[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
BUDGETING TO FIGHT WASTE, FRAUD AND ABUSE
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, JULY 17, 2007
__________
Serial No. 110-15
__________
Printed for the use of the Committee on the Budget
Available on the Internet:
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COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
JIM COOPER, Tennessee J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
ROBERT E. ANDREWS, New Jersey JOHN CAMPBELL, California
ROBERT C. ``BOBBY'' SCOTT, Virginia PATRICK J. TIBERI, Ohio
BOB ETHERIDGE, North Carolina JON C. PORTER, Nevada
DARLENE HOOLEY, Oregon RODNEY ALEXANDER, Louisiana
BRIAN BAIRD, Washington ADRIAN SMITH, Nebraska
DENNIS MOORE, Kansas [Vacancy]
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
[Vacancy]
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
James T. Bates, Minority Chief of Staff
C O N T E N T S
Page
Hearing held in Washington, DC, July 17, 2007.................... 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Prepared statement of.................................... 2
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 3
Hon. Mike O. Leavitt, Secretary, U.S. Department of Health &
Human Services............................................. 4
Prepared statement of.................................... 8
Linda Stiff, Deputy Commissioner for Operations Support,
Internal Revenue Service................................... 36
Prepared statement of.................................... 37
Stephen Goss, Chief Actuary, Social Security Administration.. 41
Prepared statement of.................................... 42
Timothy B. Hill, Chief Financial Officer, Centers for
Medicare & Medicaid Services............................... 45
Prepared statement of.................................... 47
Patricia Smith, Commissioner of the New York State Department
of Labor................................................... 51
Prepared statement of.................................... 54
Daniel S. Fridman, Senior Counsel to the Deputy Attorney
General & Special Counsel for Health Care Fraud, prepared
statement of............................................... 61
BUDGETING TO FIGHT WASTE,
FRAUD AND ABUSE
----------
TUESDAY, JULY 17, 2007
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:02 a.m. In Room
210, Cannon House Office Building, Hon. John Spratt [chairman
of the committee] Presiding.
Present: Representatives Cooper, Doggett, Scott, Etheridge,
Moore of Kansas, Hooley, Bishop, Baird, McGovern, Boyd,
Becerra, Ryan, Bonner, Simpson, Campbell, Alexander,
Hensarling, Smith, Lungren, Tiberi, Porter and Garrett.
Chairman Spratt. Good morning, and welcome to our hearing
on Congressional Initiatives to Combat Waste, Fraud and Abuse
in Federal programs. We have a panel of excellent witnesses
before us today, and I want to welcome all of them, and
especially say to Secretary Leavitt, who has testified before,
touched on the subject then and sparked our interest in it,
welcome back. And we look forward to your testimony initially.
Wasteful and fraudulent spending and taxpayer evasion and
noncompliance undermine our confidence in government, and they
contribute to our fiscal imbalance, our deficit. Each time
funds are diverted from their intended purposes, each time
taxpayers fail to pay what they owe, legitimate beneficiaries
and law-abiding taxpayers bear the burden. They pay the price.
In the year 2006, according to information reported to OMB,
Federal agencies made over $40 billion in improper payments. In
the year 2001, the IRS and the Treasury Department undertook to
determine how much was owed the Federal Government in taxes of
various kinds as opposed to how much was actually paid. The tax
gap they estimated that year is approaching $345 billion. If
only a fraction of these costs can be recovered, we could make
a significant reduction in the Federal deficit, and make room
for needed and I think long-neglected investments across the
board in our nation's future.
Earlier this year, just before testifying before the Budget
Committee, Secretary Leavitt described to Congressman Ryan and
me his experiences with a very far-reaching antifraud program
in Florida in which he had participated. He told us that if the
Congress agreed to provide additional funds dedicated to
cracking down on Medicare and Medicaid fraud the money would be
well spent and returned several times over. Mr. Secretary, we
got the message and we responded with $200 million of
additional compliance money for your agency. And we would like
to hear you elaborate upon how that could be used to good
effect this year. Reflecting or acting upon our commitment to
rooting out wasteful spending, we included in this year's
budget resolution all together about a billion dollars in
program integrity funds for four programs that account for a
significant share of improper payments and unpaid taxes. These
include $283 million for HHS, the Health Care Fraud and Abuse
Program; continuing disability reviews and SSI redeterminations
in the Social Security Administration, $203 million; IRS tax
compliance, $406 million; unemployment insurance, $40 million
to oversee and investigate improper payments beyond
eligibility. This is the first time in years the Congress is
taking a comprehensive approach, backed up by real money, to
investigate program integrity issues and included, as I said,
full funding for these critical initiatives.
The object of our hearing today is to help us understand
better the source, the extent, the cause of improper payments,
taxpayer evasion and noncompliance, how Federal agencies intend
to use additional enforcement resources, a return on investment
that we can reasonably anticipate from this initiative, and
what additional changes Congress could consider to further cut
down on wasteful spending.
We will begin our quest with Secretary Leavitt. Once again,
you are more than welcome to be here. We very much appreciate
you coming for a second round. We can make your statement, if
you would like, part of the record, and you can summarize it as
you see fit. But thank you for coming. The floor is yours. Oh,
it is not. I beg your pardon. Mr. Ryan, my colleague, my able
colleague, has asked--he just cut off my own. As usual, I defer
to Mr. Ryan for an opening statement of his own.
Mr. Ryan.
[The prepared statement of Mr. Spratt follows:]
Prepared Statement of Hon. John M. Spratt, Jr., Chairman,
Committee on the Budget
Good morning and welcome to the House Budget Committee's hearing on
combating waste, fraud and abuse in federal programs. We have an
excellent panel of government witnesses before us including the
Secretary of Health and Human Services, Mike Leavitt and I thank them
for their participation in this hearing and hard work on this topic.
Ensuring the wise and effective use of taxpayer dollars is one of
the Budget Committee's most important responsibilities. Wasteful and
fraudulent spending and taxpayer noncompliance undermine confidence in
the government, contribute to our long-term fiscal imbalance and
jeopardize support for needed programs. Ultimately, this is about
fairness. Each time funds are diverted from their intended purpose or
taxpayers fail to pay what they owe, cynicism in government increases,
legitimate beneficiaries are harmed and our shared sense of community
is diminished.
In 2006, according to information reported to OMB, federal agencies
made over $40 billion in improper payments. Similarly, the ``tax gap''
(that is the gap between taxes owed and those collected) is approaching
$345 billion a year. If only a fraction of these costs could be
recovered, we would make a significant dent in the federal deficit and
begin to make room for needed and long neglected investments in our
nation's future.
To this end, the 2008 budget resolution contains appropriation cap
adjustments for four programs that account for a significant share of
improper payments and unpaid taxes. These include: the Health Care
Fraud and Abuse program, Continuing Disability Reviews and SSI
Redeterminations, IRS Tax Compliance, and Unemployment Insurance
improper payment reviews. This is the first Congress in years that has
taken a comprehensive approach to program integrity issues and included
full funding for these critical enforcement initiatives.
The objectives of our hearing today are to better understand the
sources and extent of improper payments and tax noncompliance, how
federal agencies intend to use their additional enforcement resources,
the return on investment that can be anticipated from this initiative,
and what additional changes Congress should consider to further cut
down on wasted spending..
We will begin with Secretary Leavitt who has taken on this issue as
a personal challenge. Earlier this year Secretary Leavitt shared with
Congressman Ryan and me, some very interesting observations about an
anti-fraud operation in Florida that he had participated in. I've asked
him to discuss this as well as the broader efforts HHS has undertaken
to tackle this critical issue.
Mr. Ryan. Thank you, Mr. Chairman. I appreciate the fact
that you are holding this hearing, and I want to thank my good
friend, Secretary Leavitt, for coming here and being with us
today. You know, bipartisanship might seem often in short
supply around here, but reducing the amount of waste in
government programs is a goal that both of us can clearly agree
on, because after all, we are spending someone else's money,
and we have a moral obligation to do it as wisely and
efficiently as possible.
But while we spend a lot of time talking about wasteful
appropriations spending, and we have taken important steps to
clean up the earmark process, we tend to spend precious little
time talking about waste, fraud and abuse in the mass of
entitlement spending programs. I want to commend Secretary
Leavitt for his efforts on this front. And I also want to
commend the chairman of the majority for including measures to
fight abuse in their budget resolution. That was a great reform
to see. I am very interested in hearing from the Secretary
about the effectiveness of these measures. And I look forward
to reviewing any data that examines whether these initiatives
have achieved their potential in the past. Just as I noted,
everyone can agree that Congress should and must work to reduce
waste, fraud and abuse in government programs. But I think most
would agree there is often room for much improvement in the way
we go about doing this. The average taxpayer must find it a
little ironic when Congress sets out to improve a program's
efficiency by giving it even more tax dollars. The cap
adjustments we are talking about today operate on just that
premise. If we ask a government program to find out ways to
reduce wasteful spending, we give them even more money than
they already have to do it. It seems to me that this is
something these programs should be doing as a matter of course.
It should be already a priority under their normal budget
request, to ensure that their resources are being allocated to
those who truly need it. This should be standard operating
procedure for all government programs. So while these measures
are certainly commendable and while they may provide an impetus
for some improvement, they are not a long-term answer. As we
have seen in the past, the best way to ensure a reduction in
programs' waste, fraud and abuse is to mandate reform through
the regular reconciliation process. Because when Congressional
committees are actually required to reform programs and find
savings, they tend to look a whole lot harder than if they were
simply given the option. Now we were just reminded of this when
Congress passed the Deficit Reduction Act, in which we not only
managed to achieve necessary reforms, but we did so in the same
Medicare program that we are talking about here today. And at
the same time, we also saved taxpayers $40 billion in the
process without spending an extra dime. We need regular
oversight. We need regular reform. And I believe the best way
to ensure that this is achieved is through the regular budget
reconciliation process. And we ought to do this every single
year. And I look forward to today's discussion on how it might
be combined with or replace other waste-reducing measures.
These observations aside, I want to again commend the
administration and the Secretary for all their efforts to
improve government efficiency and effectiveness. While we may
disagree on the best way to get there, we both certainly agree
on the objectives we are trying to achieve. And I look forward
to working together with the Chairman and the gentleman from
South Carolina to make the Federal Government more accountable,
more sustainable and more effective for the American taxpayer.
And I thank you for your indulgence, Mr. Chairman, and I look
forward to your testimony.
Chairman Spratt. Thank you, Mr. Ryan. And before
proceeding, I ask unanimous consent that all members have a
right to file an opening statement within 5 days of this
hearing. Now, Mr. Leavitt, you have the floor.
STATEMENT OF HON. MIKE O. LEAVITT, SECRETARY,
U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES
Secretary Leavitt. Thank you, Chairman Spratt and
Congressman Ryan. I am very pleased to be here to talk about
this. As you indicated, Medicare blesses the lives of millions
of our citizens. Regrettably, however, $300-plus billion a year
attracts people who would defraud and misuse and abuse for
their own purposes those dollars. And it requires an aggressive
and a vigorous response from us.
Regrettably, as I said, this exists everywhere, but today I
want to talk a little about some areas that are particularly
prone to this, the Miami and Los Angeles metropolitan areas.
Over the last 2 years, the number of durable medical equipment
suppliers, for example, claiming to operate out of southern
Florida and southern California has doubled. As you might
expect, the number of claims for Medicare reimbursement from
those suppliers is disproportionately high. Additionally, the
Miami-Dade area has the highest ratio of suppliers to
beneficiaries of any place in the nation. Broward and Palm
Beach Counties aren't far behind them. These three counties in
Florida, according to the contractor data, account for
approximately 5 percent of the entire number of DME payments on
a national basis.
So it isn't a surprise, I suspect, that we began to focus
on those areas. I have seen this firsthand. In December of last
year, I went to southern Florida, and I went out with a group
of agents from the Office of Inspector General. We had planned
for that week to do an operation that would visit, on an
unexpected basis, almost 1,600 DME suppliers. I just have to
tell you what I saw was one of the most discouraging things I
have observed in public life. We drove down the streets in this
area, and you know, I suspect it is like this in other areas,
but as they began to point out the number of these suppliers
along the street, I was surprised. They suddenly appeared to be
everywhere. We stopped at a small strip mall, and there were
three of them in this small strip mall. Just as a matter of
background, when a person or an organization desires to be
accorded a number for Medicare to be able to bill, they have to
meet 21 different requirements. Those requirements include
things such as having a physical facility. They have to be
accessible during business hours. They have to have a visible
sign. They have to post their hours of operation. They have to
maintain a telephone number. In addition to that, they have to
have a supply of durable medical equipment. There are a number
of others among those 21 in order to get their license or their
number, they have to go through all 21 of them, and there is a
physical inspection.
Well, in this particular operation, they were going to look
at just those five to see how they were doing. I walked up to
all three in this little shopping mall. And yes, on the door
there was a sign, and there was in fact a phone number. And if
you peered through the window, you could see that on the shelf,
there were three or four items of durable medical equipment.
And there were a couple of chairs and a fax machine and--it was
very clear that all of them had essentially the same thing. But
there was no one there.
Now, this was right during the middle of the day. And so I
would call, using my cell phone, the number. And I would get
someone who would answer, someone would answer, but they didn't
ever speak English, so we didn't have much of a conversation. I
asked the members that I was with, the agents, if they had a
record of how much those particular organizations had billed.
And it was in every case in the hundreds of thousands and, in
some cases, in the millions of dollars that they were billing
Medicare. We then went to an office building not far from
there. If I could describe this, it is probably 20,000, 30,000
square feet. It was on two levels. You walked into a small
atrium, and on the side, there was a marquee. I would guess on
the marquee, 50 businesses there. Probably 35 or 40 of them
would have been medical equipment operators. If you can just
envision walking down long halls, they were orange, and on each
side almost like a dormitory, there were doors. And on each of
the doors, there was a small marquee that listed the name of
the company, the phone number and the office hours, checking
off the boxes. You would try to open the door, there would be
no one there. You would knock on the door, there would be no
one there. This is in the middle of the day. Finally, you would
get to a place where you would find someone, you could hear
them in there, and you would knock on the door until they
opened, and it would generally be a female who had small
children who was there. And I later found out that they were
hired to wait until someone could come in order to do the
inspection of the 21 points. But in each one, you would see a
couple of chairs. You would see some shelves, a small supply of
durable medical equipment. It was very clear this was
essentially a cookie-cutter operation. I found a couple of
places that were quite busy. They were billing operations. And
what I learned was that the billing operations were retained by
these medical equipment operators, and they would do all of the
billing or back shop for them. In essence, many of them would
rent, if you will, lists of Medicare numbers that had been
fraudulently obtained, and the billing organization would do
the operation. It was all electronically conducted.
I found the office manager, the building manager, and we
were doing some investigation, and I just stood by as the agent
said, I am interested in renting some space here. I would like
to go into the medical equipment business. Well, what is it you
would like to be in? Well, you know, I don't know much about
this. Well, he said, you need somewhere between 150, 170 square
feet, depending on if you want to be in diabetics or--and he
said, you don't seem to know much about this. And he opened the
drawer and pulled out a card and said, call this consultant.
She can help you get into this business. I called. And sure
enough, for a fee, she would be willing to sit down and help me
through how to get into this business. It was a discouraging
and awful display.
I was told that there were three or four office buildings
just like that in that one area. As I mentioned, during that
week, in a combined operation between the Office of Inspector
General and the U.S. Attorney there, Alex Acosta, who has been
just terrific in all of this, they visited 1,581 suppliers.
They found that 31 percent of them, or 491, didn't comply with
even the first two requirements. In the calendar year of 2006,
those 491 suppliers had billed nearly $390 million. They were
allowed $111 million and paid almost $89 million. While I was
there, the U.S. Attorney and the investigators showed me checks
totalling $10 million in cash that they had recovered. Because
the way this works, there are people behind this who then go
out and find someone who can use their name to organize it who
frankly know very little about this. They are told this is the
American dream, and they will help set them up in business.
When I went to the office manager to ask about renting space,
he said, you know, you just need to make sure that we have the
name of the person who is actually going to be on the articles
of incorporation on the lease, and they need the first
month's--I mean, there is a rhythm and a routine to this. And
what they do is they will bill like crazy for 4 or 5 months,
because they know the limits of the system. Then they will
close down, stay out of it for a while, and then come back. And
these just begin to--they have a life of about 4 or 5, 6
months, and then they start again.
You will be happy to know that we have closed a very high
percentage of those numbers down, saving lots of money. I was
going to say $10 million. So we go to--the investigators would
go to the person who was the front and just say, we are here
and we need to talk with you, and begin to ask questions. And
it would become clear that they wouldn't know anything. And
they would just ask them to go to the bank and clear out their
bank account, and they would write out a check for the amount,
and we would recover that money. Now, it was a discouraging--it
has been a discouraging thing to find. And it is very clear to
me, and I think to all of you, that we have got to aggressively
work to assure that that does not continue. We have got several
ongoing inspections like----
Chairman Spratt. Mr. Secretary, could you expound a little
on how they falsified the invoice and how they got the name of
the patient and whose name that submitted the bill?
Secretary Leavitt. Yes. Several ways in which this appears
to happen. In some cases, they will go out and put people on a
bus and pay them X amount of money to use their Medicare
number, and then they will use their Medicare number to bill.
In other cases, they get fraudulently obtained physician--or
Medicare numbers and physician numbers, and they will just flat
make them up, and then they will submit them. And there has
been quite a study of the system as to where the trigger points
are. We are constantly working to get ahead of them on this
with our Medicare contractors. And there are a number of
different ways, but those tend to be the two primary. Others
that you have on the panel during the course of the day will be
able to be more explicit than what I have.
I will say that the kind of thing you see--I do want to say
that, in Florida, we did 1,472 on-site inspections. The result
was 634 suppliers having their Medicare billing privileges
revoked.
Mr. Scott. How many again?
Secretary Leavitt. In 2006, CMS and its partners conducted
more than 1,472 onsite inspections in southern Florida. As a
result, 634 suppliers had their Medicare billing privileges
revoked, and the savings to the program is a projected $317
million. We are talking about motorized wheelchairs,
nebulizers, artificial limbs, wound therapy treatments. Those
are just a few of the medical devices that are billed at their
normal rate. I will say that, last year, a similar initiative
was conducted by CMS and its partners in the Los Angeles area,
and it netted 770 violators. Several inspections of DME
suppliers in Los Angeles have revealed, as I said, similar
trends. Last August, CMS and its contractors began conducting
unannounced site visits. As of April 2007, 95 visits--95,
rather, of the 401 suppliers have had their privileges revoked.
In February of 2006, in the State of California, in an
operation that we have done jointly with the Food and Drug
Branch of the State of California, site visits have been on 34.
Within a month, the billing privileges of 12 of those have been
revoked. And you get the picture here. And as the Chairman
indicated, he and Mr. Ryan have been responsive to our
suggestion. I will say to you that there is a big return on
this. We believe that, based on our experience, that we will
return 13 to 15 times the amount of investment we put into this
kind of enforcement. And that doesn't even start to count the
amount of prevention that we do, people who are engaged in this
business, and many of them are legitimate, serving important
needs, but those who aren't need to see that we are vigilantly
and aggressively seeking this. We have begun a whole series of
things to counteract it in addition to the kind of enforcement
that I have talked about. We have, in southern Florida, the
Office of Inspector General and its partners have taken a
proactive role.
We have what we call Operation Whack-a-Mole. And the reason
is obvious to you. They pop up, and you find them, and they pop
up, and you--and we are leveraging the resources, all that we
can. And one of the things that we are going to do is to begin
inspecting them more often. And as it is now, they get a
number, and there is no scheduled inspection for 3 years. They
need to know we are going to go there more often and doing the
kinds of things that we did.
The first phase is operation, we call it Operation Equity
Exercise. It is working in cooperation with local Miami banks,
for example, in identifying 200 bank accounts. I mentioned the
exercise where we collected $10 million. The banks have been
very helpful. We are also doing the second phase, which is
Equity Exercise Two, which represented the criminal
investigations brought about by the work performed in the first
exercise. In less than 3 months we had five indictments and one
information plea. The indictments involved over $24 million in
claims that were billed to Medicare.
In support of this, in March of 2007, the Department of
Justice launched Medicare Fraud Strike Force. The strike force
is staffed by four fraud section prosecutors. One of the things
that we found that was discouraging to me is in the entire
Miami area that we only had 13 prosecutors that could pursue
these cases. And so one of the things that we are working is to
enhance that. We are going to take additional action with a new
demonstration project in the Miami and in the southern
California area. Effective immediately, we are going to require
submission of enrollment applications for everyone. In other
words, we are going to say to everybody, if you are in
business, we want you to reenroll. We want to go back and
inspect everybody. And if you don't do it in the first 30 days,
we are going to assume that there is something missing, and we
are going to revoke your privilege.
We are going to--in addition to that, we are going to have
enhanced reviews. In conclusion, there is a lot to be done
here. And Mr. Chairman, you have been very responsive, and I
want to thank you. I want to acknowledge the fact that this is
a joint effort that we are making across the government, that
includes the Department of Justice. It includes State and local
law enforcement officials. And we are resolved to do this in an
aggressive way, to be vigilant and to bring this under control.
[The prepared statement of Mike Leavitt follows:]
Prepared Statement of Hon. Mike O. Leavitt, Secretary, U.S. Department
of Health & Human Services
Good morning Chairman Spratt, Congressman Ryan and distinguished
Members of the Committee. It is a pleasure to be here with you today to
discuss the efforts underway to reduce overpayments, fraud and other
abuses in Federal health care programs.
As part of that discussion, my testimony will largely focus on the
Office of Inspector General's (OIG) and the Centers for Medicare &
Medicaid Services' (CMS) recent work in three South Florida counties,
where it was determined that 31 percent of suppliers did not meet one
or more of five Medicare enrollment requirements we reviewed, and had
their billing privileges revoked.
In enacting Health Insurance Portability and Accountability Act
(HIPAA) in 1996, Congress directed the Secretary and the Attorney
General to jointly promulgate a joint Health Care Fraud and Abuse
Control Program and created a dedicated funding stream for health care
fraud and abuse control activities funded through the Health Care Fraud
and Abuse Control Account. The joint Health Care Fraud and Abuse
Control Program and Guidelines approved by the Secretary and Attorney
General became effective on January 1, 1997. Since that date, our
Departments have actively partnered in our efforts against health care
fraud. Our joint opportunities in South Florida are a prime example of
this collaboration.
In criminal matters such as the durable medical equipment,
prosthetics, orthotics and supplies (DMEPOS) problems found in South
Florida and California, HHS works closely with the Department of
Justice (DOJ) on investigations of HHS programs and personnel and
interacts with State Licensing Boards, local law enforcement and other
entities with regard to program exclusion, compliance and enforcement
activities. These collaborative investigative efforts lead to criminal
convictions, civil settlements, program exclusions, or civil monetary
penalties and assessments, all of which help protect our beneficiaries
and the Medicare trust funds.
This Administration maintains a strong commitment to ensuring that
Americans have access to, and are receiving, high quality care from
honest and dedicated providers. Consistent with the desire of the
Administration and Congress to reduce the size of the Federal deficit,
OIG, CMS and its partners continue to take an aggressive approach to
reducing Medicare and Medicaid fraud and abuse. Operational oversight
of our Medicare and Medicaid programs and ensuring their fiscal
integrity are core components of CMS management strategy and an
integral part of the OIG's priorities. Detecting and preventing fraud,
waste and abuse in those programs remain a high priority.
budgeting for the health care fraud and abuse control program
The Fiscal Year (FY) 2008 Budget Request includes resources and
legislation to strengthen program oversight and reduce improper
payments in the Medicare and Medicaid programs. A total of
approximately $1.3 billion is proposed for the Health Care Fraud and
Abuse Control (HCFAC) program--designed, under the joint direction of
the DOJ and HHS to coordinate Federal, state and local law enforcement
activities. Our collaborative efforts against healthcare fraud and
abuse has been an unquestionable success. Under current law, mandatory
spending for HCFAC will increase approximately $20 million from FY 2007
to FY 2008. To assist our expanded efforts in combating fraud and abuse
in the new Part D prescription drug benefit and Medicare Advantage
programs, and to strengthen oversight of the Medicaid program, we are
seeking $183 million in discretionary spending for FY 2008. Of the
approximately $1.3 billion combined total of mandatory and
discretionary HCFAC funding for FY 2008, an estimated: $894 million is
for the Medicare Integrity Program (MIP) which funds activities such as
medical review, benefit integrity, provider and HMO audits, and
provider education and training for all parts of Medicare. $187 million
of FY 2008 HCFAC funding goes to the OIG for their continued effort in
identifying fraudulent and abusive activities within the health care
system through investigations, audits and evaluations. The FBI will
receive $129 million for health care fraud enforcement activities. DOJ
will receive $61million to help fund the prosecution of health care
fraud cases. And $43 million will go to HHS to be used to control fraud
and abuse, and limit payment errors within the Medicaid Program. I
would also like to take this opportunity to thank the Chairman and
other members of the Committee for your support of our request and your
continued work to combat fraud and abuse on behalf of the American
Public.
The OIG and the Government Accountability Office (GAO) have
uncovered significant vulnerabilities in Medicare's oversight of
suppliers of DMEPOS and in Medicare payments for certain types of these
items. Over the past 12 years, OIG and the GAO have reported numerous
times on weaknesses in Medicare's enrollment and payment standards for
and oversight of such suppliers, and CMS has worked hard to address
their recommendations for improving oversight and enforcement.
Earlier this month, CMS launched a two-year, multi-pronged campaign
to better protect both people with Medicare and the program itself from
fraudulent DMEPOS suppliers. It is built upon recent successes of
addressing waste, fraud and abuse in South Florida. A Medicare Fraud
Strike Force, directed by partners within HHS and the DOJ and manned by
Federal, state and local investigators, is fighting fraud through the
use of real-time analysis of Medicare billing data. We estimate that
hundreds of millions of dollars in fraudulent activity can be saved as
a result of this and concurrent efforts--and as momentum builds from
successes in our initial target areas, we will examine the potential
for applying these efforts on a national basis.
high risk regions: south florida and california
The Miami and Los Angeles metropolitan areas have been identified
as particularly ``high-risk,'' with regard to fraudulent billing by
DMEPOS suppliers. Over the last two years, the number of DMEPOS
suppliers claiming to operate out of Southern Florida and Southern
California has doubled. As expected, the number of claims for Medicare
reimbursement from suppliers in these regions is disproportionately
high.
