare beneficiaries and 
the American taxpayer, I think it is high time we hold Medicare 
Advantage to the deal they made with us back years ago.
    I thank our witnesses for being here, and I will yield back 
my time, Mr. Chairman.
    Mr. Pallone. Thank you.
    I recognize our ranking member of the full committee, Mr. 
Barton.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman. I sincerely want to 
compliment you on holding this hearing. This is the type of 
work that is not sexy, it is not seeking publicity, it is just 
doing the nitty-gritty nuts-and-bolts oversight and review of 
the ongoing programs of our Government and I want to honestly 
and sincerely commend you and Ranking Member Deal for doing 
this. It is very, very important.
    As we go through today's hearing, I am going to be 
especially interested in hearing what the witnesses have to say 
about something that I have been promoting in Medicare for a 
number of years, that is, competitive bidding of durable 
medical equipment, prosthetics, orthotics and supplies. Price 
competition is almost always a good thing. There are some times 
that decisions have to be made in a crisis and once in a while 
there is something that is only by a single vendor but those 
times are rare. That is why I was the author of the competitive 
bidding proposal during consideration of the Medicare 
Modernization Act several years ago. I am pleased that the 
Centers for Medicare and Medicaid Services have just 
implemented this provision in a final rule. With the new rules 
come important accreditation and quality standards for 
suppliers, something that I think has been long overdue.
    The Office of Inspector General will testify later this 
afternoon of its recent work reviewing suppliers in south 
Florida. According to the OIG, 45 percent of suppliers in three 
counties in south Florida did not meet one or more of five 
Medicare enrollment requirements. The accreditation and quality 
standards of the competitive bidding program will hopefully 
reduce such potential fraud and abuse, making suppliers more 
accountable and saving money for all our taxpayers.
    The competitive bidding program that is being implemented 
will help sure that Medicare is paying the appropriate market-
based price for these products. When fully implemented in 2010, 
competitive bidding is projected to save Medicare over $1 
billion a year. There will be savings to beneficiaries as well 
and it will improve people's access to quality suppliers, 
reduce out-of-pocket costs. Since beneficiaries pay a 20 
percent co-pay, it is only fair to ensure that the beneficiary 
can realize the best price that is available that the market 
can offer.
    I am also eager to hear the panel's testimony on 
improvements to the Medicare Program overall. I am concerned 
about a discussion around cutting the Medicare Advantage plans. 
Medicare managed care is not new to the Medicare Program. It 
has been offered a beneficiary choice in coverage since the 
inception of the Medicare Program. Over the past few decades we 
have tinkered with the managed-care option, adjusting the 
manner in which we reimburse plans in a number of major bills 
over the years. Plan participation has fluctuated. At time 
participation has been low, then it has been higher, then low 
again in the 1990's despite high enrollment numbers.
    I remember what we experienced in the late 1990's and early 
part of this decade. I remember when our constituents were 
disenrolled and their extreme unhappiness at losing that 
particular option. You see, most of, if not all, beneficiaries 
like Medicare Advantage and they are willing to show it, so I 
am somewhat concerned with discussions of cutting over $60 
billion out of this part of Medicare, which has such a high 
degree of universal satisfaction among the beneficiaries. There 
are currently over 8.3 million beneficiaries enrolled in 
Medicare Advantage plans and the number of beneficiaries 
choosing this option has increased by almost 54 percent in the 
last 2 years. So I have to ask, if it is working, why break it. 
And I understand that most of the discussion around cutting the 
rates is driven by the need to find a magic-bullet offset for 
spending on other health care programs, but if it is good 
policy, I don't see why we have to disrupt a benefit that is 
working well to great satisfaction of those that are enrolled 
in that particular option so that if we do that, we won't have 
to find an offset because we are going to keep spending the 
money where the people want it to be spent. It seems to me that 
we should do our jobs so that they can keep their benefits, not 
the other way around. If you don't believe the program is 
working, just ask the folks that have better access to 
enrolling in a plan today than ever before. These plans are an 
important option for low-income and minority beneficiaries. 
Fifty-seven percent of the enrolled beneficiaries have income 
of less than $30,000. These plans can reduce cost-sharing 
relative to traditional Medicare. It shows in the satisfaction 
numbers. Eighty-six percent of the enrollees have access to a 
plan that does not charge them a premium at all--86 percent. 
And it is not just the savings. It is about access to care 
afforded by these plans and beneficiary choice.
    I could go on and on but my basic point is, that these 
Medicare Advantage plans are offering better access to care. 
More than 80 percent of them provide coverage for hospital 
stays beyond the traditional Medicare benefit. More than 75 
percent cover routine eye and hearing tests. Over 98 percent of 
the beneficiaries can even enroll in a plan that offers 
preventive dental benefits.
    Mr. Chairman, I share with you and Chairman Dingell and 
Ranking Member Deal a commitment to address the physician 
payment issue, which is a very costly item in Medicare. We need 
to work together, roll up our sleeves and look at that 
particular part of Medicare to see if there is not something 
that we can do to help our health care providers, all the 
various physician groups so that they will stay in the Medicare 
plan and give the benefits to our beneficiaries.
    With that, Mr. Chairman, I yield back and look forward to 
the hearing and working with you and others as we try to come 
to solutions to some of the problems that we are going to hear 
about today.
    Mr. Pallone. Thank you.
    I recognize the gentlewoman from California, Mrs. Capps.

   OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mrs. Capps. Thank you, Mr. Pallone, and I want to thank you 
as well for holding this hearing, a hearing which is long 
overdue.
    Medicare is one of the most important benefits we provide 
to the elderly and the disabled. As a society, we have a 
responsibility; indeed, I would call it a privilege, to provide 
care for those who are most vulnerable. But what level of care 
can we provide when the program itself is fraught with wasteful 
spending and structural problems? It is my observation that we 
are looking for waste, fraud and abuse in all the wrong places. 
It is so obvious that priorities are being misplaced. We have a 
system that provides disincentives for preventive care, a 
system that picks and chooses treatments to cover, often at 
reimbursement rates with no clear connection to the actual cost 
of providing that care. What am I to say to a constituent who 
asks why her Medicare summary notices reflect a reimbursement 
to her provider for $2,000 more than the provider charged her 
for treatment, or to my constituent who asks why Medicare 
continues to pay maintenance fees on rented equipment that has 
never required maintenance, and when those fees have already 
total to several times more than the cost of purchasing the 
equipment outright? I will discuss those situations in more 
depth later but they are just two examples of wasteful spending 
in the same system that is underlying for primary care services 
in my district by as much as 5 percent, or why are certain 
private insurance plans receiving up to 12 percent more for the 
same services provided at a lower cost by other providers when 
there is no clear evidence of increased benefits to the 
beneficiaries? Why is Medicare reimbursing providers who 
perform certain diagnostic tests in their offices and 
ambulatory service centers at rates so low that it is driving 
their patients back to hospitals where the costs of providing 
these services are so much greater? Cost-saving services from 
diagnostic tests provide earlier screening and earlier 
intervention and treatment, saving both lives and Medicare 
dollars. Why is Medicare paying private contracts per audit 
they perform regardless of what the outcome is with no 
incentive to target bad actors over law-abiding ones?
    As a health professional myself, it is so disturbing to see 
a health care program that thinks efficiency means immediately 
cost-cutting instead of preventing disease and improving 
health. I am very anxious to hear what our witnesses today have 
to say about this, Mr. Chairman, and I am eager to work with 
our committee to address these pressing problems.
    I yield back the balance of my time.
    Mr. Pallone. Thank you.
    I know Mr. Murphy is just walking in, but you would be next 
if you like. I recognize the gentleman.

   OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Murphy. Thank you, Mr. Chairman. I appreciate it.
    Our health care system is broken and must be reformed, and 
fixing the system is not about who is paying, it is about what 
we are paying for. A broken system is not fixed by just 
shifting additional payments to seniors, families, employers or 
taxpayers, but I believe affordability must begin with some 
fundamental reforms to quality, accessibility and safety for 
patients. Medicare spends about $372 billion annually and it is 
estimated that it will be bankrupt by 2019, 7 years earlier 
than previously expected, and 23 years earlier than Social 
Security, and I believe we need to transform our system to 
protect our seniors.
    The Medicare Payment Advisory Commission recommends a 
number of suggestions from reducing payments to providers and 
Medicare managed-care plans to implementing pay for performance 
and care coordination programs. I believe care coordination can 
significantly reduce health care costs. For example, the 
University of Pittsburgh initiated a patient care management 
program for diabetes and reduced re-hospitalizations by 75 
percent. Washington Hospital in Pennsylvania reduced re-
hospitalizations for patients with heart disease by 50 percent, 
all from having folks monitor appointments, medications, diet, 
lab tests and treatment. These are real savings.
    Recently we passed legislation providing a case manager to 
every wounded warrior in our military but we still don't have 
incentives for patient care management programs to reduce 
health care costs for out patients. I believe we can't continue 
to finance a broken health care system and expect different 
results, and I believe we need to transform our health care 
system and invest patient care management dollars to save 
billions of lives and thousands of dollars.
    Any time we are faced with talking to folks from the 
Medicare Program and talking about efficiency and integrity. I 
believe these are the kind of things we need to be doing. After 
all, the sad truth of this is, is Medicare will reimburse 
doctors for sadly amputating the leg of someone with diabetes 
and severe problems but we haven't yet adjusted to the system 
of paying a few bucks each time to have a nurse call the 
patient and saying have you gotten your lab tests done, you 
haven't filled your prescription for insulin, how are you 
feeling today. We really need to make some major changes on 
that and I am so pleased that this committee is going to review 
these issues. I hope that we can review these and make some 
changes not only to such things as what I just mentioned but 
also providing more allowance for doctors to volunteer at 
community health centers and by actively working to also 
eliminate infections from hospitals, because one of the sad 
truths too is, we also spend an awful lot of money reimbursing 
doctors and hospitals for an infection the patient picked up 
while they were there. As a matter of fact, some 2 million 
people a year contract an infection while in a hospital or 
health care center. It claims 90,000 lives and $50 billion a 
year. As we look at Medicare efficiency and integrity, I hope 
we are looking at these things too so we can look at fixing the 
system and not just financing it.
    Thank you, Mr. Chairman.
    Mr. Pallone. Thank you.
    The gentleman from Maine.

   OPENING STATEMENT OF HON. TOM ALLEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF MAINE

    Mr. Allen. Mr. Chairman, thank you for calling this 
important hearing to examine efforts to improve the Medicare 
Program. Increasing efficiency and eliminating waste, fraud and 
abuse will keep the Medicare Program strong. Every dollar that 
we recover can provide additional services to beneficiaries. 
This committee needs to consider the improper payments recently 
reported by CMS in the fee-for-service program including $9.8 
billion in overpayments and $1 billion in underpayments. We 
also need to examine the overpayments to private Medicare 
Advantage plans. They receive 12 percent more on average than 
traditional Medicare for treating comparable beneficiaries. 
While some Medicare advantage plans provide more services than 
traditional Medicare, their administrative costs are estimated 
to be 20 percent, much higher than traditional Medicare's 3 
percent. If Medicare Advantage payment plans were brought in 
line with traditional Medicare, CBO estimates it would save $65 
billion over 5 years.
    I want to suggest a third issue to consider today: 
improving the evidence base for health care decision-making. 
Mr. Miller, I know you address this matter in your testimony. 
There is broad-based bipartisan agreement that we need to get 
better value for our Medicare dollar. Comparative effectiveness 
research involves evaluation of the relative safety and 
effectiveness of different pharmaceuticals, medical devices or 
medical procedures used to treat the same or similar illnesses 
or conditions. Comparative effectiveness research has great 
potential to improve health care quality and patient outcomes 
while ensuring that consumers receive the best care at the best 
value. The Effective Health Care program at the Agency for 
Healthcare Research and Quality, authorized under MMA, conducts 
systematic reviews of existing literature to identify what 
treatments work best, for whom, when and at what cost. AHRQ and 
its research partners synthesize the science and have built a 
meaningful evidence base. Working with a meager budget of $15 
million, originally authorized at $50, AHRQ has completed seven 
reports on the treatment options for cancer-related anemia, low 
bone density, depression and gastroesophageal reflux disorder 
disease, among others. Seven additional studies are underway. 
The promise of comparative effectiveness research to improve 
care, patient outcomes and save Federal funds is significant. I 
will soon be introducing legislation to bolster comparative 
effectiveness research, and I will be inviting my colleagues to 
join me as a cosponsor of the bill.
    With that, Mr. Chairman, I thank the witnesses for being 
here and yield back the balance of my time.
    Mr. Barton. Mr. Chairman, could I just compliment the 
gentleman on his pronunciation. He did that very well.
    Mr. Pallone. I was listening to that also. I didn't know 
whether it was correct or not though.
    Mr. Barton. He said it like it is correct.
    Mr. Pallone. Gastro--what was it?
    Mr. Allen. Gastroesophageal. I do not know if it is right 
either.
    Mr. Pallone. Very good. I will compliment you too.
    I recognize Ms. Solis.

 OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Solis. Thank you, Mr. Chairman, and thank you for 
holding the hearing today.
    In 1965, Congress created Medicare because seniors had 
difficulty obtaining affordable health care insurance. Seniors 
were promised that after a lifetime of working and paying into 
Medicare, they would have access to health care coverage during 
their retirement years regardless of their geographic location, 
their age and their income. Today more than 44 million seniors 
and people with permanent disabilities depend on Medicare to 
meet their health needs. In the coming decades, even more 
people will become beneficiaries of the program. I represent 
about 70,000 Medicare beneficiaries in my current district. 
They have entrusted the Government with their tax dollars and 
depend on us to oversee Medicare and to ensure that it runs 
efficiently.
    In 2006, Medicare comprised 13 percent of the Federal 
budget and 19 percent of total health expenditures. Health care 
costs, as you know have skyrocketed and part B premiums are 
quickly becoming unaffordable. This is particularly 
troublesome, given the importance of access to quality 
affordable health care in minority communities, which often 
encounter greater burdens of disease. Unfortunately, low-income 
Medicare beneficiaries tend to be disproportionately Latino. 
Although Latinos make up only 6 percent of the Medicare 
beneficiaries, more than 14 percent are low-income seniors. 
Sixteen percent of Medicare beneficiaries in California alone 
are Latino. In 2006, a MedPAC report stated that 7.1 percent of 
Latino Medicare beneficiaries delayed getting care due to cost, 
proof that people with access to health insurance are not 
always able to receive services.
    I have heard from my constituents that some California 
physicians have stopped taking new Medicare patients because of 
inadequate reimbursement. Given this existing reality, I am 
concerned about proposed cuts to Medicare providers. Less 
access to care will result in a disastrous increase in health 
disparities in our community. I am interested to hear MedPAC's 
view about payments to Medicare Advantage plans, especially 
since the private fee-for-service plans are paid 19 percent 
more than traditional Medicare.
    I thank the witnesses for coming today and I look forward 
to hearing your response.
    Mr. Pallone. Thank you.
    I recognize the gentleman from Utah.
    Mr. Matheson. Mr. Chairman, I have a written statement I 
will just submit for the record, and I will yield back.
    [The prepared statement of Mr. Matheson follows:]

 Prepared Statement of Hon. Jim Matheson, a Representative in Congress 
                         from the State of Utah

    Thank you, Chairman Pallone and Ranking Member Deal.
    I want to thank you for holding this hearing today on the 
Medicare Program efficiency and integrity. This discussion 
today is a significant step in examining Medicare policy and 
one that requires a thorough review and consideration by 
Congress. I am happy that this hearing is being held at a time 
where we have the opportunity to improve health care reform for 
all Americans.
    I also want to thank our distinguished guests. In my review 
of the testimony, I am looking forward to learning and 
identifying areas from our panel where the Medicare program is 
meeting the needs of the beneficiaries and investigating areas 
where reform needs to be made.
    I am pleased to be a part of this committee and I am 
confident that due diligence will be given to the many health 
policy issues that continue to have long-term implications for 
the Medicare Program, including an issue that I am concerned 
with--the Medicare reimbursement for physician services. Having 
met with so many Utahns about the inadequacies of the current 
formula for determining physician reimbursement, it is my hope 
that we can make some progress on this issue during this 
session of Congress.
    In addition, I am aware that we are looking to programs in 
Medicare to help supplement the State Children's Health 
Insurance Program. I hope to learn more regarding the options 
available to us to fully fund this significant, bipartisan 
partnership for children without negatively impacting services 
or access to programs that are successfully working for our 
Nation's seniors, especially those in rural or underserved 
areas. In 2007, 8.3 million beneficiaries chose to receive 
their health care benefits through a Medicare Advantage plan. 
Across the Nation, 85 percent of these chose a Medicare 
Advantage plan with prescription drug coverage. In my district, 
we have 19 percent of Medicare beneficiaries who have chosen a 
Medicare Advantage plan for their health insurance coverage and 
who rely on these programs for--vision, hearing, dental, 
fitness, mental health, and alternative health benefits.
    I look forward to hearing the panel's views and expertise 
on a number of these issues within the Medicare program.
    Thank you, Mr. Chairman.
                              ----------                              

    Mr. Pallone. Thank you.
    The gentlewoman from Oregon.

 OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Ms. Hooley. Thank you, Mr. Chairman, for holding this 
hearing.
    I have always firmly believed in the importance of building 
voters' faith in Government. Ensuring that Government programs 
provide services efficiently without waste, fraud and abuse is 
critical to that effort. We have a responsibility to provide 
quality health care for our citizens and seniors and an 
obligation to be good stewards of taxpayers' money.
    As I have said before, Oregon physicians provide services 
more efficiently than those in many other parts of the country. 
They are so under-reimbursed to the point that many of them 
will not take new Medicare patients. As a consequence, I 
believe the physicians in Oregon welcome initiatives to improve 
efficiency in Medicare because the current system provides the 
most benefit to those providers who are least efficient.
    The MedPAC recommendations to provide comparative research 
utilization measures to physicians would be a step in the right 
direction. Letting physicians with high resource use know how 
they compare to their fellow physicians would be a start in a 
positive conversation that currently does not exist. Another 
MedPAC recommendation, pay for performance in Medicare, has the 
potential to improve care and provide a better benefit for our 
seniors. However, just like with MedPAC's comparative resource 
utilization measures, it is critical to have appropriate risk 
adjustment measures in pay for performance. We do not want a 
pay-for-performance system that punishes physicians who care 
for older and sicker patients or those with more complex 
conditions. With any pay-for-performance system, we must make 
sure that all measures are clinically valid and that physicians 
play an integral role in developing and implementing 
appropriate standards. Physicians have the expertise in their 
area of specialty. We have to rely on that knowledge when 
creating a pay-for-performance system so that it works for both 
seniors and the providers.
    In the area of program integrity, I am glad to see that 
progress has been made. A decline in payment error rates from 
over 10 percent in fiscal year 2004 to 4.4 percent in 2006 is a 
great accomplishment, and I congratulate you on that. The 
Department of Justice has similarly done an outstanding job of 
collecting $2.2 billion in judgments and settlements in fraud 
and abuse cases in 2006. However, the DOJ says in its testimony 
today that current funding levels are not sufficient to 
eliminate the backlog of fraud and abuse cases. The Office of 
the Inspector General, the Department of Health and Human 
Services said it recovers an average of $13 for every $1 spent 
on that office. We need to make sure that we are investing 
sufficient funds to stay aggressive in bringing cases against 
the small minority of providers that abuse the public's trust. 
We should also not punish those providers who are the most 
efficient.
    Again, thank you, Mr. Chairman, for holding this hearing, 
and I am looking forward to our witnesses. Thank you.
    Mr. Pallone. Thank you.
    The gentlewoman from Illinois, Ms. Schakowsky.

 OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman.
    I am so glad that we are holding this hearing on Medicare, 
which passed in 1965 and our chairman, Chairman Dingell, was 
not only a member of the House at that time, but as I 
understand it was actually presiding in the chair when Medicare 
passed, and since then it has been one of the most popular and 
effective and well-administered programs and most popular among 
our citizens, and so today we are here about how we can make 
Medicare even better, even more efficient.
    I am very glad MedPAC, CMS, the DOJ and the Inspector 
General's Office are represented here today and I look forward 
to hearing those ideas on the use of comparative effectiveness, 
ways to reduce medical errors and inappropriate utilization and 
expanded access to preventive services. I also hope that we can 
focus on the inefficiencies involved in providing enormous 
subsidies to private plans in Medicare.
    Marilyn Moon, a former public trustee of Social Security 
and Medicare trust funds, states in her recent book, Medicare: 
A Policy Primer, ``Over the past 30 years Medicare has been 
more successful on a per capita basis of holding down the costs 
of health spending growth than has private insurance.'' 
Medicare also spends less on administrative costs. There are of 
course many ways to make Medicare even more efficient but 
moving more toward privatization of Medicare is not one of 
them. I wasn't here when Congress first created Medicare Plus 
Choice, the forerunner of today's Medicare Advantage programs, 
but as the executive director at the time of the Illinois State 
Council of Senior Citizens, I had many concerns about allowing 
private plans to infiltrate Medicare. The argument then was 
that Medicare private plans would cost less because of their 
greater efficiency, saving Medicare and taxpayers money while 
providing better benefits. But today it is clear that the 
theoretical promise has not been met. Medicare Advantage 
private plans on average cost 12 percent more than traditional 
Medicare and some plans are paying 40 percent more. When 
beneficiaries move from traditional Medicare to private plans, 
it costs us more, not less. We are paying billions of dollars 
each year to subsidize private plans that serve less than one 
in five beneficiaries while other important health needs are 
not being met. I find it hard to argue that that is an 
efficient or proper use of limited resources.
    I am particularly interested in looking at the role of 
private fee-for-service plans, the fastest-growing sector of 
the Medicare Advantage market, which also happens to receive 
the highest level of excess payments. I believe there is 
little, if any, value added with these plans. I hope we will 
look into them more closely. The argument simply no longer 
stands that private plans will bring efficiency to the Medicare 
Program, and I really welcome the chance to investigate what 
has gone wrong here.
    Thank you, Mr. Chairman.
    Mr. Pallone. Thank you.
    The gentlewoman from Wyoming.

 OPENING STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF WYOMING

    Mrs. Cubin. Thank you, Mr. Chairman.
    Things are just not the same in rural America as they are 
in urban America, and our country has decided that there are 
certain things that everyone in this country should be allowed 
to have access to, whether it is postal delivery or whether it 
is public transportation, and it costs different things. We 
don't have public transportation in rural America like we do in 
urban America, and I think this health care debate will turn 
out to demonstrate the differences in why we need to take a 
good look at what we are doing here.
    Our Nation's Medicare Program is an investment in the 
health of our Nation's seniors and we have a responsibility to 
the Federal taxpayer to ensure that it is a responsible 
investment. The 70,000 seniors in the State of Wyoming are best 
served knowing that Congress is doing what it can do to ensure 
the $425 billion spent in fiscal year 2007 are dollars well 
spent. The shear size of the Medicare Program is mind-boggling. 
Though overpayments, fraud, waste and abuse may seem inevitable 
in a program this large, we must rise to the challenge and act 
to protect the solvency of Medicare. I applaud the 
administration's proposal to rein in the growth of the Medicare 
Program and achieve a $65.6 billion in savings over 5 years. 
The Congressional Budget Office projects Medicare spending 
already estimated at $454 billion in fiscal year 2008 to double 
over the next 10 years. If we do not, we will face either a tax 
increase or rollback in benefits.
    As this committee looks to find savings in the Medicare 
Program, I know there will be plenty of discussion surrounding 
the appropriateness of expenditures under Medicare Advantage 
program. Medicare Advantage replaced its predecessor, Medicare 
Plus Choice, in the Medicare Modernization Act of 2003. The 
program supports private plans that give Medicare beneficiaries 
more choices, additional benefits and coordinated care beyond 
traditional Medicare coverage. Enrollment in these plans has 
increased by almost 54 percent since 2004 but this number does 
not tell the whole story in rural areas like Wyoming. In every 
county in Wyoming, there is now access to a plan with a maximum 
out-of-pocket of $1,000 or less whereas prior to 2003 there was 
no access to these plans at all. There are now over 3,000 
Medicare Advantage enrollees in Wyoming. Hundreds have written 
or e-mailed my office about how much they like their plans.
    There is no doubt that we will need to make some difficult 
choices to preserve the long-term fiscal soundness of the 
Medicare Program. I am personally committed to addressing the 
negative physician fee schedule which represents an 
unacceptable situation, not just for Wyoming's beneficiaries 
but for the physicians they rely on. I would urge my 
colleagues, however, to consider the impact of our decisions on 
access to quality and affordable health care in rural areas 
like Wyoming and other places around the country.
    Thank you, Mr. Chairman.
    Mr. Pallone. Thank you.
    Any other statemets for the record will be accepted at this 
time.
    [The prepared statement of Mr. Dingell follows:]

    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    The Medicare Program is the most successful social program 
of our time. It has, in the course of more than 40 years, 
reduced unmet health needs among seniors and people with 
disabilities and has, together with Social Security, lifted 
tens of millions of elderly out of poverty by virtue of helping 
with the cost of their medical care. Without question, the 
Medicare program is essential to the fabric of our society and 
must be protected and preserved.
     Part of protecting and preserving Medicare involves 
ensuring accuracy and efficiency in its payments. As the 
Medicare Payment Advisory Commission notes, the program should 
be neutral in its payments to providers--encouraging the right 
care at the right time in the right setting. This means 
constant oversight on the part of both Congress and the Centers 
for Medicare and Medicaid Services (CMS). And that is part of 
our goal here today.
     In this fiscal year alone, Medicare will spend more than 
$425 billion on health care goods and services for its 44 
million beneficiaries. Unfortunately, in a program of this size 
overpayments are inevitable. At today's hearing we will hear 
about fine tuning Medicare's payment systems to improve 
efficiency and modifications that can be made to protect the 
integrity of the program as well.
     Overpayments, or misaligned payments, can have a direct 
effect on beneficiary out-of-pocket costs, as well. Whenever 
there is an increase in part B spending, it automatically 
increases the part B premium beneficiaries pay. Misaligned 
payments can also cause beneficiaries to pay more than 
necessary in coinsurance. And in the overall context of the 
Federal budget, inappropriately spent funding reduces funds 
available for other priorities.
    Our goal should be to increase the efficiency of the 
Medicare program to ensure the future stability of the program. 
For example, we now know MedPAC that private plans in Medicare 
are paid an average of 12 percent more for every Medicare 
beneficiary that chooses to enroll in one of those plans rather 
than remaining in traditional Medicare. These excess payments 
are funded by taxpayers and all beneficiaries--whether or not 
they enroll in private plans--in the form of higher Medicare 
part B premiums. These plans should be required to be operating 
more efficiently and I look forward to the MedPAC 
recommendations on this issue.
     Similarly, providers who knowingly defraud the program 
should be identified and the Federal Government should work to 
recover overpayments from those providers and seek criminal 
charges if the case warrants.
     Ensuring the efficiency and integrity of all of our public 
programs is among the top priorities of this Congress. That is 
the only way to ensure the continued existence and success of 
these programs. We in Congress want to work closely with those 
who advocate for beneficiaries and with those who represent the 
provider community, to protect Medicare fee-for-service for 
generations to come. I look forward to working with Chairman 
Pallone, as well as Ranking Members Barton and Deal, as we 
proceed in our efforts to improve Medicare.
                              ----------                              

    Mr. Pallone. We will turn to our witnesses now, and first 
of all, welcome. I understand that Ms. Norwalk can only stay 
until 3:45, so----
    Ms. Norwalk. Yes. We are kicking off a prevention tour that 
a number of members of the committee have talked about. I have 
asked them to push it back a little bit so I can stay a little 
bit longer.
    Mr. Pallone. I thank you.
    Ms. Norwalk. I will run and catch the bus.
    Mr. Pallone. All right. Well, let me quickly introduce you 
and also Dr. Miller. Leslie Norwalk is the acting administrator 
for the Centers for Medicare and Medicaid Services, and Dr. 
Mark Miller is executive director of the Medicare Payment 
Advisory Commission, or MedPAC. Thank you both for being here 
today. I will just mention that you can submit additional brief 
and pertinent statements in writing for inclusion in the 
record, and we will start with Ms. Norwalk.

 STATEMENT OF LESLIE V. NORWALK, ACTING ADMINISTRATOR, CENTERS 
               FOR MEDICARE AND MEDICAID SERVICES

    Ms. Norwalk. Good afternoon, Chairman Pallone, 
Representative Deal and distinguished members of the 
subcommittee. Thank you for inviting me here today to address 
the Centers for Medicare and Medicaid Services' efforts to 
promote efficiency and integrity in the Medicare Program.
    The future of the Medicare Program depends in large part 
upon our ability to ensure the most efficient use of Medicare 
resources and that includes eradicating fraud at every possible 
opportunity. As the largest purchaser of health care in the 
world, CMS provides coverage to one in every three Americans. 
CMS covers 92 million beneficiaries, and the numbers and costs 
are growing. Medicare outlays are projected to exceed $464 
billion in the coming fiscal year with CMS accounting for 
nearly a fifth of the President's budget. National health 
spending is expected to average 6.9 percent annual growth over 
the next decade, and beginning this year it is projected to 
grow an average of 2.1 percentage points faster each year than 
gross domestic product. In the absence of fundamental reforms 
or unforeseen market changes, this trend will yield a health 
care of GDP that tops nearly 20 percent by 2016, going from $2 
trillion in health care spending this year to $4 trillion in 
2016.
    Heeding the call of the Medicare trustees, the Federal 
Reserve Chairman, MedPAC and scores of other health and fiscal 
policy experts, the administration has proposed a fiscal year 
2008 budget that tackles Medicare's long-term financial 
challenges and aims to transform it into a sustainable quality-
based payment program. Clearly, the efficient and effective 
management of Medicare and its programs and operations is 
essential to that goal.
    The Medicare trustees agree that prompt, effective and 
decisive action is necessary to address the exhaustion of the 
part A trust fund, which is currently projected to be depleted 
in a little more than a decade. Similarly, the trustees have 
urged that we take action to address the anticipated rapid 
growth in Medicare expenditures. Specifically, the trustees 
warn of a serious mismatch between the benefits and payments 
the program currently provides and the financial resources 
available for the future. Should these factors remain 
unchanged, the trustees note that over time the program would 
require major new sources of financing for part A. Medicare 
would also automatically require increased shares of general 
tax revenues for parts B and D, diverting resources from other 
Federal priorities. Projected levels of spending could also 
impose a significant financial liability on Medicare 
beneficiaries who pay premiums and cost sharing.
    The President's budget proposes to build on past successes 
to further modernize Medicare, improve its quality and 
efficiency and secure its long-term future. On net, the 
Medicare proposals would reduce the rate of projected cost 
growth just shy of 1 percent over the 5-year window. The 
proposals aim to steer providers toward greater efficiency 
through payment policies that increase the role of competition 
and incentivize the slowing of cost growth through greater 
productivity and quality of care. In addition, payments would 
be tied in part to medical error reporting and value-based 
purchasing for hospitals would be expanded.
    CMS recognizes the inherent potential of Medicare's payment 
system to encourage and reward quality in hospitals and other 
care settings. The Medicare Modernization Act and other recent 
legislation directed Medicare to increase payments when 
hospitals and other health practitioners report on quality 
measures that both empower providers and patients, arm them 
with raw materials necessary for informed decision-making and 
ultimately lead them to identify and pursue better care 
protocols. CMS is working toward greater transparency in 
physician and hospital pricing and quality data, providing 
consumers with better information about the treatment options 
available to them. The budget would take steps to encourage 
more appropriate payment for the five most common conditions 
treated in post-acute care settings. The prospective payment 
system for hospital inpatient care implemented in 1983 slowed 
growth in part A spending as intended but it also had the 
effect of moving care to post-acute settings funded through a 
mix of part A and B and outpatient settings that are funded 
solely part B. Even with the criteria to direct patients to the 
most appropriate place for care, numerous factors such ad 
revisions of patient conditions and diagnoses cause overlap in 
the types of patients treated in these different post-acute 
settings. Exploring new evidence-based standards, more-accurate 
case mix measurements, improving patient assessment, CMS is 
working to ensure that patients receive the most appropriate 
care at the most appropriate time in most appropriate setting.
    But regardless of the setting, CMS remains committed to 
improving the integrity of the Medicare Program and efficiency 
of its operations and expenditures. Central to our strategy for 
maintaining sound financial management, CMS has long used 
calculations of improper payments as a tool to preserve 
Medicare's fiscal integrity. Data collection and monitoring 
have enabled CMS to identify monies that have been 
inappropriately paid, to examine the causes of the 
inappropriate payment and ultimately strengthen the internal 
controls to minimize them as much as possible. Last year the 
paid claims error rate for Medicare fee-for-service was 4.4 
percent, a sizable drop from the 5.2 percent reported in 2005, 
and significantly lower than the 10.1 percent in 2004. Next 
month CMS will announce the preliminary error rate for fiscal 
year 2007, and it appears that we will reduce the error beyond 
our expectation of 4.3 percent, so we continue to move in the 
right direction, but it will require continued monitoring and 
error-reducing efforts in order to continue this goal, and we 
are committed to do so.
    CMS's financial management strategy prioritizes the 
detection and prevention of improper and fraudulent payments 
and to that end we have identified such activities over the 
past year. Our satellite offices and program safeguard and 
claims processing contractors are testing innovative approaches 
to detecting, investigating and prosecuting Medicare fraud. The 
Los Angeles Tax Project is a recent and telling example. With 
the L.A. County district attorney, our L.A. satellite office is 
conducting a unique pilot program to more effectively deal with 
health care fraud due to prosecution of providers for State 
income tax evasion, sort of the Al Capone approach. Relying on 
an elaborate communications network, the L.A. project offers a 
new tool for cracking down on health care providers suspected 
of committing insurance fraud in California. Over the past year 
CMS has seen a marked increase in fraud and abuse activities 
tied directly to provider enrollment. These activities are----
    Mr. Pallone. Ms. Norwalk, you are about a minute over, plus 
I know you want to get out of here, so----
    Ms. Norwalk. Well, that is why I decided I will stay a 
little bit longer. The point I was making there is simply with 
fraud and abuse, we are seeing some specific targeted efforts, 
particularly even in organized crime in Los Angeles, Miami and 
Houston, and we are working diligently with both the OIG and 
DOJ, as I am sure they will testify to later, to go after this 
fraud in particular. And as Congressman Barton mentioned 
earlier, the DME accreditation standards and the competitive 
bidding is yet another prong to go after some of the specific 
fraud to save billions of dollars.
    Thank you very much. I look forward to working with MedPAC, 
the OIG and DOJ, and welcome any questions you may have.
    [The prepared statement of Ms. Norwalk follows:]
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    Mr. Pallone. Thank you.
    Dr. Miller.