Additionally, Miami-Dade has the highest ratio of DMEPOS suppliers
to beneficiaries of any county in the nation--and Broward and Palm
Beach counties aren't far behind. These three counties in Florida,
according to contractor data, account for approximately five percent of
total Medicare DMEPOS payments nationally. During the last two quarters
of 2005, Florida led the nation in allegations of supplier
noncompliance with Medicare standards.
I have seen this fraud first hand. In December of last year, I
accompanied the OIG fraud investigation task force to Southern Florida
to perform unannounced, out-of-cycle site visits and witnessed non-
existent suppliers--where business names and hours were posted on
locked doors during traditional hours of operation. In one two-story
office building that supposedly housed more than 30 DMEPOS suppliers,
we were hard-pressed to find a single legitimate proprietor. In these
office buildings were hallway after hallway and door and after door,
each with a marquee listing business names, hours of operation and
contact numbers. But when I knocked on the doors, no one was there.
Repeated episodes made it clear that DMEPOS suppliers intent on
defrauding Medicare could take advantage of the predictable site-visit
cycle by establishing businesses that do not maintain compliance with
program standards after the initial or re-enrollment site visit. I have
no doubt that hundreds of thousands of dollars were being billed by
these sham companies. When I asked one building manager about renting
space for a diabetic supplies company, he actually gave me the name of
a consultant who could help me set up a fake company. Since that time,
some of the suppliers located in the building I visited have been
indicted.
During these site visits, investigators zeroed-in on DMEPOS
supplier standards that could be verified quickly through direct
observation and were central to how easily a beneficiary could access
the advertised services. Medicare participation requirements require
suppliers to meet 21 standards; of these 21 standards, investigators
chose to focus on 5. These are as follows: (1) maintain a physical
facility, (2) be accessible during business hours, (3) have a visible
sign, (4) post hours of operation, and (5) maintain listed telephone
numbers.
As part of this OIG-led initiative, the OIG in collaboration with
CMS, conducted unannounced site visits to 1,581 suppliers in Miami-
Dade, Broward, and Palm Beach Counties in the fall of 2006. The visits
found 31 percent of suppliers (491 of 1,581) did not comply with the
first two requirements of maintaining a facility at the business
addresses that they provided Medicare and being open and staffed during
business hours. In calendar year 2006, these 491 suppliers billed
almost $390 million, were allowed $111 million and we paid almost $89
million. An additional 14 percent of suppliers were open and staffed
but did not meet at least one of the three additional requirements for
the standards reviewed. These findings were reported to CMS and
subsequent action taken to safeguard the Medicare program.
CMS and its partners have also performed additional unannounced,
out-of-cycle site visits. In January 2006, CMS and its contractors
conducted ad-hoc site visits of 480 DMEPOS suppliers in Miami-Dade and
Broward counties in a one-week period. When the dust had settled, 191
DMEPOS suppliers had their billing privileges revoked. These
revocations are in addition to those that occurred as a result of the
investigations in which I participated last December.
In FY 2006, CMS and its partners conducted more than 1,472 on-site
inspections in Southern Florida. As a result, 634 suppliers had their
Medicare billing privileges revoked, saving the program a projected
$317 million. Motorized wheelchairs, nebulizers, artificial limbs and
wound therapy treatments were but a few of the medical devices billed
in excess of their normal rate. Last year, a similar initiative
conducted by CMS and its partners in Los Angeles netted 770 violators.
Several ongoing inspections of DMEPOS suppliers in the Los Angeles
metropolitan area have revealed similarly disturbing trends. Last
August, CMS and its contractors began conducting unannounced site
visits of DMEPOS suppliers suspected of non-compliance with Medicare
regulations and/or billing fraud. As of April 2007, 95 of the 401
suppliers inspected have had their billing privileges revoked. In
February 2006, CMS, its contractors, and the State of California Food
and Drug Branch (CFDB) joined forces to conduct site visits of 34
DMEPOS suppliers. Within that month, the billing privileges of 12 were
revoked. Finally, back in February and March 2005, CMS contractors,
CFDB and MediCal (California Medicaid) conducted inspections of 138
DMEPOS suppliers. Of this total, 31 had their billing privileges
revoked.
The types of fraud committed by the DMEPOS suppliers in South
Florida and the Los Angeles metro area included billing for services
not rendered, billing excessively for services rendered, and billing
for services not ``medically necessary.'' CMS and its contractors
identified thousands of Medicare beneficiaries living in both
metropolitan areas who are receiving medical equipment--like power
wheelchairs, orthotics and equipment for testing their blood sugar--
they do not require, based on their medical history. Thousands upon
thousands of these devices are being billed for--and paid--in
connection with the names of Medicare beneficiaries, despite the fact
that the patients never received the equipment, nor had their
physicians ever ordered them. Other concerns involve the co-pays
beneficiaries paid for equipment their doctors didn't order and was not
delivered, generating incorrect records suggesting these beneficiaries
have DMEPOS items in their possession should future legitimate needs
occur. Numerous physicians in both locales said they never saw the
patients for which given medical devices or equipment had been ordered;
nor, correspondingly, had they ordered the suspect DMEPOS.
Once a supplier has received an enrollment or reenrollment site
visit, the supplier generally is not visited again outside the 3-year
cycle. Though an unannounced, out-of-cycle site visit may occur if NSC
becomes aware that a supplier may be in violation of one or more
Medicare standards, typically suppliers are only visited at the end of
their 3-year reenrollment period. The successful efforts of the
Department and its partners in the above efforts to combat fraud and
abuse have shown, out-of-cycle, unannounced visits, very effective in
detecting noncompliant suppliers.
oig and its partner's south florida initiative
To address the fraud committed by suppliers in South Florida, the
OIG and its partners have taken a pro-active role in addressing the
fraud. Below are some of the efforts underway in South Florida.
Operation Whack-a-Mole (WAM), which represented a multi-
organization, multi-disciplinary project, intended to reduce health
care fraud and abuse by providers in South Florida. WAM leveraged all
of the OIG resources and those if its partners, including CMS and DOJ,
to prevent, identify and prosecute health care fraud. The project
incorporated a wide range of strategies to address systemic
vulnerabilities in the Medicare program, as well as fraud schemes that
appear to have permeated certain health care sectors in South Florida.
The task force sought to develop the ability to identify and respond to
similar problems in other parts of the country. The project has already
had a significant impact on the integrity of the Medicare program. To
date, the project has recovered over $11 million, and has resulted in
43 indictments, 1 information/plea, and in the revocation of supplier
numbers of almost 500 durable medical equipment, prosthetics,
orthotics, and supplies (DMEPOS) suppliers for not meeting the minimal
standards of participation. Some of these revocations have since been
overturned on appeal. More results are expected in the future.
The OIG investigators, along with its partners, developed new and
innovative methods to identify and prosecute fraud in a timely manner.
The investigators developed a three-phase operation.
1. The first phase, Operation Equity Excise, working in cooperation
with local Miami banks, identified over 200 bank accounts of health
care entities for which the bank identified suspicious activities. For
several months, the OIG, the U.S. Attorney's Office in Miami and the
FBI worked collaboratively to perform preliminary investigations into
corporate and claims history of these suspicious providers. Local banks
placed administrative holds on these accounts while law enforcement
investigated the providers associated with the accounts.
In the fall of 2006, OI agents and FBI agents attempted to locate
the listed account holders for 103 of the largest accounts. The agents
confronted account holders they were able to locate, obtained
statements from them regarding their involvement with the schemes, and
secured their agreement to voluntarily return the funds in the bank
account to the Federal government. In less than 8 months, this
initiative resulted in the recovery of over $11 million.
2. The second phase, Operative Equity Excise 2, represented the
criminal investigative actions brought about by the work performed in
Operation Equity Excise. In less than 3 months, there have been 5
indictments and 1 information/plea. The indictments involved over $24
million in claims that were billed to the Medicare program. Two of the
indictments involved individuals with alleged businesses where I
personally visited when I accompanied the OIG team performing the
unannounced site visits.
3. In support of this multi-agency approach, in March 2007, the DOJ
Criminal Division launched a Medicare Fraud Strike Force to prosecute
individuals and companies that have schemed from inception to commit
DME fraud rather than to provide any legitimate health care services.
The Strike Force is staffed by four Fraud Section prosecutors
(including a HHS-OIG attorney on detail), two Assistant U.S. Attorneys,
one full-time nurse/auditor, and a part-time program analyst and
paralegal, with investigative support from the FBI and the HHS-OIG. It
supplements ongoing U.S. Attorney's Office (SD/FL) prosecution efforts.
Strike Force accomplishments during its first four months include:
a. 43 defendants indicted since March for fraudulent billings to
Medicare totaling $157 million with a minimum expected recovery through
criminal fines and forfeitures totaling at least $23.2 million.
b. Estimated criminal forfeitures, fines, and restitution to date
from indicted Strike Force cases represent a $14.66 return per $1 in
annual HCFAC funding to the Criminal Division.
new cms demonstration project
Recognizing the significant vulnerabilities presented by DMEPOS
providers in South Florida and Southern California, CMS has used its
authority for conducting demonstrations of effective controls to curb
fraud and abuse within Medicare to launch a new demonstration project.
In a new, 2-year CMS demonstration project I announced on July 2,
2007, suppliers of DMEPOS in the greater Miami and Los Angeles areas
must re-apply annually for participation in Medicare in order to
maintain their billing privileges. The demonstration has three
components:
1. Immediate submission of enrollment application. Letters will be
sent to suppliers asking that they resubmit applications to be a
qualified Medicare DMEPOS supplier. All DMEPOS suppliers in the
demonstration locales must submit a Medicare enrollment application
within 30 days of CMS notification.
2. Revocation of billing privileges. Medicare billing privileges
will be revoked (and appropriate recoupment measures applied) if a
DMEPOS supplier fails to reapply within 30 days of receipt of CMS'
letter; fails to report a change in ownership or address; fails to
report owners, partners, directors or managing employees who have
committed a felony within the past 10 years; or fails to comply with
DMEPOS supplier standards.
3. Enhanced review of suppliers. DMEPOS suppliers that successfully
complete the enrollment process will be subject to enhanced review,
including site visits driven by established risk factors.
Eliminating fraudulent suppliers protects people with Medicare and
enhances their quality of care. Enhancing our review of DMEPOS
suppliers will go a long way to ferret out those who are not meeting
the needs of beneficiaries and upholding Medicare's promises.
conclusion
The initiatives and examples that I have discussed today are a
small fraction of the Department's efforts to protect the health,
vitality, and integrity of Federal health programs as well as protect
the resources allocated to pay for these services and programs. We are
committed to investing in program integrity efforts in order to send a
clear message that criminal fraud in our Federal health care programs
will not be tolerated. We are committed to vigorously pursuing the
goals of the Health Care Fraud and Abuse Control Program with the
Department of Justice, our co-partner. We appreciate the support of our
Budget Committee colleagues in providing the necessary resources to
permit us to continue as well as expand these important program
integrity and health care fraud and abuse control program endeavors.
By attacking fraud vigorously, wherever it exists, we all stand to
benefit. Taxpayers will save hundreds of millions of dollars each year.
Medicare trust fund resources will be protected and remain available
for their intended purposes. Medicare dollars that have gone to
fraudulent suppliers will instead be available for legitimate
businesses whose purpose is to serve the needs of our program
beneficiaries. And most importantly, we can ensure that seniors and
disabled persons get the necessary supplies and care they need to stay
healthy, so as to enjoy enhanced wellbeing and quality of life.
Thank you for the opportunity to discuss our work to protect the
integrity of Federal health care programs. I would be happy to answer
any questions the Committee may have.
Chairman Spratt. Mr. Secretary, Mr. Ryan raises an entirely
valid point, and that is, why do you need extra funds? Why
can't you do this out of your ordinary resources, your regular
appropriations?
Secretary Leavitt. One of the things that has been
inhibiting is that the moneys we recover go back into the trust
fund. And so our enforcement comes in the discretionary money,
and the money goes back into the trust funds. And so one of the
changes we are asking to be made this year is that we have the
ability to use those funds. We just need more--and we need more
enforcement resources.
Chairman Spratt. Based on what you have seen so far, do you
think you can reliably, comfortably say that a dollar will
bring back $10 or $12 in recoveries?
Secretary Leavitt. I can. I believe with little question
that we will recover 13 to 15 times the investment. Now there
is a limit to that. I mean, you couldn't do that indefinitely.
But I believe, based on what I am seeing--I travel to every
State in the country on a fairly regular basis, and I am often
accompanied by members of our Office of Inspector General. And
I ask them always, tell me the kinds of things you are seeing.
Now, it is not all--not all communities are like what I have
described. But there are pockets of this all over the country.
And we are not getting to them yet, and we need to. And that is
why we need the additional resources. And I feel not just
optimistic, I feel certain that the return on investment will
be extraordinarily high.
Chairman Spratt. You mentioned the lack of prosecutors or
the paucity of prosecutors. I think you said there were 13 in
Dade County qualified to handle these cases. I guess they were
Assistant U.S. Attorneys. Having handled a few of these cases
as a lawyer, what I found was the shortage of forensic
accountants, auditors skilled in this kind of adversarial audit
work was even a greater problem, much greater problem than the
lack of prosecuting attorneys. Have you run into the same
shortage?
Secretary Leavitt. Most of the money that we have requested
will go into personnel. And those are precisely the type of
individuals that the Office of Inspector General works to
employ. Most of them have a financial background, typically
accounting or some other kind of financial means that allow
them to do the kind of forensic accounting that you have talked
about.
Chairman Spratt. One of the numbers given to us is that the
error rate for Medicare, and we can get into this with further
witnesses, but this falls under your purview, too, just in
making out payments is $12 billion a year. Are you
investigating that problem as well?
Secretary Leavitt. Yes. Each year, after the publication of
that fiscal year's error rate, and it is referred to as the
comprehensive error rate testing, or CERT we refer to it, we
develop a correctional action plan outlining the actions for
the next year that we will be taking, using a very
sophisticated and detailed data analysis. CERT, this effort,
then begins to work with Medicare contractors to improve the
edits and the systems. I will say that the combination of the
efforts that I am describing to you over the course of the last
3 years has been making substantial--a substantial impact.
Chairman Spratt. Have you been able to reduce that number
demonstrably?
Secretary Leavitt. Yes, we have had a 56 percent reduction
in the Medicare error rate over the last 3 years, from 10.1
percent in 2004 to 4.4 percent in 2006. I have to acknowledge
as well that a certain percentage of the error rate is caused
by claims submitted by fraudulent providers. So the fraudulent
providers fall within that 4.4 percent error rate. Still too
high.
Chairman Spratt. You mentioned hiring more personnel, and
you just mentioned also contractor personnel. To what extent do
you expect to go to independent contractors who work for CMS
and HHS and outsource to them this investigatory work?
Secretary Leavitt. Most of the claims processing, in fact
all of the claims processing essentially for CMS is done by
contractors----
Chairman Spratt. Yeah.
Secretary Leavitt [continuing]. Who are experienced in this
area. We also hire contractors who are specialized in looking
at the algorithmic patterns of the claims, and looking for
ways--and most of the cases that we get come from, at least in
my conversations with agents all over the country--from either
a disgruntled employee who calls and tips them off, or one of
these--one of our Medicare contractors, who begins to see a
pattern in billing and refers it to an agent, and then, with
investigation, we are able to get to the bottom of it.
Chairman Spratt. Thank you very much. Others have questions
as well. And I think we are all probably astounded by this
testimony. Once again thank, you for coming.
And Mr. Barrett.
Mr. Barrett. Thank you, Mr. Chairman. Mr. Secretary, thank
you for being here. It is quite a task that you have got. I am
blown away. It is just incredible. First, kind of give me some
feedback, how many claims does Medicare handle a year roughly?
I mean, just kind of give me a magnitude, rough estimate.
Secretary Leavitt. About a billion claims.
Mr. Barrett. About a billion claims. And how many
independent insurance agents or outside sources help you with
the claims and stuff like that?
Secretary Leavitt. As I indicated, there are Medicare
contractors done on a regional basis, and I will look for
some--there are 15.
Mr. Barrett. Fifteen, okay. So a billion claims. As you
described the situation, it doesn't sound like mom and pops are
setting up and working onesie-twosies; this sounds to me like
organized crime. Is that where you are leading? Is that what
you are seeing? And of the 601 situations where you shut down,
how many convictions do you have? How hard is it to find these
convictions? Kind of go into that realm, Mr. Secretary.
Secretary Leavitt. I am not able to respond to that. I
don't have the information. Others on the panel may. I will
tell you that, in certain areas, there is an aggressive effort
to prosecute. In others--you know, one of the things that
became evident to me is that this has attracted people because
it is the--there is a risk assessment made by those who would
perpetrate crime, and this one has been a relatively low risk.
And it has found--and as a result, by comparison to the drug
trade, for example, this is a relatively low risk. And it has
attracted a lot of people.
But, frankly, there are direct patterns of similarity
between this and the drug trade. There is always someone behind
it, and I believe it is organized. And they are recruiting
people to become essentially their fronts. They pay them a
small amount of money. The money--then they use their name.
They direct them. And so the money--the people who are the
fronts only see a small amount. It is generally a fee for the
use of their persona. And then those behind it, who are really
doing it all, are never seen or heard.
Mr. Barrett. Do you see correlations in different areas
from, for example, from Florida to California, that the two
might be associated?
Secretary Leavitt. Again, others would be in a better
position to answer those questions. I can tell you that the
techniques are similar. And when we crack down, they tend to
move to a different area. We have to continue to pursue them.
I will also say that there tend to be activities within
certain ethnic and nationalities. A community finds out that
they can do this. And without naming any particular one, they
begin to operate within their ethnic network. And it is very
clearly organized. How widespread and sophisticated that is, I
think, is still something we are pursuing.
Mr. Barrett. The integrity program that you are talking
about, I know you were asking for permission to take some of
the funds that were going back into the general fund for
enforcement, I guess you could say. Do you see that as being
self-sustaining in a very short time, Mr. Secretary, rather
than us having to fund money for enforcement?
Secretary Leavitt. Well, there is little question, if you
are able to recover 10 to 15 times the amount that you expend,
that it is self-sustaining. Now, again, I don't--hopefully,
this is not an unlimited proposition. Hopefully, we can in fact
begin to see a diminishing return on that investment. That
would be victory.
Mr. Barrett. Yes, sir. And I guess enough time for one last
question. And I salute you. I think it is a lofty goal, and it
is a much needed goal, but reform through the appropriations
process rather than the integrity programs, doesn't that make
more sense? Wouldn't that be better to simplify the systems to
have people come in and say, this is how we need to change the
overall system to make money rather than through integrity
programs, Mr. Secretary?
Secretary Leavitt. This would get us into a large
conversation about all of the incentives around Medicare. We
would be far better off with a competitive system where the
marketplace became--where market forces became better--and we
are beginning to do that. We are beginning to inject market in
some with incentives with great success. So this isn't simply a
matter of cracking down with enforcement. We have got to change
the system in ways that allow market forces to both drive costs
down and at the same time create incentives for integrity.
Mr. Barrett. Fantastic. Thank you, Mr. Secretary. I
appreciate it.
Chairman Spratt. Thank you.
Mr. Cooper.
Mr. Cooper. Thank you, Mr. Chairman.
Mr. Secretary, so you are asking for more money, or are you
asking for any changes in the law, Mr. Secretary?
Secretary Leavitt. We are asking for language that would
allow some of the recoveries to be used in ongoing enforcement.
Right now the discretionary side of the budget contains all of
the money for enforcement.
Mr. Cooper. That is on the money side. I was wondering if
you need any new enforcement tools to do the job. You mentioned
you were going to reenroll some of the companies. That sounds
like an administrative change.
Secretary Leavitt. Yes. The authorities necessary exist in
the law. We are using administrative authority to impose the
changes I have discussed.
Mr. Cooper. Okay. As you mentioned, authority exists in the
law. But I am worried that this hearing is only touching the
very tip of the iceberg. In another set of hearings done by the
Government Reform Committee, the Department of Justice
testified, I think, in the last 5 or 10 years, some $10 billion
has already been collected in health care fraud judgments from
health care companies, which includes some of the leading name
brands in America, some of which are repeat offenders, which
has led some critics to even conclude that perhaps they are so
likely to commit fraud that it becomes business plan fraud.
When you are caught several times and you are a major national
company, that leads some people to conclude this isn't done
necessarily by fly-by-night enterprises but is a more
systematic and organized effort than that.
You remind me a little bit of Claude Rains in that movie,
``Casablanca,'' professing shock that there is gambling going
on. The DME area has been known for decades to be rife with
fraud. And certain areas of the country have been particularly
likely to indulge in it, particularly the areas where Medicare
offers the highest reimbursement. And the number one community
in the country that does that is the Miami area.
So when Willie Sutton was asked why he robbed banks, he
said, that's where the money is. You know, most U.S. Attorneys
and their staffs have known for years, and prosecutors in the
Philadelphia area, the Boston area and others have been known
for their vigorous enforcement of these laws. I am not sure why
the Miami prosecutor has not been known for his or her vigorous
enforcement.
But to me, it is good that you went down and visited a
building. It is good that you caught a few bad guys. But one
group that you have left completely off the hook in your
testimony are the Medicare intermediaries and carriers. These
are the private sector insurance companies that work with your
agency to interface with suppliers, vendors. What success have
you had, for example, in getting Palmetto or other
intermediaries to help the Federal Government identify
fraudulent behavior so that we can crack down on it?
Secretary Leavitt. Mr. Cooper, may I say that I think
despite your being well acquainted with these, I think you
would have been shocked, too, by what I saw. It wasn't the
existence of it that surprised me; it was the scale of it that
surprised me.
Mr. Cooper. Mr. Secretary, the largest health care company
in my town was fined $2 billion by the Federal Government for
fraudulent behavior. So that is a big fish. Today you are
talking about small fish, minnows.
Secretary Leavitt. That add up to billions of dollars.
Mr. Cooper. You have mentioned a few hundred million at
most today. The Department of Justice today has 60 cases
pending that they think will take 60 years to prosecute. And
those are existing filed cases. And the Department of Justice
is not pursuing those at a rate of more than three or four a
year.
Secretary Leavitt. The good news is, Mr. Cooper, we are on
the same side here, and I agree.
Mr. Cooper. But you are asking for no legal changes to help
speed prosecution? And can you help me understand what any
intermediaries or carriers are doing to help pursue some of
these cases? Because those are the private sector companies who
are charged today to process some of those billions of Medicare
claims, and they are in the best position to identify
suspicious behavior.
Secretary Leavitt. Mr. Cooper, I have just received further
light and knowledge on this subject. In Medicare, we are
seeking legislation to establish a benefits clearinghouse at
CMS that will coordinate benefits between private payers and
the Federal Government and ensure that Medicare and Medicaid
are the payer of last resort. We are also asking to phase out
Medicare bad debt reimbursements over 4 years, thereby
eliminating payments that should not be Medicare's
responsibility. We are asking to eliminate a loophole that
would allow providers to bypass Medicare's administrative
appeals process and go directly to Federal courts, an abuse of
the process that exposes the trust funds to additional
liability.
In Medicaid, we are proposing legislation that would
establish a demonstration in two States that would use health
information technology to ensure individuals meet the financial
asset test required for Medicaid eligibility, and we are
enacting three third-party payer changes that will ensure that
Medicaid is a payer of last resort, thereby avoiding improper
payments in the first place. There are others, but I think your
point is well made, and it is one I accept.
Mr. Cooper. You have given me a nice bureaucratic answer.
My time is about to expire. Let me urge you to take a look at
Malcolm Sparrow's book, it is about 10 years old, it is
entitled, ``Health Care Fraud.'' And he points out that IT
systems, instead of being a solution, can often be part of the
problem once suspicious companies figure out how to game the
computer systems.
Secretary Leavitt. I actual----
Mr. Cooper. So we need to be on alert----
Secretary Leavitt. You will be happy to know I have read
the book, and it is what stimulated my interest in this. And I
concur with your conclusion.
Mr. Cooper. Thank you, Mr. Chairman.
Chairman Spratt. Mr. Simpson of Idaho.
Mr. Simpson. Thank you, Mr. Chairman.
Thank you, Governor, for being here today. When you were
Governor of Utah, did you ever anticipate this problem? You
were dealing with the same thing as Governor. Did you ever
anticipate this problem as big as it is.
Secretary Leavitt. Well, I saw it in Medicaid. Any time
there is a pool of funds and any time you have got a system
that is command and control, there are going to be people who
advantage it. And again, I wasn't surprised that it existed. I
was surprised by its scale and just how blatant it was.
Mr. Simpson. I guess the lesson here is that enough guppies
can eat a treasury. Are any of these people going to jail?
Secretary Leavitt. Oh, yes. I indicated in my testimony
that there are indictments. But we do need to be more
aggressive. And that is not something that we control. That is
something that the Department of Justice has to make as a
priority. In certain areas, it is a priority. In other areas,
it is not, and for reasons that I understand; they have
resource--they have resource limitations as well.
Mr. Simpson. Forgive my ignorance on this, but what happens
to the money you recover, $10 million you recovered or anything
else that you recover? What happens to the money that you
recover?
Secretary Leavitt. It goes back into the trust fund.
Mr. Simpson. Into the trust fund. Not the general fund, but
into the trust fund.
Secretary Leavitt. Into the trust fund. And that has been
part of our dilemma, is that the money for enforcement is on
the discretionary side of our budget, and the money we recover
goes back into the trust fund. So we have a limited amount--and
moneys we have requested have not been funded in the past. So
one of the things we are asking is, A, more money, which this
committee has recommended, and secondly, that we use some of it
in the future for----
Mr. Simpson. When you say the resources for enforcement,
are you talking about prosecutions or enforcement in general of
going out and finding these guys and stuff?
Secretary Leavitt. I am speaking of the HHS part of it,
which is the enforcement. We have to depend, of course, on the
Department of Justice for prosecution.
Mr. Simpson. Right. Is there any program in the Federal
Government that has an incentive for either employees,
employers, other people, to turn in these bad actors?
Secretary Leavitt. Yes, there is. We have a TIPS line, and
it is the--and we have a program to broadcast that among
Medicare beneficiaries. And it is a very active source of
leads.