   STATEMENT OF MARK E. MILLER EXECUTIVE DIRECTOR, MEDICARE 
                  PAYMENT ADVISORY COMMISSION

    Mr. Miller. Chairman Pallone, Ranking Member Deal and 
subcommittee, distinguished subcommittee members, MedPAC is a 
congressional support agency created to advice Congress on 
Medicare policy. MedPAC is uniquely structured. There are 17 
commissioners that review the work that my staff does and shape 
the advice that we forward to the Congress. These commissioners 
include physicians, nurses, individuals who run hospitals, 
post-acute care facilities and managed-care plans. The 
commissioners include former policy officials, individuals 
trained as health economists and individuals trained as 
actuaries. Our work is largely directed towards improving 
efficiency and value of the traditional Medicare Program as 
well as managed-care plans. As we consider the advice that we 
give Congress, we keep certain principles in mind: assuring 
that beneficiaries have access to high-quality care, paying 
providers and plans fairly, assuring that each tax dollar is 
well spent.
    There are other considerations that I know are on the minds 
of commissioners when they consider Medicare policy. First, 
there is a long-run sustainability problem facing Medicare. 
Medicare is growing faster than the budget, faster than the 
economy and faster than beneficiary incomes. This increase in 
spending, however, is not consistently accompanied by 
improvements in coordination or quality of care, and the 
commission believes that urgent attention is needed to improve 
the payment and delivery system incentives in Medicare. Second, 
Medicare policies must evolve to be more sensitive to the 
performance of providers. That is, Medicare needs to pay more 
to providers who have efficient practice styles and higher-
quality care and less to those who do not.
    The testimony I have submitted has a long list of ideas 
that the commission has recommended over the last several 
years, and I won't go through them but just to highlight a few. 
Regarding fee-for-service updates, each year we consider a 
range of factors such as supply of services and access to care 
for beneficiaries when we make recommendations on payment 
updates. If we determine that providers are more than 
adequately paid, the commission can make a recommendation to 
give the provider less than a full update. A recommendation of 
less than a full update usually results in savings to the 
Medicare Program if it is adopted. For our March 2007 report, 
recommendations would yield savings in Medicare for payments 
for home health agencies, skilled nursing facilities, inpatient 
rehab facilities and long-term care hospitals. Regarding 
Medicare Advantage plans, the commission has long supported the 
Medicare managed plans as an option for beneficiaries. The 
commission also supports the principle that Medicare payments 
should be neutral. That is, we should pay the same for a 
beneficiary regardless of which choice they make, fee-for-
service or managed care. The current managed care payment 
system is not neutral to beneficiary choice and does not 
encourage efficiency. This is because it is based on an 
inflated set of administratively determined benchmarks. Under 
this system, we estimate that on average plans are paid 12 
percent more than fee-for-service, and while it is true that 
most of this payment goes for additional benefits for 
beneficiaries, it is also important to bear in mind that these 
payments come from the trust fund, from general revenue and 
from premiums paid by all beneficiaries regardless of whether 
they are in managed-care plans or not.
    Since 2002, the commission has recommended several changes 
to make Medicare payments more equitable between fee-for-
service and managed-care plans as well as changes to make it 
more equitable among the managed-care plans because we think 
that certain types of managed-care plans are competitively 
advantaged over others. We believe that these recommendations 
will result in reduced Medicare expenditures, greater 
efficiency in care coordination for plans, and better 
information for beneficiaries in choosing their care options.
    Regarding physician payment, the commission has made 
several recommendations to improve the value of physician 
services in Medicare. Again, I cannot go through all of the 
ideas. However, a couple to note, there is evidence that some 
physician services are unnecessary. In our March 2005 report, 
we recommended measuring physician practice styles, comparing 
them to their peers so that physicians could see how their 
practice styles differ significantly from the norm. Since that 
report, we have provided the Congress with detailed analysis on 
how to pursue this objective in a manner that is fair to the 
physicians. In its March 2006 report, the commission made 
recommendations that would improve the methods of establishing 
Medicare fees to make them more accurate and in so doing remove 
perverse incentives to over-provide certain services.
    Regarding comparative clinical effectiveness, the 
commission believes that such information is critical to all 
health care in this country including Medicare because it will 
help us determine what works in health care and what does not 
work in health care. In its meeting last week, the commission 
called for the establishment of an independent entity to 
sponsor and disseminate such information to beneficiaries, 
providers and insurers.
    I look forward to your questions.
    [The prepared statement of Mr. Miller follows:]