Mr. Simpson. What is the benefit that someone gets? As an
example, we started a program in Idaho that has been fairly
successful. If you--in fact, it is in your Department, if you
are an employee and you find a way of doing something better
and saving money and so forth, you can actually get a money
compensation for that. I think it is up to a certain level and
so forth.
Secretary Leavitt. I don't know the answer.
Mr. Simpson. And if there is----
Secretary Leavitt. I am told there is a program--I am not
acquainted with it--but where there would be incentives
provided.
Mr. Simpson. It would seem to me that one of the best
things that we would have out there in terms of enforcement is
other people. And there had be to people in the Miami area who
knew about these bad actors that would help turn them in. And
of course, the financial compensation for them is always
something worthwhile, saves us money, saves them money. And it
ought to be within the Department, if an employee has a way of
saving money or an idea of it, and they can actually do it, to
reward him also.
Secretary Leavitt. Good.
Mr. Simpson. I would be interested in knowing what the
program is and how effective it has been.
The other thing that we haven't talked about is and what
concerns me--and I can give you three, four examples from
personal knowledge that I know about, and maybe I will turn
them in if you get an incentive program for me. No, I am just
kidding. These are the suppliers. We talked about the medical
companies and the insurance companies and those other things.
We also have a problem with individuals. And any time you have
a program where it is a benefit to people and doesn't come out
of their pocket, there is never an incentive to be frugal with
other people's tax dollars. And I can give you several examples
of people very close to me who have helped senior citizens that
go down to--one example was--well, I will say it, my mother,
who took--who was helping an older lady who was on Medicare,
took her down to the doctor all the time, took her for her
appointments down to the community about 20 miles south of her.
And you know, one day she wants to go down because the
prescription glasses she got last week, she doesn't like the
frame and they don't fit her face right, you know. So they go
down, and all of a sudden, she has got a new pair of
prescription glasses. Another time she sees an advertisement on
television for a new drug. We don't know what it does, but we
sure know that it makes you feel good afterwards after looking
at the advertisement. So she goes down to the doctor and wants
to have her prescription changed to this. She is on generics;
it is working great, the doctor says. But the reason they
change it is because if he doesn't do it, she will go down to
the next doctor, and he will change it. And the amount of money
we spend on that kind of stuff multiplied across the system
must be amazing. And I am wondering what we do to try to stop
that type of abuse of the system.
Secretary Leavitt. I would argue that one of the things
that encourages it is the basic structure, where people have a
complete disconnection between their actions and what they have
to pay.
Mr. Simpson. Exactly. Exactly. In fact, that is why I
always supported copayment of some sort for a variety of things
and a copayment you have to think about it if you are going to
go get a new pair of glasses or something.
Secretary Leavitt. I am in agreement with that. And in
certain parts of Medicare, that exists, and in other parts, it
does not. I think it is always a healthy thing. Obviously, you
have those who can't afford the copayment, and society has to
make the decision. But where it can be afforded, I think it is
a positive thing. I also believe that for the same--I think
this is at the root of much of the problem in health care costs
is this disconnection between what people pay--or what things
cost and what--and people's actions.
Mr. Simpson. I want to thank you for being here today. And
thanks for the work you are doing on this problem. I know it is
a huge problem. It is one we have got to address.
Thank you.
Secretary Leavitt. Thank you.
Chairman Spratt. Mr. McGovern is not here.
Mr. Scott of Virginia.
Mr. Scott. Thank you.
Thank you, Mr. Secretary. Mr. Secretary, we have heard that
the error rate in Medicare is 4 percent. What is the error rate
in private insurances, Blue Cross Blue Shield and other private
insurance.
Secretary Leavitt. I don't know the answer to that, Mr.
Scott.
Mr. Scott. You indicated that some of this fraud seems
organized. Are you suggesting it is large-scale corruption, as
what we believe to be organized crime, or whether it is some
small time operators who just see an opportunity to steal some
money?
Secretary Leavitt. Others could be better qualified to
answer that question who you will talk to, I suspect, later
today. But let me just make my observation. I think this is
very sophisticated and seems wide scale to me. And it is clear
to me that this is not just small time operators.
Mr. Scott. Now, there is a difference between fraud and
mistake. I mean, a doctor could put down a procedure code for
an intermediate visit when it was really a brief visit. But
there is no procedure code for a patient that doesn't even show
up. There is a difference between fraud and mistake. Are you
doing an ongoing random check to see if fraud is being
committed?
Secretary Leavitt. Yes. As I indicated, the contractors for
Medicare, their job is to look for algorithmic patterns and to
see evidence that a practitioner is acting in an abusive way.
It is not unusual, I am told, that they find a physician's
number who has been--that has been stolen. And in some cases,
it does require more investigation, because it may or may not
be the physician that is actually doing it. In most of the
cases that I have been told about, and in my discussions with
agents, there are patterns that quickly emerge. And in some
cases, it requires investigation. Other times it is just very
evident.
Mr. Scott. Sometimes the computer can give you information,
a person whose appendix is being taken out for the second time,
for example.
Secretary Leavitt. That is the kind of thing the
contractors clearly look for, and where a lot of the cases come
from that the investigators follow.
Mr. Scott. Now, are you doing professional development with
your providers to avoid mistakes? I know many of the problems
occur when the forms aren't filled out right, the wrong
procedure code is put in. And it is particularly disturbing
because sometimes physicians who have a lot of Medicaid
patients tend to be in low-income areas, and you just have a
few doctors in that situation. If you are looking for the
doctors with the highest Medicaid billing, it is going to be
the minority doctors in the minority community by and large,
because they have--those are the ones in the community. Are you
doing anything to make sure that, by professional development,
they are minimizing their mistakes?
Secretary Leavitt. Mr. Scott, I am probably not the best
one to ask these questions to, because they are handled at CMS.
And I feel confident that those who oversee that area directly
would have better answers. I am confident that they are. I know
that they work with--but I can't give you a specific personal
answer that I am confident of.
Mr. Scott. It is a little unfair to have people in a very
complicated situation without the professional development
opportunities to crack down on them. It is pretty easy I think,
if you have got someone with a high volume of cases without the
appropriate guidance, they are going to make some mistakes. And
a lot of the minority doctors get caught up in that, and that
is not fair.
Secretary Leavitt. In my observation, and again, it is just
coming from having spoken with Office of Inspector General
agents in every State in the country and asking them in detail
about their questions, the places we are prosecuting and the
places we bring the regulatory enforcement power of this
Department, it is not in the area of mistake; it is in the area
where there is a clear pattern of ongoing abuse. And there are
enough of those that that is where we concentrate our effort.
Mr. Scott. If you totally eliminate waste, you might reduce
your services. I know in emergencies, like hurricanes, we got
very casual with food stamps. We have a choice: We can feed the
people when they are hungry, or you can meticulously go step by
step to go through the process. In emergencies, at least in
Virginia, we elect to skip a few steps to make sure we go a
little more on the honor system, because they don't have their
documentation, and just take their word for it. This will
inevitably increase fraud, but it is a necessary decision. Are
you weighing those equities as to what to do in those
circumstances?
Secretary Leavitt. Yes.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Scott.
Mr. Campbell of California.
Mr. Campbell. Thank you, Mr. Chairman, and thank you, Mr.
Secretary. You know, if I don't lock the door to my house and
somebody comes in and steals something, they have broken the
law. But I helped them by leaving the door to my house
unlocked. If I lock the door, maybe that person wouldn't have
broken in, there might be fewer people. Somebody can still
break the window and still commit the crime, and likely and
perhaps somebody would, but certainly fewer people would. And
it would be more difficult for them to do so. You have
mentioned various elements of out and out fraud. Mr. Cooper
mentioned a different level of fraud. Mr. Simpson has mentioned
what is not fraud but what is probably just simply overuse due
to the third-party payer system. You have touched on it a
little bit, but what is your view of what we can do that locks
the door, if you will, that makes this sort of fraud more
difficult to commit? Is it completely reforming the system to
go away from a third-party payer type system? Is that it, or is
there something else that we can do with the system we have
got, or what is your view on that?
Secretary Leavitt. Mr. Campbell, I am only able to speak
about this in a philosophic way because I am not involved in
the enforcement of it day to day. My observations are, you
know, you clearly make it hard to do. You clearly enforce, and
you create the proper incentives for people to have a stake in
it. There will be those that I suspect you will speak with
today during your panel that will have more specifics than
that, because they deal in a day-to-day basis with the
enforcement.
Mr. Campbell. So, well, but I am trying to talk about
something that is more than enforcement. A lot of the problem
here is, in all of these cases, the fact that the person
getting the service is disconnected from the cost of that
service.
Secretary Leavitt. People don't know what it costs. They
haven't got a lot of reason to care what it costs. And they--
you are right, there is a structural problem that is, I think,
well defined and would be a big part of being able to reduce
the fraud and abuse.
Mr. Campbell. Your thoughts on what that might be or could
be?
Secretary Leavitt. Well, transparency would be a very
important first step. If people could understand what it costs,
and I think at the same time having some people having some
interest in it. Now, we have begun to see that occurring in
many different ways. One is with copays. Others is with medical
savings accounts, where people have an opportunity to share in
the benefit. And one of the things we have begun to experiment
with is, if people did have the cost and did know the quality
and were prepared to go to high-quality, low-cost producers or
providers, perhaps we ought to share the benefit with them. And
that would get to the overuse. It would also begin to drive
costs down and the quality up.
Mr. Campbell. Is that the market forces type--you mentioned
that you are experimenting with some in your earlier comments,
with something that injects some market forces into this
process.
Secretary Leavitt. That is what I am referring to.
Mr. Campbell. That is what you are referring to. Thank you.
I will yield back, Mr. Chairman.
Chairman Spratt. You yield back the balance of your time?
Mr. Campbell. I do, sir.
Chairman Spratt. Mr. Etheridge of North Carolina.
Mr. Etheridge. Thank you, Mr. Chairman.
And let me thank you for holding this hearing. Mr.
Secretary, thank you. Let me just say, thank you for your work
in this area. It is important. But let me touch on something--
Mr. Simpson is not here right now. I think Mr. Campbell touched
on it. You may have alluded to it. I don't think you meant to.
You were talking about overuse is fraud and abuse. Overuse is
really overuse and maybe abuse, but maybe not fraud in the case
of the someone wanting to get the extra glasses. I want to make
sure we got that in the record. But I am shocked, as everyone
else is I think, at the numbers in the areas.
So let me ask a question a little different way, and you
may not be prepared to answer it, but I hope you will be
prepared to follow up on it. Because if this is as pervasive as
you have indicated, and it tends to be in pockets around the
country, it is obviously, from your testimony, organized. It
seems to me there ought to be a joint effort with the
Department of Justice in this area, and it ought to be a unit
dedicated to this purpose. Because it is not about a senior
getting extra glasses or a senior doing certain things. It is
about someone who has decided, as Mr. Cooper said, this is
easier than robbing banks or selling drugs or anything else. It
is just robbing the government through billions of dollars of
services that could be going to citizens or coming out of
taxpayers' pockets.
Secretary Leavitt. I will say that and remind all of us
that, in 1996, when Congress passed the Health Insurance
Portability and Accountability Act, they did create between the
Secretary of Health and Human Services and the Attorney
General, required that we jointly promulgate the Health Care
Fraud and Abuse Control Program. And that has worked, continues
to operate. We work very closely with the Department of
Justice.
Mr. Etheridge. How well funded is it?
Secretary Leavitt. Much of the dollars--many of the dollars
that we have asked for would go into this joint funding. And we
have obviously asked for more, and believe it can be used. And
I can't tell you the exact number, but it is that vehicle we
are using to approach the problem we have talked about today.
Mr. Etheridge. Seems to me, I know over the last several
years, funding has been tight and hasn't been there, and that
is unfortunate. And I am glad we are starting to have hearings
to at least bring out the problems so that, in those instances
where we have obviously shops set up with the designed
intention to defraud the government, we are able to get to it.
Because we are not talking about someone who is providing a
service to a senior.
Secretary Leavitt. No. And it does tend to be, it appears
to me, regional. There are those who can respond with more
exactness to this than I. But one benefit I have is that I have
been in all 50 States many times in the last 3 years, and I
speak with agents in each State. And it is clear to me there
are patterns. There are certain States where we see a fair
amount of fraud in transportation. And it is obvious fraud--it
is ambulances that take people to the grocery store--and a
pattern of it. That is fraud in my mind. In other areas, it
will be other disposable medical equipment. In Florida and
California, I described what I see there. There are pockets of
it in virtually every large metropolitan area, but it is not as
intense as what I have described in Florida and in California.
Mr. Etheridge. Let me ask the question a little different
way. It seems to me, if I am understanding you correctly, you
are not saying it is a system that is throughout. You are
saying there are pockets and places, and there are different
types of situations depending upon those pockets.
Secretary Leavitt. That is exactly what I am saying.
Mr. Etheridge. It may be organized in hierarchy, but it
tends to work where the pockets are available and the
enforcement is not where it needs to be at that level at that
time.
Secretary Leavitt. And according to the investigators who I
speak with, it tends to migrate. It will begin to happen in
Florida, and then you will see it in Houston. And then you will
see it in Los Angeles, and then you will see it in Seattle. For
some reason--and frankly, it tends--there are groups of people
who tend to be from the same ethnicity or region of the world
who have migrated to the United States who begin to operate.
And you know, if you get a group of beneficiaries, a corrupt
doctor and a Medicare license, you have got a formula that will
produce money.
And if we don't have enforcement, it will engender and
spread.
Mr. Etheridge. Thank you, Mr. Secretary. I yield back.
Chairman Spratt. Thank you, Mr. Etheridge. Mr. Alexander
has left, Mr. Hensarling is gone. Mr. Smith of Nebraska.
Mr. Smith. Thank you, Mr. Chairman and members and
certainly Secretary Leavitt for not only coming today but for
your service. I admire your hard work, especially in tackling,
I think, some very challenging issues. Being enlightened by
some of the fraud and certainly you can appreciate the fact you
don't want to go swatting flies with a sledgehammer, and yet
flies that mount up can still be a problem. It is always
interesting, talking to frontline health care workers who do
not directly benefit financially from holes in the system. And
it is interesting just hearing from them what their ideas are.
And I am just wondering, I guess my first question would be,
how often would folks such as the frontline workers be
consulted or encouraged to be involved in the process of
preventing fraud, identifying fraud and otherwise.
Secretary Leavitt. Mr. Smith, I wish I could give you a
clear delineating answer on this. I don't know the answer to
that. I can tell you that wherever I go, I am asking the line
inspector, Office of Inspector General agent, what are you
learning, what do you find when you get into the health care
workers and how things are coded in the system, I feel
confident that there are processes at CMS that seek that out. I
don't see that directly. And so I can be responsive in a
written way to you, or perhaps there are those that we could,
in the future panel, respond to that. I am not able to very
clearly.
Mr. Smith. I understand. And certainly I would appreciate a
further response as time would allow. And Mr. Scott had
mentioned part of this, I guess. But in an example cited to me
that a--in this case Medicaid, Medicaid patient was afforded
some eye glasses, and apparently, they kept breaking, and, you
know, the patient was certainly needy of eye glasses, the
number of pair of eye glasses that were afforded to him by the
end of the year it is my understanding was a bit excessive. And
perhaps this is a rhetorical question as well. But do we have a
system in place where there would be some discretionary
authority by the provider to not just have to afford the new
pairs of eye glasses multiple times and perhaps--and this is an
extreme example I will admit. But can we work on a system to
where they, you know, the needs are met initially, and after a
time of repeated neglect I guess would be the right word, that
service or benefit would expire.
Secretary Leavitt. That makes a lot of sense to me. Again,
I am not involved enough in the detail of that to know exactly
what it would be. Any help? Maybe we could talk offline and I
would be happy to respond. I know exactly what you are saying.
I just don't know the answer.
Mr. Smith. Sure. Well again, I thank you, and that will
conclude my questioning. But I certainly admire anyone who
wants to tackle the health care issues, especially as relates
to the budget and the growth of expenditures. Thank you. I
yield back.
Chairman Spratt. Thank you. Mr. Moore of Kansas.
Mr. Moore of Kansas. Thank you, Mr. Chairman and thank you,
Mr. Secretary, for being here. Is it correct, Mr. Secretary,
that your agency has estimated that $12 billion a year is lost
due to erroneous payments paid by Medicare fee for service
program?
Secretary Leavitt. That is correct.
Mr. Moore of Kansas. Can you estimate for us, please, the
amount of savings that you believe we could realistically
expect to capture, both for cracking down on errors on the fee
for service program and fraud and other areas of the Medicaid
and Medicare programs?
Secretary Leavitt. I am not able today to give you an
accurate estimate. I earlier indicated that in terms of the
dollars we invest in enforcement, we expect that will return
somewhere between 13 and 15 times when you look at the----
Mr. Moore of Kansas. What would that number be, 13 to 15
times?
Secretary Leavitt. Well, if you put $100 million extra
dollars in then you expect $1.3 or $1.5 billion in fraud and
abuse that would have been prevented or recovered. Part of that
will be recovery, part of it will be prevention. We don't
really know how much the--when you have effective enforcement,
how much it prevents.
Mr. Moore of Kansas. If, in fact, we are losing $12 billion
a year due to erroneous payments, I would hope--I believe you
would too that we could recover more than $1.2 or $1.5 billion
a year.
Secretary Leavitt. I was making reference to the money, the
additional money. You have asked a legitimate question. I am
just not able to answer it. If you would like, I would be happy
to have CMS and the Office of Inspector General provide to you
and to the committee an overview of the broader picture of our
enforcement, and the kind of return that that provides.
Mr. Moore of Kansas. I would very much appreciate that. I
think all of us would agree that when you are talking about $12
billion a year, you are talking about real money.
Secretary Leavitt. It is a lot of money.
Mr. Moore of Kansas. Mr. Secretary, I would like to tell
you too and ask you a question with the potential savings that
could be achieved through the widespread use of health
information technology. The ranking member of this committee,
Mr. Ryan, Congressman Ryan and I have filed a legislation to
help speed the adoption of the National Health Information
Network, H.R. 2991. The Independent Health Record Trust Act
would establish a market-driven approach to building a national
health information network through the establishment of
independent health record trusts. Health record trusts would be
run by for profit or not for profit entities that would be
Federally certified and act as fiduciaries on behalf of the
consumers to ensure the security, confidentiality and privacy
of the consumers' medical information.
Under our bill, individuals will have the option of setting
up an account with the health record trust to manage their
electronic medical records. We also placed incentives in the
legislation for physicians, health care providers and other
entities to furnish the system with information so there is
formed a comprehensive electronic medical record that would
result in a more accurate diagnosis and treatments. Mr.
Secretary, would having complete patient information available
to health care providers, in your opinion, from an independent
health record trust or a similar entity be helpful in reducing
Medicare fraud?
Secretary Leavitt. There is no question it would.
Mr. Moore of Kansas. Do you think that participation in the
health record trust by Medicare beneficiaries would help reduce
costs, for example, by reducing medical errors and avoiding
duplicative services?
Secretary Leavitt. Yes.
Mr. Moore of Kansas. We will forward to you a copy of that
bill and I would like for to you look at it and perhaps if you
feel it is appropriate, you could make some comments to some of
the people you work with and Members of Congress in support of
this legislation because our intention is, and this is truly a
bipartisan piece of legislation, is to reduce the amount of
wasteful health care spending in this country. Would you be
willing to take a look at that?
Secretary Leavitt. Yes, I would. I share your goal and
spend a lot of time right now working to develop the necessary
standards to empower some system, whether it is the one
envisioned in your bill or another.
Mr. Moore of Kansas. Thank you. And finally, if, in fact,
we are misusing or just basically giving away more than $12
billion a year, we would like to hear back from you. If you
have additional comments or thoughts about what can or should
be done to have our justice system address that, as a former
prosecutor, I just absolutely believe in strong enforcement,
and I have heard you say the same thing. And I think that would
be a wise investment of taxpayers' money to make sure that we
cut down on waste, fraud and abuse.
Secretary Leavitt. Thank you.
Mr. Moore of Kansas. Thank you, sir.
Chairman Spratt. Thank you, Mr. Moore. Mr. Tiberi from
Ohio.
Mr. Tiberi. Thank you, Mr. Chairman. Thank you, Mr.
Secretary, for coming today. We all know about the future
growth of Medicare and Medicaid and how it can't sustain itself
for the long term. Dr. Orszag from CBO gave us some startling
testimony last month about some of those numbers, $12 billion
certainly isn't going to fix the problem. But I agree with
Congressman Moore that it is a lot of money, even in
Washington, D.C. The flip side of that is from what I hear from
health care providers in central Ohio is the hoops and the
difficulties they have to jump through increasingly to get
payments from the government. And I actually experienced that
with my mom and dad, both who, with their doctors, were
providing additional information to CMS regarding some testing
that ultimately got paid, but it took 2 years, and there seems
to be another category that we are not talking about that is
efficiency, government efficiency when it comes to paying
providers that we haven't talked about today and how much
gets--how much it costs taxpayers and the Federal Government
for not being as efficient as we could be and how much that
costs as well.
So you put all that together, Mr. Secretary, how do we move
forward? Because certainly this issue isn't something new
today. I remember as a congressional staffer the issue of
waste, fraud and abuse being talked about with respect to
Medicare and Medicaid, and here we are today many, many years
later still talking about waste fraud abuse and efficiency, $12
billion. It is just a subject that doesn't go away. And to the
last point, maybe Mr. Cooper mentioned it earlier, how come
Justice can do a better job in some areas than other areas
where we know there is a problem? Miami, this has been a
problem for a long time, and yet we don't seem to be as
aggressive there as we have in other cities.
Secretary Leavitt. Let me just mention that Alex Acosta,
who is the U.S. attorney in southern Florida, in my judgment,
has done an extraordinary job in taking this on as a priority,
and prioritizing the assets of his office to get there. Every
U.S. attorney has limited financial and human assets and they
have to prioritize them in the way that they will. Obviously, I
would like them to be focused on health care issues but there
are others who have other purposes. $12 billion is an enormous
amount of money. The good news is we are making progress here.
If I would have been here 5 years ago, the proportionate number
would have been higher. We haven't talk much today about
contractor reform which CMS has been aggressively seeking in
terms of the way we bid the work, the way we concentrate on
error rates, the incentives we provide them, all of that is an
important part of how we identify and manage this. I would hope
for the day when this would be a very small problem. It isn't a
small problem now. It is a bigger problem than we would like it
to be, but it is not as big of a problem as it was a few years
ago.
Mr. Tiberi. So to follow up, Mr. Secretary. In Ohio, we
have a pretty active and strong durable medical goods industry,
and they are just as much offended by the waste, fraud and
abuse that happens because the good operators get thrown in the
same pool with the bad operators. So they would like to see
more aggressiveness in going after the bad actors as well. Has
CMS, department thought about maybe, working with the
association a little bit more aggressively in trying to weed
out the bad actors?
Secretary Leavitt. We actually have ongoing dialogues with
several associations related to durable medical equipment. And
you are right, we do tend to--I mean, there are a number of
other things that I haven't spoken of today because we are
still in the process of considering additional actions that
have an impact on the legitimate operators. And I wish there
were a way to eliminate that. Anytime you raise the bar,
anytime you do inspections, any time you require them to
relicense it affects everyone. It is unfair in one respect. But
there is no alternative. And you are right, the legitimate
operator, the business that is just working to serve the public
and not to rip the system off is affected by this, and our job
obviously has to be to minimize the number of times we do that
and optimize the number of times in which we focus.
Mr. Tiberi. Thank you.
Chairman Spratt. Mr. Baird.
Mr. Baird. Thank you very much, Mr. Chairman. Governor,
thank you for being here. As a personal graduate of the
University of Utah, thank you for your service as governor and
go Utes. And we appreciate you being here. I want to follow up
on something Mr. Simpson said earlier. He said that the person
who--if they deny the pair of glasses they go to another
doctor. In my State, you couldn't do that because you don't get
doctors who will take Medicare patients. 47 percent of docs in
our State won't take new Medicare patients. And the reason they
do that is because the compensation rates in certain parts of
this country for the same procedure are dramatically lower than
other parts of the country. It is a bit tangential to today's
topic, but it is my chance to talk with you about this and it
is of prime importance to my constituents. Have you any insight
to that issue, any thoughts about what you might do to correct
that?
Secretary Leavitt. I think anytime you have a government-
run system, you are going to have a system of price setting and
cost--and the market forces aren't there, and we end up
subsidizing the wrong things and underpaying things we ought to
be paying better for. And most commerce, there is a supply and
demand that tends to optimize matters, and that is not always
true in Medicare.
Mr. Baird. Okay. I appreciate that. But you preside over
that government-run system and you have authority therefore to
in some way adjust to the differential compensation. I think
you may actually find that I don't think it is totally
tangential, I think there may be areas where comprehension
rates are higher because historical abuse is getting rewarded
frankly in areas where comprehension rates are lower because of
historical conservative use of resources is actually being
penalized now. You may actually find more fraud. Have you given
any thought to how your agency might seek to adjust
compensation rates, perhaps raising the level of the have-not
States and lowering the level of excessively-have States or not
even States, it is really on a county-by-county basis.
Secretary Leavitt. Well, if I had more unilateral
authority, I would change the whole system.
Mr. Baird. But you don't. So given the authority you have
got.
Secretary Leavitt. Therefore, we use the authority we have
to come up with the best and fairest under those circumstances
system as done periodically and it is an ongoing process. But I
will tell you that if you look at my mail on a weekly basis,
you would see piles of advocacy letters from Members of
Congress and others who not only on a geographic basis, but on
a product-by-product basis. They have a product that is
produced in their district and they think it ought to be looked
at with an individual line-item or code, and the people at CMS
work hard to come up with a fair approach to it, but it is a
cumbersome, difficult, I think ineffective system and it would
be far better off if over time we could get to a place where
the market set those prices as opposed to government.
Mr. Baird. I appreciate that. In the interim, I will just
ask you in your role, in the current structure to try to do
what you can to address this differential. Ms. Hooley had to
leave but I know she shares this concern. As you talk about
this fraud and abuse situation, it seems there are two
categories where money is being spent. One would be where
billing is made and actually no products delivered because
there is no patient, a complete imaginary situation. And the
second would be where you have people who are perhaps really
not in urgent need of a device or a medication but they are
persuaded that they do need it.
Can you tease out a little bit for us the differential
there and how much of the abuse or excess cost is just the
imaginary patient being billed completely speciously and the
other one is the patient who is incentivized in some way to get
something they don't necessarily need.
Secretary Leavitt. Others can put them into numerical
categories better than I. But I would say there is a third
category, and that tends to be situations where patients are
recruited and compensated. You will have people on the panel
today that will be more able to delineate what percentage goes
into each category. I am not able to.
Mr. Baird. I have seen ads on TV where basically, if you
don't need it--you may not have woken up one day and said boy,
I think I need this device but suddenly you can get it free.
Secretary Leavitt. I find those offensive.
Mr. Baird. I do as well. And somewhere here I want to--
somehow we have got to get people to understand that the amount
they have paid into Medicare in many, many cases is vastly
inferior to the amount they are getting back. I got my Social
Security statement, and after umpteen years of work, I think I
have paid $29,000 into Medicare, which you know, one or two
days of ICU hospitalization sucks that right up. One last
question, what are the penalties for people who engage in this
stuff? I mean, how stiff is this?
You mentioned the cost-risk ratio. I like the Chinese
approach. Someone starts defrauding the American people, I
think a couple of those folks would get their attention. Not to
cabinet officials, mind you.
Secretary Leavitt. Just a reminder in terms of what we pay
in, we are paying for those there today and it will be our
children who ultimately have to pay for us. I think the worry
is they won't either be able to or be willing. With respect to
the penalties, and again, Office of Inspector General, people
can speak more directly to this, but when you get into the
large fraud like Mr. Cooper was talking about, the penalties
are substantial, and they go into the hundreds of millions and
sometimes into the billions.
Mr. Baird. I don't really care about the money. I want
people to spend time in jail.
Secretary Leavitt. We are aggressively prosecuting them and
they go to jail. And I can't tell you the actual penalties that
they exact, again others will need to respond to that.
Mr. Baird. Okay. I would urge you to be as vigorous, and if
you need this body to act and make a very--you know, we slap
heavy penalties on guys who smoke marijuana, for God's sakes,
and then these guys who rip off the entire country for billions
of dollars, I want them to spend some serious time.
Secretary Leavitt. I will just tell you, from my
observation, the penalties aren't proportionate. It is not
unusual at all for me to bump into a person from the Office of
Inspector General who said, yes, we were able to shut it down
and it saved a lot of money. But we just shut them down, and
there was--there was no prosecution. We don't prosecute every
case, but it is because there is a limit of resources, and that
happens to be a decision made in each jurisdiction by each U.S.
attorney.
Mr. Baird. Well, if there is something we can do to help,
let us know. Thanks for your testimony.
Chairman Spratt. Mr. Lungren, chief prosecutor of
California, do you want to comment on that policy?
Mr. Lungren. Yes. I was going to ask Mr. Baird whether he
wants the off with the head or only the hand. But Mr.
Secretary, you have given us some numbers here. Have you given
us a total number of how much fraud of this type on an annual
basis that we are seeing?
Secretary Leavitt. I have not given it to you. I do not
have that number. I suspect it is available but I don't have
it.
Mr. Lungren. Could you provide that for the record, please?
Secretary Leavitt. I would be happy to.
Mr. Lungren. The reason I ask that is I suspect that when
you see the amount of money we are talking about, asking for
utilization of some of the funds that otherwise would return to
the trust fund might make more sense. We need some proportion
here, and I think that would help us see what we are talking
about. Secondly, when I was attorney general of California, we
had the Medicaid fraud unit, which is funded, in part, I think
substantial part, by the Federal Government. It is run by the
States, in our State, the attorney general handles it. We work
hand in glove with the Feds on that. And even though that goes
more towards Medicaid than it does Medicare, these providers
are usually the same people. What, if anything, has your
Department done in trying to make the response from the states
more vigorous?
Secretary Leavitt. Well, on the Medicaid side, of course we
all have an incentive to do that, and we continue to both
provide funds and create incentives for that to occur. On
Medicare, on the other hand the States have no interest
financially in it. But as you point out, there are direct
corollaries between those providers, who do one, who do the
other.
Mr. Lungren. Has there been any discussion of having State
prosecutors be made special assistant U.S. attorneys? That is
done in other cases of other natures in this regard. Since this
problem is so large, have you discussed that with the attorney
general? Has there been any effort to try and--if you need more
prosecutors, you have got a lot of State prosecutors out there
who could be specially charged for several cases to do this.
Secretary Leavitt. I have not had conversations with the
attorney general on that. It is a subject worthy of pursuit.
Mr. Lungren. The other thing is, in terms of deterrence,
what would it take to require that signs be displayed at every
single one of these outlets that you talk about, both English
and whatever language of the community, because you said in one
area you did not get English speakers, but whatever language it
is, notifying people of the illegality of some of these
practices, and also notifying them of the potential jail time
that they could receive. The reason I say that is you indicate
that these folks, the bad actors are evidently taking advantage
of people who through naivete or a lack of understanding of our
system or the system of Medicaid don't necessarily realize they
are doing something illegal. And maybe we have to have
something that tells them that, number one, and how about a
specific notice of the tip line at all of these particular
sites. Couldn't that be part of your checklist?
Secretary Leavitt. That is a logical conclusion.
Mr. Lungren. Well, I know it is a logical conclusion, but
can we do that? I mean, the reason I say that is you are
talking about all the money we saved. But you know deterrents
are tougher to actually analyze. It is just like when you stop
a crime, you deter a number of crimes. You can't take credit of
it. It is tough to quantify. But we know that there is an
impact on society out there. And that is what I found missing
in all of your presentation. I am happy we are getting money
back, but we are obviously missing a lot. It doesn't sound like
too many people are going to prison or going to jail for it.
But just the knowledge that that could be the case may stop
some of these people who frankly don't understand this system
and realize that they are participating in an illegal scheme.
Secretary Leavitt. Let me acknowledge you have the right
person here for responsibility. I have the responsibility for
this. I have made it a priority. However, there are those in
the Department who have specific responsibility who would be
better at answering that question than me. So if I seem
evasive, it is because they are the ones who ought to be
answering it and not me.
Mr. Lungren. Do you think it is a good idea?
Secretary Leavitt. I do. I told you I thought it was well
reasoned.
Mr. Lungren. Well, I have been in court and have had well
reasoned arguments go the other way. I understand. We just----
I mean, it is mind boggling what you talked about here
today. And the problem is, this is a system--this is a program
that is very worthy for those people who need it. And because
it is very worthy for those people who need it, we make it an
open system, which means that it is ripe for fraud an abuse.
And unless you really hammer the people who are going to take
advantage of it, frankly we are never going to recover anywhere
close to what we need. And that is the only suggestion I have.
We need a bigger hammer, people need to know about it. And if
tip lines and a little bit of a financial incentive for people
to get them to turn these folks in, then that is what we ought
to do. And I thank you for your work and your testimony and
those who work with you.
Chairman Spratt. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman for holding this
hearing. Secretary Leavitt, good to see you. Thank you for
being here.
Secretary Leavitt. Thank you.
Mr. Becerra. I think most of us, the information we have
points to the fact that the more money you put into
investigators and to working jointly with the different Federal
agencies, whether it is justice or otherwise, that if we
conduct some of these sting operations and use our inspectors
to the full degree that we can, that we uncover fraud, which
ultimately saves all of us money. But as my colleague and
friend from California, Mr. Lungren, said, that ultimately
means more resources available for the people who desperately
need some of these programs and their services. Is there any
reason why we should not actually increase beyond the
capacities that this budget resolution provides to the
administration for moneys to go after fraud and abuse through
the inspection services that you currently provide but can beef
up should you have the resources?
So I know that we gave about $200 million more in this
budget resolution than the administration had requested for
some of these investigative activities, but is there anything
that limits us from trying to go beyond that? Or is that $200
million something that really reaches the level at which we
could expect the Federal agencies, or in your case, HHS, to
really move aggressively to try to do more enforcement and
uncover some of that fraud and abuse.
Secretary Leavitt. Well, there will be a point of
diminishing return. We don't know where it. I think the
committee's judgment has been, let's try at this level, and see
if that is it, and if it is, then you can make a judgment. If
it isn't, then a future committee hearing can be the venue for
that discussion.
Mr. Becerra. But do you believe that you will be able to
use all those additional resources efficiently that are being
provided?
Secretary Leavitt. I believe that the Federal Government
will, in fact, see a substantial return on this investment.
Mr. Becerra. Okay. And I suspect that much of the
additional spending for new inspectors, greater enforcement
capacity, new technologies and equipment will pay for itself,
but you have to still have the money in the next year's budget
to pay for that inspector the following year. And so are there
some ways that we can make sure that as you try to attract the
best when it comes to these investigative activities, that you
can provide them with that job security that they will need in
order to accept a position with HHS, or with Justice, that
would allow them to be those inspectors that we will need into
the future.
Secretary Leavitt. I feel some optimism that the success--
as successes generated here that this committee will continue
to acknowledge this is an important investment. I want to thank
the committee for their understanding of this need, and we will
do the best we can. You will get a chance to see some of the
very able colleagues that will actually be involved in
supervising this effort. They are able to get to a far level of
specificity than I can.
As the head of the Department, it became painfully evident
to me that this is an area that required that emphasis, and
hence, the request for additional resources. They will
tactically deploy it, and I feel next budget cycle they will
come back and make a report to me and to you, and we will make
the judgment that is based on that outcome.
Mr. Becerra. Yeah. Well, Mr. Secretary, I don't have much
to add, Mr. Chairman. I am not really sure there is a lot that
I could really add to this discussion other than to say that I
wish we could all act more aggressively to take advantage of
the fact that in every study I have seen, the more we do
professional inspection and enforcement, the greater the return
on taxpayer dollars, and I hope that Secretary Leavitt, that
when we see each other in about a year and report back on what
happened for this fiscal year, that we will see that there is
every reason for us to want to boost your allocation of funds
for further enforcement activities even further so we could
continue to try to root out that fraud as we know it exists.
Secretary Leavitt. Thank you. And very important, I will
acknowledge that a very important part of this in my judgment
is recognizing that by having the enforcement money on the
discretionary side of our budget and the recoveries all going
into the trust fund, it does limit us in ways that are
unnecessary. We are hopeful that that can be changed.
Mr. Becerra. And Mr. Secretary, I hope that we address that
point. I want to yield to the gentleman from Virginia, Mr.
Scott.
Mr. Scott. Thank you. I just wanted to ask a really brief
question. In working with minority doctors, do you have a
relationship with them and providing professional development
at their annual conferences? And who in your office could I
follow up with on that?
Secretary Leavitt. To the extent that occurs, I need to
respond to you in writing. I don't know the answer to that. I
will have CMS respond to you directly.
Mr. Scott. I think if we just engage in conversation, I
think that will be sufficient. Thank you.
Mr. Becerra. Yield back, Mr. Chairman.
Chairman Spratt. Mr. Porter.
Mr. Porter. Thank you very much, Mr. Chairman. Thank you,
Mr. Secretary, for being here today. I go back in time about 2
years ago, when hundreds of thousands of dollars were being
spent in political campaigns saying how seniors should be
scared and frightened of the Medicare prescription drug
program. Having received the benefit of thousands of phone
calls to my office across Nevada from incited seniors that were
afraid of what was going to happen, I must say today in Nevada,
seniors are very happy, and I applaud you and the
administration for your efforts and it is unsolicited. When I
visit senior centers or seniors around the district, I hear
about it consistently how much they appreciate. They were a
little frustrated earlier in figuring out how to operate and
how to do it, but they are very happy, so thank you.
Secretary Leavitt. Mr. Porter, thank you. And I acknowledge
the fact that seniors are happy, and I think they are happy for
a good reason.
Mr. Porter. Again, I think they are. And unsolicited, I
hear about it every time in the district. I am concerned about
medical advantage, but I will save that for another time
because they are very happy, the seniors with Medicare
advantage. My question I have has to do with insurance
companies and I hear there may be a problem with some insurance
carriers in that they may delay approving the benefits to an
extended period of time or in the meantime, the doctor will
apply to Medicaid or Medicare to be reimbursed because the
insurance companies have refused to provide that data. Is that
an ongoing problem where we may have to pay a claim when there
are insurance carriers that are technically covering this
individual because of delays in the operations onsite?
Secretary Leavitt. So you have an individual who is on
Medicare?
Mr. Porter. Yes.
Secretary Leavitt. And the physician is not being paid?
Mr. Porter. Correct.
Secretary Leavitt. Reimbursed, and you are saying that
the----
Mr. Porter. Some may also have additional insurance and
insurance carriers may delay in accepting responsibility so it
is turned over to Medicaid or Medicare.
Secretary Leavitt. As you know, the law provides that
Medicare is secondary to other insurance. And we have an active
part of CMS's job and our contractors as to determine when
other insurance is available and either to pursue recovery or
to encourage the insurance company to be the first payer. I
suspect there are times when one is too slow in making a claim
and it requires that there is some kind of adjudication that
ought not to have to be done. I don't know the extent to
which----
Mr. Porter. Being put in the first position when we might
well--should be in the second position because of delay.
Secretary Leavitt. As I mentioned earlier today, we are
seeking some legislation to help eliminate a loophole that will
allow providers to bypass some of our administrative appeals in
that way.
Mr. Porter. Again, and I thank you and appreciate all the
good words I hear from our seniors in Nevada. Thank you.
Secretary Leavitt. Thank you.
Chairman Spratt. Mr. Garrett.
Mr. Garrett. Thank you, Mr. Chairman. Thank you for your
testimony. Before I begin, I will just treat Mr. Baird's
comment that he actually sat down and did the computation on
that for the $29,000 that you paid out over time, I am going to
use that number now some time.
Mr. Baird. You actually get it. Social Security every year
sends you, in the report it says how much you paid into Social
Security, how much you paid into Medicare, it is actually an
astonishing low amount given the potential service.
Mr. Garrett. It is, in light of the fact that you probably
have the same thing I do, that in your communities when you
meet with seniors and what have you, they will say, well, I
have been paying this my whole life, and now I anticipate or
expect to be able to use it. And now I have a number to say
well, this is how much you actually paid and let me ask you how
much you got in benefits this year.
Mr. Secretary, you made the comment in some of your answers
to others with regard to the cumbersomeness, I think was one of
your words, ineffectiveness was another word, as far as the
overall system that--cards that you have been dealt with as far
as to administer. I have been on this committee now for 4
years, and we have been having testimony after testimony at the
beginning of each year with regard to mandatory spending. It is
always experts from across the aisle or across the spectrum I
should say, come and say that is our biggest problem.
In the past, as you know, this side of the aisle has put
forth legislation to try for reconciliation and find some
fundamental changes. That is what we have attempted to do.
Usually however from the administration you get two different
suggestions, one of what we are talking about here, waste,
fraud and abuse, which both sides of the aisle are in agreement
that we want to do away with waste, fraud and abuse.
The second suggestion we often get in one form or another
is reduction in the payments to providers in one form or
another, the reduction in the growth curve of it or just a
change in the numbers, what have you. What we don't normally
get from the administration is someone to go with you and would
seem to suggest would be needed is to go and eliminate the
cumbersomeness or ineffectiveness of the system. The testimony
we have today is good. I was reading your testimony. I was
outside before. You refer to the WAM program, Whack a Mole. In
my mind, though when you do the whack a mole game, or what have
you, you hit 'em over here--and maybe you made that reference
in your testimony, I don't know, when you hit 'em over here,
they pop up someplace else.
So I am encouraged by what you say, but I get the idea that
even if we go forward, try to do everything that you are
suggesting here, you will hit the whack a mole here in Florida.
That is one of my side questions, why you think maybe Florida
and those counties in particular are the problems. But you will
hit it over here and maybe California or New Jersey or
someplace else will become where the moles start popping up. So
that is a side question you can address easily perhaps to why
those areas are the problem areas on it. But can't we look to
some more fundamental recommendations from the administration
other than these two broad areas of waste, fraud and abuse? And
just cutting back on the providers, which, again, Congress from
both sides of the aisle usually say no because of the political
pressure we receive from the providers, may be in line with
what some members are talking about with SCHIP and Medicaid and
a fundamental change as far as how we provide services in those
areas so that you get at the root cause of the problem of
trying to eliminate some of the waste of a government-run
system that doesn't have market forces and doesn't optimize the
services that are provided.
Secretary Leavitt. Let me clarify a couple things.
Mr. Garrett. Sure.
Secretary Leavitt. One, frankly CMS and the Medicare system
have been very efficient in their ability to administer the
payment of money. They can cut a check for a smaller portion of
Medicare than many insurance companies can cut a check based on
their premiums. It is a very efficient system, it is a big
system, because we handle a billion claims a year. The pricing
mechanism, however, in my mind, is inefficient because we--it
is done through regulation as opposed to through market. So
when I talk about the cumbersomeness, that is, I think, what I
am referencing. I hope that you have noted that we are big
proponents of Medicare advantage, which is a fundamental reform
in Medicare, where we allow a person to obtain their Medicare
benefits through a private insurer. We believe that that not
only moves us toward a rate setting system that is not directly
linked to government price setting and allows the market to
work, but we are seeing that the result of it, is people get
better coverages and they like it better and they are having
less trouble finding a doctor. We think all of those things are
positive things and fundamental reforms and shifts and changes
that would, in the long run, serve the system well.
Chairman Spratt. Mr. Secretary, at this hour of the day, we
won't take up the argument of Medicare advantage and the
premiums paid on top of the per capita payments that otherwise
pay FSS. You have been an excellent witness. You have left us a
lot of information to consider. Somewhere down the road when
you get the funds available, we hope they make it through the
budget process this year. We would like to sit down again with
you and see what results we have achieved.
Secretary Leavitt. Thank you.
Chairman Spratt. Thank you so much for your participation
today.
Now we move to our second panel. Linda Stiff who is the
deputy commissioner of operations support for the Internal
Revenue Service. Stephen C. Goss who is the chief actuary for
the Social Security Administration. Timothy Hill, chief
financial officer of CMS, Centers for Medicare & Medicaid
Services. And Ms. Patricia Smith, commissioner of the New York
State Department of Labor.
STATEMENTS OF LINDA STIFF, DEPUTY COMMISSIONER OF OPERATIONS
SUPPORT, INTERNAL REVENUE SERVICE; STEPHEN GOSS, CHIEF ACTUARY,
SOCIAL SECURITY ADMINISTRATION; TIMOTHY HILL, CHIEF FINANCIAL
OFFICER, CENTERS FOR MEDICARE AND MEDICAID SERVICES; AND
PATRICIA SMITH, COMMISSIONER OF THE NEW YORK STATE DEPARTMENT
OF LABOR
Chairman Spratt. If it is agreeable with you, the panel, we
will start from left to right, my left to your right, my left
to right in the order that I just read your names, beginning
with Ms. Stiff.
STATEMENT OF LINDA STIFF
Ms. Stiff. Good morning, Chairman Spratt, Ranking Member
Ryan and members of the Committee on the Budget. My name is
Linda Stiff, and I am the Deputy Commissioner for Operations
Support for the Internal Revenue Service. I appreciate the
opportunity to be here this morning to discuss the critical
role that the program integrity cap adjustment plays in
supporting the IRS's enforcement programs. First, however, I
want to thank you, Mr. Chairman and this committee for your
support for the fiscal year 2008 proposed budget. This budget
will allow us to continue to balance a strong taxpayer service
program with an equally effective enforcement presence. This
balance is important to an effective tax administration
program.
In fiscal year 2006, we generated almost $49 billion in
enforcement revenue. This is an increase of 43 percent over
fiscal year 2001. Despite our success and increasing
enforcement revenue, we still have a long way to go. In
February 2006, we released updated estimates of the tax gap.
The tax gap is the difference between the tax that is imposed
by law and what is actually paid voluntarily and timely. That
estimate revealed that the gross tax gap for tax year 2001 was
$345 billion. This represents a voluntary compliance rate of
83.7 percent. After we factored in collections from our
enforcement efforts and other late payments, our estimate of
the net tax gap was $290 billion.
In an effort to close this tax gap, the Department of
Treasury and the IRS have developed a specific strategy to
increase the level of voluntary compliance. Treasury submitted
that strategy to Congress last September. We expect to submit
an update to that plan in the near future. A key element to any
strategy of reducing the tax gap is fully funding and
protecting IRS resources for enforcement activities. The
program integrity cap does just that by establishing a budget
framework for funding and ensuring IRS resources are dedicated
to enforcement activities.
The fiscal year 2008 IRS budget proposed a program
integrity cap adjustment of $406 million for enforcement. Of
that total, $115 million supports a portion of the cost to
maintain current base enforcement levels while the remaining
$291 million supports IRS initiatives that focus on increasing
voluntary compliance and reducing the tax gap. There are seven
specific initiatives in the fiscal year 2008 budget that are
aimed at improving compliance. They are discussed in detail in
my written statement. We estimate that by fiscal year 2010
these initiatives would generate an estimated $699 million per
year.
I realize that it is important to this committee as it is
to us that these investments in additional enforcement
resources demonstrate a justifiable return. Historically, the
return on investment resulting from IRS enforcement programs
has ranged from $3 to $14 for every additional $1 invested. The
range is a function of the specific type of enforcement
activity. For the new initiatives included in the fiscal year
2008 budget proposal, the return on investment is approximately
four to one. This estimate does not include the impact that
enhanced enforcement has on deterring noncompliance. Research
suggests that this indirect effect is at least three times as
large as the direct impact on revenue.
Mr. Chairman, let me conclude by saying that we will never
audit our way out of a tax gap. But it is important that we
have the enforcement resources to collect everything we can
without fundamentally changing the manner in which we interact
with taxpayers. The use of the program integrity cap adjustment
helps us do that and provides certainty that the revenues
appropriated for enforcement are used in enforcement. Thank
you, and I will be happy to respond to any questions.
[The prepared statement of Linda Stiff follows]
Prepared Statement of Linda Stiff, Deputy Commissioner for Operations
Support, Internal Revenue Service
Good afternoon Chairman Spratt, Ranking Member Ryan and Members of
the Committee on the Budget. My name is Linda Stiff and I am the Deputy
Commissioner for Operations Support. I oversee, among other things, the
IRS offices of Chief Financial Officer, Modernization and Information
Technology Services, and Human Capital. I am pleased to be here this
morning to discuss the program integrity cap adjustment and the use of
the funds provided under this adjustment by the IRS.
First, however, I want to thank you Mr. Chairman and this Committee
for your support for the IRS FY 2008 proposed Budget. As I will discuss
later, this budget will allow us to go forward with several initiatives
that will assist us from both a service and enforcement perspective.
This morning I would like to outline some of the accomplishments we
have had with our balanced approach to tax administration, the
challenges associated with increasing the levels of voluntary
compliance, the importance of the program integrity cap adjustment to
the success of our enforcement program, and the return we get on our
enforcement investment.
a balanced approach to services and enforcement
In FY 2006, we continued making improvements in both our service
and enforcement programs. This claim is not just our assessment, but
also that of the IRS Oversight Board in its most recent annual report.
According to the Board, the IRS has made steady progress towards
``transforming itself into a modern institution that provides efficient
and effective tax administration services to America's taxpayers.''
We continue to see improvement in various taxpayer service
programs. A survey commissioned by the Board in 2006 revealed taxpayers
increasingly recognize that the IRS provides quality service through a
variety of channels, such as our Web site, toll-free telephone lines,
and Taxpayer Assistance Centers (TACs). This finding is supported by
the metrics that we use to determine the effectiveness of our taxpayer
service efforts. In category after category, we continue to see
improvement in the numbers for our customer service and usage levels in
our telephone services, electronic filing, and IRS.gov access.
We have had similar success on the enforcement side. In assessing
our work in FY 2006, the Oversight Board said, ``As demonstrated by a
variety of measures, the IRS' performance on enforcement has improved
considerably, and real progress has been achieved over the past six
years.''
One of the most obvious measures of that progress is the increase
in enforcement revenue, which has risen from $34 billion in FY 2002 to
almost $49 billion in FY 2006, an increase of 43 percent.
In FY 2006, both the levels of individual returns examined and
coverage rates have risen substantially. We conducted nearly 1.3
million examinations of individual tax returns, almost 75 percent more
than were conducted in FY 2001, reflecting a steady and sustained
increase since that time. Similarly, the audit coverage rate has risen
from 0.58 percent in FY 2001 to more than 0.97 percent in FY 2006.
While the growth in examinations of individual returns is visible
in all income categories, it is most evident in examinations of
individuals with incomes over $1 million. The number of examinations in
this category rose by approximately 78 percent compared to FY 2004, the
first year the IRS began tracking audits of individuals with income
over $1 million. The coverage rate has risen from 5 percent in FY 2004
to over 6 percent in FY 2006.
Growth in audit totals and coverage rates extends to other taxpayer
categories. Preliminary estimates show that the IRS examined over
52,000 business returns in FY 2006, an increase of nearly 12,000 over
FY 2001. The coverage rate over the same period rose from 0.55 percent
to 0.60 percent. For corporations with assets over $10 million,
examinations rose from 8,718 in FY 2001 to 10,578 in FY 2006, an
increase in the coverage rate from 15.1 percent to 18.6 percent. For
the largest corporations, those with assets over $250 million,
examinations have increased by over 29 percent growing from 3,305 in FY
2001 to 4,276 in FY 2006.
We have also been active in the tax-exempt community. Overall,
examination closures for tax exempt organizations have risen from 5,342
in FY 2001 to 7,079 in FY 2006. In addition, we have an innovative
program utilizing correspondence contacts to leverage our activities in
the enforcement area. We have used it successfully in the hospital and
executive compensation areas, and will be using it elsewhere.
While examinations in the tax-exempt community generally do not
provide the tax collection ``return on investment'' that audits in
other areas might, it is important that we keep a ``cop on the beat''
in order to prevent abuses in the exempt sector and an erosion of the
tax base. Maintaining a strong enforcement presence in the tax-exempt
sector is particularly important given the role that a small number of
these entities have played in the past in accommodating abusive
transactions entered into by taxable parties. In appropriate cases,
this results in the collection of income or excise taxes--and in the
most egregious cases, revocation of exempt status.