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    Mr. Pallone. Thank you, thank you both, and I will now 
start with the questions and I will recognize myself for 5 
minutes initially.
    I wanted to ask Dr. Miller, if the recommendations made by 
MedPAC regarding payments to Medicare private plans were 
enacted, do you believe that there are plans that can provide 
additional benefits to beneficiaries?
    Mr. Miller. Yes, and the 12 percent gets cited a lot but 
there is other work that we have done that shows that there are 
differences among the plans and their efficiencies. So for 
example, HMOs, which have more coordinated care and network 
types of approaches to care, actually can provide the 
traditional fee-for-service benefit more efficiently than the 
traditional Medicare Program. Those types of plans, the 
original intent of managed care was that plans like that would 
take those savings, use the additional savings to provide 
additional benefits and in turn attract beneficiaries to those 
plans. So yes, we do believe that there are plans who can 
provide--who are efficient enough to provide additional 
benefits to beneficiaries.
    Mr. Pallone. Obviously the private plans were introduced to 
save money through efficiencies and your recommendations--well, 
you can tell me. Do you think the current payment system for 
Medicare Advantage plans reward efficiency and would your 
recommendations still allow the most efficient plans to compete 
for Medicare beneficiaries by offering additional benefits and 
low premium? That is what I assume competition is all about.
    Mr. Miller. I think that is the intent of our 
recommendation is that right now, and I think the chairman said 
this in another hearing, that he feels that we are sending a 
signal that invites inefficient plans to come into the program, 
and I think our recommendations are directed toward encouraging 
efficiency among plans and encouraging those plans who can 
achieve those efficiencies to stay in the program, provide the 
extra benefit. Right now the way the payment system works is, 
it encourages plans that are not more efficient than the 
traditional Medicare Program and then when additional benefits 
are offered on top of that through the subsidies, obviously 
beneficiaries are attracted to those plans but not because of 
the efficiencies and the additional benefits through those but 
because of the additional benefits that are paid through the 
subsidy.
    Mr. Pallone. OK. Thank you. I have been bombarded recently 
with insurers who argue that low-income and minority 
beneficiaries disproportionately rely on Medicare Advantage 
plans for supplemental coverage, and you recently testified, 
however, that the best and most targeted approach for helping 
this population would be to strengthen the Medicare savings 
program within Medicaid that helps low-income beneficiaries pay 
for their premiums and cost sharing. Is that still your 
position?
    Mr. Miller. What we said in that hearing when we got this 
question was, this is an inefficient way of providing subsidies 
for low-income populations, and just think about it for a 
second. The way this work is, it is only available to someone 
who enrolls in a plan and whoever enrolls in that plan, whether 
they are low income or not, receives the benefit and so if we 
are spending dollars and our intent is to subsidize low-income 
beneficiaries, it is kind of a messy way of doing it. There are 
a couple other examples out there of much more targeted ways to 
get at low-income beneficiaries and provide them subsidies. 
Inside the part D benefit, low-income subsidies are paid to the 
plan on the basis of the beneficiary qualifying through their 
income and assets, and so the plan doesn't get additional 
payments for everybody, they get additional payments for those 
beneficiaries that are low income. Additionally, the point that 
you made is in the traditional fee-for-service program under 
Medicaid, again if you qualify income and assets, Medicaid will 
assist you on your premium and depending, on your co-payment as 
well, and again, that is only available to people who are 
qualified and again a more targeted approach to that.
    Mr. Pallone. Thank you.
    Ms. Norwalk, there are advocates and constituents who have 
complained of questionable marketing practices by prescription 
drug plans, especially certain Medicare Advantage prescription 
drug plans, and I would like to better understand what CMS is 
doing to address this matter. How many Medicare Advantage or 
Medicare Advantage prescription drug plans have been sanctioned 
for inappropriate marketing last year or this year and how many 
have been assessed a civil monetary penalty for violating 
marketing rules last year or this year, and then how many have 
been prohibited from enrolling new beneficiaries as a result of 
violations of marketing requirements, again last year or this 
year?
    Ms. Norwalk. I don't have the numbers specifically at my 
fingertips but we will get them back to you for the committee 
for the record. I would say this, that in terms of marketing 
violations, one of the issues that we are dealing with is that 
marketing agents and brokers are regulated by the State. We 
recently have been working with the National Association of 
Insurance Commissioners and have signed MOUs with 17 States and 
Puerto Rico to ensure that when we see marketing violations, 
that we can report it to the State and the State can sanction 
the agent and broker, often who are independent. They may be an 
independent agent that is working on their own and actually 
marketing on behalf of a number of different plans. We are 
working with the plans to ensure that they are doing the 
appropriate training, and if they are employed by the plan 
would be able to sanction the plan for having had that agent or 
broker, but we think it is critical to work with the State 
insurance commissioners so that they can take the appropriate 
actions at the State level against the individual at the same 
time that we take action with the Medicare Advantage plan to 
ensure that the marketing that they are doing is appropriate. 
We also want to be careful of the beneficiary, ensuring that 
whatever happens that the beneficiary can have an open 
enrollment period and that beneficiary can change plans so if 
they have been put in a plan where they didn't understand, 
where they were fooled, if you will, we will let them change 
back with no financial penalty to them.
    Mr. Pallone. And if you can get back to me with the 
details. I appreciate it.
    Mr. Deal.
    Mr. Deal. Thank you.
    Ms. Norwalk, I understand that CMS has just recently issued 
its final rule on the competitive bidding provisions for 
durable medical equipment. That provision had requirements for 
certification and accreditation in it. My understanding though 
is that CMS has granted a grace period for providers who are 
not accredited, a grace period in which they can get 
accredited, but will allow them to go ahead and participate in 
competitive bidding. My concern is that since the cost of 
accreditation is a rather sizable cost in some instances, will 
those unaccredited providers who are allowed to bid have an 
unfair advantage over accredited providers and what is CMS 
doing to try to make sure that doesn't happen?
    Ms. Norwalk. You do have to be accredited in order to bid 
for the first 10 competitive bidding areas under our rules, so 
what we have done is, we have directed those who will be 
accrediting the suppliers to ensure that they start with the 
suppliers that work in these 10 areas to make sure that they 
have an ability or the time in which they can become 
accredited. All competitive bidders must be accredited by the 
end of the year and then all competitive bidders in the next 80 
MSAs or the next 70 which need to be accredited by the end of 
next year so there should be no unfair advantage. Even 
physicians who don't have to bid must be accredited in order to 
provide DME supplies to Medicare beneficiaries. It is going to 
be done across the board.
    Mr. Deal. But if they are pending accreditation, they are 
still allowed to bid. Is that not true?
    Ms. Norwalk. Well, the way that it will work is that you 
need to be accredited before the program is going to start. The 
program won't start until April 1, 2008, so we would actually 
not award anyone the ability to be a provider until that time, 
there is a quarter lag, if you will, between the time they need 
to be accredited by and the time we actually start competitive 
bidding so that we can make sure that no one has an unfair 
advantage.
    Mr. Deal. As my opening statement indicated, I have an 
interest in trying to monitor what we have done in the imaging 
area. Under the rules we put in place under the Deficit 
Reduction Act, we of course tried to equalize reimbursements 
for settings other than the outpatient hospital setting with 
equalization on a portion of the technical component of the 
reimbursement. Now, that has been in place for about 3 months 
now. Can you tell us if you have determined any effects of that 
and if so what they might be?
    Ms. Norwalk. We are just starting to get in the quarterly 
data and I am happy to report back to you when we have a chance 
to analyze it in greater detail since the first quarter just 
ended. I get screen shots on my computer of what is happening 
with imaging. I took a look at it on the way over here. It is 
inevitable that when there are payment changes, it doesn't 
matter what the change is, it does impact utilization. The 
question is, is that impact in utilization appropriate, are we 
seeing a downturn simply because the payments are less or are 
we seeing a downturn because the payments are less and the 
services weren't necessary. So we will be taking a very close 
look at the interaction between both the quality and the 
utilization and I will be happy to brief you in greater detail.
    Mr. Deal. I think that would be critical for us to know 
what the next step might be. One of the concerns that I heard 
expressed in the imaging area is that overutilization of 
imaging might result in some risk and harm to patients due to 
the iodizing radiation that occurs. Is CMS looking at that 
question of maybe a health concern for overutilization rather 
than just the purely economic overutilization? Is there a 
health risk and are you looking at that?
    Ms. Norwalk. Well, I will certainly ensure that if we 
haven't been, I will ask my doctors to take a closer look. How 
is that?
    Mr. Deal. All right. That sounds good to me. I also made 
reference to the situation in Chicago about the sham lease 
arrangements and my understanding is that there were basically 
kickbacks being done by the providers of the services, billing 
it to the doctors, the doctors in turn seeking reimbursements. 
Have you all looked at that from the CMS level and are you 
working with the attorney generals in various States to look at 
that?
    Ms. Norwalk. We spend a lot of time with our colleagues 
both in the OIG who implement the kickback statute for the 
Department as well as DOJ generally. I think there are a couple 
of things that I would point out here. A lot of what we are 
seeing are physicians buying this equipment and we may be well 
served in making sure that if they purchase the equipment, that 
the beneficiaries know that if they are getting a scan, part of 
the reason may be because they want to amortize the value of 
the equipment. Now, lots of physicians do the right thing all 
the time. The point is, let us get the right imaging service 
done whatever it happens to be without regard to the dollars in 
the provider's pocket.
    Mr. Deal. Very quickly, Dr. Miller, has your office looked 
at fraudulent or abusive behavior on these advanced imaging 
procedures as it relates to Medicare or Medicaid?
    Mr. Miller. Not so much at the fraud. We made a set of 
recommendations in trying to increase the standards for both 
the providers who are billing Medicare and the equipment to 
your point on the radiation, making sure that the equipment and 
the technicians that are running the equipment are as good as 
they can be. We did make some recommendations to reduce 
excessive billing through some billing code recommendations 
that we made and also made recommendations on some of the 
treatment of things under the star clause, that there were some 
loopholes that we felt existed in the star clause, and that is 
all detailed in our reports but we haven't done specific 
pursuit of fraud, that type of thing.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you.
    Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    Ms. Norwalk, we just heard Mr. Miller testify that 
Medicare's payment system doesn't necessarily encourage primary 
or preventive care even though we know that primary and 
preventive care improves health outcomes and catches health 
care problems before they become costly emergencies. When our 
committee marked up the Medicare Modernization Act, our former 
colleague, Ernie Fletcher, and I included in the bill a 
diabetes screening benefit under part B. In our view, it didn't 
make a whole lot of sense for Medicare to pay for diabetes 
treatment but not pay for the beneficiaries to get screened for 
the disease. Since then we have heard CMS has done very little 
to promote the benefit and that take-up rates linger in the 
single digits. This is an alarming summation, especially since 
60 percent of all Medicare beneficiaries have diabetes or pre-
diabetes and could greatly benefit from the early detection. I 
know the American Diabetes Association has been unsuccessful in 
obtaining official utilization numbers from CMS and you and 
Secretary Leavitt will probably get a letter from me this 
coming week asking for that information. But in this venue, can 
you explain what steps CMS has taken for providers and 
beneficiaries to promote utilization of diabetes screening 
benefit and do you agree that the screening benefit for a 
disease is so prevalent among Medicare beneficiaries if 
implemented correctly could contribute increased efficiency in 
delivery of that health care under the Medicare Program?
    Ms. Norwalk. You raise a terrific point. Without question, 
it is critical that we do more in terms of prevention. In fact, 
I am going to be missing the bus today but the reason I was 
going to leave early was to start a nationwide bus tour to 
focus with our partners including those in diabetes to go 
around the country, get people to sit down at the table to 
promote just this type of benefit. All of our prevention 
benefits but without question, the diabetes screening 
prevention benefit, is included in that. We have been working 
with all of our partners to make sure that we have the 
appropriate data so we can determine, have we been successful. 
But the focus of this bus tour--and the Secretary and I are 
doing a kickoff along with Julie Gerberding and others at HHS 
on Friday. We would love you to come down if you want to come 
and talk to us about prevention and its importance. We would 
love to have you there. But the whole point is to focus the 
attention on this benefit and how important it is, work with 
our partners but even people who aren't traditional partners 
including employers and others so we can get the prevention 
benefit out long before people ever get to the Medicare 
Program. I appreciate your highlighting the issue and can 
assure you that we are turning to it as soon as today to get 
this information out to make sure that we can increase those 
rates, and we will be happy to share the utilization data. We 
are hoping to make it better. I am a little concerned that what 
we have in-house is probably not sufficient. That is why we 
have been working with our partners.
    Mr. Green. And that is what we need to know, is there a 
better way we can get that information out because it will save 
us Medicare dollars with that pre-screening. And again, that 
was one of the things we did in the Medicare Modernization Act 
that was bipartisan in hindsight.
    Mr. Miller, I would like to explore MedPAC's 
recommendations on care coordination and there are a number of 
care coordination demonstration projects conducted by CMS in 
recent years. Last month an interim report was issued by the 
Medicare Coordinated Care Demonstration Project reporting 
limited benefits of the project. I would like to point out, 
however, that two of the 15 program hosts included Alzheimer's 
or dementia care in the benefit. By and large, they also failed 
to include the small and solo practitioners who we know provide 
the bulk of the care for our Medicare beneficiaries. We can 
imagine the importance of coordinating care for beneficiaries 
with dementia but we have numbers to back up that need. 
According to the Alzheimer's Association, the average Medicare 
cost per beneficiary with dementia is $13,207 compared with 
$4,450 to the average annual cost in beneficiaries without 
dementia. Alzheimer's ranks up there with congestive heart 
failure and COPD in cost for the Medicare Program. Can you 
speak to what we have learned about care coordination from the 
various care coordination demos, specifically the importance of 
including proper populations and providers in that care 
coordination in a broader benefit?
    Mr. Miller. I can really speak to what MedPAC has talked 
about and care coordination, not so much the demonstrations and 
the findings there, although the commission has monitored and 
does think that there are some good ideas that are going on 
through the demonstrations. But to your point specifically, the 
two models that we have discussed in the commission about care 
coordination are the notion that you could give payments to 
groups of physicians who demonstrate a capacity to provide 
disease management and care coordination for chronic 
conditions, have some risk arrangement for it, not on the 
benefit, just the fee for administering it, and encourage 
groups that have that capacity, the IT the ability to make 
contact with patients and help them plan out their care and 
encourage it that way. For the solo practice, which you also 
raised, the other model that we talked about, they may not have 
the capacity to do that. They may not have the IT, they may not 
have the staff to contact the patients. The way you could think 
about a situation like that is, have a contract with a larger 
disease management entity with the solo practice so Medicare 
would make payments to the larger entity and then some payment 
to, say, perhaps on a per-month basis to the solo practice 
physician to manage the care for that patient. Just two other 
questions. We have also tried to look very hard at the prices 
and the fees that are being paid in the fee schedule to make 
sure that we are not discouraging primary care services and we 
have made some recommendations along those lines, and then 
finally we have been most recently talking about clinical 
comparative effectiveness as another way of trying to get 
information about what services help chronic care 
beneficiaries.
    Mr. Pallone. We are going to have to move on because we 
have six votes. There is only 10 minutes left and Ms. Norwalk 
is going to leave so I am going to recognize Mr. Barton and 
then we will see if we can get in Mrs. Capps.
    Mr. Barton. I will ask one question and then submit the 
rest for the record, Mr. Chairman.
    Ms. Norwalk, can you talk, in the competitive bidding rule 
that just was announced, the protections are in place for small 
suppliers, the set-aside program to make sure that some of the 
competition goes to the mom-and-pop suppliers?
    Ms. Norwalk. Absolutely. One of the concerns that was 
raised in doing this rule was that we might be putting a lot of 
small businesses out of business. Consequently, in each of the 
10 competitive bidding areas, we set aside 30 percent of them 
to take into account small suppliers. Now, we define small 
suppliers as having $3.5 million in revenue, which is a smaller 
amount of revenue than the Small Business Administration, but 
wanting to be really focused on this area. Moreover, we heard a 
lot from the retail drugstores about the ability of providing 
diabetic supplies so we focused initially on mail order. We 
have 60 percent of the diabetic supplies provided to Medicare 
beneficiaries through mail order so we still think we will get 
a pretty significant savings in that particular area.
    Mr. Barton. Thank you, Mr. Chairman. I will submit the rest 
of my questions for the record.
    Mr. Pallone. Thank you.
    Mrs. Capps.
    Mrs. Capps. Thank you, Mr. Chairman, Ranking Member, and 
thank you both for your testimony today.
    Ms. Norwalk, in my district, I want to get out some issues 
that really important to some of my constituents and to me. In 
my district, we are fortunate to have an excellent facility 
called the Rehabilitation Institute of Santa Barbara and they 
have brought to my attention the burdensome auditing process 
being carried on by Medicare. Just for some historical context, 
briefly this is nonprofit institution, the only freestanding 
rehabilitation institution between Los Angeles and the Bay 
area. Speaking to the integrity of the institute, you should 
know that as a result of a probe audit, eight out of nine 
appeals by the Rehabilitation Institute were ruled in the 
institute's favor and several more are waiting final decisions. 
Meanwhile, Medicare is expanding the RAC process which rewards 
private contractors for identifying incorrect payments. When I 
heard about the way it is designed, I am sorry but I couldn't 
help but think of bounty hunters. I learned that yesterday 
alone, this nonprofit institution received 15 RAC requests. In 
fact, they have been asked for 116 claims for fiscal year 2003, 
2004 and 2005. This institute has filed appeals on many of 
these but no decisions have yet been made. Each of these 
appeals though is required to be filed separately, which takes 
valuable time away from patients and costs extra money. This is 
not what they tell me, they would not be so bold--but I would 
say that this process is driving them to the brink of collapse.
    This is my question. Will you tell me, please, what will 
happen if those appeals, all of these 116 claims and the 
appeals on them, are ruled in the institute's favor? Will 
Medicare recover the fees paid to the private auditors for each 
claim that they have incorrectly identified?
    Ms. Norwalk. I don't expect the program works that way but 
I am more than happy to get the details from staff and sit down 
with your staff and talk about how the RAC program is 
constructed. Currently, what it is intended to do, and perhaps 
talk to the contractor more specifically about how they are 
paying for--what is going on with the rehab payments and I 
think the concern that ensuring that the--this is something 
that we mentioned earlier in terms of post-acute care services, 
making sure that the patient is provided right place, right 
time----
    Mrs. Capps. But they have asked for all kind of guidance 
and information. There is a lot of integrity, and they wouldn't 
survive if it weren't for tremendous generosity of our local 
community in supporting them.
    Mr. Chairman, I think we have identified what should be one 
of our first targets for eliminating wasteful spending, and let 
me follow up with you. I want to ask if providers are able to 
recover the costs of filing these appeals. After all, it seems 
like the fees associated with filing appeals are deterrents 
from recovering payment for legitimate expenses. It is going to 
keep them from making appeals, finding out what is wrong. It is 
going to end up costing Medicare more money because they are 
going to avoid this whole process. It is so costly to them in 
time and energy, and in the meantime patients and their health 
providers suffer from these consequences while the private 
auditors are awarded in every case, even when they haven't 
found anything wrong at all.
    Ms. Norwalk. My understanding in terms of how the RAC works 
is that they actually get a small portion of what recoveries 
they make and so the appeal would have to be denied by the 
provider in order for them to get increased payments. So in a 
sense, you are right in terms of how that works so if they are 
going after claims that are valid claims, then RAC itself would 
be penalized. So the intention is to sync those up.
    Mrs. Capps. I know, but I can't tell you how demoralizing 
this process is to the providers in my district. I picked out 
one institution because I know it well. My husband was a 
patient there and they have done remarkable work in a multi-
disciplinary way. But nursing homes have told me this, all 
kinds of facilities that receive Federal reimbursement, that 
they are going through this process, it is taking away from 
quality care to patients and they see it as the people coming 
in as very cynical, being not well versed in the nuances of the 
institution. I would just call them bounty hunters. We have got 
to find a better way to do this.
    Ms. Norwalk. Well, I will take a look at it for you and we 
will report back.
    Mrs. Capps. Thank you very much. Sorry for the diatribe, 
but I wanted to get that out on the record, because frankly, I 
know that you desire to do it to save money but in the end, I 
think it has really got some downsides that we should explore. 
Thank you.
    Mr. Pallone. Thank you. Thank you, Ms. Norwalk, for being 
with us here.
    Now, Mr. Miller, we are going to come back. You are able to 
stay, right?
    Mr. Miller. Yes.
    Mr. Pallone. All right. We probably will be 45 minutes to 
an hour because there are six votes, so thank you.
    [Recess]
    Mr. Pallone. I am not sure if other Members are going to 
come back so I am going to go back and ask Mr. Miller a couple 
of questions myself and then if we get other members, we will 
recognize them as well.
    I am just going back to some of the questions I asked you 
before, some additional follow-up. Some of the private plans 
have disputed MedPAC estimates that Medicare Advantage plans 
cost 12 percent more on average than fee-for-service in 2006 
and have claimed that their own estimates show little or no 
overpayments. I just wanted you to tell me what you think of 
these alternative estimates, if you would.
    Mr. Miller. And with all respect on that, I don't know 
exactly what you have seen but I have seen a piece of paper put 
together by Blue Cross/Blue Shield and it has a little chart at 
the bottom that kind of goes six, one, three, two, that type of 
thing, and I have got to tell you, very little of that do we 
think is correct, and just to kind of walk you through it for 
just a second, they have 6 percent at the top and they are 
saying half of it accounts for this phase-out of the hold 
harmless. First of all, I think that number is wrong. I think 
it is smaller than that. And two, what they are conceptually 
saying is, what we are saying is, you are getting that money, 
and if you ask them pointblank, that is true, but they are 
saying it is going to go down in the future and so you 
shouldn't count it now, OK? So that is the first problem with 
their reasoning. The second problem is, if that is all that was 
going on, it might go down in the future but actually because 
enrollment has been moving so aggressively into the high 
benchmark counties, actually the 12, we are not clear whether 
it will go down or up in the future, so for that first piece, 
we just think it is wrong, and conceptually we are measuring 
what money they get and they are getting that money now. They 
are arguing it will go down in the future. We are not so sure. 
The second piece of it is a 1 percent that they say it should 
be--we didn't take into account the increased payments on the 
fee-for-service side for the physician fix that the Congress 
put in, and on that one it is almost but not quite. It is true 
that when we did the estimate, Congress had not acted, but when 
you do that you actually go back and you revisit the entire 
baseline, not just that component of it, and actually parts of 
the baseline went up and down. In the end, that is a wash, so 
the 1 percent we would also say is not correct. Then underneath 
that is 3 percent for IME, if I am not mistaken. We have been 
over this time and time again with the analysts who put this 
together. They know our methodology for doing this and I just 
don't know how to say it any differently. We do it correctly. 
We count it the same way on both sides. They are asserting that 
we are taking it out of one side and leaving it in the other 
and therefore creating a ratio that isn't true, and that is 
just not true. Then the very last thing at the bottom is, is 
they say OK, but the Congress wants these floors in place and 
these floors account for 2 percent. Here again there is a real 
dispute over the number. We think the floors probably account 
for 6 percent or so like half of this figure and of course, 
what we are recommending to the Congress is that we ought to be 
taking these benchmarks down and so they are saying but 
Congress has this payment system in place and we are saying 
right, we think that that payment system should change. So the 
last part of it is a philosophical difference.
    Mr. Pallone. All right. Well, thanks a lot. I have one more 
question and that is about the overpayments again to private 
plans. It is fair to say that overpayments to Medicare private 
plans advance the date when the Medicare part A trust fund 
becomes insolvent, and that curbing these overpayments would 
move back the date of insolvency?
    Mr. Miller. Yes, it does. Any time you are overpaying 
whether it is managed-care plans or anywhere else, and to the 
extent it comes out of part A it is going to affect the trust 
fund date. We believe it does affect the date. A very rough 
estimate is that if you implemented CBO's proposal where they 
estimated savings of $65 billion and then a different number 
over 10 which I can't remember off the top of my head, it would 
move the trust fund date back a couple of years.
    Mr. Pallone. OK. And do you think that these overpayments 
actually threaten the fiscal sustainability of the program?
    Mr. Miller. CBO is projecting very aggressive enrollment 
into managed-care plans over time and to the extent that every 
one of those enrollees means that Medicare pays more than it 
otherwise would have, it affects the long-run sustainability of 
the program.
    Mr. Pallone. Is there any way you can quantify the impact 
that overpayments would have on every Medicare beneficiary like 
every month or maybe get back to us?
    Mr. Miller. Actually I think I can quantify it for every 
month. Again, this is back the envelope, the actuaries are much 
more precise about it but we estimated about $2 per month in 
extra premium payments for all beneficiaries for the 12 percent 
overpayment.
    Mr. Pallone. OK. Thanks a lot. I appreciate it.
    Dr. Burgess, do you want to ask questions of Mr. Miller?
    Mr. Burgess. Actually, I would prefer----
    Mr. Pallone. Oh, here comes Jan.
    Ms. Schakowsky. I was mostly interested in how do we 
justify that we are paying the Medicare Advantage programs this 
higher price? How can that be sensible at all if we are talking 
about how we are going to save money?
    Mr. Miller. There is not a lot of disagreement here between 
you and the commission. The commission has looked at this 
problem and we have looked at it from a payer perspective and 
the dollars that leave the Treasury and arrive at the plans. We 
have calculated that they are more than 12 percent above 
average and we have noted that this comes out of the trust 
fund, general revenues and premiums for all beneficiaries 
whether they are in the plans or not.
    Ms. Schakowsky. Right. And only one out of five is actually 
in one of these plans.
    Mr. Miller. Yes I think the enrollment is up to 18 percent, 
around there, but that is about right, one in five. So our 
posture is, if you are looking at this purely as a payer and an 
efficiency issue, efficiency and dollars leaving the treasury, 
there is not a lot of argument for doing this. Now, the 
counterargument by the industry is, but I give additional 
benefits to beneficiaries with this extra money, and I would 
just point out a couple things about that. They do get 
additional benefits but also in that extra money is 
administrative costs, marketing costs and profits to the plan 
and then I would just come back to the original argument. They 
are getting additional benefits with that money but those are 
benefits that are subsidized by all beneficiaries and going 
only to some beneficiaries who happen to be in those plans.
    Ms. Schakowsky. And what about the private fee-for-service? 
That is even more.
    Mr. Miller. Yes, and that is actually a good question, and 
a clarification that I want to make for people because this 
gets misunderstood sometimes. It is not that private fee-for-
service plans are paid more, it is that private fee-for-service 
plans locate in counties where the payment rates are higher so 
that when you look at them, they are being paid more. Do you 
see what I mean?
    Ms. Schakowsky. Yes.
    Mr. Miller. It is not that we pay private fee-for-service 
more, it is that where they are drawing their enrollment, the 
Medicare Program pays more. We pay about 19 percent more there. 
And the interesting thing about private fee-for-service plans 
is, it actually costs them 9 percent more to offer the standard 
benefit, the standard A-B benefit.
    Ms. Schakowsky. Meaning if it were the Medicare fee-for-
service?
    Mr. Miller. You got it, 9 percent more. Then the additional 
10 percent is given to the beneficiaries in benefits. So there 
are two things to take away from private fee-for-service plans. 
As a group, and I am not saying every plan but as a group, they 
are much less efficient than standard Medicare fee-for-service 
and all of the extra benefits on average that go to 
beneficiaries are from extra money, are from subsidized 
dollars. No efficiency gains. Because remember, the basic 
argument, and you may have even said this, is, if they have 
efficiencies, they use that money to offer extra benefits. 
These private fee-for-service plans again as a group, not every 
private fee-for-service plan but as a group are not more 
efficient than fee-for-service and the extra benefits----
    Ms. Schakowsky. So what is the justification for even 
allowing those to exist?
    Mr. Miller. Well, I am not sure I can tell you that. Let me 
try and answer the question this way. The private fee-for-
service plans were actually conceived of in their original 
state--what was going on is, there was a big move in the 
country towards managed care and lots of increases in 
enrollment Medicare managed care and there was a concern on the 
part of Congress that some people might not want to be in 
managed-care plans and have potentially their care dictated by 
a coordinated care entity, so the thought behind private fee-
for-service plans was, let us create plans where if they have 
an additional cost because they don't coordinate care, it is 
born entirely by the beneficiary. That was the thought behind 
them so that I have an uncoordinated plan, it is more extensive 
but the bennie pays the difference, but it hasn't worked out 
that way. Under the new payment system, the Federal--well, the 
Medicare Program and all bennies whether they are in the plan 
or not are paying that difference.
    Ms. Schakowsky. And what is the rationale for allowing a 
Medicare Plus plan if we are paying those 12 percent more than 
Medicare fee-for-service and most beneficiaries end up 
subsidizing those plans?
    Mr. Miller. It just hit me again, what is the----
    Ms. Schakowsky. I asked what is the justification for 
having the private fee-for-service? What is the justification 
for the Medicare Plus plans if they are being paid more and 
that money is coming out of beneficiaries and taxpayers?
    Mr. Miller. At the commission, we don't see a lot of 
justification. The counterarguments that people will ring to 
the table are, people are getting extra benefits from it, and 
then you have heard some of the other counterarguments that--
and we have already had this exchange, I think you were in the 
room for it, where it is well, low-income beneficiaries tend to 
be in these plans but of course our response to that is, there 
are more-efficient ways to help low-income beneficiaries.
    Ms. Schakowsky. Right.
    Mr. Miller. I can't offer you a justification here. We are 
sort of raising that question ourselves.
    Ms. Schakowsky. OK. Thank you. I appreciate it.
    Mr. Miller. No problem.
    Mr. Pallone. Thank you, and thanks, Mr. Miller, for staying 
here an extra hour, but we do appreciate it because we did want 
to ask you some additional questions. Thanks a lot.
    Mr. Miller. No problem.
    Mr. Pallone. And I am going to ask the second panel to come 
forward.
    Thank you both for being here. Let me introduce you. First 
we have Stuart Wright, who is Deputy Inspector General for 
Evaluation and Inspections from the U.S. Department of Health 
and Human Services, and next to him is Daniel Fridman, who is 
Senior Counsel to the Deputy Attorney General and Special 
Counsel for Health Care Fraud within the Department of Justice. 
Thank you both for being here and we will start with Mr. 
Wright.