Our ability to achieve these successes is dependent on having
adequate resources to fund IRS service and enforcement functions. As I
will discuss later in the testimony, the use of the program integrity
cap adjustment is an important component in ensuring we have those
resources, especially for enforcement.
the tax gap
Despite our success in increasing enforcement revenue, we still
have a long way to go. In February 2006, we released updated estimates
of the tax gap--the difference between the tax that is imposed by law
and what is paid voluntarily and timely. That estimate revealed that
the gross tax gap for Tax Year 2001 was $345 billion. This amount
represents a voluntary compliance rate of 83.7 percent across all types
of taxes and all types of taxpayers. When enforcement collections and
other late payments were factored in, our estimate of the net tax gap
was $290 billion.
Despite certain limitations, the most recent study incorporating
results from a National Research Program (NRP) reporting compliance
study of approximately 46,000 individual taxpayers for Tax Year 2001
represents the latest and best estimate of the tax gap. But, beyond the
actual numbers, the study revealed a significant amount of information
that has enabled us to address significant areas of noncompliance.
For example, the study revealed that underreporting--the failure to
report one's full tax liability on a timely filed return--constitutes
82 percent of the tax gap. As with previous compliance studies, we also
found that reporting compliance is strongest in the presence of
substantial information reporting and withholding. While the net
misreporting percentage for wages and salaries, on which there is
withholding and substantial information reporting, is only 1.2 percent,
amounts not subject to withholding or third-party information reporting
(e.g., sole proprietor income and the ``other income'' line on Form
1040) are the least visible with a net misreporting percentage of over
50 percent.
The NRP also provided the IRS with a baseline for compliance trends
and allowed the IRS to update audit selection formulas, meaning that we
can target enforcement resources to those areas where we are most
likely to find noncompliance. This improved focus not only improves our
return on investment but avoids examinations of compliant taxpayers.
In an effort to attack the tax gap, the Department of the Treasury
developed a ``A Comprehensive Strategy for Reducing the Tax Gap.'' This
plan was submitted to Congress in September 2006. It outlined a seven-
prong approach to reducing the tax gap, including a plan to:
Reduce the opportunities for evasion;
Make a multi-year commitment to research;
Continue improvements in information technology;
Improve compliance activities;
Enhance taxpayer service;
Reform and simplify the tax law; and
Coordinate with partners and stakeholders.
The Department of Treasury and the IRS are currently updating and
providing additional information in support of the plan. That update
should be submitted to Congress shortly.
It is important to note that while this plan presents a
comprehensive strategy for increasing the rate of voluntary compliance,
there are limits to how much we can increase that percentage without
fundamentally changing the manner in which we interact with taxpayers.
Achieving dramatic increases in the voluntary compliance rate would
call for draconian measures that would likely be unacceptable to
policymakers and taxpayers.
program integrity cap funding
Fully funding and protecting IRS resources for enforcement
activities are key to improving voluntary compliance and, ultimately,
reducing the tax gap. The program integrity cap establishes a budget
framework for funding and ensuring IRS resources are dedicated to
enforcement activities.
The President's FY 2006 Budget first applied a program integrity
cap adjustment of $446 million for additional enforcement investments
and inflationary costs necessary to maintain IRS's base enforcement
levels. In the final Appropriations bill for that fiscal year, Congress
included this program integrity adjustment and earmarked $6.447 billion
of IRS base resources for tax enforcement and added an additional $446
million enforcement increase, for a total of $6.893 billion.
Much of the enforcement success in FY 2006 that I discussed earlier
was the direct result of this increased funding provided by the program
integrity cap adjustment.
The FY 2007 President's Budget again proposed a program integrity
cap adjustment of $137 million for the inflationary costs to maintain
IRS base enforcement programs funded in FY 2006. However, the FY 2007
Joint Resolution approved by Congress in February 2007 did not include
the cap adjustment.
Once again in FY 2008 the President proposed a program integrity
cap adjustment of $406 million for enforcement. Of that total, $115
million supports a portion of the cost to maintain current FY 2007 base
enforcement levels (i.e. pay raise and other inflationary increases).
The remaining $291 million supports IRS initiatives that focus on
increasing voluntary compliance and reducing the tax gap.
fy 2008 initiatives funded by the program integrity cap adjustment
The IRS's FY 2008 enforcement initiatives are aimed at improving
voluntary compliance by:
Increasing front-line enforcement resources;
Implementing legislative and regulatory changes; and
Expanding the research program.
The following seven specific initiatives proposed in the FY 2008
Budget are aimed at improving compliance. When the new hires reach full
potential in FY 2010, they will generate an estimated $699 million per
year (all revenue estimates are FY 2010 estimates when the new hires
reach their full potential). These initiatives provide:
$73.2 million to improve compliance among small business
and self-employed taxpayers in the elements of reporting, filing, and
payment compliance. This funding will be allocated for increasing
audits of high-risk tax returns, collecting unpaid taxes from filed and
unfiled tax returns, and investigating persons who have evaded taxes
for possible criminal referral. It is estimated that this request will
produce $144 million in additional annual enforcement revenue per year.
$26.2 million for increasing compliance for large,
multinational businesses.
This enforcement initiative will increase examination coverage for
large, complex business returns; foreign residents; and smaller
corporations with significant international activity. It addresses
risks arising from the rapid increase in globalization, and the related
increase in foreign business activity and multi-national transactions
where the potential for noncompliance is significant in the reporting
of transactions that occur across differing tax jurisdictions. With
this funding, we estimate that coverage for large corporate and flow-
through returns will increase from 7.9 to 8.2 percent in FY 2008, and
produce an estimated $74 million in additional annual enforcement
revenue.
$28 million to expanded document matching at existing
sites.
This enforcement initiative will increase coverage within the
Automated Underreporter (AUR) program by minimizing revenue loss
through increased document matching of individual taxpayer account
information. The additional resources will increase in AUR closures
from 2.05 million in FY 2007 to 2.64 million in FY 2010 and generate an
estimated $208 million of enforcement revenue per year.
$23.5 million to establish a new document matching program
at the Kansas City campus. This enforcement initiative will fund a new
AUR site within the existing IRS space in Kansas City to address the
misreporting of income by individual taxpayers. Establishing this new
AUR site is estimated to generate over $183 million in additional
enforcement revenue per year.
$6.5 million to increase individual filing compliance.
This enforcement initiative will help address voluntary compliance.
The Automated Substitute for Return Refund Hold Program minimizes
revenue loss by holding the current-year refunds of taxpayers who are
delinquent in filing individual income tax returns and are expected to
owe additional taxes. We estimate that this initiative will result in
securing more than 90,000 delinquent returns in FY 2008 and is
estimated to produce $82 million of additional enforcement revenue per
year.
$41 million for conducting research studies of compliance
data for new segments of taxpayers needed to update existing estimates
of reporting compliance. The data collected from these studies will
enable the IRS to develop strategies to combat specific areas of
noncompliance.
$23 million for information technology improvements to
implement legislative proposals needed to improve compliance. The FY
2008 President's Budget includes several legislative proposals that
would provide the IRS with additional enforcement tools to improve
compliance. It is estimated that these proposals could generate
approximately $29 billion in revenue over the next ten years.
In addition, the budget includes two non-revenue raising
enforcement initiatives, which are still important to a balanced
enforcement program. These initiatives are:
$15 million to increase tax-exempt entity compliance.
This enforcement initiative will deter abuse by entities under the
purview of the Tax-Exempt and Governmental Entities Division (TEGE) and
misuse of such entities by third parties for tax avoidance or other
unintended purposes. The funding will aid in increasing the number of
TEGE enforcement contacts by 1,700 (six percent) and employee plan/
exempt organization determinations closures by over 9,000 (eight
percent) by FY 2010.
$10 million for increased criminal tax investigations.
This funding will help us aggressively attack abusive tax schemes,
corporate fraud, nonfilers, and employment tax fraud. It will also
address other tax and financial crimes identified through Bank Secrecy
Act related examinations and case development efforts, which include an
emphasis on the fraud referral program. Our robust pursuit of tax
violators and the resulting publicity is aimed at fostering deterrence
and enhancing voluntary compliance.
All nine of these initiatives support our strategic plan to reduce
the tax gap.
return on investment (roi)
I realize that it is important to this Committee, as it is to us,
that these investments in additional enforcement resources demonstrate
a justifiable return. Historically, IRS enforcement activities have
yielded significant revenue.
ROI resulting from IRS enforcement programs ranges from $3 to $14
for every additional $1 dollar invested, depending on the type of
enforcement activity. For example, labor-intensive activities such as
the Collection Field Function have lower ROIs, and automated activities
such as Automated Underreported have high ROIs. Overall, the ROI for
the new initiatives discussed above is about 4 to 1, and the full
benefit of revenue-producing initiatives is realized approximately
three years after implementation when staff reaches its full
performance level.
These ROI estimates are understated in that they reflect only
direct enforcement revenue collected and do not include revenue
protected through programs that deny fraudulent refunds such as
Criminal Investigations. Nor does it include the impact that enhanced
enforcement has on deterring noncompliance that helps to insure the
continued payment of more than $2 trillion in taxes paid voluntarily
each year. The indirect effect of increased IRS enforcement on
improving voluntary compliance is not actually observed. However,
research suggests it is at least three times as large as the direct
impact on revenue.
summary
Mr. Chairman, I would like to thank you and this Committee again
for your support for the IRS FY 2008 Budget and the program integrity
cap adjustment in the Budget Resolution. As the result of your
demonstrated support of the IRS enforcement efforts, the House
Appropriations Committee funded our entire request, including the cap
adjustment, and the full House has since passed that appropriations
bill.
Earlier I spoke of a balanced program--specifically the balance
between service and enforcement and the balance within enforcement of
targeting all areas of noncompliance. In many ways, our budget
represents a balance. We will never audit our way out of the tax gap,
but it is important that we have the resources to enforce the existing
laws in ways that do not fundamentally change the manner in which we
interact with taxpayers. The use of the program integrity cap
adjustment provides certainty that the revenues appropriated for
enforcement are used in enforcement.
Thank you and I will be happy to respond to any questions.
Chairman Spratt. Thank you very much. Mr. Goss.
STATEMENT OF STEPHEN GOSS
Mr. Goss. Chairman Spratt, Ranking Member Ryan and members
of the committee, thank you very much for the opportunity to
come today to discuss with you the Social Security
Administration's efforts to reduce and correct improper
payments and the discretionary cap adjustment that you are
considering for fiscal year 2008 budget that would increase
funding for these efforts. Specifically, the adjustment that is
before you would provide funding above the base level of
funding that would allow the Social Security Administration to
conduct more continuing disability reviews, oftentimes referred
to just as CDRs, as well as more non-medical supplemental
security income redeterminations.
These would avoid and correct improper payments to Social
Security beneficiaries and supplemental security income
recipients. The adjustment under consideration would provide
SSA with an additional $213 million, allowing us to conduct
200,000 more CDRs, that would roughly double what we are
expecting in fiscal year 2008 otherwise, and would also allow
us to increase by 500,000 the number of SSI redeterminations
for the year. We project that on the basis of this $213 million
investment, we would get in future years about a $2 billion
reduction in overall program costs, reduction and i.e., that
much in savings from this cap adjustment.
Most of these savings would come in the next 10 years. Let
me elaborate just a bit on the nature of what CDRs and
redeterminations are. A CDR is a review of the current status
of an individual who has been on the disability rolls for some
time to determine whether that individual's disability has
ended or has significantly improved. Funding for CDRs has
varied widely over the past decade or two. And as a result of
funding shortfalls, we had a 3 to 4 million case CDR backlog
develop as of the mid 1990s. However, in fiscal years 1996
through 2002, SSA was given an appropriation of special funds
above the discretionary spending caps to be used exclusively to
conduct these CDRs.
At the end of the period, SSA successfully worked all these
cases or had them in process so that all cases that were due,
were at least in process. The program savings from this effort
were considerable. Since the end of the period, fiscal year
2002, however, requests for CDR dedicated funding totaling
$1.75 billion from the administration have not been met. This
has meant that we have fallen behind on our scheduled CDRs and
currently have a significant backlog once again. For SSI
beneficiaries, SSA also conducts redeterminations in addition
to these CDRs which are periodic reviews of the SSI nonmedical
eligibility factors, and we do this in order to assure that SSI
payments are made in the correct amount, and only to eligible
individuals. Experience has shown us that redeterminations are
a very, very effective tool to detect and prevent improper
payments in the SSI program. Of course, as with CDRs,
administrative resource limitations and other workload
requirements have a significant impact on the number of
redeterminations that we can actually process. In fiscal years
2003 and 2004, we processed well over 2 million, almost 3
million redeterminations in each of those years.
By 2006, however, the number was reduced substantially and
for 2007 we were down to only 1 million redeterminations being
processed. The expected present value of future program
savings, which is reported by SSA annually in reports to
Congress has remained close to $10 in program savings for every
$1 spent on continuing disability reviews. This return on
investment reflects not only Social Security but also Medicare
and Medicaid savings as well. So by doing these efforts, we
actually tap into savings across a number of programs. The
savings for cessations in a specific year are generally
expected to result in savings--I am sorry--the expenditures
that result in cessations of benefits in a given year from CDRs
result in savings that occur over the next 10 and even 20 years
and even beyond. We conduct a similar analysis for estimating
the results of SSI redeterminations. We estimate the program
savings from SSI redeterminations, we do this by adding the
expected recovery of overpayments detected by the
redeterminations to the expected future overpayments that are
avoided as a result of doing these redeterminations. For
redeterminations that will be processed with the additional
funding from a cap adjustment for 2008, the expected return on
investment is about $7 in program savings over future years for
every $1 spent in conducting them.
Mr. Chairman, CDRs and redeterminations are among the most
important program integrity and stewardship tools that SSA has,
and our ability to do more of them will go a long way in
helping us to reduce and correct improper payments from the
programs that SSA administers. It is vital that the cap
adjustment under consideration be approved. SSA appreciates the
committee's support in helping us maintain the integrity of the
Social Security and SSI disability programs. We look forward to
working with you in the future, and I will, of course, as the
other panelists, be very, very happy to answer any questions.
[The prepared statement of Stephen Goss follows]
Prepared Statement of Stephen Goss, Chief Actuary, Social Security
Administration
Chairman Spratt, Ranking Member Ryan, and Members of the Committee:
Thank you for the opportunity to discuss the Social Security
Administration's (SSA) efforts to reduce and correct improper payments
and the FY 2008 Budget proposal for an adjustment in the discretionary
spending caps to help increase program integrity efforts. Specifically,
the proposal would provide an adjustment above a base level of funding
that would allow SSA to conduct more continuing disability reviews
(CDRs) and non-medical redeterminations to avoid improper payments to
Social Security beneficiaries and Supplemental Security Income (SSI)
recipients when factors affecting their eligibility or payment level
have changed.
The proposal would provide SSA with a $213 million cap adjustment
that would allow us to conduct an additional 200,000 CDRs and 500,000
additional SSI redeterminations in FY 2008. With these efforts, we
project that we would realize about $2 billion in future program
savings, with most of the savings coming in the next ten years. The
return on investment from the additional $213 million is expected to be
approximately $10 to $1 in program savings for CDRs and $7 to $1 for
redeterminations.
SSA uses well-founded methods for determining administrative costs
and estimating future program savings for these important program
integrity workloads. The projected returns on investment for these
workloads are substantial and thus contribute to the solvency of the
programs and help to keep benefits well targeted to those who most need
them.
In the case of CDRs, we use data from our CDR tracking file and
other sources to develop estimates of future program savings. When the
Congress previously provided SSA with cap adjustment funding for CDRs
in FY 1996 through 2002, you also required us to submit an annual
report to Congress. Because we well understand the value and importance
of program integrity efforts, we have been reporting this type of
information for over 20 years.
SSA supports this program integrity cap adjustment proposal as a
highly effective and efficient means to prevent improper payments. The
balance of this testimony will describe these CDR and redetermination
workloads to you in more detail.
continuing disability reviews
For an individual to be entitled to disability benefits under
either the Social Security Disability Insurance or SSI program, a
determination must be made that the person meets the definition of
disability in the Social Security Act. Most of these determinations are
made by State agencies known as Disability Determination Services, or
DDSs. These determinations establish whether the individual is disabled
and the date the disability began. After an individual has been on the
program rolls for a period of time, the DDS is also involved in the
determination of whether the individual's disability continues.
Since the beginning of the disability program, Congress has
required, under sections 221(i) and 1614(a) of the Social Security Act
that SSA periodically review the cases of beneficiaries who receive
benefits, based on disability, to determine if disability continues.
When disability is established, each case is scheduled for a periodic
continuing disability review. The frequency of review depends on the
likelihood of medical improvement. In addition, if we receive
information that a beneficiary may no longer be disabled, a CDR may be
conducted earlier than scheduled.
In the early 1990s, concern over the reduced number of CDRs that
SSA was doing each year began to grow. Of particular relevance, the
Contract with America Advancement Act of 1996, P.L. 104-121, included a
provision authorizing the appropriation of special funds for fiscal
years 1996 through 2002 to be used exclusively to conduct CDRs. At that
time, SSA estimated at least $6 in program savings for every $1 spent
in CDR administrative costs. Based on subsequent data, we believe that
CDRs are even more cost effective, with estimated savings of about $10
to $1 during the ten fiscal years 1996 through 2005.
The additional funding provided by P.L. 104-121 allowed SSA to
embark on a seven-year plan designed to eliminate the backlog of CDRs,
which had grown to between three to four million cases at the end of FY
1997. With the support of Congress, this funding outside of
discretionary spending caps for SSA's CDR program allowed SSA to
initiate a CDR for all of the cases in which one was due by the end of
FY 2002.
Since FY 2002, however, requests totaling $1.75 billion in
dedicated funding for CDRs have not been met. This has meant that we
have fallen behind in our scheduled CDRs and currently have a
significant backlog.
SSA reports annually to Congress on the CDR workload. In the most
recent report, SSA reported that it spent $493 million processing CDRs
in FY 2005 for an estimated present value of lifetime program benefit
savings of $5.4 billion, including Medicare and Medicaid savings,
showing that CDRs continue to be a highly cost-effective program
integrity tool. As I mentioned earlier, the return on investment for
CDRs is about $10 to $1. The report for FY 2006 will be published later
this year, and we expect the return on investment numbers will be
consistent with previous reports.
Our past experience has shown us that additional funding through
cap adjustments is effective and will help us become current on CDR
processing.
the redetermination process
SSI is a means-tested program that provides cash assistance to
aged, blind, and disabled individuals with limited income and
resources. Once individuals are found eligible for benefits, changes in
their living arrangements or in the amounts of their income or
resources can have an effect on their benefit amount or eligibility
status even if their medical condition has not changed. In order to
assure that SSI payments are made in the correct amount and only to
eligible individuals, SSA conducts redeterminations, which are periodic
reviews of SSI non-medical eligibility factors. Redeterminations are a
very effective tool to detect and prevent improper payments in the SSI
program.
The purpose of a redetermination is to determine whether a
recipient is still eligible for SSI and still receiving the correct
payment amount. Redeterminations can be scheduled or unscheduled, and
except for certain institutionalized individuals, all recipients are
periodically scheduled for a review. The frequency and the intensity of
these reviews depend on the probability that the case is being paid in
error, which is based on a number of case characteristics, and on the
level of funding available for these reviews. While SSA selects for
review the cases most likely to have a payment error, even the cases
unlikely to have payment error are scheduled for review at less
frequent intervals. Unscheduled redeterminations are completed on an as
needed basis when recipients report, or we discover, certain changes in
circumstances that could affect the continuing SSI payment amount or
eligibility.
The number of redeterminations we complete varies from year-to-year
based on available resources and workload requirements. In fact, fewer
redeterminations were selected for processing in FY 2005 and 2006. In
FY 2004, we processed over 2.2 million redeterminations, but in FY 2005
we only completed 1.7 million. In FY 2006, we conducted just over 1
million redeterminations, and it is expected that we will process a
similar amount in FY 2007.
estimating program savings for cdrs and redeterminations
SSA has been reporting CDR data to Congress since 1983. Beginning
with the CDR report to Congress for FY 1996, SSA has included
information on the number of reviews, the disposition of such reviews,
the amount spent on reviews, and the estimated future program savings
for those found to be no longer eligible for benefits. The calculation
of estimated future program savings for benefit cessations is critical
in determining the return on investment for CDRs. This calculation
reflects the duration of additional benefit receipt that would have
occurred in the absence of the CDR. Estimated benefit savings reflect
the likelihood of successfully appealing the CDR determination or of
reapplying for benefits and becoming re-entitled. Through the years,
the analysis has become more detailed and many parameters have been
refined. But the expected present value of future program savings has
remained about $10 for every $1 spent in doing CDRs. It is important to
remember that this return on investment reflects Medicare and Medicaid
savings as well as Old Age and Survivor and Disability Insurance
savings. Also, the savings do not reflect only benefit savings in the
year the CDR is completed. The actual savings for cessations in a
specific year reflect expected future savings over the next 10 to 20
years in many cases.
We conduct similar analysis for estimating the results of SSI
redeterminations. However, unlike CDR cessations, redeterminations can
result in an individual no longer receiving benefits or continuing to
receive benefits but at a different level. In some instances, an
individual's benefit may decrease--e.g., due to an increase in income--
while in others, the benefit may increase--e.g., due to a change in
living arrangements. We estimate program savings from SSI
redeterminations by adding the expected recovery of overpayments
detected by the redetermination to the expected future overpayments
that are avoided as a result of the redetermination. For
redeterminations that will be processed with the additional funding
from a cap adjustment for FY 2008, the expected return on investment is
about $7 in program savings for every $1 spent in conducting them.
conclusion
The Social Security Administration is responsible for providing
benefits to all qualified individuals, but only for as long as and to
the extent that the benefit is warranted under law. CDRs and
redeterminations are among the most important program integrity tools
SSA has, and our ability to do more of them will go a long way in
helping us reduce and correct improper payments for the programs SSA
administers. Therefore, it is vital that the cap adjustment under
consideration, that would give SSA funding to conduct additional CDRs
and redeterminations, is approved. SSA appreciates this Committee's
support in helping us maintain the integrity of the Social Security and
SSI disability programs, and we look forward to working with you in the
future.
I will be happy to answer any questions you might have.
Chairman Spratt. Thank you very much. We will have
questions, but let's complete the testimony from the panel.
Now, Mr. Hill.
STATEMENT OF TIMOTHY B. HILL
Mr. Hill. Good morning, Chairman Spratt, Congressman Ryan,
distinguished members of the committee. I am pleased to be here
today to discuss the Centers for Medicare and Medicaid
Services' efforts to ensure the continued integrity of the
Medicare program.
I have submitted my written statement for the record, and
let me focus this morning on three issues: the funding issues
that we are currently facing, talk a little bit about how we
measure our success, and then discuss very briefly some of our
preliminary thinking about where we would devote extra
resources that will hopefully come to us through the
appropriation after your support from the committee.
As you know, beginning in 1997, the Health Care Fraud and
Abuse Control Program has provided CMS with a dedicated funding
stream to protect Medicare. With this funding we enter into
contracts with a variety of organizations to audit provider
financial data, review medical records and other billing data,
coordinate benefits with other health plans, educate providers,
and work with law enforcement to pursue fraud cases.
Funding for these activities actually grew from 1997 to
2003. Unfortunately, since 2003, funding for these activities
has been capped, and CMS has sustained approximately $90
million inflationary loss to our purchasing power for program
integrity activities.
Additionally, our current appropriations are only available
to support activities conducted by contractors, and can't be
used to support Federal staff and their program integrity
activities. Thus, to preserve our commitment to program
integrity, the President's budget is requesting an additional
$183 million in discretionary budget authority above our
current mandatory appropriation.
To be sure, this request is for a set of programs with a
proven record of accountability; and I would like to now turn
to a discussion of how we measure our success and the
effectiveness of these programs.
One method that we use for measuring our effectiveness, as
has been discussed here and by Secretary Leavitt, is a return
on investment ratio, an ROI. Our activities have varying rates
of return. For example, medical review, where we actually
review the medical documentation supporting a claim, has a rate
of return of close to 23 to 1, whereas a financial cost report
audit is closer to 2 to 1. Some of the initiatives that
Secretary Leavitt talked about earlier, the on-the-ground fraud
initiatives and on-site visits have ratios closer to a 100to 1.
From year to year the ratios vary, but the composite rate for
all our activities approaches 15 to 1.
Another key method to assess our effectiveness is our
ongoing error rate measurement programs. As you know, we are
required under the IPIA to undertake risk assessments and
conduct measurement of errors across all our programs. Last
year, for Medicare our error rate was 4.2 percent, as has been
discussed here. It is a significant decrease from our prior
year of 5.2. And in fact over the last 3 years, we have reduced
the rate by 56 percent, which is a cumulative savings to the
taxpayers of over $11 billion.
We are beginning to calculate error rates and report them
for Medicaid--we will be reporting the first set of rates this
fall--as well as for Part D and Part C of the Medicare
Advantage and prescription drug programs. We will begin
reporting rates for those programs this fall as well.
Let me conclude here by discussing three areas I think will
be greatly enhanced by enhanced funding if it is provided
through this year's budget process. The first, over the past 3
years the efforts of our LA and Miami field offices and our
partners have resulted in nearly $4 billion in identified
savings for the Medicare program. Given the success of our
existing field offices, CMS is evaluating the potential for
additional locations. New York, Texas, the upper Midwest, all
represent areas of high vulnerability that can benefit from an
enhanced Federal presence and ``our feet on the street''
efforts in high vulnerability areas of the country.
Second, CMS created the Medicare Drug Integrity Contractors
to help us safeguard the new prescription drug benefit, and
they played a key role in early implementation of the new
program. Early in the program we identified theft scams and
were able to identify certain pharmacies, again in Miami, who
were phantom billing prescription drug programs.
Now, all of these problems were found through our MDIC
contractors. Unfortunately, funding for these contractors
expires at the end of this fiscal year. Additional resources
would allow us to continue these efforts, as well as expand
into the Medicare Advantage, the Part C benefit, so we could be
more vigilant in that area in identifying, preventing, and
combating fraud and abuse.
Finally, and as you heard the Secretary testify to, we have
found that conducting on-site visits as a more complete part of
our provider enrollment efforts offers a significant payback.
We think there is even more to be gained once we have
additional resources to devote to this effort. For example, in
our most recent error report, a considerable amount of the
improper payments were caused by potentially fraudulent
providers in Florida who billed Medicare, but were unreachable
1 month later when their claims were selected for review. An
analysis of the data indicates that without these claims, the
national error rate would have been closer to 3.9 percent, as
opposed to the 4.2 percent we reported, a savings of over a
billion dollars.
Additional resources will enable CMS to expand our on-site
inspection capacity to ensure that these types of providers and
other providers around the country in various vulnerability
areas that present the greatest risk to the program are visited
on a more regular and surprise basis.
CMS continues to make great strides in identifying and
preventing fraud, reducing improper payments, and saving
billions in Medicare dollars that would otherwise be lost to
fraud and abuse. But we have only begun to scratch the surface,
and more work needs to be done. Additional flexible funding,
which allows us to use these funds over multiple years and
then, if not targeted for specific areas, will allow us to
deploy resources in fraudulent areas of the country as we deem
necessary in working with our partners in law enforcement.
I thank the committee for their support in this area, and
welcome any questions you might have.
Chairman Spratt. Thank you very much.
[The statement of Mr. Hill follows:]
Prepared Statement of Timothy B. Hill, Chief Financial Officer, Centers
for Medicare & Medicaid Services
Good morning Chairman Spratt, Ranking Member Ryan and distinguished
Members of the Committee. I am pleased to be here today to discuss the
Centers for Medicare & Medicaid Services' (CMS) efforts to combat fraud
and abuse within Federal health care programs.
With increasing expenditures, expanding Federal benefits, and a
growing beneficiary population, the importance and the challenges of
safeguarding CMS programs are greater than ever. Fraud, waste, and
abuse schemes have become increasingly complex, and are quick to adapt
and stump even the latest oversight strategies of Congress, CMS, and
our law enforcement partners. With CMS' expansive network of health
care activities comes a tremendous responsibility to protect our
programs' integrity, promote efficiency in their operation, and ensure
safe and quality health care for all Americans.
Responsible and efficient stewardship of taxpayer dollars is a
critical goal of this Administration, as evidenced by a government-wide
effort to improve financial management by way of the President's
Management Agenda (PMA). Under the PMA, Federal agencies are mobilizing
people, resources, and technology to identify improper payments in
high-risk programs, establishing aggressive improvement targets, and
implementing corrective actions to meet those targets expeditiously.
Consistent with these efforts, CMS is committed to identifying program
weaknesses and vulnerabilities to help prevent fraud, waste, and abuse,
and to improve quality of care in the Medicare program.
My testimony today will briefly describe the Agency's commitment to
fiscal integrity and our evolving methods to prevent fraud and abuse
within CMS programs. In addition, I will talk specifically about the
Agency's numerous program integrity initiatives, the additional
resources the CMS Health Care Fraud and Abuse Control (HCFAC) proposal
brings to bear, and the potential return on investment offered by
program integrity efforts.
background on cms programs
CMS is the largest purchaser of health care in the United States,
serving over 92 million Medicare, Medicaid, and State Children's Health
Insurance Program (SCHIP) beneficiaries this year. Roughly two-thirds
of CMS net outlays are devoted to Medicare, with Medicaid and SCHIP
accounting for approximately one-third of CMS net outlays.
Medicare is a Federal health insurance program that provides
comprehensive health insurance to more than 43 million people. Nearly
36 million individuals are entitled to Medicare because they are over
the age of 65 and 7 million beneficiaries under age 65 are entitled
because of disability; those under age 65 generally become eligible for
Medicare after they have been entitled to Social Security disability
cash benefits for 24 months. Gross Medicare outlays have grown from
$206 billion in Fiscal Year (FY) 1996 to nearly $382 billion in FY
2006.
CMS processes claims and makes payments for fee-for-service (FFS)
Medicare benefits through contracts with private companies: carriers,
fiscal intermediaries (FIs), durable medical equipment (DME) Medicare
Administrative Contractors (MACs), and A/B MACs. During 2007, CMS
estimates that Medicare contractors will process well over one billion
claims from providers, physicians, and suppliers for items and services
that Medicare covers. Medicare contractors review claims submitted by
providers to ensure payment is made only for Medicare-covered items and
services that are reasonable and necessary and furnished to eligible
individuals. In addition, CMS contracts with Program Safeguard
Contractors (PSCs) to detect and deter Medicare fraud and abuse.
Quality Improvement Organizations are contractors that ensure that
payment is made only for medically necessary services and investigate
beneficiary complaints about quality of care.
improper payments and reduced error rates
Given the staggering size of Medicare program expenditures, even
small payment errors can have a significant impact to the Federal
Treasury and taxpayers. For this reason, CMS, as part of a sound
financial management strategy, has a long history of using improper
payment calculations as a tool to monitor the fiscal integrity of
Medicare. CMS uses improper payment calculations to identify the amount
of money that has been inappropriately paid, to identify and study the
causes of the inappropriate payments, and to focus on strengthening
internal controls to stop the improper payments from continuing.
In recent years, CMS has made great strides in significantly
reducing the Medicare FFS error rate by educating providers about
appropriate medical record documentation and methods to improve their
accuracy and completeness. Paying claims right the first time ensures
the proper expenditure of the Medicare trust funds and saves resources
required to recover improper payments.
For example, in FY 2005, we strove for a Medicare FFS error rate of
7.9 percent and the actual error rate was 5.2 percent. For FY 2006, the
goal was 5.1 percent and the actual error rate was 4.4 percent. The
goal for FY 2007 is 4.3 percent and CMS in its 2007 Medicare FFS error
rate mid-year report indicated that the error rate to date is 4.2
percent, making progress toward achieving the target error rate. The
Agency has set a performance goal of further reducing the error rate to
4.2 percent by the end of FY 2008.
Coordinating Program Oversight Activities CMS follows four parallel
strategies in carrying out our program oversight activities. They are
prevention of incorrect payment, early detection, coordination, and
enforcement.
Prevention: CMS identifies problems before a claim is
paid, through our payment systems, prepayment medical review
activities, and education of providers and beneficiaries.
Early detection: CMS finds problems quickly, using
proactive data analysis, probe reviews of claims, audits and post
payment claims reviews, data matches, and other sources to detect
improper payments.
Coordination: CMS works through public and private
partnerships to identify and fight fraud and abuse. CMS recognizes the
importance of working with contractors, beneficiaries, law enforcement
partners, and other Federal and State agencies to improve the fiscal
integrity of the Medicare trust funds.
Enforcement: CMS ensures that action is taken when fraud
and abuse is found. CMS will continue to work with our partners,
including the Department of Health & Human Services (HHS)/Office of
Inspector General (OIG), Department of Justice (DOJ), State agencies
for survey and certification, Medicaid Fraud Control Units (MFCUs), and
State Medicaid agencies to pursue appropriate corrective actions such
as restitution, fines, penalties, damages, and program suspensions or
exclusions.
health care fraud and abuse control program
For FY 2008, the Administration needs $1.3 billion to support the
HCFAC program. This spending supplements routine program oversight
activities and is an investment in future savings from programs that
account for a significant share of improper and wasteful payments
within CMS.
The FY 2008 HCFAC funding request is a critical foundation of
support for our Agency initiatives to uncover fraud and abuse in CMS
programs. CMS appreciates the Committee's recognition of the prudence
of investment in these activities, demonstrated by an adjustment to the
discretionary budget cap for increased HCFAC funding. The return on
investment and savings to the Medicare trust funds more than compensate
for every dollar that we invest in fraud and abuse activities. With the
growing pressures on the Medicare trust funds due to the aging of our
population, each investment CMS makes in fighting fraud and recovering
improper payments will have an exponential impact on Medicare's long-
term sustainability.
As noted above, the Administration is requesting a total funding
level of $1.3 billion to carry out HCFAC functions, $202 million over
the FY 2007 level. Section 1128(c) of the Social Security Act
authorized the HCFAC program and Section 1817(k) of the Act specified
the levels of funding for the activities in this account. These funds
are permanently appropriated and are made available through the
apportionment process. Of the $202 million, approximately $20 million
is the result of mandatory inflationary increases provided by the Tax
Relief and Health Care Act of 2006 (P.L. 109-432) and the Deficit
Reduction Act of 2005 (DRA) (P.L. 109-171). $183 million comes from the
FY 2008 Budget discretionary funding request for HCFAC, which is
sufficient to supplement the mandatory dollars. The $183 million in
discretionary HCFAC funding will build upon programs with a proven
record for maintaining the integrity of the Medicare trust funds and be
used for prosecutions of Medicare Advantage and Part D health care
matters, investigations, audits, inspections, evaluations, as well as
for educating consumers and providers.
An investment in program integrity activities is needed to address
new fraud concerns arising from the Part D drug benefit. As set forth
in appropriations language, discretionary funds for HCFAC activities
would be split among several government entities that collaborate to
identify, prosecute, and fight fraud and abuse. In addition to $138
million for Medicare Integrity Program (MIP) activities, the remaining
$45 million in HCFAC funding would be made available for work carried
out by the HHS OIG, the Federal Bureau of Investigation (FBI), the DOJ,
and other HHS agencies, including CMS.
return on investment in the medicare integrity program
CMS tracks incorrect payments that were either avoided or recovered
through initiatives funded by the MIP. The ratio of the amount spent on
an activity compared to the measured savings is referred to as the
return on investment (ROI). Activities have varying rates of return.
For example, the ROI rate for all MIP activities is approximately 13 to
1; for the HCFAC account, the ROI is 4 to 1. From 1997 to 2005, HCFAC
activities have returned approximately $8.85 billion to the trust
funds.
medicare-medicaid data matching program
Another important program integrity initiative is the Medicare-
Medicaid (Medi-Medi) data matching program. Data mining health care
claims for fraudulent activity has been commonplace for several years.
However, by jointly mining Medicare and Medicaid claims, new patterns
are being detected that were not evident when viewed separately. The
knowledge gleaned from our Medi-Medi activities helps each program
identify and address internal vulnerabilities. CMS has 10 Medi-Medi
projects in place in key States and, as mandated by the DRA, will
expand the program nationwide. To date, more than 50 Medi-Medi cases
have been referred to law enforcement, $15 million in overpayments have
been referred for collection, and $25 million in improper payments have
been caught before erroneous payments were made. This project is a key
contributor to overall reductions in payment errors.
preventing fraud and abuse with program safeguard contractors
As previously mentioned, CMS' actions to safeguard Federal funds
are not merely limited to the error rate programs described in this
testimony. Program and fiscal integrity oversight is an integral part
of CMS' financial management strategy, and a high priority is placed on
detecting and preventing fraud and abuse. To that end, CMS has made
significant changes to its program integrity activities in recent
years.
The PSCs are CMS' fraud, waste and abuse detection contractors. As
of 2006, PSCs were established nationwide across all provider and
supplier types in the Medicare FFS program. The PSCs perform data
analysis to identify potential problem areas, investigate potential
fraud, develop fraud cases for referral to law enforcement and
coordinate Medicare fraud, waste and abuse efforts with CMS' internal
and external partners (e.g., law enforcement, affiliated contractors
(i.e., intermediaries, carriers), and MACs).
To further supplement the PSCs' fraud identification efforts, CMS
is making improvements to our own internal data analysis efforts. We
are collecting vulnerability data from many of our partners, including
Medicare contractors, and using a variety of data analysis tools to
review Medicare claims data. Much of our work will focus on addressing
vulnerabilities early in their lifecycle, and those that have high
estimated dollar impact to the Medicare program. Our program integrity
efforts will focus on the top 10 vulnerabilities identified through our
data analysis and developing corrective actions to address these
identified vulnerabilities.
program integrity efforts with recovery audit contractors
Section 306 of the MMA gave CMS additional authority to pilot a new
contracting authority designed to detect improper payments. This MMA
provision directs the Secretary to demonstrate the use of Recovery
Audit Contractors (RACs) in identifying Medicare underpayments and
overpayments, and collecting Medicare overpayments. CMS implemented
RACs in three States--Florida, New York and California--and in FY 2006,
the RACs collected $68.6 million in overpayments and identified more
than $300 million in improper payments.
The RAC program is consistent with the President's Management
Agenda objective to prevent improper payments in Federal programs. CMS
designed the demonstration to accomplish two specific goals--to
demonstrate whether RACs can identify past improper payments in the
Medicare FFS program and to determine whether the RACs can provide
information to CMS that could help prevent future improper payments. In
response to encouraging results under this demonstration effort to
date, Congress mandated the expansion of the RAC effort nationally in
the Tax Relief and Health Care Act of 2006, and the Agency is now in
the process of developing its expansion and implementation plans.
program integrity enforcement via satellite offices
CMS has taken several specific actions to ensure that Federal
dollars are being properly spent and fraudulent billings are stopped
when they are detected. In particular, we have recently opened a new
satellite office in New York City. This office, in conjunction with the
existing Los Angeles satellite office, and an enhanced Miami office,
will help curtail fraudulent spending in these high-risk regions of the
country. CMS' three satellite offices will provide additional on-the-
ground efforts to deter, detect, and report fraud, waste, and abuse in
these high-vulnerability areas. The satellite offices enable CMS to be
proactive in identifying potential fraud and abuse and promptly taking
the appropriate corrective actions. Having an additional presence in
these cities will allow CMS to better collaborate with our partners to
design, develop, manage, and participate in special anti-fraud and
abuse projects/programs.
Through the combined efforts of the Los Angeles satellite office,
the PSC and the claims processing contractors operating in California,
CMS has identified over $2.1 billion in improper payments in calendar
years 2005 through 2006. This includes the prepayment denial of claims
based upon fraud indicators and the post payment identification of
overpayments for claims identified as potentially fraudulent or highly
suspect. The Los Angeles office has also conducted a special project
that addressed improper billing and potentially fraudulent claims
submitted by Independent Diagnostic Testing Facilities (IDTFs)
operating in California. This special project resulted in approximately
$163 million in denied charges and the termination of Medicare billing
privileges for 83 IDTF providers.
provider enrollment
CMS has seen a marked increase in fraud and abuse activities during
the past few years that can be directly tied to provider enrollment
issues. These activities are primarily focused in high vulnerability
areas of the country such as Los Angeles, Miami, and Houston where a
large number of beneficiaries and providers/suppliers are located. To
fight fraud, CMS has sought to tighten the provider enrollment process,
provide more rigorous oversight and monitoring once a provider/supplier
enrolls in the program, and strengthen the provider revocation process.
CMS is also implementing new strategies to remove fraudulent
providers from the Medicare program. Our Los Angeles satellite office
has recently identified situations in which some physicians are
submitting claims for services that have not been furnished to a
specific individual on the date of service. These instances include but
are not limited to situations where the beneficiary is deceased, the
directing physician or beneficiary was not in the State or country when
the services were furnished, or the equipment necessary for testing is
not present where the testing is said to have occurred. We proposed
through regulation that CMS have the authority to remove these
fraudulent providers from the Medicare program.
Durable Medical Equipment Fraud As the Secretary noted in his
earlier testimony, within the last 18 months, CMS and the OIG have
identified and documented a significant amount of fraud being committed
by DME suppliers in Miami and the Los Angeles metropolitan area. While
both regions of the country have high numbers of Medicare
beneficiaries, there has been a tremendous spike in the number of
providers and utilization; the number of DME providers has almost
doubled and billing from the providers remains disproportionately high.
During FY 2006, the National Supplier Clearinghouse (NSC), the
national enrollment contractor for DME suppliers, conducted 1,472
inspections of Miami DME suppliers. As of October 2006, the billing
numbers of 634 DME suppliers had been revoked, including 143 suppliers
that had been enrolled within the previous 12 months. This effort,
which is still ongoing, resulted in a projected savings to the Medicare
program of $317 million. The NSC spent approximately $3 million on all
enrollment efforts in Miami, resulting in a ROI of greater than 100:1
($100 in savings for each dollar spent to conduct the project). A
similar initiative was conducted in the Los Angeles area last year.
The types of fraud committed by the DME suppliers in Miami and the
Los Angeles metropolitan areas included: (1) billing for services not
rendered, which involved claims for power wheelchairs, scooters,
nutritional products (e.g., Ensure), orthotics, prosthetics, hospital
beds, etc., and (2) billing for services not medically necessary. CMS
and its contractors have identified thousands of Medicare beneficiaries
living in California and Florida who are receiving DME items that they
did not require based upon their medical history and/or are receiving
Medicare Explanation of Benefits (EOBs) for items that are not only
unnecessary, but never ordered by their physician and never received by
the beneficiary. CMS staff in Los Angeles and Miami have interviewed
multiple physicians who have provided attestations that they never saw
the patients for which DME was ordered and correspondingly never
ordered by the suspect DME.
new approaches to fight fraud
Under the initiative announced by Secretary Leavitt on July 2,
2007, CMS will implement a demonstration project requiring DME
suppliers in Miami and Los Angeles to reapply for participation in
Medicare in order to maintain their billing privileges. Letters will be
sent out to suppliers in the demonstration locales asking that they
resubmit an application to be a qualified Medicare DME supplier. Those
who fail to reapply within 30 days of receiving a letter from CMS; fail
to report a change in ownership or address; or fail to report having
owners, partners, directors or managing employees who have committed a
felony within the past 10 years will have their billing privileges
revoked. DME suppliers who do not have their Medicare billing
privileges revoked based on the information contained in their
application will be subject to enhanced review and potential site
visits.
As Secretary Leavitt relayed earlier today, CMS is launching an
aggressive campaign to detect and prevent fraud and abuse activities,
using a multi-prong approach. While the DME demonstration program is a
first step, we also are carefully watching potential fraud trends in
other industries, including home health and infusion therapies.
medicaid program integrity
The HCFAC program, which is funded through Medicare's Hospital
Insurance Trust Fund, has the Medicare program as its primary focus. In
the Medicaid program, program integrity efforts have been funded
through grants to the State MFCUs and, to a limited extent, from non-
MIP activities in the HCFAC program.
The DRA was a major step in providing new resources for program
integrity efforts in Medicaid. The DRA provided a dedicated and
permanent funding stream for the Medi-Medi Data Match Program, which
had received some start-up funds from the HCFAC account. It also
established and provided permanent funding for the Medicaid Integrity
Program ($50 million this year) that will reach a total of $75
million annually by FY 2009 and each year thereafter.
conclusion
When unscrupulous providers defraud Medicare, they are cheating us
all--particularly more than 43 million people who rely on Medicare for
their health care needs. Beneficiaries with stolen identities may lose
eligibility for equipment in later years if a sham provider has already
billed Medicare on their behalf. When suppliers provide empty promises
to beneficiaries, they may simply be left without the equipment
necessary to support their chronic conditions. And finally, illegal
billing diverts funding from all beneficiaries in order to pay those
engaged in fraudulent activity. For these and many other reasons, we
take program integrity and other anti-fraud efforts very seriously at
CMS.
Thank you for having me here to testify today. CMS appreciates your
support of our efforts, and I would be happy to answer any questions.
Chairman Spratt. Now our final witness, Mrs. Smith. We look
forward to your testimony.
STATEMENT OF M. PATRICIA SMITH
Ms. Smith. Thank you, Mr. Chairman, Ranking Member Ryan,
and members of the committee for this opportunity to testify
about New York's unemployment insurance system, our
reemployment programs, and particularly the success that we
have achieved with our Reemployment Eligibility Assistance, or
REA grant. I would also like to address concerns about the
overall level of funding.
Adequate funding is essential to improve unemployment
insurance services, reduce fraud and waste in the system,
preserve the integrity of the trust fund, and maintain the
quality and competitiveness of America's workforce. New York
State is in its third year of a limited REA program, which is
supported by the Federal Unemployment Tax Act, or FUTA, grant
of only $647,000 a year. Its dual purpose is to reduce
erroneous payments and to determine better which reemployment
strategies will help reduce the length of time that people are
on unemployment insurance and, more importantly, return to
employment. This grant funds eight REA staff, who conduct in-
person assessments in three one-stop centers in New York State.
The REA program in New York focuses on one-to-one services.
Unemployment insurance claimants are scheduled early and often
to make sure they are fully aware of their unemployment
insurance benefits and their work search requirements. They are
also called in to make sure that their job searches are
effective, and that they understand and have access to the
broad array of services which are provided under the Workforce
Investment Act.
In New York State, the REA grant is limited to only one of
our 33 local workforce investment areas, three small counties.
We targeted this region because we believed that any strategies
which could lead to successes in this economically depressed
area of New York could be successfully replicated anywhere in
the country.
I am pleased to report that the New York State grant
results have exceeded our initial expectations of an average
reduction of 1 week in unemployment insurance benefits. In
fact, we have almost doubled that goal. That translates into
unemployment insurance fund savings of approximately $1.67
million a year, a gross return of 250 percent on the
investment.
New York State believes it would be a wise investment to
expand the Federal allocation of only $20 million a year
nationally for this program. The current grant serves only 1
percent of New York State unemployment insurance claimants. It
would take an additional $7.2 million in New York State to
expand this program to cover all areas of the State, although
it would still only cover about 10 percent of the claimants. If
we would achieve the gains we have seen to date, this would
result in a net gain of $11 million in the trust fund in New
York State.
What I would like to share with you are some of the key
lessons we learned in administering this grant. The success of
the REA grant is contingent upon there being sufficient
reemployment services available and integrated into the local
one-stop centers. The small Federal grant alone could not have
achieved these results without significant State and local
funding investments in reemployment services.
Keep in mind that REA funds can be used to review a
claimant's work search activities, assess the need for
reemployment services, and refer the individuals to needed
services, but REA funds cannot be used to actually fund the
delivery of needed reemployment services.
Fortunately, New York State already has a well-established
statewide reemployment services program, which is funded by
contributions from New York employers. In New York, up to $35
million a year is available for reemployment services.
The second lesson that we learned is that a strong linkage
between the administration of unemployment insurance and the
one-stop centers is critical to the delivery and to the success
of the system. This linkage allows us to identify claimants
early, to schedule them in for visits, and also allows the
staff to stop unemployment insurance payments if the claimants
do not report for their visits.
Third, many unemployment insurance claimants have no idea
how their skills can translate into other occupations. So we
found it necessary to hire additional employment counselors to
help claimants navigate these important employment decisions.
As I mentioned earlier, I would like to share some concerns
about the REA funding. REA has provided a small, but important
tool in our portfolio of reemployment services. But to be
effective in benefit payment control, it must be properly and
directly linked to UI administrative systems. Continued success
requires dedicated annualized funding, and Congress should
consider moving from a REA grant approach to a permanent
funding model if they wish to continue and secure long term
results.
Moreover, the REA funds do not replace unemployment
insurance administrative funds or Wagner/Peyser allocations,
neither of which has been sufficient in recent years to
effectively serve our customers. Funding is insufficient in the
unemployment insurance program alone, which supports fraud and
abuse prevention activities, such as employer tax fraud
detection and benefit payment controls. These activities have
suffered in New York State, as we have been forced to reduce
our UI, or unemployment insurance, staff by 35 percent in the
last 5 years.
Starting in fiscal year 2003, the United States Department
of Labor implemented a revised funding methodology known as the
Resource Justification Model. The intent behind this model was
to provide States with the ability to request and justify an
increase in unemployment insurance administered funding, but
this has not occurred. Instead, the process has been used to
allocate among the States an insufficient level of funding.
For example, in 2005, only 51 percent of the Federal
Unemployment Tax Act taxes paid by employers were returned to
the States in terms of administrative grants, yet in 2007, New
York State demonstrated a base need in unemployment insurance
administrative funding of approximately $210 million, but
received only $159 million, a reduction of 24 percent.
At certain times in the past, Reed Act distributions were
provided to the States in accordance with section 903 of the
Social Security Act, and we would actively support current
proposals for Reed Act distributions to the States.
We are proud of our success with the REA grant, but if you
take one thing away from my testimony please take this. REA is
not a separate program; it works when it is part of an
integrated employment and training system, and we need Congress
to fully support the continuation of these integrated services.
We would urge you today to consider the funding for the
various components of the workforce system as part of a
continuum and make sure that all parts are funded adequately,
such that claimants can get the full mix of reemployment
services that they need. We would also urge you to carefully
consider the action taken by the House Appropriations Committee
last week to rescind Workforce Investment Title 1 programs and
those budgets. Our work in carrying out the congressional
mandate for a one-stop system is undermined by actions that
erode the economic support for the services that your
constituents depend upon and need.
I thank you for this opportunity to testify and welcome any
questions.
[The statement of Ms. Smith follows:]
Prepared Statement of Patricia Smith, Commissioner of the New York
State Department of Labor
My name is M. Patricia Smith, the Commissioner of the New York
State Department of Labor. Thank you for the opportunity to testify
today on the subject of New York State's unemployment insurance (UI)
and re-employment programs, their funding levels and the critical
services we are able to provide under these programs. In particular, I
will describe the success we have achieved with our Re-employment
Eligibility Assessment (REA) grant and address concerns about the
overall levels of funding provided to states to provide these services.
Adequate funding is essential if we are to improve services to our
customers, reduce fraud and waste in the system, preserve the integrity
of the Trust Fund, and maintain the quality and competitiveness of
America's workforce.
As you know, funding for UI Administration, Wagner/Peyser (job
service assistance) and Labor Market Information programs is provided
from dedicated employer tax revenues collected under the Federal
Unemployment Tax Act (FUTA). In addition to funding these core
programs, national FUTA special grant funds currently support a limited
REA Program in New York State. We are now in the third year of
operating this competitively awarded REA grant program.
I'd like to thank Congress for providing this funding opportunity.
This has allowed New York to better determine which re-employment
services and strategies help to reduce the length of time individuals
receive UI benefits and, most importantly, result in their re-
employment. We are pleased with the program results and welcome the
opportunity to share what we have learned from our experience.
New York was awarded an annual federal REA grant of $647,000 for
the last two years, up from approximately $615,000 in the initial grant
year. This grant funds approximately eight dedicated REA staff, who
conduct in-person re-employment and eligibility assessments for over
3,000 UI customers annually in three full-service One-Stop Career
Centers. This has permitted dedicated REA-funded staff to conduct
approximately 10,000 individual REA assessment interviews annually. Our
REA grant strategy focuses on scheduling the claimant early and often
in his or her UI claim. This in-person service ensures that the
individual is fully aware of and continues to meet the UI eligibility
and work search requirements. It also ensures that he or she is
actively engaged in effective job search activities and has access to
the vast array of services available through the publicly-funded
Workforce Investment Act (WIA) system.