   STATEMENT OF STUART E. WRIGHT, DEPUTY INSPECTOR GENERAL, 
   EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Wright. Thank you. Chairman Pallone, Ranking Member 
Deal and members of the subcommittee, I am Stuart Wright, 
Deputy Inspector General for Evaluation and Inspections at the 
Department of Health and Human Services. I appreciate the 
opportunity to appear before you today to discuss our efforts 
to protect the integrity of the Medicare Program. My written 
statement provides an overview of our efforts to assess the 
appropriateness of Medicare payments and prices and our efforts 
to address quality of care and access issues for beneficiaries. 
In the interest of time, I will focus my remarks on our recent 
work related to durable medical equipment as a specific 
illustration of some of the program vulnerabilities we have 
identified and our recommendations to strengthen Medicare 
safeguards.
    We have consistently found that the Medicare DME benefit is 
vulnerable to fraud and abuse. We have conducted numerous 
studies reviewing the appropriateness of payments and the 
prices Medicare pays. With respect to the pricing of medical 
equipment and supplies, we issued a report in September 2006 on 
the cost and servicing of oxygen equipment used in the home. In 
this review, we found that Medicare will allow $7,215 for a 
concentrator that costs about $600 to purchase new. 
Additionally, beneficiaries will incur $1,443 in coinsurance 
over a 36-month rental period. We noted that if Medicare 
payments were capped at 13 months as certain other DME items 
are capped, Medicare and its beneficiaries would save $3.2 
billion over 5 years.
    With respect to our investigative activities, from 2002 
through 2006 we excluded 121 suppliers and 457 individuals 
associated with suppliers, obtained 289 successful criminal 
convictions and achieved 76 civil settlements or judgments. 
Together, these criminal convictions and civil adjudications 
resulted in more than $796 million in restitution, fines and 
penalties. To help combat medical equipment fraud, OIG in 
conjunction with the U.S. Attorney's Office for the Southern 
District of Florida, the FBI and the Department of Justice 
launched an initiative designed to identify suspicious 
suppliers and review questionable financial activities. Since 
its inception, the initiative has recovered more than $10 
million from entities which closed abruptly and abandoned their 
bank accounts.
    Over the past decade OIG has also identified and reported 
on weaknesses in Medicare's enrollment process for suppliers. 
In our most recent work, we found that 45 percent of the 
suppliers in three south Florida counties did not meet one or 
more of the selected Medicare standards we reviewed. Working in 
collaboration with CMS and the National Supplier Clearinghouse, 
we conducted unannounced site visits to 1,581 suppliers in 
Miami-Dade, Broward and Palm Beach counties in late 2006. We 
focused on three supplier standards that could be verified 
quickly through direct observation and desk review. These three 
standards include five specific requirements which state that a 
supplier must maintain a physical facility, be open and staffed 
during business hours, have a visible sign, post hours of 
operation and maintain listed telephone numbers. During the 
site visits, we found that 31 percent of suppliers did not 
comply with the first two requirements of maintaining a 
facility at the business address that they had provided to 
Medicare. Specifically, 6 percent of the suppliers did not 
maintain physical facilities. In some cases, instead of finding 
operational facilities, we found vacant buildings or facilities 
in which another type of business was operating including a 
florist, a rental car company, a real estate office and an 
accountant's office. Twenty-five percent of suppliers were not 
accessible during reasonable business hours. We identified an 
additional 14 percent of suppliers that were open and staffed 
but failed to meet at least one of the three remaining 
requirements that we reviewed. For the period January through 
November 2006, Medicare allowed payments of over $97 million to 
the 491 suppliers who we identified as not maintaining a 
physical facility or were not open and staffed. We referred 
these suppliers to CMS for potential revocation of their 
Medicare billing numbers.
    Our south Florida report and my written statement contained 
the recommendations we have made to strengthen Medicare 
enrollment standards including conducting more unannounced site 
visits and out-of-cycle inspections, requiring all suppliers to 
post a surety bond, and performing more-rigorous background 
checks of applicants. In response, CMS described several 
actions it has taken to implement our recommendations including 
revisiting contract requirements to increase the number of 
unannounced supplier site visits, drafting a proposed 
regulation requiring suppliers to post surety bonds, and 
considering targeted background checks of supplier applicants. 
In addition, CMS is also in the process of implementing 
accreditation standards and competitive bidding in selected 
parts of the country.
    In conclusion, the OIG remains committed to protecting the 
integrity of the Medicare Program and ensuring that 
beneficiaries receive high-quality care. Within the DME benefit 
alone, we have identified numerous integrity problems and 
program inefficiencies. And in our most current work, we have 
also found that the Medicare supplier enrollment process is 
inadequate to prevent abuses such as those we found in south 
Florida.
    I appreciate the opportunity to share with the subcommittee 
our efforts and would be happy to answer any questions.
    [The prepared statement of Mr. Wright follows:]

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    Mr. Pallone. Thank you, Mr. Wright.
    Mr. Fridman.

 STATEMENT OF DANIEL S. FRIDMAN, SENIOR COUNSEL TO THE DEPUTY 
  ATTORNEY GENERAL AND SPECIAL COUNSEL FOR HEALTH CARE FRAUD, 
                     DEPARTMENT OF JUSTICE

    Mr. Fridman. Thank you. Mr. Chairman, Congressman Deal, 
members of the subcommittee, thank you for inviting the 
Department of Justice to discuss its work in an area of law 
enforcement that is of vital importance to our Nation's seniors 
and disabled persons, fraud in the Medicare Program. I am 
Assistant United States Attorney for Miami, a district which 
has made fighting health care fraud one of its top priorities. 
Presently I am on detail to main Justice, where I advise the 
Deputy Attorney General on health care fraud enforcement 
policy. In that capacity, I have a bird's eye view of what the 
Department's different components are doing to recover monies 
wrongfully taken from the Medicare Program and to prosecute 
those who defraud it. Within DOJ, health care fraud enforcement 
involves each of our 93 U.S. Attorneys Offices, the criminal 
division fraud section, the civil division, the civil rights 
division and the FBI.
    Since the start of the Health Care Fraud and Abuse Control 
Program in 1997, the Department of Justice has recovered and 
returned a total of $10.4 billion to the Medicare trust fund 
with additional amounts going to other programs such as 
Medicaid and Tri-Care. We can conservatively say that for every 
$1 the Government spends on health care fraud enforcement in 
the HCFAC program, the Medicare trust fund gets at least $4 
back in recoveries from civil litigation and criminal fines and 
forfeitures. This figure does not even capture the deterrent 
effect of our criminal prosecutions, which are harder to 
quantify but nevertheless save taxpayer money.
    Mr. Chairman, this is good, basic good Government work, and 
as our record demonstrates, the department is committed to 
doing it. Over the last 10 years since the HCFAC program was 
created, we have significantly increased the number of civil 
cases we file and criminal convictions we obtain. In the last 
fiscal year 2006, we had 547 defendants convicted of health 
care fraud expenses, the highest number to date. Last year we 
filed or intervened in 217 new civil health care fraud cases, 
which represents an increase of 144 percent since the program 
started. Last year was also a record year for civil recoveries. 
Our civil division working with the U.S. Attorneys Offices 
obtained judgments and settlements totaling over $3.2 billion 
in fraud recoveries. Of that amount, $2.2 billion came from 
health care fraud cases.
    Let me give you a couple of concrete real-world examples of 
the kinds of fraud schemes we are seeing today in our cases. 
Let met tell you about infusion fraud. In my home district, we 
have found that clinics pay recruiters to bring HIV or AIDS 
patients to the clinics to receive this infusion therapy. They 
pay each patient kickbacks of $100 to $200 per visit and the 
patients are given diluted drugs or simply no medication at all 
but Medicare is billed for the full price of the drugs. These 
schemes can harm patients because they are not getting proper 
treatments. In a recent case in my home district, an individual 
was convicted of this scam with estimated Medicare losses of $5 
million.
    Let me tell you about power wheelchairs. We found a DME 
supply company that billed Medicare for expensive motorized 
wheelchairs that were not needed and not delivered. Medicare 
reimburses wheelchairs at about $7,000 each but the company 
actually delivered a less-expensive scooter that cost $1,000. 
Total loss to Medicare was about $1 million. We convicted the 
company's owner and also obtained convictions in separate cases 
of the physicians who signed the prescriptions for these 
motorized wheelchairs, people that did not actually need them.
    Let us turn to pharmaceuticals. Serono was involved in off-
label marketing violations. As the market for Serono's drug 
Serostim shrank, Serono resorted to trying to market its drug 
for unapproved purposes and paying doctors kickbacks in the 
forms of trips to France in exchange for the physicians writing 
up to 30 new prescriptions at about $21,000 a treatment. As a 
result of the Department's efforts, Serono paid $704 million to 
resolve criminal and civil liabilities.
    The Department is committed to fighting fraud and abuse in 
the Medicare Program and devotes the necessary resources for 
this purpose. One of the most important sources of funding for 
the Department are the funds provided by the HCFAC program. 
Since 1997, these funds have helped the Department maintain 
dedicated prosecutors, litigators and FBI investigators who 
focus on health care fraud cases. In 2003, the Department 
received $49.5 million from the HCFAC program to support its 
litigators and prosecutors and the FBI received $114 million. 
However, those funds remained constant and without inflationary 
adjustment until this year when Congress passed and the 
President signed an inflationary cap adjustment to these funds 
each until 2010. The President's fiscal year 2008 budget 
requests $17.5 million to supplement DOJ's HCFAC funding 
allocation. We would appreciate this committee's support for 
full funding of the President's request so that we can continue 
pursuing these important cases.
    In conclusion, I want to say a little something about the 
prosecutors and litigators who pursue these cases. Our 
attorneys are very dedicated to the work they do. They believe 
in it. They put in long hours to achieve justice for the 
beneficiaries and the taxpayers. I hope this testimony helps 
the subcommittee understand the kinds of fraud schemes the 
Department is seeing across the country and the role that the 
Department plays in fighting them. Working closely with our 
colleagues at HHS OIG and CMS, we will continue to build on our 
accomplishments and our resources and adjust our strategies as 
new fraud schemes develop.
    Thank you, and I would be happy to answer any questions.
    [The prepared statement of Mr. Fridman follows:]

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    Mr. Pallone. Thank you, thank you both, and let me yield 
myself 5 minutes or recognize myself for 5 minutes for 
questions, and I will start with Mr. Fridman. Let me say first 
of all that I certainly would support the full funding of what 
the President has proposed and I guess I can't speak for the 
others, I will just speak for myself.
    I am concerned about oversight with some of the marketing 
with these Medicare private plans. We have been informed of a 
number of scams by agents working for Medicare private plans 
that they have recently victimized Medicare beneficiaries 
through false marketing practice. These agents provide 
misleading information to beneficiaries and have them sign 
false documents in order to get them enrolled in private plans. 
For example, I have a copy here, and I could show it to you, if 
you like, a recent press release from the Mississippi Insurance 
Department noting a number of scams in that State along these 
lines. We are told by the State that their ability to enforce 
the marketing guidelines that CMS has released does not exist 
because of the Federal nature of those guidelines. I would like 
to know, does the DOJ have any knowledge of these kinds of 
marketing abuses? Have you been involved in investigating any 
cases of wrongdoing by private insurance plans in Medicare and 
how many cases and what is the nature of the complaint?
    Mr. Fridman. Well, thank you for the question. Your staff 
was kind enough to share that press release with us and we are 
reaching out to the Mississippi Department of Insurance to find 
out more information about their allegations of fraud. I will 
say generally we have seen similar schemes such as the ones you 
have described in other contexts. For example, in part D 
enforcement, we have started to receive cases that show a 
scheme we call the 299 scam. Basically telemarketers are 
calling up senior citizens and offering to enroll them in a 
part D plan. They say it only costs $299, the typical scheme. 
They get their bank account information, their credit card 
information and then they just steal their money and they don't 
get enrolled in any plan. So we have seen things like this. We 
are keeping a close eye on these and we will pursue appropriate 
cases where there is Federal jurisdiction to pursue them.
    Mr. Pallone. It says in the Mississippi release, now that I 
know you have it, I am glad. It says companies offering 
Medicare plans are subject under Federal regulations to strict 
marketing guidelines for such plans which include prior 
approval of marketing material. So does that literally mean 
that if somebody takes out an ad on a radio or a newspaper that 
it has to be approved? Do you know?
    Mr. Fridman. Well, as Ms. Norwalk observed in her 
testimony, some of this is the purview of State insurance 
commissioners, there is no Federal jurisdiction there. I would 
defer to my colleagues at HHS OIG and CMS. They are more 
familiar with these kinds of regulations.
    Mr. Pallone. If you would, I know this sounds absurd but I 
always use an example when the HMOs started out that I would 
see these ads in my local newspapers where you go get a free 
lobster dinner if you came one night and they had these huge 
ads in the local papers in my district offering free lobster 
dinners. I don't know, maybe that sounds absurd but I am just 
wondering what kind of things can they do?
    Mr. Wright. CMS does have marketing guidelines that apply 
to Medicare Advantage plans and we actually issued a report in 
August of 2006 in which we reviewed 36 plans' marketing 
material for calendar year 2005. For those 36 plans, we 
collected all advertisements, summary of benefit forms, 
enrollment forms and reviewed them to determine whether or not 
they met the requirements that CMS has imposed, and we did find 
some small problems associated with those marketing materials. 
I don't know that CMS reviews every single marketing piece 
issued by a Medicare Advantage plan, but there are guidelines 
and there is some review of those materials.
    Mr. Pallone. Now, I will go back to you because I only have 
15 seconds. If DOJ, Mr. Fridman, were to find a large-scale 
organized attempt to defraud Medicare and Medicare 
beneficiaries by these private insurance plans, what type of 
remedies do we have against such actions and are they being 
used by CMS?
    Mr. Fridman. Well, we would evaluate each case for Federal 
jurisdiction and violations of Federal law and if we see those 
violations, we would certainly pursue them. I have an example 
of a case where we pursued a private insurer. It was called 
Employers Mutual. It was a recent case. They had established a 
similar kind of scheme in all 50 States where they fraudulently 
induced people to enroll in their insurance plan, called it an 
ERISA plan so they wouldn't be subject to regulation by State 
insurance commissioners and people wound up paying for premiums 
and getting stuck with the medical bills because the insurance 
company didn't actually cover anything. We prosecuted them and 
the owner of the company was convicted and sentenced to 25 
years in prison. So we are serious about these kinds of fraud 
schemes and we will pursue them.
    Mr. Pallone. OK. Thank you.
    Mr. Deal.
    Mr. Deal. Out of curiosity, in the south Florida examples 
that both of you have alluded to, what percentage of those were 
traditional Medicare plans as opposed to managed-care plans? Do 
you have any idea?
    Mr. Wright. With regard specifically to the suppliers and 
the site visits that we undertook, these were durable medical 
equipment suppliers on the fee-for-service side of Medicare so 
they didn't have anything to do with the Medicare Advantage.
    Mr. Deal. What about, Mr. Fridman, the examples other than 
the one that you have already alluded to? Were they traditional 
fee-for-service traditional Medicare situations?
    Mr. Fridman. Yes, I believe the durable medical equipment 
ones would be part B traditional fee-for-service.
    Mr. Deal. Here again, I guess the question becomes on the 
durable medical equipment, if these are basically nonexistent 
and 31 percent of them didn't meet the basic criteria, you 
said, how are people getting to these folks? There has got to 
be some linkage between a doctor saying you need a wheelchair 
or you need some other form of durable medical equipment. What 
was the linkage of a patient to get to those nonexistence 
folks?
    Mr. Wright. Well, that is the concern that we have, that 
there weren't patients getting to those entities because when 
we showed up on multiple site visits, they did not appear to be 
open for business as required.
    Mr. Deal. Well, was the fraud the fact that they weren't 
supplying anything and billing for it or that they were 
actually supplying something to folks but didn't meet the other 
criteria?
    Mr. Wright. The failure to comply with the supplier 
standards can result in the revocation of the billing number 
for those suppliers. As I mentioned in my oral statement, these 
entities billed $97 million. It is of concern to us whether or 
not the $97 million was for legitimate services to legitimate 
beneficiaries. We did not pull a sample of those claims so I 
cannot tell you that those claims were fraudulent, but given 
that the entities when we visited did not appear to be open and 
doing business, we are concerned.
    Mr. Deal. Mr. Fridman, you mentioned one case in which in 
the power wheelchairs that you say you convicted a physician 
who was part of this scheme, it appears.
    Mr. Fridman. Correct.
    Mr. Deal. How cooperative is the medical community in going 
after the doctors or those who are leading people in these 
directions who are complicit in it? How cooperative are they in 
working with you?
    Mr. Fridman. You mean in terms of giving us tips or leads?
    Mr. Deal. Yes.
    Mr. Fridman. I think that the medical community is a source 
of tips or leads for the Department. No profession wants bad 
apples ruining their reputations, and we expected them to be 
cooperative and give us information when they have it.
    Mr. Deal. But in the illustration that we have all heard 
about in Chicago with the State attorney general who I guess is 
under a Medicaid investigation he is conducting----
    Mr. Pallone. She.
    Mr. Deal. Beg your pardon?
    Mr. Pallone. She.
    Mr. Deal. She. I am sorry. Yes let us get it right. She. 
There the doctors were the ones who were all involved in the 
schemes. To what extent is the Department of Justice working 
with other attorney generals in looking at similar things, 
because if they do it in the Medicaid, they are bound to be 
doing it in Medicare, I would think as well.
    Mr. Fridman. The Department works very closely with the 
Medicare fraud control units in the different States to 
identify fraud. Many times there is overlap between the fraud 
committed in Medicare and it is also being committed in 
Medicaid in the same case so we often work very closely with 
them on the same cases, recover some share for the Medicare 
Program and recover some share for the Medicaid program as 
well.
    Mr. Deal. The imaging issue is one that has been of concern 
to me. Are you aware of any further investigations that are 
going on with regard to imaging overbillings, misbillings, 
fraudulent activities with regard to any investigations you can 
maybe tell us about?
    Mr. Wright. Not that I know of off the top of my head but I 
am happy to check with staff and report back to you in terms of 
the investigative activities. We do have a couple of ongoing 
studies related to imaging services. I would be happy to tell 
you about them if that would be useful.
    Mr. Deal. Will these studies hopefully have recommendations 
as to any corrective action that we might need to take here?
    Mr. Wright. Yes, I hope that they do. I don't know that 
they will actually uncover inappropriate payments but they will 
look at some of the billing arrangements that exist with the 
provision of CAT scans, MRI and PET scans and they will present 
the data in terms of the trends. We have seen a dramatic 
increase in payments in that area in the recent past.
    Mr. Deal. Thank you both.
    Mr. Pallone. Thank you.
    The gentlewoman from Illinois.
    Ms. Schakowsky. Thank you, Mr. Chairman. I wanted to 
connect something I asked earlier of Mr. Miller and something 
then that Mr. Pallone was asking about in terms of the 
marketing of these Medicare Advantage plans. Mr. Miller 
responded that one of the rationales for keeping these Medicare 
Advantage programs even though they are more expensive is 
because low-income beneficiaries use them despite the fact that 
they may not be the most efficient way to serve low-income 
people. So I am wondering if there is not a connection to 
marketing schemes that actually target low-income people who 
themselves might do better, because they are dual-eligible or 
whatever, to get more coverage, and if there has been a 
systematic review of who might be targeted by these kinds of 
advertising programs that aren't good for taxpayers or even the 
beneficiaries. Either one. I don't know where that would fall.
    Mr. Wright. It is my understanding that Medicare Advantage 
plans can't target on a specific population. I can't tell you 
anything in terms of the marketing material that we collected 
in terms of whether or not we saw anything geared towards 
specific cohorts of beneficiaries but in general plans are not 
supposed to market themselves to certain segments of 
beneficiaries. There are some things called special-need plans 
which are allowed to market and focus on discrete populations 
such as the disabled, low income, and that isn't something that 
we specifically looked at but we are thinking in terms of work 
planning on doing a study specifically on the special-need 
plans.
    Ms. Schakowsky. Though they can't target special 
populations, are they allowed to target particular geographic 
areas or--I am just wondering how is it that--it sounded as if 
a disproportionate number of people who have these might be 
low-income people and so I am just wondering if there some 
way--they are often targeted in terms of predatory loans and 
all kinds of things. Well, I am glad that there is going to be 
some kind of investigation. I am wondering to what extent 
whistleblowers play a role in this at all and if there is a way 
that we could encourage that more, Mr. Fridman?
    Mr. Fridman. Well, I think the False Claims Act which 
Congress passed is one of the ways that we get case referrals. 
They are encouraged to file their cases and we pursue them. 
That is one of the ways, especially in the civil context, that 
we get our large dollar recoveries. We have whistleblowers 
inside the different companies that file a complaint under 
seal. The Department of Justice then engages in a process to 
review the complaint, investigate it, see if there is evidence 
of a violation of Federal law and then we resolve--we decide 
whether or not to intervene.
    Ms. Schakowsky. Are there protections for those 
whistleblowers?
    Mr. Fridman. Like retaliation kinds of things?
    Ms. Schakowsky. Yes.
    Mr. Fridman. I believe there are. Yes, there are.
    Ms. Schakowsky. OK. Good. You looked at the Florida--this 
is pretty amazing what you found in Florida, and they are the 
No. 1 supplier of durable medical equipment, I understand, 
right? They have the most number of outlets or whatever. But 
there is a No. 2 and a No. 3 and a No. 4. Have you followed up 
with some of these other places? It seems like a pretty 
lucrative thing to look at.
    Mr. Wright. Yes. The three counties that we reviewed in 
south Florida bill for 5 percent of the durable medical 
equipment nationally. Miami-Dade, one of the counties, has the 
highest concentration of suppliers of any county in the Nation. 
So we are now very much looking at other geographic areas to 
determine whether or not there might be similarly inappropriate 
businesses operating.
    Ms. Schakowsky. And finally, you said you have adequate 
resources to do this job. It seems, if I could be so crude as 
to say profit centers in a way for the Government because we 
are doing well by doing good, and so are there enough 
resources? You are asking for more.
    Mr. Fridman. Correct.
    Ms. Schakowsky. And is there enough staff to do this, Mr. 
Wright?
    Mr. Wright. I think there is. I think the additional 
resources will be very welcome. The President's budget, as 
previously mentioned, requests $183 million in a discretionary 
cap adjustment. We have had our HCFAC account frozen for 3 
years and for the next couple of years it will be increased by 
inflation. In addition to that, the Congress did provide to our 
office $25 million a year until 2010 to specifically do 
Medicaid fraud work so we do have those added resources. But 
clearly we can use the additional resources and we similarly 
expect to continue the return on investment that, as I 
mentioned in my testimony, is about 13 to 1 over the last 3 
years.
    Ms. Schakowsky. And I am assuming you go after the big-
ticket items here primarily in prioritizing where you do your 
investigations?
    Mr. Fridman. For the Department, I would like to address 
the resource issue as well, if I may?
    Ms. Schakowsky. Sure.
    Mr. Fridman. Our HCFAC account has been frozen as well 
since 2003 at $49.5 million, the FBI at $114 million, and we 
have had some inflationary erosion as a result of that being 
frozen for the last 3 years. We are asking the committee to 
support the President's 2008 budget request of $17.5 million 
because that will allow us to make up for that inflationary 
erosion, and also plan for the influx of cases that we expect 
to see from anti-fraud funding that HHS has gotten in the area 
of part D and so forth. So that will help us build our 
resources for the future. In terms of--I am sorry----
    Ms. Schakowsky. That you prioritize----
    Mr. Fridman. When we are looking at cases to take, when 
they come in we kind of triage them. We look at a variety of 
factors. We don't just take cases where there is going to be 
large monetary outcomes for us. We also look at factors like 
patient harm, where physicians are performing unnecessary 
surgeries. The dollar loss may be very small but we are going 
to pursue those cases because it benefits the public health. We 
have got to get those people off the streets so that is another 
factor that comes into our analysis.
    Ms. Schakowsky. I am out of time so----
    Mr. Pallone. Yes, but I do intend to come back again with 
another round, so if you want to stay. And I know Dr. Burgess--
I let my colleague go over 2 minutes so I am sure you will pay 
attention to that.
    Mr. Burgess. I will.
    Mr. Pallone. You are recognized.
    Mr. Burgess. I will make certain that there is equal 
distribution of extra minutes.
    Mr. Wright, you alluded to a 13 to 1 return on investment 
for Medicare fraud. Can you estimate how much, what is the 
total dollar value of fraud within the Medicare system? The 
Federal program spends--what--$270 billion a year. Is there a 
percentage or a figure that you have in your mind as to what of 
that is spent inappropriately?
    Mr. Wright. There is no reliable estimate on the amount of 
fraud and abuse in the program. It just doesn't exist. We have 
no way of systematically measuring it. The Medicare fee-for-
service does have an error rate but that is a payment error 
rate and we certainly have seen a dramatic decrease in that 
since it started in 1996, but in terms of fraud estimates, we 
don't have any reliable mechanism to measure it. So it is just 
sort of anecdotal.
    Mr. Burgess. The fee-for-service part, was that--I was a 
physician in private practice prior to coming to Congress so 
was that what we used to see as the compliance plan that we all 
to come up with sometime in 2000 or 2001?
    Mr. Wright. It is a random sample of claims and then a 
medical review of those claims to determine whether or not they 
in fact should have been paid.
    Mr. Burgess. And that is applied to----
    Mr. Wright. The total fee-for-service universe.
    Mr. Burgess. For physicians, for hospitals, for everyone?
    Mr. Wright. Yes.
    Mr. Burgess. A, B, C and D?
    Mr. Wright. Correct.
    Mr. Burgess. Are there certain segments of the Medicare 
Program that are more prone to fraud and abuse?
    Mr. Wright. Certainly. I think as we have seen with durable 
medical equipment, there are areas that are more problematic 
than other areas. That is correct.
    Mr. Burgess. And certainly the list you gave which was--or 
I guess Mr. Fridman gave that was pretty incredible. Is there--
does this affect every part of Medicare A, B, C and D equally 
or is it a bigger problem in the Medicare Advantage plans or is 
it a bigger problem in the physician's world or the hospital's 
world or the part B drug program?
    Mr. Wright. I think we have seen more problems with the 
durable medical equipment benefit, with independent diagnostic 
testing facilities, and some other ancillary services where 
there just aren't as many programmatic controls over provider 
entry. We certainly have fraud associated with hospitals but 
those are more secure entities and don't set up shop, bilk the 
Government for millions of dollars and shut down. So certainly 
on some of the ancillary services in part B, I think we have 
seen more problems.
    Mr. Burgess. And again, could you quantify that for part B?
    Mr. Wright. No. All we can do is refer to individual cases 
where we have done reviews. We did a specific medical necessary 
review of wheelchairs and isolated parts of the program we can 
tell you how much Medicare is paying inappropriately.
    Mr. Burgess. To what extent is the stage set for fraud by 
the way that Medicare is in fact administered, the fact that it 
is more lucrative for someone who provides wheelchairs to 
handicapped patients, it is more lucrative for that person to 
lease rather than just to sell the chair where the chair would 
be in the patient's realm for the rest of their life whereas a 
lease is something that is going to deliver dollars back to the 
business repetitively. Do we set ourselves up for this?
    Mr. Wright. I would say especially in the area of durable 
medical equipment that we have seen historically two problems. 
One is, we are overpaying for the equipment. Medicare should be 
an efficient purchaser of health care services.
    Mr. Burgess. And let me just stop you there. Whose fault is 
that? As legislators, if we want to get our arms around that 
part of the problem, where is the beef, where is the bank? How 
do we do that?
    Mr. Wright. You have to a certain degree--in the MMA a 
provision called for competitive bidding associated with 
durable medical equipment. The competitive bidding prices that 
suppliers submit in the geographic areas where there is 
competitive bidding will ultimately be used to set 
reimbursement rates nationally. The problem that we have seen 
historically in the area of DME is the fee schedules were based 
on 1986 charges to the program. Whatever claims suppliers 
submitted back in 1986 basically became the fee schedule. There 
wasn't a market-based price for the individual pieces of 
equipment. The competitive bidding provisions that you have 
enacted should in large part provide some kind of market check 
so that Medicare can be an efficient purchaser of the 
equipment.
    Mr. Burgess. And when will that begin to kick in?
    Mr. Wright. It begins to start next year.
    Mr. Burgess. Next year?
    Mr. Wright. Yes, in 2008.
    Mr. Burgess. Man, we are slow.
    You are going to do a second round?
    Mr. Pallone. Yes.
    Mr. Burgess. I will yield back.
    Mr. Pallone. Thank you.
    I was going to ask Mr. Wright a couple of questions here. 
Your testimony highlights vulnerabilities in Medicare oversight 
of durable medical equipment, prosthetics, orthotics and 
suppliers. Durable medical equipment coverage is very important 
for millions of Medicare beneficiaries. However, in order to 
protect the benefit and protect beneficiaries from excess out-
of-pocket costs as a result of improper payments, obviously it 
is an important area. But why is it that this is a continuing 
area of vulnerability, Mr. Wright, when the Office of the 
Inspector General, CMS, DOJ have all been working on it for 
years? Are there changes we can make to the payment system to 
reduce the incentives for fraud and abuse in these various 
providers?
    Mr. Wright. I think again there are two primary reasons why 
we have seen the level of abuses that we have seen. As I 
mentioned earlier, one is the prices that we are paying for the 
equipment. The second area is the ease of enrollment. Prior to 
1994, there were no DME supplier standards. At that time 11 
standards were created. There are now 21 standards. There are 
soon to be 25 when accreditation comes in with the competitive 
bidding. Back when I started working for HHS, in order to get a 
provider number, all you needed to do was submit a claim and if 
you didn't have a provider number, the Government assigned you 
one. So we have come a long way, but given the findings that we 
have in south Florida, clearly there is still ease of entry and 
we are seeing suppliers come into the program, set up 
businesses and then, at least when we visited them appear, not 
to be operating as normal businesses. So I think some of the 
recommendations that are both in my testimony and in the report 
need to be visited in terms of tightening up supplier 
standards.
    Mr. Pallone. OK. Thanks. And the second thing I was going 
to ask you is, you gave us this testimony on the Office of the 
Inspector General's valued work on drugs that are paid for 
under part B and with the help of those reports were able to 
change the part B reimbursement system from a system where the 
drug costs set the price to a much more reasonable system based 
on the average sales price. These changes have been difficult 
for some providers to adjust to but the new system is saving 
both beneficiaries and taxpayers. But can you remind us of your 
findings regarding the adequacy of payments under the new 
average sales price plus the 6 percent reimbursement 
methodology, and why does the office believe we need to further 
refine the average sales price calculation? Do you have any 
estimate of how much these changes would save?
    Mr. Wright. I would certainly be happy to answer. We 
produced a large body of work over the years that showed that 
the prior reimbursement system used for Medicare part B drugs 
was systematically flawed. It was a system called average 
wholesale price and we found that the prices that Medicare paid 
based on average wholesale prices did not resemble prices 
available to physicians and suppliers in the marketplace. There 
was a large body of work produced by our office. In one report 
in 2001, we found that for 24 drugs Medicare would have saved 
$761 million. The Congress then subsequently in the MMA changed 
to average sales price methodology, which is an auditable 
number as reported by the manufacturers. We have taken issue 
with the way CMS calculates the ASP numbers. In a report that 
we issued last year, we said that the methodology that CMS uses 
to calculate volume-weighted ASPs was mathematically flawed and 
we actually said in that report that the calculation difference 
resulted in a Medicare overpayment of $115 million. So we have 
taken that as sort of an issue with the way ASP is calculated, 
clearly a marked improvement over the prior system, but a 
little bit of a disagreement with CMS over the way it is 
calculated.
    And then additionally, the MMA requires us to do 
comparisons between ASP and AMP, average manufacturer price, 
and ASP and widely available prices. We have done reports in 
both of those areas that have suggested some further savings 
could be obtained by implementing the authority Congress gave 
CMS to lower these prices when there becomes a big discrepancy 
between those two amounts.
    Mr. Pallone. OK. Thanks a lot.
    Dr. Burgess.
    Mr. Burgess. Do you think that then gives any incentive 
when someone's reimbursement is based upon the average sales 
price plus six, if they have got a drug that has been around 
forever like 5-fluorouracil that costs pennies to administer or 
a newer drug that is still under patent that may be very 
expensive to administer. Is there any sort of bias in selection 
as to which drug might be better for that patient based upon 
the reimbursement value?
    Mr. Wright. I don't think that there is. The dispensing fee 
should be uniform and the ASP should be the average price that 
the manufacturers pay with some exceptions to calculate an 
average, and that is what we say that the Government will 
reimburse.
    Mr. Burgess. Some pharmacies will tell us that ASP plus six 
for medicines that are extremely low cost just simply are not 
worth their time to administer. Now we are not talking about 
infusion therapy, just something that might be sold off the 
shelves in the pharmacy as a prescription. Has that been a 
concern at all that there will be some medicines that are just 
simply no longer available to Medicare beneficiaries because 
the cost of carrying those medicines on the shelves is not fact 
made up by ASP plus six?
    Mr. Wright. I think that we want to continue to monitor the 
situation and to the extent issues are brought to our attention 
that there are access problems associated with ASP, we will 
want to go in and study that and provide CMS with information 
regarding how to structure the program so that in fact 
beneficiaries are able to get the prescription drugs needed.
    Mr. Burgess. OK. I have got to ask you this. I don't want 
to. What about the issue of upcoding? Has that been an issue in 
your investigations? I am briefly talking about physician 
practices.
    Mr. Wright. Certainly, upcoding is one of the fraud schemes 
that we see.
    Mr. Burgess. Well, wait a minute. It is sometimes in the 
eye of the beholder.
    Mr. Wright. Yes, that is where I was just about to go and--
--
    Mr. Burgess. Because we always feel like you guys downcode.
    Mr. Wright. Yes, and to the extent we have done the fee-
for-service error rate, we have both reported--when we used to 
do that error report--we have reported both on upcoding and 
downcoding and netted the two out in terms of reporting any 
overpayments that the Government has made, and I believe that 
that is the way that CMS continues to do that. So in terms of 
upcoding, it is more of an issue that we have seen when we have 
done medical necessity reviews and we have just said that 
certain procedures or services didn't meet the code that was 
billed and suggested that the Government overpaid the 
difference between the lesser code. But that is different from 
fraud where you have to demonstrate a pattern andmeet a 
different standard.
    Mr. Burgess. Well, an office, for example, that bought 
coding software, would that be evidence that they intended to 
defraud Medicare?
    Mr. Wright. Only if it is set in a way where they know 
that.
    Mr. Burgess. I knew I didn't want to ask that question. Is 
Medicare any more prone to this type of activity than, say, 
Medicaid, the Federal prison system, the VA, the Indian Health 
Service, all of the other ways that the Federal Government 
dispenses health care? Or is the same vulnerability present 
within other areas?
    Mr. Wright. Yes, I think it is probably the same 
vulnerability. To the extent the VA provides health care more 
directly, it is a different system, but certainly in terms of 
OPM and other Government programs, you see the same kinds of 
vulnerabilities. It is the shear size of Medicare that gets it 
the attention that it gets. We are talking billions of dollars, 
and even if fraud stays constant, as the dollars increase, you 
are talking about a large magnitude of a problem.
    Mr. Burgess. Mr. Fridman, let me just ask you in the 
limited time we have left, typically how will a case get 
initiated? Does someone bring it to your attention? Do you 
figure it out from billing records? Do you have computer flags? 
Do you have your own software that you employ?
    Mr. Fridman. We don't. We rely on HHS, specifically CMS, to 
provide us with data to back up our cases when it involves 
Medicare Program data, but to answer your question about where 
we get our cases from, basically there is three, maybe four 
main sources. One source is the FBI. The HCFAC program spends 
$114 million on dedicated FBI agents that are deployed across 
the country in task forces to look at health care fraud in 
different regions of the country so the FBI is a large source 
for case referrals for us. Another source is the HHS Office of 
the Inspector General. We get a lot of case referrals from them 
as well. Another source is whistleblower cases. Those provide 
another source of referrals. And then we also get referrals 
working other cases. We could be working a drug case and 
someone has information on a Medicare scam and so forth. So we 
work all our possible leads to take in cases.
    Mr. Burgess. That also worked for electronic media from Los 
Alamos as it turns out.
    Before we close, can I just ask one question about the 
oxygen? Because you brought it up, Mr. Wright. We attempted to 
put some parameters, some boundaries around oxygen therapy, the 
length of time in the Deficit Reduction Act a couple of years 
ago and that was probably one of the most contentious parts of 
the conference committee and eventually we came up with a 
limit. Previously it was unlimited and we limited it to 36 
months, and I get the impression from your testimony that 36 
months is not going to do the job, that that type of limitation 
is not going to provide the protections that the taxpayer needs 
in this regard.
    Mr. Wright. Yes. Clearly, based on the data in our report, 
we suggested that more than $7,000 over the span of 36 months 
for a piece of equipment that costs less than $600 and requires 
very minimal servicing is excessive. So we do think that there 
is room for the Congress to take further payments reductions 
associated with oxygen equipment, and that is what the report 
recommended, that CMS work with the Congress to consider 
further reducing the payment rate. The other capped rental 
categories have a payment rental of 13 months and then the 
Medicare payments stop.
    Mr. Burgess. Are there other areas that have this type of 
return available to them? Are there other areas that you have 
looked into besides just the home oxygen therapy?
    Mr. Wright. Over the years we have looked at wheelchairs in 
terms of the pricing and we did find in a report we issued in 
2004 that Medicare was overpaying $284 million based on prices 
that were available on the Internet. You just go on the 
Internet and get a better price than Medicare. And going back 
further in time, we have looked at hospital beds. So we have 
sort of gone piece of equipment by piece of equipment and 
suggested that Medicare is paying too much. And hopefully, 
again, the competitive bidding will be a fix to get a market-
based price.
    Mr. Burgess. What about in the case of nursing homes with 
providing services like physical therapy? Is there 
overutilization that is occurring there that is costing the 
taxpayers money?
    Mr. Wright. We have done reviews of physical therapy in 
nursing homes. It is a little dated at this point but we have 
specifically done random samples of physical therapy, 
occupational therapy, speech therapy in nursing homes.
    Mr. Burgess. And what type of conclusion did you draw?
    Mr. Wright. There were payment errors. I can't tell you off 
the top of my head what the numbers were but we were finding 
inappropriate physical therapy payments.
    Mr. Burgess. Just the last thing, is Medicare Advantage any 
more prone to any of these issues of fraud than the other 
traditional parts of Medicare, the fee-for-service, part A, 
part B, part D?
    Mr. Wright. You have different things to be concerned about 
because the program is fundamentally different. You don't have 
to worry as much about the payment side of things because in 
general Medicare is paying a capitated payment rate but you do 
have to worry about other abuses such as marketing and 
enrollment and underutilization because there is an incentive 
to underutilize.
    Mr. Burgess. I see. And you also talked about quality 
assurance. Is your office involved in the implementation of the 
quality assurance measures, the PVRP or whatever the heck we 
are going to call it when it comes out in June? Do you keep an 
eye on that as well?
    Mr. Wright. We do lots of work associated with the quality 
of care both in nursing homes, hospital quality oversight, ESRD 
quality oversight. We have looked into a number of areas 
looking at whether or not the oversight mechanisms are in place 
to ensure that beneficiaries get the care that we all want them 
to get.
    Mr. Burgess. And have you come to any conclusions about 
that?
    Mr. Wright. On the various systems that we have looked at, 
we have reported certain weaknesses.
    Mr. Burgess. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you. We are having such a good time 
here, we will just keep going.
    Let me mention too, the members know that you can submit 
additional questions for the record and so you may get 
additional questions from us, and they will be submitted to the 
clerk within the next 10 days so you may get those additional 
questions.
    Let me thank both of you again. Really, I think what you do 
is so important, and as you said, Mr. Wright, particularly when 
you are talking about Medicare, there is just so much money 
involved here that it not only gets the media attention but 
obviously it gets our attention because that money could be 
used for other purposes. So I really appreciate your being here 
today and taking our questions. Thanks a lot.
    Without objection, the meeting of the subcommittee is 
adjourned. Thank you.
    [Whereupon, at 6:20 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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    [GRAPHIC] [TIFF OMITTED] T8015.067
    