In New York, the REA grant is limited to only one of 33 local
workforce investment areas of the state. This local area includes the
three small counties of Oneida, Herkimer and Madison. The region has
sustained a serious and continued economic downturn from the shrinking
of its traditional manufacturing economy. We targeted this region to
pilot the REA model because we believe that any strategies which lead
to successful re-employment in a challenged economic region of New York
could be replicated anywhere in the country with similar outcomes.
I am pleased to report that New York's grant results have exceeded
our initial expectations. The goal in the first year was to achieve a
one-week average reduction in the duration of UI benefits. Actual
results to date indicate we have achieved close to double that goal--a
two-week reduction in the average duration of benefits, when compared
to a control group. Based on an average of 3,000 annual participants, a
two-week duration reduction at an average weekly benefit rate of $278
would result in New York UI Trust fund savings of approximately $1.67
million--a gross return on investment of over 250%!
This level of savings was consistent over the first two grant years
and we believe the results can be replicated and expanded to other
areas in New York State. However, they cannot be achieved without cost.
The federal requirements for the REA program are staff-intensive. Our
experience and analysis of the results indicate that providing a
comprehensive, individual level of service and dedicated case
management is the key to achieving success for the UI claimant and
success for the UI Trust Fund. We believe it would be a wise investment
to expand the $20 million available nationally for this grant program.
New York has applied in each of the past two years for an increase in
REA grant funds to expand our program statewide. However, the limited
federal funds have not been available to do that.
Our 2007 REA application estimated that an additional $7.2 million
over the current grant level would be needed to expand the REA model to
all regions of New York State. The current grant annually serves only
about 1% of the New York UI claimants that receive first payments and
are not exempt from searching for work. The proposed grant expansion
would allow us to increase to about 10% of that population, or
approximately 35,000 additional participants. Assuming we achieve our
previous rate of return, we would anticipate a net gain of over $11
million in Trust Fund savings.
Having touted the overall success of the REA model we piloted in
New York, I would like to share with you the key lessons that we
learned.
First of all, it is important to view the New York State REA
results within the proper context. The minimal $647,000 federal REA
grant alone could not have achieved these results. They were achieved
only by combining the federal REA grant with significant state and
local funding investments in UI Re-employment Services. Without the
leveraging of other resources and the foundation of strong state and
local partnerships in the delivery of re-employment services, we would
not have been able to implement the REA model that works for New York.
Let me clarify:
1. The federal REA program is funded from UI administrative funds
and comes with strict guidelines on what REA dollars can and cannot
cover. REA funds can be used to provide general information about the
labor market, review the claimant's work search activities against a
work search plan, assess the need for re-employment services, and refer
the individual to needed services. However, it is important to note
that REA funds can not be used to fund the delivery of critical Re-
employment Services, such as resume writing, interviewing workshops,
skill development, job development, and job search, referral and
placement activities. The success of REA is contingent upon there being
sufficient Re-employment Services available through the local workforce
system to serve the UI population. The REA program must be integrated
into the local area workforce plan, and local One-Stop partners must
buy in to the REA program goals.
The importance of these critical elements cannot be overstated. In
New York, state policy and resource investment were important in
providing this foundation:
New York State law finances a Reemployment Services
Program with contributions from employers (.075% of taxable payrolls)
targeted to UI customers. Each year, up to $35 million dollars are made
available to support local Department of Labor staff within the One-
Stop system to provide re-employment services to UI claimants. As a
result of this state-funded investment, New York already had a well-
established statewide Re-employment Services program along with the
tools and systems needed to support these targeted services to the UI
population.
New York has state policies that created true workforce
system integration by mandating the alignment of service delivery for
the WIA Title IB and Employment Service programs. Local workforce areas
were required to submit plans that aligned their services according to
function as opposed to funding streams. Plans were required to reflect
such key concepts as a single customer flow, a shared customer pool,
functional service units, functional leadership and supervision, common
data management, increased service levels, service delivery designed
from the customer perspective, and shared accountability.
As part of these efforts, regional Re-employment Service plans were
required that demonstrated how the state-funded UI Re-employment
Services program would be integrated within the One-Stop system. In
addition, the policy required all UI claimants to be co-enrolled in
both the Employment Service and WIA programs, thus making local
workforce boards jointly accountable for our customers' success. This
important policy change reflects the intent of Congress when it passed
the Workforce Investment Act.
2. Another key component of the REA-funded pilot is the addition of
UI benefit payment control to the service strategies available in the
One-Stop system. REA staff can provide an individual assessment of a UI
claimant's continuing eligibility for benefits. They can identify
potential UI issues, while UI administrative-funded staff must actually
adjudicate issues and make eligibility determinations. This potential
withholding of the UI benefit gets a claimant's immediate attention.
The strong linkage between the administration of UI and the One-Stop
service delivery system is critical to the success of any REA model.
New York recognizes that unless UI and Re-employment Services are
viewed as a set of services within a single system, and all segments of
that employment and training system are aligned, we will not be able to
make progress in our workforce employment and training efforts.
In New York State, the Division of Employment Service (DoES) has
the lead responsibility for both the state-funded Re-employment
Services program and the federally funded REA grant. New York continues
to maintain the strong linkage between the public Employment Service
and the administration of the Unemployment Insurance program. This
historical Employment Service/UI linkage has been weakened in some
areas of the country, as UI has moved to centralized call centers or
the delivery of services over the Internet, and the Employment Service
program has been absorbed within the broader, universal One-Stop
system. In New York State, where the UI customer represents over 60% of
the One-Stop system customer pool, the Employment Service program has
maintained a strong focus on serving the UI customer as one of its core
Wagner/Peyser roles. This has provided the strong bridge between the
administration of UI and the One-Stop system that is needed for the
success of the REA program.
Under the state-funded Re-employment Services program, the
Department of Labor made significant investments in technology to share
information among UI administrative systems, the One-Stop Center Case
Management System, and a state-developed system specifically designed
for scheduling and case management of UI customer re-employment
services. This system integration identifies new claimants early in the
claims cycle, provides the tools needed to efficiently schedule
claimants for re-employment service appointments, and gives local staff
the ability to suspend UI benefits if claimants fail to report for
scheduled appointments. Without this integration, New York would not
have been able to implement the REA grant as quickly and successfully.
3. People rely on the publicly-funded workforce system to help them
navigate spells of unemployment. We learned that it was necessary to
hire more employment counselors to help people navigate career choices
and decisions. Assessing each worker's ability to perform in the global
economy leads to better service strategies to help that individual make
guided career and training choices. Many UI claimants had no idea how
their skills could translate into other occupations. It took testing
and counseling to help people decide the best path to their futures and
guide them back into the workforce faster.
We also learned that many customers are unprepared for the
realities of today's Internet job searching tools and many are totally
unfamiliar with basic computer use. Many do not speak English as their
first language. As an example, a staggering 48% of New York City's
workforce is foreign born. To address these and other barriers, we need
partners and all available community resources to help ensure our
services reduce UI duration and provide tools to allow an individual to
attain better employment options. The REA grant brought additional UI
customers to the One-Stop system and having an array of services to
assist them was essential to the program's overall success. We urge
Congress to sufficiently appropriate funds for the public workforce
system, which will allow us to continue serving the many New Yorkers,
including UI customers, for whom these services are vital to economic
self-sufficiency.
I would like to share our concerns about REA funding. For REA to be
effective in benefit payment control--something I know is important to
those of you who funded this pilot--it must be linked directly to other
key components of the publicly funded workforce system, including the
UI administrative system. REA's positive outcomes in New York were the
result of a separate federal grant application process and not a
systemic approach to properly fund activities that can meet the REA
objectives. REA funds do not replace either UI administrative funds or
Wagner/ Peyser allocations, neither of which has been sufficient in
recent years to effectively serve our customers.
Funding is insufficient in just the UI program alone, which, as you
are aware, supports activities such as:
Taking and processing of UI benefit claims;
Employer tax processing, field audits and employer tax
fraud detection;
Integrity activities, including benefit payment controls;
and
UI federal funding dollars allocated to New York for
administration of the program have decreased substantially in recent
years while, at the same time, we experienced higher annual costs of
doing business--this equates to a substantially reduced level of funded
staff. In just the last five years, New York's number of supported UI
staff has decreased 35% in the last five years. Although we have seen
some reduction in the number of claims filed over this period, our
staff reductions have greatly exceeded any reduced workloads.
As a result of under-funding the UI program:
1) Staff have been directed to front line claims-taking and
eligibility determinations wherever possible;
2) Benefit payment controls have not always been sufficient.
Nationally, the UI program ranks among the highest programs with
improper payments;
3) Efforts to target employer tax fraud (including detection of
misclassified workers) have not been given sufficient focus;
4) Efforts to integrate workforce programs system-wide are hurt. As
indicated earlier, a strong linkage between the administration of UI
and One-Stop service delivery systems is critical to getting UI
claimants back to work and reducing waste in the system. Unless these
are viewed as a single system and all segments are fully supported and
aligned, none of these programs will be as successful as they must be.
For example, efforts to profile those claimants most likely to exhaust
benefits are not updated as quickly as needed, and re-employment
programs for serving UI claimants require a sufficient level of staff
to ensure success. In addition, as centralized call centers are
implemented to take UI claims, a strong linkage with re-employment
activities is more important than ever.
Like most or all other states, New York has undertaken many
technological improvements and actions to improve efficiencies in our
administration of the UI program. But, we are not able to keep pace
with the needs of our customers with the reduced federal investment in
UI. We implemented a virtual call center for taking UI claims and we
were at the forefront of states implementing electronic benefit
payments of weekly claims via direct payment cards. We have also
recently implemented direct deposit as an option for claimants to
receive their weekly benefits.
These technological improvements, which offer the opportunity for
increased customer access and satisfaction, also come at a cost.
Reduced funding levels impact our ability to provide quality service to
our customers, maintain a sufficient level of integrity activities and
also meet performance measures required by USDOL.
A proper amount of UI funds, both administrative and within the
Trust Fund, will allow New York and other states to creatively make
changes in multiple types of services provided to UI customers.
Starting with Federal Fiscal Year 2003, a revised methodology was
implemented by USDOL to allocate UI administrative funding to the
states--the Resource Justification Model (RJM). This revised
methodology was to provide states with an ability to request increased
funding where needed and also provide an equitable and fair
distribution of funds based on states' justification of their upcoming
fiscal year needs.
RJM data was also to be used to justify an increase in the national
appropriation to support all states' needs for UI administration. The
goals of this methodology have yet to be realized by the states. As a
result, the updated cost information provided through the RJM process
has instead been used to allocate an insufficient level of national
funding among the states.
For 2007, New York State demonstrated a need via the RJM for a base
level of UI administrative funding of approximately $210 million.
However, we received only approximately $159 million, a reduction of
$51 million, or 24%. Similar deficiencies have occurred since the
inception of RJM and are expected to continue in subsequent years.
Nationwide in 2006, $2.8 billion was requested under RJM, while only
$2.3 billion was allocated to states, a difference of $510 million.
Funding has not been sufficient nationally for a number of reasons.
One I would like to address is the surplus employer FUTA tax
collections that are retained each year on a national level and not
provided back to states via UI, Wagner/Peyser and Labor Market
Information program allocations. For example, in 2005 only 51% of the
FUTA taxes paid by employers were returned to states in terms of
administrative grants. At certain times in the past, when surpluses
reached a given level, Reed Act distributions to states were provided
in accordance with Section 903 of the Social Security Act. While it
would only provide a temporary solution to funding these programs, New
York supports the proposal from the National Association of State
Workforce Agencies (NASWA) for a national Reed Act distribution to
states of $800 million per year for the next three consecutive years.
Despite funding reductions in recent years New York takes seriously
the need to maintain a high level of integrity in our UI program. I
have already discussed how critical it is to call claimants in early
within their claims for quality control purposes. We also continue to
look to ways to improve the quality of our own UI program
determinations, reduce the number of improper UI benefit claims and tax
transactions whenever possible.
We are proud of our success with REA, but if you take away one
thing from my testimony today, it is that the success of our REA model
was totally due to the services provided through the One-Stop system,
including the services provided through essential WIA Title 1 funding.
We were able to reduce UI benefits duration by an average of two weeks
per claimant, and save our Trust Fund millions of dollars because of
the value-added services that were provided by dedicated staff through
the One-Stop career system. REA is not a separate, isolated process in
New York. It is part of an integrated employment and training system,
and we need Congress to fully support the continuation of these
integrated services.
Sufficient levels of national appropriations for the UI Program,
Wagner/Peyser, Re-employment Assistance Programs and the One-Stop
networks will help ensure that states will be able to maintain an
emphasis on high quality services to customers in the workforce
development system, including unemployed citizens looking to return to
work as soon as possible. In addition, sufficient funding will allow
states to implement cost-saving measures and the technology
infrastructure upgrades they need to ensure effective solutions to
assist the unemployed.
New York is committed to providing the full array of services
envisioned by Congress with enactment of the Workforce Investment Act.
Unemployment Insurance is a mandatory partner program in the One-Stop
system, as are the Employment Service and the WIA Title 1 programs.
Actions to rescind funding such as those taken by the House
Appropriations Committee last week undermine the very commitment of
Congress to ensure that our country remains globally competitive. We
understand the competing needs in crafting a budget. However, New York
cannot provide Congress with an assurance that we can commit to a REA
model without a fully-funded One-Stop Career Center system.
Finally, let me state that New York welcomes grant opportunities
such as REA, but one-time grants merely allow us to pilot strategies on
a very small scale. Continued success requires dedicated, annualized
funding, and Congress should consider moving from a REA grant approach
to a permanent funding model if they wish to secure long-term results.
Congress has a right to hold states accountable for these investments,
and New York would gladly implement our REA model statewide, if fully-
funded, and accept REA funds on a performance outcome basis.
We would urge all of you today to view the funding for the various
components of the workforce system as part of a continuum. The system
can operate most effectively when all parts are sufficiently funded to
provide the mix of services necessary to get individuals back to work.
The integrity of the system is undermined when funding is rescinded
mid-stream. Our work in carrying out the congressional vision and
mandate for a One-Stop system continue to be undermined by efforts that
erode the very basic support of the services your constituents depend
upon and need access to. REA has provided a small, but important, tool
in our portfolio of reemployment services and New York would urge
continued and significantly increased investment by Congress in this
program.
I thank you for providing me the opportunity to testify and I
welcome your questions on these important issues.
Chairman Spratt. In the interests of time, we have votes
coming up, I am going to recognize the gentleman from
Tennessee, Mr. Cooper, for 3 minutes, and then we will go to
Mr. Scott, and then we will come back to Mr. Ryan.
Mr. Cooper. Thank you, Mr. Chairman. I would like to focus
on Mr. Hill.
Secretary Leavitt mentioned that government programs
regulation doesn't work nearly as well as in the private
sector. Can you help me understand how intermediaries and
carriers are selected by CMS? Aren't those contracts bid out to
the private sector?
Mr. Hill. I think that there is--we need to take a point-
in-time look at that. Prior to the MMA, the Medicare
Modernization Act, intermediaries and carriers were sort of an
historical artifact of the way Medicare was enacted. We
basically contracted by statute with the Blue Cross-Blue Shield
plans that were in each State, and had very little flexibility
to choose or make distinctions among entities with whom we
contracted. With the enactment of the MMA, we now have the
authority to procure these services as anybody else, any other
Federal agency would under the FAR, and have begun to do so.
Our first set of contracts--I believe we now have four
contracts in place--contracts to process DME claims, and a
contract in the upper Midwest. So we have begun to go into a
competitive process to afford the administrative services in
the Medicare program.
Mr. Cooper. Can you tell me who the intermediary or carrier
is for the Miami-Dade, Florida, area?
Mr. Hill. There is--for Miami Dade there are a couple.
First Coast Services Options is a part of, I think, a corporate
entity within Blue Cross Blue Shield of Florida, and processes
Part A and Part B claims, I believe, in Florida.
DME is processed by Palmetto Government Services Options,
which is----
Mr. Cooper. Out of South Carolina?
Mr. Hill. South Carolina, yes, sir.
Mr. Cooper. Don't these payment processors have some
obligation to flag suspicious claims?
Mr. Hill. Absolutely. More than an obligation; it is their
responsibility in fact. That is what they are paid for. And
they are the first line of defense and our first line, with our
partners in law enforcement, to help us identify where we have
issues and where we should be investigating more.
Mr. Cooper. Are they doing their job?
Mr. Hill. I think they are doing their job within the
limits that we have set for them, both statutorily and within
the limits of the funding we have.
Part of the issue is, funding has gone down over the last 3
years for these activities, and that the contractors are funded
with.
Mr. Cooper. You mentioned the limit we set for them
statutorily. Secretary Leavitt asked for no new statutory
authority.
Mr. Hill. We asked for $180 million.
Mr. Cooper. I know cash, but no legal tools to help find
more bad guys. The Secretary doesn't have time to visit every
office building in Dade County to ferret out DME fraud.
Mr. Hill. Right.
Mr. Cooper. What do we need to be doing to encourage First
Coast or Palmetto to do a better job of catching these bad
guys?
Mr. Hill. Quite frankly, we have to provide them the
resources to do it.
Mr. Cooper. Money and no other tools? They have the tools
under existing law?
Mr. Hill. Yes, sir.
Mr. Cooper. I see that my time has expired. Thank you, Mr.
Chairman.
Chairman Spratt. Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. Just in the interests
of time let me just state my questions, and if the witnesses
could write them down and perhaps respond in writing.
Mr. Goss, on your CDRs, how many reviews do you do? How
many reviews result in no change? How many result in a
reduction in disability? And do any actually have an increase
in disability upon review?
And, Mr. Hill, you mentioned 4.2 percent mistakes. You know
what the mistake rate is in private insurance? And follow up
what the gentleman from Tennessee, are prosecutorial resources
the thing that you actually need? No new laws in dealing with
identity theft?
And, Mr. Hill, with minority physicians we have heard some
complaints that--I constantly get complaints that when you
crack down on fraud, it turns into more of a witch hunt on
minority physicians. What can we do to make sure that
professional development is there to make sure that they aren't
making honest mistakes and that you are actually going after
fraud? They would be a necessary target because, generally
speaking, they are in minority areas, high Medicaid; and they
are individual doctors, not a great multiphysician operation
that has a lot of staff.
So if you could just respond to those, Mr. Chairman. If you
want to respond very quickly, since I apparently have a few
seconds.
Mr. Goss. Sure. Yeah, if I may, let me just share with you
a couple items.
On the continuing disability reviews, the full medical
continuing disability reviews we do, which is a rather
comprehensive look at the individual, first of all, we select
the cases that are most likely to have resulted in medical
improvement. And of those, we find about 12 percent that
actually have sufficiently medically improved that they are
told that they are no longer disabled and they no longer
receive benefits. I think you were also referring to the issue
of a case where benefits might be increased. That is on the
redetermination side, where we look at the SSI nonmedical
situation. And that is the place where people can actually have
their benefits increased if we find, in fact, that their
income, for example, has been less than had been expected
before.
And of the nonmedical SSI redeterminations we do, about 17
percent of those result in actually a small increase in their
benefit level, 7 percent result in a cessation of benefits
because they are no longer eligible, and 6 percent result in
some reduction, but not complete. So we really run the gamut on
these things, and really they are intended to correct the
payments going forward, and do a very effective job.
Mr. Scott. Thank you. I think we are out of time.
Mr. Ryan. Let me just ask Ms. Stiff a quick question. What
is your estimate that we will raise over the next 5 years out
of the tax gap, without resorting to draconian reforms like
requiring 1099s for all these personal transactions and things
like that?
Ms. Stiff. I don't know that I have a number right off the
top of my head for the next 5 years. I think we projected out
that by the year 2010 we expect to approach a recovery of $20
billion.
Mr. Ryan. In 2010?
Ms. Stiff. Uh-huh.
Chairman Spratt. Say it again. How much?
Ms. Stiff. Between now and the year 2010, based upon
improved productivity, based upon a full funding of the fiscal
year 2008 budget, the legislative proposals, the indirect
impact.
Mr. Ryan. Thank you.
Chairman Spratt. We have several votes on the floor, and I
am not going to ask you to spend the rest of the morning
waiting on us. You have been very patient and forbearing in the
first place.
Thank you for your excellent testimony, provocative
testimony. And down the road we may want to come back and
revisit this subject with you to see if your best estimates
have been attained.
Thank you very much indeed for coming and participating.
[The prepared statement of Daniel Fridman follows:]
Prepared Statement of Daniel S. Fridman, Senior Counsel to the Deputy
Attorney General & Special Counsel for Health Care Fraud
Mr. Chairman and distinguished members of the Committee. I
appreciate the opportunity submit this Statement for the Record to
discuss the critical role of the Department of Justice in fighting
Medicare fraud and abuse. We are grateful for the leadership of your
Committee on this important issue.
My statement will supplement the incisive testimony of Health and
Human Services Secretary Michael O. Leavitt. The Secretary described
the collaborative anti-fraud efforts of HHS and the Department of
Justice in fulfilling our partnership role required by the Health
Insurance Portability and Accountability Act of 1996, Pub. L. 104-191
(HIPAA), which directs the Secretary and the Attorney General to
jointly promulgate and enforce the Health Care Fraud and Abuse Control
(HCFAC) Program. The HCFAC program was jointly issued by the Attorney
General and the Secretary on January 1, 1997 and provided the
guidelines for our ongoing fraud and abuse enforcement and prevention
efforts.
Since 1997, our annual joint reports to Congress demonstrate the
significant accomplishments of our Departments in pursuing a
coordinated fight against Medicare fraud and abuse. The Secretary's
testimony provided details of HHS's Medicare program integrity and
fraud and abuse efforts, and the important initiatives being undertaken
by HHS. I will similarly highlight the role of the Department of
Justice (DOJ) in the HCFAC program and provide more specific details of
our successes in combating Medicare fraud and abuse. Last fiscal year
alone, we ``won or negotiated'' a record $2.2 billion in health care
fraud civil judgments and penalties, most of which involved fraud
against the Medicare program. In addition, this year, we launched the
highly effective first phase of our Medicare Fraud Strike Force in
Miami which has indicted 53 defendants and obtained 23 convictions,
including three by jury trials, in its first 5 months.
Presently, I advise the Deputy Attorney General on health care
fraud enforcement policy. In that capacity, I am responsible for
coordinating the efforts of all the components within the Department of
Justice that are charged with investigating and enforcing the civil and
criminal laws concerning health care fraud. I am also responsible for
high-level, inter-agency coordination with my colleagues at the
Department of Health and Human Services Office of the
Inspector General (HHS-OIG) and at the Centers for Medicare and
Medicaid Services (CMS). Finally, I am an Assistant United States
Attorney from the Southern District of Florida (SDFL), a district that
is extremely engaged in investigating and prosecuting those who take
advantage of seniors, endanger the health and lives of seniors, and
defraud the Medicare program.
In this Statement for the Record, I will describe the role the
Department of Justice plays in Medicare program integrity, including
the role of the Criminal and Civil Divisions of the Department of
Justice, the Federal Bureau of Investigation, and the 93 U.S.
Attorney's Offices across the country. I will address our sources of
funding, our cooperative relationship with HHS, and our
accomplishments. I will review the unique appropriations mechanism by
which the Department receives HCFAC program funding through the HHS
appropriation process. I conclude by describing in more detail the
strike force initiative we have launched in the SDFL to fight Medicare
fraud.
over $11 billion in recoveries returned to the medicare and medicaid
programs since 1997
The Department of Justice is committed to rooting out and punishing
individuals and corporations who commit health care fraud, including
providers and practitioners, equipment suppliers, and corporate
wrongdoers. The Department of Justice is not alone in the fight to
combat fraud and preserve the integrity of the country's health care
system. We work closely with the Inspector General of the Department of
Health and Human Services as well as our colleagues at the Centers for
Medicare and Medicaid Services (CMS). We also work closely with the
Food and Drug Administration, including its Office of Criminal
Investigations (FDAOCI), the Federal Employees Health Benefits Program
(FEHBP) at the Office of Personnel Management and its Office of
Inspector General, and with our State law enforcement partners in their
Offices of Attorneys General and Medicaid Fraud Control Units.
Working with our colleagues, since the 1997 inception of the HCFAC
program, the Department has obtained, according to our preliminary
estimates, $11.87 billion in total recoveries, which include criminal
fines and Federal and State civil settlements in health care fraud
matters, predominantly involving losses to the Medicare program. Of
this total, $10.4 billion has been transferred or deposited back into
the Medicare Trust Fund and $604 million, representing the federal
share of Medicaid fraud recoveries, has been transferred to CMS. (The
balance of the money represents recoveries on behalf of private health
insurers insofar as the HCFAC program also covers federal prosecution
of health care fraud against the private sector.) The monetary
recoveries we achieve go right back into the Medicare and Medicaid
programs to help fund the health care costs of the Americans who are
enrolled.
These recoveries were made possible by the dedicated funding stream
provided by the ``HCFAC account,'' which was established by HIPAA. This
account, funded through appropriations to HHS, and expended in support
of our joint-HCFAC program, provides the principal source of steady
funding for Department of Justice efforts to combat Medicare fraud.
statutory background and hcfac funding
Social Security Act Section 1128C(a), as established by HIPAA,
created the Health Care Fraud and Abuse Control Program, a
comprehensive program to combat fraud and abuse in health care,
including both public and private health plans. Under the joint
direction of the Attorney General and the HHS Secretary, the HCFAC
Program's goals are:
(1) to coordinate federal, state and local law enforcement efforts
relating to health care fraud and abuse with respect to health plans;
(2) to conduct investigations, audits, inspections, and evaluations
relating to the delivery of and payment for health care in the United
States;
(3) to facilitate enforcement of all applicable remedies for such
fraud;
(4) to provide guidance to the health care industry regarding
fraudulent practices; and
(5) to establish a national data bank to receive and report final
adverse actions against health care providers, and suppliers.
The Act requires the Attorney General and the Secretary to submit a
joint annual report to the Congress which identifies both:
(1) the amounts appropriated to the Trust Fund for the previous
fiscal year under various categories and the source of such amounts;
and
(2) the amounts appropriated from the Trust Fund for such year for
use by the Attorney General and the Secretary and the justification for
the expenditure of such amounts.