            Leslie V. Norwalk Answers to Submitted Questions

                       The Honorable Hilda Solis

     The Private Fee-For-Service (PFFS) plans are paid the most 
even though they do not coordinate care for their 
beneficiaries. Most of these plans are found in rural areas. In 
your testimony, you state that racial and ethnic minorities 
represent 27 percent of total Medicare Advantage enrollment. 
What added benefit do these PFFS plans bring to patients? How 
many minorities are actually enrolled in these plans?

     Rural beneficiaries traditionally have not had access to 
additional benefits offered via other MA products. On average, 
PFFS plans are providing beneficiaries with an added $63 each 
month in additional value. For example, PFFS plans use rebate 
dollars to offer additional benefits such as vision and dental 
care and cost sharing savings. The chart below illustrates some 
of the cost sharing savings that are offered to PFFS enrollees.

  Percent of PFFS Beneficiaries Enrolled in PFFS Plans with Specific 
                               Attributes

    Benefit Structure/Percent of PFFS Beneficiaries Enrolled in 
a PFFS Plan of this Type
      Catastrophic cap between $1,001 and $5,000: 28 percent
      $1,000 or less for a 90-day hospital stay: 81 percent
      No premium beyond the Part B premium: 62 percent
      Unlimited coverage for inpatient hospital days: 88 
percent
      No prior hospitalization requirement before a SNF 
admission: 89 percent
      Primary care physician copayments of $20 or less: 94 
percent
      Prostate and cervical and cancer screening with no 
coinsurance: 99 percent

    While the number of minorities enrolled in PFFS plans is 
not currently available, we do have data available on the 
percent of PFFS enrollees that live in rural areas. 
Approximately 31 percent of PFFS service enrollees live in 
rural areas. Whereas, only about 4.4 percent of MA enrollees in 
coordinated care plans live in rural areas. This difference 
highlights the important role that PFFS plans play in providing 
rural beneficiaries with choices in their health coverage.

     In your testimony, you state that the President's proposed 
budget will save money. While I agree that Medicare needs to be 
efficient in its use of dollars, program efficiency should not 
result in less access to care for our seniors. I'm concerned 
about the effect of reduced Medicare payments to our hospitals, 
especially since many of our safety-net hospitals are already 
struggling to make ends meet. Even worse, many of the same 
hospitals are facing reductions in Medicaid payments. What will 
be the impact of reduced Medicare payments on our safety-net 
hospitals'especially the proposed rule that is supposed to take 
place in September will also result in fewer Medicaid dollars?

     The Medicare Payment Advisory Commission (MedPAC) has 
noted that hospitals have been able to reduce costs under 
tighter price pressures. A modest reduction in the update of 
0.65 percentage points would encourage efficiency, while 
maintaining access to care. It is vital that we do everything 
we can to maintain the solvency of the Medicare program and pay 
as efficiently as possible.
    Since the implementation of the inpatient prospective 
payment system for acute care hospitals, the average actual 
increase in the market basket has been approximately 1.3 
percentage points less than the average projected market basket 
increase (or only 66 percent of the average projected market 
basket increase). In light of these historical findings, and 
given hospitals' ability to adjust to market conditions, an on-
going adjustment for productivity would likely not affect the 
ability of hospitals to furnish high quality inpatient services 
to Medicare beneficiaries.
    We have great faith in the market's ability to adapt 
without reducing access. Since 2002, more hospitals have opened 
then closed each year, suggesting that while margins may be 
low, access to care is still improving.

                      The Honorable Barbara Cubin

     The Medicare Modernization Act of 2003 authorized a two 
percent Medicare home payment for ambulance trips in rural 
areas, as well as a five percent add-on payment for home health 
services in rural areas. Both programs were authorized to 
preserve access to care in rural areas, where providers face 
unique geographic difficulties in providing these services. In 
Wyoming, roughly half a million people are spread out over 
almost 100,000 square miles. Both of these provisions have 
expired, and were not extended in the President's fiscal year 
2008 budget. What is the Center for Medicare and Medicaid 
Services' justification for not proposing to extend these 
provisions, and do you have concerns about how it will affect 
access to care in rural areas?

    The Centers for Medicare & Medicaid Services (CMS) has made 
a strong commitment to rural health issues and has made many 
significant regulatory and departmental reforms to address the 
needs of rural America.
    The Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) included a number of provisions 
to enhance beneficiary access to quality health care services 
and improve provider payment in rural areas. The provisions in 
the MMA included the continuation of two payment policy trends 
that have increased rural provider payment rates in recent 
years: (1) an expansion of opportunities for rural hospitals to 
receive cost-based payments from Medicare and (2) a number of 
PPS payment rate adjustments that benefit rural providers . As 
you mentioned in your question, these provisions included a two 
percent payment increase for ground ambulance trips that 
originate in rural areas and a five percent add-on payment for 
home health services furnished in rural areas.
    A number of the provisions in the MMA were time limited but 
have been extended in later legislation, including the Deficit 
Reduction Act of 2005 (DRA) and the Tax Relief and Health Care 
Act of 2006 (TRHCA). CMS has worked expeditiously to implement 
all of the provisions in recent legislation, recognizing their 
importance to rural communities. Although the President's 
fiscal year 2008 Budget did not include proposals to extend the 
expiring rural provisions you mentioned in your question, CMS 
will continue to work with Congress to address disparities in 
rural reimbursement and to improve the quality and value of 
care delivered to all Medicare beneficiaries.
    As always, I welcome your comments and suggestions to 
improve the quality of America's health care programs. I remain 
committed to ensuring equal access to high-quality, up-to-date 
care for Medicare beneficiaries residing in rural areas. You 
can be assured that this Administration will continue its 
efforts to help address the concerns of rural Americans.
                              ----------                              

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[GRAPHIC] [TIFF OMITTED] T8015.069

               Mark Miller Answers to Submitted Questions

          Replies to questions from Congresswoman Hilda Solis

    MedPAC is an independent Federal body, and I thank you for 
coming today. In your testimony, you stated that Medicare 
Advantage plans are overpaid and that not all of these plans 
provide better care to their patients. I understand many low-
income, minority populations are actually served by Medicaid. 
However, States such as California and Florida tend to have 
higher Medicare Advantage plan penetration rates and more 
minority populations. I am extremely concerned about any 
potential adverse consequences on minority populations. Will 
cuts to Medicare Advantage plans harm minority populations in 
States with high Medicare Advantage penetration rates?

    Even before the 2003 Medicare Prescription Drug Improvement 
and Modernization Act introduced the Medicare Advantage (MA) 
program, private plans in many markets offered rich benefit 
packages. Plans often offered these extra benefits because they 
achieved efficiencies in delivering the basic Part A & B 
benefit. If payments to MA plans are reduced, we believe that 
beneficiaries in many market areas will continue to have MA 
plans available that provide coordinated care and extra 
benefits to enrollees. However, their benefit packages may be 
less generous than they are currently.

    As we have pointed out in several of our reports, the 
Medicare program pays on average 12 percent more to MA plans 
than for FFS and this payment policy discourages efficiency. 
Using MA to provide low-income subsidies is unnecessarily 
costly. For example, one MA plan option private fee-for-service 
plans require 9 percent more in Medicare program payments than 
traditional FFS. The extra benefits PFFS plans offer to 
beneficiaries are financed entirely through higher Medicare 
program payments and beneficiary premiums (paid by all 
beneficiaries), rather than through efficiency gains. Moreover, 
providing low-income subsidies through MA plans is poorly 
targeted--reduced cost-sharing for example, is provided to 
everyone who enrolls in the plan, regardless of their income. 
In sum, Medicare Advantage plans are not an efficient vehicle 
for delivering benefits to low-income Medicare beneficiaries. 
Medicare savings programs, for example, may be a more effective 
way of targeting assistance to low-income populations.

    The Private Fee For Service (PFFS) plans are paid the most 
even though they do not coordinate care for their 
beneficiaries. Most of these plans are found in rural areas. In 
your testimony, you state that racial and ethnic minorities 
represent 27 percent of total Medicare Advantage enrollment. 
What added benefit do these PFFS plans bring to patients? How 
many minorities are actually enrolled in these plans?

    MedPAC does not currently have data on the number of 
minority enrollees in private fee-for-service (PFFS) Medicare 
Advantage (MA) plans. The most recent publicly available data 
on minority enrollment in MA overall are from 2004 and 2005--
before the large growth in PFFS enrollment. We do not know 
whether PFFS enrollment patterns for minorities are similar to 
the patterns of plans that had Medicare contracts in 2004 and 
2005.
    PFFS plans are less efficient than traditional Medicare in 
terms of the cost of providing the Medicare Part A& B benefit 
package. PFFS plan bids show that on average their cost of 
providing Part A & B Medicare benefits is 109 percent of the 
cost in traditional Medicare. However, PFFS plans have been 
drawing their enrollment from counties with benchmarks well 
above Medicare fee-for-service (FFS) expenditure levels. This 
enables PFFS plans to generate ``rebate'' amounts (75 percent 
of the difference between plan bids and the county benchmarks) 
that are used to provide extra benefits. For example, under the 
current payment system and given PFFS plans bids, Medicare pays 
the plan 19 percent above FFS amount and 10 percent goes to the 
beneficiary in extra benefits. Bear in mind that these are 
``fully loaded'' benefits. That is, even though 10 percent is 
provided in extra benefits, some percentage of this amount is 
consumed in administrative overhead (e.g., salaries); marketing 
costs; and plan profits.
    The most common extra benefit is the reduction of average 
beneficiary cost sharing to levels below the average amount in 
Medicare FFS. PFFS plans also provide extra services (such as 
hearing aids, and dental and vision care), or reduced premiums. 
However, all of these extra benefits stem from plan 
overpayments (above Medicare FFS levels), not from PFFS plan 
efficiencies. Unlike other MA plan types, PFFS plans are not 
required to coordinate care for their enrollees, as noted in 
the question, and they do not participate in the quality 
improvement activities required of other plans.

         Replies to questions from Congresswoman Barbara Cubin

    While 28 percent of Medicare beneficiaries live in rural 
areas, it is my understanding that just one of the seventeen 
Medicare Payment Advisory Committee (MedPac) members has solid 
rural credentials. In fact, I am an original cosponsor of 
legislation (H.R. 1730) to ensure that rural experts are 
represented on MedPac as a percentage equal to their proportion 
of Medicare beneficiaries that live in rural areas. Could you 
detail how MedPac currently ensures that the unique needs of 
rural areas are taken into consideration when formulating 
recommendations to Congress?

    Many of our Commissioners have solid rural credentials. 
Commissioners with specific rural experience and/or that are 
from rural areas include: Dr. Nick Wolter, Dr. Karen Borman, 
former Senator Dave Durenberger, and Dr. Thomas Dean (4 out of 
17 Commissioners). In addition, there are other Commission 
members that have raised rural concerns during the Commission 
work cycle.
    MedPAC staff also have extensive knowledge in rural issues 
and have traveled to many rural areas in recent years to study 
rural healthcare delivery and payment issues, including visits 
to rural areas in Oklahoma, Montana, North Dakota, South 
Dakota, Iowa, and Kansas. We have published three reports 
devoted to rural issues: Report to the Congress: Rural Payment 
Provisions in the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003, December 2006; Report to the 
Congress: Issues in a Modernized Medicare Program, Chapter 7: 
Critical access hospitals, June 2005; and Report to the 
Congress: Medicare in Rural America, June 2001. In addition, we 
deal with rural issues regularly in our annual Congressional 
reports.
    MedPAC has carefully evaluated the concerns of rural 
providers over the years and made a number of recommendations 
benefiting rural hospitals that Congress or CMS have 
implemented. In the MMA, Congress enacted our recommendations 
to increase the cap on rural disproportionate share (DSH) 
payments and to set the base payment amount for rural hospitals 
equal to that of urban hospitals. Between 2001 and 2007, we 
made several recommendations to improve the hospital wage index 
in ways that would help rural providers, and the Congress and 
CMS have implemented some of these. The resulting increase in 
payments to rural providers helps explain why rural hospitals 
achieved higher Medicare and all-payer margins than urban 
hospitals in 2005, and why rural hospital payments increased by 
$377 million, or 2.3 percent, in 2006 (MedPAC December 2006).
    Given the breadth of our legislative mandate, you can be 
assured that rural issues will continue to be a significant 
part of MedPAC's agenda.
                              ----------                              

    November 5, 2007

    Mr. Daniel S. Fridman
    Senior Counsel to the Deputy Attorney General and
    Special Counsel for Health Care Fraud
    Department of Justice
    950 Pennsylvania Avenue
    Washington, DC 20530

    Dear Mr. Fridman:

    Thank you for appearing before the Committee on Energy and 
Commerce on Wednesday, April 18, 2007, at the hearing entitled 
``Medicare Program Efficiency and Integrity.'' We appreciate 
the time and effort you gave as a witness before the 
subcommittee.
    Under the Rules of the Committee on Energy and Commerce, 
the hearing remains open to permit Members to submit additional 
questions to the witnesses. Attached are questions directed to 
you from certain members of the committee. In preparing your 
answers to these questions, please address your response to the 
Member who has submitted the question, including showing the 
Member's name, and include any text of the Member's question 
along with your response. The committee apologizes for the 
delay to you in forwarding this request to you, however, we 
believe your responses to these questions are important and 
they will be included in the hearing record. Your assistance is 
appreciated.
    To facilitate the printing of the hearing record, we ask 
that we receive your responses to these questions by the close 
of business on Monday, November 19, 2007. Please have your 
written responses delivered to 2125 Rayburn House Office 
Building and faxed to (202) 225-2525 to the attention of 
Christie Houlihan, Legislative Clerk. Please send, as well, an 
electronic version of your responses to Ms. Houlihan at 
christie.houlihan @mail.house.gov in a single Word formatted 
document.
    Thank you for your prompt attention to this request. If you 
need additional information or have other questions, please 
have your staff contact Ms. Houlihan at the Committee on Energy 
and Commerce at (202) 225-2927.

    Sincerely,

    John D. Dingell
    Chairman

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               Statement of the Power Mobility Coalition

    The Power Mobility Coalition (PMC), a nationwide 
association of suppliers and manufacturers of motorized 
wheelchairs and power operated vehicles, applauds the House 
Energy and Commerce Subcommittee on Health for holding a 
hearing examining ways to identify and eradicate fraud within 
the Medicare program.
    The PMC has long supported efforts aimed at removing 
unscrupulous actors from the Medicare program. In fact, it was 
several PMC members who first identified pockets of suspicious 
activity in the delivery of power mobility devices (PMDs) in 
Harris, Country Texas and then brought these concerns to the 
attention of the Centers for Medicare and Medicaid Services 
(CMS) as early as April, 2003. The PMC, along with other 
leaders of the durable medical equipment (DME) industry, then 
partnered with CMS in the implementation of the ``Wheeler 
Dealer'' program that sought to root out fraudulent activity in 
the Medicare PMD benefit.
    The PMC was very supportive of anti-fraud initiatives 
contained in the Medicare Modernization Act (MMA), including 
the requirement that a Medicare beneficiary see a health care 
practitioner for a face-to-face examination prior to the 
submission of a PMD claim, increased quality standards for PMD 
suppliers, and the provision that requires all DME supplies to 
be accredited by a nationally recognized accreditation body. 
While these are all positive steps in efforts to clean up the 
Medicare program, the PMC feels that more could be done and, as 
a result, offers the following recommendations to the 
subcommittees:

 All New DME Suppliers or DME Suppliers Who Are Renewing Their Supplier 
                       Number Must be Accredited

    CMS has released the new quality standards for all DME 
suppliers and has named the nationally recognized accreditation 
bodies that have ``deemed status'' to ensure Medicare quality 
standards are being met. Since all the pieces of the 
accreditation puzzle are now in place, CMS must insist that all 
new DME suppliers become accredited before they can be awarded 
a Medicare supplier number. Further, DME suppliers who have to 
recertify for a supplier number should also be immediately 
subject to the accreditation requirement.

    Accreditation Must Happen Prior to Implementation of Competitive 
                                Bidding

    Program integrity is paramount to ensure Medicare 
beneficiaries receive the highest quality of products and 
services from lawful suppliers. Stringent quality standards 
coupled with mandated accreditation of suppliers will rid the 
Medicare program of unscrupulous actors and reinforce the 
integrity of those suppliers who play by the rules.
    Implementing competitive bidding and allowing non-
accredited suppliers to participate in the bidding process is 
contrary to CMS' priority to safeguard Medicare resources and 
beneficiaries. Allowing non-accredited suppliers to bid and be 
awarded contracts will cause major disruption if the contracted 
supplier cannot obtain accreditation and the contract must then 
be terminated and subject to a ``rebid.'' In addition, non-
accredited suppliers would have lower overhead and, as a 
result, would be able to submit lower bids which could 
artificially lower the single payment amount for accredited 
contracted suppliers.
    While CMS has recently notified DME suppliers that they 
must be accredited by August 31st in order to be considered in 
the initial round of competitive bidding, there will still be 
many instances and many areas of the country where non-
accredited suppliers could be serving Medicare beneficiaries. 
Even in competitive bidding areas (CBAs), non-accredited 
suppliers who are ``grandfathered'' and allowed to serve 
beneficiaries in CBAs are under no pressing mandate to become 
accredited.

            Establish a DME Program Integrity Advisory Group

    DME manufacturers and suppliers know their business better 
than anyone and are constantly monitoring the marketplace. 
Lawful DME suppliers and manufacturers are anxious to share 
intelligence about potential fraudulent actors with CMS. The 
PMC recommends that CMS establish an advisory group comprised 
of DME suppliers, manufacturers and beneficiaries to work with 
CMS officials on developing proactive solutions to help detect 
and eliminate fraud.

   Require Physician Certification on Documentation Supporting a PMD 
                                 Claim

    As part of recent administrative changes to the Medicare 
PMD benefit, while a physician must provide a prescription for 
PMDs, CMS no longer requires that the physician certify the 
need. The PMC recommends that the algorithmic formula contained 
in the PMD National Coverage Determination be codified in a 
form that will then need to be certified, under penalty of law, 
by the physician. Such certification will strengthen the role 
of the physician as gatekeeper of the Medicare PMD benefit and 
put the physician in a position to ensure that the beneficiary 
meets the requirements necessary under the Medicare program to 
qualify for PMDs. A physician-certified document will also 
provide some much needed objectivity to the PMD claims process.
    The PMC appreciates the opportunity to comment on efforts 
to strengthen Medicare program integrity and provide 
recommendations for additional tools to help identify and 
prevent fraud. We, however, must raise caution when Medicare 
adopts overly restrictive anti-fraud measures that fail to 
distinguish between lawful suppliers and unscrupulous actors. 
These measures will only serve to further restrict access to 
PMDs, drive up program costs and deny needy beneficiaries high-
quality PMDs.
    The Medicare PMD benefit provides thousands of 
beneficiaries with freedom, independence and the ability to 
live more healthier and active lives. PMDs save the Medicare 
program money by keeping beneficiaries with compromised or 
limited mobility out of more costly institutional settings and 
decreasing the need for hospitalizations. We look forward to 
working with the committee to ensure that appropriate program 
safeguards are in place to protect both the Medicare trust fund 
as well as Medicare beneficiaries.

    Respectfully submitted,

    Eric Sokol, Director, Power Mobility Coalition
    Stephen Azia, Counsel, Power Mobility Coalition

                                 
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