The Act requires that an amount equaling recoveries from health
care investigations--including criminal fines, forfeitures, civil
settlements and judgments, and administrative penalties, but excluding
restitution, compensation to the victim agency, and relators' shares--
be deposited in the Medicare Trust Fund.\1\ All funds deposited in the
Trust Fund as a result of the Act are available for the operations of
the Medicare programs funded by the Trust Fund. The Act appropriates
monies from the Medicare Trust Fund to an expenditure account, called
the Health Care Fraud and Abuse Control Account (the Account), in
amounts that the Secretary and Attorney General jointly certify as
necessary to finance anti-fraud activities. The maximum amounts
available for certification are specified in the Act.
Congress established the dedicated HCFAC resources to supplement
the direct appropriations that HHS and DOJ otherwise devoted to health
care fraud investigation and prosecution. The Act specifies the total
annual maximum amount collectively available to HHS (including the HHS
Office of Inspector General (OIG)) and DOJ for their health care fraud
enforcement work, assigns specific authorities to the HHS OIG, and,
beginning with fiscal year 2007, specifies the minimum amount of
funding OIG must receive each year.
The enactment of HIPAA, and establishment of the Account,
authorized HHS and DOJ to appropriate from the Account up to $104
million collectively, and allowed the Departments to increase that
appropriated amount by up to 15% annually until FY 2003. HIPAA
separately provided $47 million in dedicated funding for the FBI's
health care fraud investigations beginning in 1997 which also increased
annually until 2003. From FY 2003 through FY 2006, the maximum
available for HHS and the Department of Justice (DOJ) collectively was
fixed by statute at $240.558 million annually. Of this total, the OIG
received the statutory maximum amount of $160 million annually. The DOJ
litigating components and other (non-OIG) HHS components split the
remaining $80.558 million, which we refer to as the ``wedge.'' Thus, of
the $240.558 million maximum amount, the DOJ litigating components have
received $49.415 million annually from FY 2003 through FY 2006.
Separately, HIPAA appropriated $114 million annually to the Federal
Bureau of Investigation (FBI) over this same time period to support the
Bureau's health care fraud investigative activities.
Section 303 of Division B of the ``Tax Relief and Health Care Act
of 2006,'' signed by President Bush last December, provides for annual
inflation adjustments to the maximum amounts available from the HCFAC
Account and for the FBI starting in FY 2007 for each year through FY
2010. In FY 2010, a fixed funding level or ``cap'' is reinstated at the
2010 level. The annual inflationary adjustments in the Tax Relief and
Health Care Act of 2006 will help sustain the Department's current
level of criminal and civil health care fraud enforcement activities
during the period of 2007-2010. The President's FY 2008 budget includes
an additional $183 million through a discretionary cap adjustment
proposal for new program integrity work, predominantly for the Part D
and Medicare Advantage programs, of which $17.5 million is designated
for the important work of the Department of Justice.
hcfac program accomplishments in fiscal year 2006
During Fiscal Year 2006, the Department ``won or negotiated''
approximately $2.2 billion in judgments and settlements, and it
attained additional administrative impositions in health care fraud
cases and proceedings.\2\ The Medicare Trust Fund received transfers of
nearly $1.55 billion during this period as a result of these efforts,
as well as those of preceding years, in addition to $117.1 million
representing the federal share of Medicaid money similarly transferred
to CMS as a result of these efforts.\3\
In criminal enforcement actions during 2006, prosecutors for the
Department and U.S. Attorneys' Offices:
Opened 836 new criminal health care fraud investigations
involving 1,448 potential defendants, and had 1,677 criminal health
care fraud investigations involving 2,713 potential defendants pending
at the end of the fiscal year; and
Filed criminal charges in 355 health care fraud cases
involving charges against 579 defendants and obtained 547 convictions
for the year.
In civil enforcement actions during 2006, attorneys for the
Department and U.S. Attorneys' Offices:
Opened 698 new civil health care fraud investigations, and
had 1,268 civil health care fraud investigations pending at the end of
the fiscal year; and
Filed complaints or intervened in 217 civil health care
cases.
Since the inception of the HCFAC program in 1997, the Department's
criminal and civil enforcement efforts funded through that program have
returned nearly $11.87 billion total to the federal government,
including more than $10.4 billion transferred to the Medicare Trust
Fund and $604 million representing the federal share of Medicaid fraud
recoveries transferred to CMS.
We have secured more than 4,500 criminal convictions for health
care fraud related offenses, the vast majority involving Medicare
fraud.
inter-agency doj-hhs cooperation
Because the Department of Health and Human Services administers the
Medicare Program and maintains all the payment records and data
submitted by providers, successful prosecution of criminal cases and
litigation of civil cases requires close cooperation between our
Departments both in litigation and in program coordination. Let me
provide some examples of this close cooperation:
Under auspices of HCFAC Program, DOJ and HHS hold senior
staff-level meetings on a quarterly basis that include representatives
from the Office of the Deputy Attorney General, Office of the Associate
Attorney General, HHS Counsel to the Inspector General and Office of
General Counsel, and CMS Program Integrity Director.
Our agencies also hold quarterly CMS-law enforcement
agency coordinating meetings among mid- and lower-level staff who work
on specific collaborative initiatives, cases, and investigations.
We hold monthly CMS-DOJ conference calls involving the
staff of CMS Program Integrity, HHS Office of the Inspector General,
among others, along with our USAO and FBI personnel nationwide.
Interagency health care fraud task forces and working
groups exist in a majority of federal judicial districts that consist
of Assistant U.S. Attorneys, HHS and FBI investigative agents, CMS
program agency personnel and Medicare Program Safeguard Contractors,
Medicaid Fraud Control Units, state Attorney General staff, and some
include private insurer investigators.
The OIG shares summarized information about all Medicare
contractor referrals for investigation with the FBI and DOJ, and the
FBI exchanges copies of its health care fraud case opening memorandums
with OIG.
DOJ participated in the planning and presentation of a
Medicaid Fraud training conference sponsored by the Inspector General
of the Department of Health and Human Services, and it conducted a
nationwide closed circuit training session for federal and state law
enforcement officials on the HIPAA privacy rule and other privacy laws
and regulations.
Last year DOJ attorneys and support staff trained CMS
regional and central office staff hired to administer the Medicare
prescription drug benefit and monitor the prescription drug plans on
federal health care fraud statutes and possible fraud schemes which may
occur in the Medicare Prescription Drug (Part D) program. Department
attorneys and staff also conducted two national training seminars for
CMS Medicare Drug Integrity Contractor staff hired to conduct program
integrity and anti-fraud work for the Part D program.
department components involved in medicare anti-fraud enforcement
Health care fraud enforcement involves the work of several
different components of the Department, each of which receives funding
from the HCFAC Program. I will briefly summarize the roles that
different parts of the Department play in pursuing health care fraud
matters.
Civil Division of the Department of Justice
The Department's Civil Division attorneys pursue civil remedies in
health care fraud matters, using the False Claims Act, 31 U.S.C.
Sec. Sec. 3729-3733, as the primary statutory tool. The False Claims
Act (FCA) prohibits knowingly submitting false or fraudulent claims for
payment from the government, and knowingly making false records or
statements to conceal or decrease an obligation to pay money to the
government. The penalties under the FCA can be quite large because the
law provides for treble damages plus additional penalties for each
false claim filed. In addition, lawsuits are often brought by private
plaintiffs, known as ``relators'' or ``whistleblowers,'' under the qui
tam provisions of the FCA, and the government will intervene in
appropriate cases to pursue the litigation and recovery against the
provider or company. The Civil Division also pursues many of these
cases as criminal violations of the Food, Drug, and Cosmetic Act.
In FY 2006, the Civil Division opened or filed a total of 239
health care fraud cases or matters. In addition to any new cases that
are filed, however, there remain a significant number of matters that
the Division continues to move toward resolution. At the end of FY
2005, there remained 680 open cases. Many of these health care fraud
cases, typically those involving corporate or institutional providers,
involve millions of documents and hundreds of witnesses, require
experienced litigation support personnel to amass and organize the
evidence, and need knowledgeable consultants to provide their expertise
about the fraudulent schemes.
Since the False Claims Act was substantially amended in 1986, the
Civil Division, working with United States Attorney's Offices, has
recovered $18.2 billion on behalf of the various victim federal
agencies. Of that amount, $11.5 billion was the result of fraud against
federal health care programs--primarily the Medicare program. Cases
involving violations of the Food, Drug, and Cosmetic Act, or other
types of fraud by pharmaceutical manufacturers in connection with
federal health benefit programs, have resulted in total criminal and
civil recoveries of over $5.2 billion since 1999.\4\ The Civil
Division's Office of Consumer Litigation works with many of the United
States Attorney's Office on these prosecutions.
In addition to these accomplishments, the Department's Nursing Home
and Elder Justice Initiative, coordinated by the Civil Division,
supports enhanced prosecution and coordination at federal, state and
local levels to fight abuse, neglect, and financial exploitation of the
nation's senior and infirm population. Through this Initiative, the
Department also makes grants to promote prevention, detection,
intervention, investigation, and prosecution of elder abuse and
neglect, and to improve the scarce forensic knowledge in the field. The
Department additionally is pursuing a number of cases under the FCA
involving providers' egregious ``failures of care.''
United States Attorneys Offices
The 93 United States Attorneys Offices (USAOs) are the nation's
principal prosecutors of federal crimes, including health care fraud.
The USAOs pursue both civil and criminal cases and dedicate substantial
resources to combating health care fraud. Each of the 93 districts has
a designated Criminal Health Care Fraud Coordinator and a Civil Health
Care Fraud Coordinator.
HCFAC funding supports about 100 attorney and 81 support positions,
and many USAOs supplement the HCFAC program funding they receive by
providing for additional attorneys, paralegals, auditors, and
investigators, as well as funds for litigation expenses for these
resource-intensive cases.
In FY 2006, USAOs received 836 new criminal matters involving 1,448
defendants, and had 1,677 health care fraud criminal matters
pending,\5\ involving 2,713 defendants. USAOs filed criminal charges in
355 cases involving 579 defendants, and obtained 547 federal health
care related convictions. During the last fiscal year, USAOs also
opened 698 new civil health care fraud matters and had 1,268 civil
health care fraud matters and cases pending.
USAOs receive referrals of health care fraud cases from a wide
variety of sources, including the FBI, the HHS/OIG, state Medicaid
Fraud Control Units, other federal, state, and local law enforcement
agencies, and private insurers of medical services. The health care
fraud coordinators often work with these partners in fighting health
care fraud in local and regional task forces and working groups, and
these also can be the basis of case referrals. Cases are also obtained
by USAOs by means of qui tam complaints. Under the False Claims Act, a
qui tam plaintiff (a ``relator'') must file his or her complaint under
seal in a United States District Court, and serve a copy of the
complaint upon the USAO for that judicial district, as well as the
Attorney General. The USAO must then decide whether the case warrants
an intervention by the government to litigate the complaint.
The Executive Office for the United States Attorneys' (EOUSA)
through the Office of Legal Education (OLE) provides training for AUSAs
and other Department attorneys, as well as paralegals, investigators,
and auditors in the investigation and prosecution of health care fraud.
For instance, in FY 2006, EOUSA and the Civil Division participated
in the planning and presentation of a Medicaid Fraud training
conference sponsored by the Inspector General of the Department of
Health and Human Services, and it joined with both the Civil and
Criminal Divisions to conduct a nationwide closed circuit training for
federal and state law enforcement officials on the HIPAA privacy rule
and other privacy laws and regulations. EOUSA and the Office of Legal
Education also sponsored the Health Care Fraud Coordinator's Conference
for Civil and Criminal AUSAs, and Health Care Fraud for new AUSAs and
Affirmative Civil Enforcement for Auditors, Investigators and
Paralegals at the National Advocacy Center, and, most recently, it
sponsored a Health Care Fraud Trial Practice Seminar for over 120
Department lawyers.
Criminal Division of the Department of Justice
The Criminal Division's Fraud Section develops and implements white
collar crime policy, and supports the federal white collar crime
enforcement community through litigation, coordination, policy, and
legislative work. The Fraud Section is responsible for handling and
coordinating complex health care fraud litigation nationwide. The Fraud
Section also supports the USAOs with legal and investigative guidance,
training, and, in certain instances, provides trial attorneys to
prosecute criminal health care fraud cases.
In FY 2006, the Fraud Section provided guidance to FBI agents,
AUSAs and Criminal Division attorneys on criminal, civil, and
administrative tools to combat health care fraud, and worked at an
interagency level through the following activities:
coordinating large scale multi-district health care fraud
investigations;
providing frequent advice and written materials on
confidentiality and disclosure issues arising in the course of
investigations and legal proceedings regarding patient medical records,
including HIPAA health information privacy requirements, compliance
with the Substance Abuse Patient Medical Records Privacy Act and
regulations, and coordinating referrals from the HHS Office for Civil
Rights of possible criminal violations of HIPAA privacy provisions
providing training and training materials for AUSAs, investigative
agents, support staff, program agency officials, and state and local
law enforcement on health care fraud enforcement and medical records
privacy issues;
providing training and training materials for AUSAs,
investigative agents, support staff, program agency officials, and
state and local law enforcement on health care fraud enforcement and
medical records privacy issues;
monitoring and coordinating Departmental responses to
legislative proposals, major regulatory initiatives, and enforcement
policy matters related to prevention, deterrence and punishment of
health care fraud and abuse;
reviewing and commenting on health care provider requests
to the HHS/OIG for advisory opinions, and consulting with HHS/OIG on
draft advisory opinions per HIPAA requirements;
working with USAOs and CMS to improve Medicare
contractors' fraud detection, referrals to law enforcement for
investigation, and case development work;
preparing and distributing to all USAOs and FBI field
offices periodic summaries of recent and significant health care fraud
cases; and
organizing, overseeing and participating in interagency
working groups formed to address specific cases and initiatives, often
in conjunction with the Civil Division and Executive Office for United
States Attorneys.
In FY 2006, Fraud Section attorneys and the USAO from the Eastern
District of Louisiana filed a superseding indictment of four corporate
executives in a case involving the collapse of Louisiana's third
largest health maintenance organization and its subsequent takeover and
liquidation by the state Department of Insurance. The USAO for the
Southern District of Florida and Fraud Section attorneys also indicted
five defendants who were involved in a scheme to defraud Medicare by
submitting prescriptions for groups of Medicare beneficiaries who were
paid kickbacks by certain pharmacies to allow the fraudulent billing of
aerosol medicines. These cases are scheduled to go to trial in 2007.
Along with the USAO for the Southern District of Mississippi, Fraud
Section attorneys also prosecuted seven individuals who participated in
a scheme to create bogus prescription histories and file fraudulent
claims against a $400 million settlement fund established by the
manufacturer of the diet drugs Redux and Pondimin, commonly known as
``Fen-Phen,'' for medical injuries caused by the inappropriate
prescription of these products. As of September 30, 2006, a total of 25
defendants were convicted in this multi-year ongoing joint
investigation.
Civil Rights Division of the Department of Justice
The Civil Rights Division vigorously pursues the Department's goals
of eliminating abuse and grossly substandard care in publicly-run
Medicare (and Medicaid) funded nursing homes and other long-term care
facilities. The Division undertakes this work pursuant to the Civil
Rights of Institutionalized Persons Act, 42 U.S.C. Sec. 1997 (CRIPA).
CRIPA authorizes investigations of conditions of confinement at
publicly operated nursing homes and other residential institutions and
authorizes the initiation of civil action for injunctive relief from
violations of federal rights. In performing this work, the Division
often collaborates with United States Attorneys around the country and
with the Department of Health and Human Services.
Division staff conducted preliminary reviews of conditions and
services at 29 health care facilities in 12 states during Fiscal Year
2006. The task in preliminary inquiries is to determine whether there
is sufficient information supporting allegations of unlawful conditions
to warrant formal investigation under CRIPA. The Division reviews
information pertaining to areas such as abuse and neglect, medical and
mental health care, use of restraints, fire and environmental safety,
and placement in the most integrated setting appropriate to individual
needs. Separately, in Fiscal Year 2006, the Division opened or
continued formal investigations, entered remedial agreements, or
monitored existing remedial agreements regarding 45 health care
facilities in 23 states, the District of Columbia, and the Commonwealth
of Puerto Rico.
For example, in Fiscal Year 2006, the Division: (1) opened an
investigation of a nursing home in South Carolina; (2) made findings
that conditions and practices at another nursing home, Fort Bayard
Medical Center, in Fort Bayard, New Mexico, violate its residents'
federal constitutional and statutory rights; (3) entered a settlement
agreement to remedy unlawful conditions at one of the largest public
nursing homes in the country, A. Holly Patterson Extended Care
Facility, in Uniondale, New York; and (4) monitored the implementation
of remedial agreements for four nursing homes: Banks-Jackson-Commerce
Medical Center and Nursing Home, in Commerce, Georgia; Nim Henson
Geriatric Center, in Jackson, Kentucky; Reginald P. White Nursing
Facility, in Meridian, Mississippi; and Mercer County Geriatric Center,
in Trenton, New Jersey. More recently, in response to allegations of
shocking mistreatment and neglect of elderly veterans, including an
apparent homicide, the Division last month opened investigations of two
State veterans' homes in Tennessee.
The Division's recent findings regarding one nursing home are
unfortunately illustrative.
The investigation revealed a wide range of dangerously deficient
medical and nursing care practices that not only failed to comply with
federal regulations or meet professional standards, but were in fact
aiding and contributing to the needless suffering and untimely deaths
of residents. The Division found numerous situations where residents'
last days of life were spent in misery, as they died from the effects
of what appeared to be reckless and almost willful disregard to their
health and safety. In fact, in virtually every record reviewed of
deceased or current residents, the Division discovered life-threatening
breakdowns of treatment that were substantial departures from the
generally accepted standards in nursing home care. The Division has
entered into a settlement agreement to remedy these deficiencies.
Federal Bureau of Investigation
The FBI is the Department's primary investigative agency involved
in the fight against health care fraud. The FBI leverages its resources
in both the private and public arenas through investigative
partnerships with agencies such as the HHS/OIG, the FDA/OCI, the Drug
Enforcement Administration (DEA), the Defense Criminal Investigative
Service, the Office of Personnel Management, the Internal Revenue
Service, and various state and local agencies. In FY 2006, the FBI was
allocated $114 million in HCFAC funds for health care fraud
enforcement. This yearly appropriation was used to support 775
positions (455 Agent, 320 Support) in FY 2006. The number of pending
investigations has shown steady increase from 591 cases in 1992 to
2,423 cases through 2006. FBI-led investigations resulted in 535
criminal health care fraud convictions and 588 indictments and
informations being filed in FY 2006.
The FBI initiates health care fraud cases from various sources of
information. This information can come from such sources as Medicare
contractors, private insurance company Special Investigations Units,
the National Health Care Anti-Fraud Association, employees of
businesses providing medical services (hospitals, doctor's offices,
clinics, medical equipment suppliers, nursing homes, etc.),
confidential sources or cooperating witnesses with access to
information and complaints from public citizens which are often
beneficiaries of the health care services.
fraud schemes
To give you a sense of the types of fraud schemes the Department
has seen and the enforcement results the Department has achieved, I
will outline below some of the significant Medicare fraud cases the
Department pursued over the last year. This list is not meant to be
exhaustive; it is meant to illustrate some of the fraud schemes we are
seeing.
Hospital Matters
Tenet Healthcare Corporation, the nation's second largest
hospital chain, agreed to pay $920 million to settle allegations of
fraud against Medicare and other federally insured health care
programs. The settlement included $788 million to resolve claims that
Tenet billed Medicare for excessive ``outlier'' payments. Federal
health insurance programs, including Medicare, typically reimburse
hospitals a fixed amount for treating a patient with a specific
condition or illness, but will reimburse extraordinary ``outlier''
costs when they are reasonably incurred. Congress enacted the
supplemental outlier payment system to ensure that hospitals possess
the incentive to treat inpatients whose care requires unusually high
costs. The United States alleged that Tenet artificially inflated its
charges to make it appear that many of its patients received
extraordinary care when, in fact, the treatment that was given was
fairly standard and far less costly. The settlement also included $49
million to resolve claims that Tenet paid kickbacks to physicians for
patient referrals, $48 million to resolve claims that Tenet billed the
government at a higher rate than was justified by the services
performed, and $20 million in pre-settlement interest. Government-
initiated claims accounted for nearly $770 million of the settlement,
with the remaining $150 million attributable to six qui tam suits. The
relators who filed those suits will share $12 million of the settlement
amount.
St. Barnabas Health Care System, the largest health care
system in New Jersey, paid $265 million to resolve allegations that
nine of its hospitals fraudulently increased charges to elderly
patients to obtain enhanced Medicare reimbursement for outlier claims.
The United States alleged that between October 1995 and August 2003,
Saint Barnabas and nine of its hospitals purposefully inflated charges
for inpatient and outpatient care to make these cases appear more
costly than they actually were, and thereby obtained outlier payments
from Medicare that they were not entitled to receive. Saint Barnabas
entered into a Corporate Integrity Agreement with the HHS-OIG. The
Corporate Integrity Agreement contains measures to ensure compliance
with Medicare regulations and policies in the future.
Following a three-week trial, the former owner and chief
executive officer of the now defunct Edgewater Hospital in Chicago was
found liable under the False Claims Act for engaging in an illegal
kickback scheme at Edgewater. The court found that the defendant paid
physicians for Medicare and Medicaid patient referrals in violation of
federal law. The court held that the hospital's cost reports and
individual patient claims for patients referred in connection with the
scheme were false claims and awarded treble damages and penalties on
just over 1,800 claims.
Two owners of a former San Diego psychiatric hospital were
found liable after trial for more than $15.7 million in damages and
penalties for having included false claims in the hospital's cost
report submitted to the Medicare program. Those cost reports sought
reimbursement from the Medicare program for a variety of false costs,
such as amounts for a fictitious lease, reimbursement for unused
hospital space, and millions of dollars in costs that were actually
attributable to the defendants' business enterprises unrelated to that
hospital. The court awarded the United States $15,688,585 for treble
damages and $31,000 in civil penalties.
Pharmaceutical Matters
Purdue Pharma, its top lawyer and former president and
former chief medical officer pleaded guilty in May for claiming that
OxyContin was less addictive and less subject to abuse than other pain
medications. Purdue Frederick Co., maker of powerful painkiller
OxyContin admitted it understated the drug's potential for abuse. The
company agreed to pay $600 million in penalties to resolve criminal and
civil liability, while two current executives and one former executive
agreed to pay a total of $34.5 million to the Virginia Medicaid Fraud
Unit. The judge also ordered the executives to perform 400 hours each
of community service related to prescription drug abuse and prevention.
Schering-Plough Corporation, together with its subsidiary,
Schering Sales Corporation, agreed to pay a total of $435 million to
resolve criminal charges and civil liabilities in connection with
illegal sales and marketing programs for its drugs Temodar, used in the
treatment of brain tumors and metastasis, and Intron A, used in the
treatment of superficial bladder cancer and hepatitis C. The resolution
also pertained to Medicaid fraud involving Schering's drugs Claritin
RediTabs, a non-sedating antihistamine, and KDur, used in the treatment
of stomach conditions. Schering Sales Corporation agreed to plead
guilty to charges that it conspired with others to make false
statements to the FDA in response to the FDA's inquiry concerning
certain illegal promotional activities by the company's sales
representatives at a national conference for oncologists. Schering
Sales also agreed to plead guilty to charges that it conspired with
others to give free Claritin Redi-Tabs to a major health maintenance
organization (HMO) to disguise a new lower price being offered to the
HMO to obtain its business.
Eli Lilly and Company agreed to plead guilty and to pay
$36 million in connection with its illegal promotion of its
pharmaceutical drug Evista. In pleading guilty to a criminal count of
violating the Food, Drug, and Cosmetic Act by misbranding its drug
Evista, the Indianapolis-based company agreed to pay a $6 million
criminal fine and forfeit to the United States an additional sum of $6
million. In addition to the criminal plea, Lilly agreed to settle civil
Food, Drug, and Cosmetic Act liabilities by entering into a consent
decree of permanent injunction and paying the United States $24 million
in equitable disgorgement. Evista is approved by the FDA for the
prevention and treatment of osteoporosis in postmenopausal women. The
government alleged that the first year's sales of Evista in the U.S.
were disappointing compared to Lilly's original forecast; the company
reduced the forecast of Evista's first year's sales in the U.S. from
$401 million to $120 million. In order to expand sales of the drug, it
was alleged, Lilly sought to broaden the market for Evista by promoting
it for off-label uses, such as for the prevention and reduction in risk
of breast cancer, and the reduction in the risk of cardiovascular
disease. Lilly promoted Evista as effective for reducing the risk of
breast cancer, even after Lilly's proposed labeling for this use was
specifically rejected by the FDA.
Serono, one of the world's largest biotech manufacturers,
paid $704 million to resolve criminal charges and civil liabilities in
connection with several illegal schemes to promote and sell its drug,
Serostim, that resulted in the submission of false claims to Medicaid
and Medicare. The FDA had granted accelerated approval for Serostim in
1996 to treat AIDS wasting, a condition involving profound involuntary
weight loss in AIDS patients, then a leading cause of death in AIDS
patients. Following the advent of protease inhibitor drugs, the
incidence of AIDS wasting markedly declined, and Serono launched a
campaign to redefine AIDS wasting to create a market for Serostim.
Serono pled guilty to conspiring with RJL Sciences, a medical device
manufacturer, to introduce on the market bioelectrical impedance
analysis (BIA) computer software packages for use in measuring body
cell mass and diagnosing AIDS wasting. The BIA software devices were
adulterated medical devices in that FDA had not approved the devices
for these uses. RJL and its owner also pled guilty to their roles in
the conspiracy. In addition, Serono pled guilty to conspiring to offer
doctors kickbacks in the form of free trips to Cannes, France, to
induce them to prescribe Serostim.
Physicians
An Ohio physician was convicted by a jury of 56 counts of
mail, wire, and health care fraud, as well as illegal drug distribution
and sentenced to life for operating ``pain management'' clinics in
which he treated all patients with weekly injections and Schedule II
and III narcotic drug prescriptions during visits that lasted no more
than a few minutes, and then claimed thousands of dollars in insurance
reimbursements per visit. He saw upward of 100 patients per day and
submitted $60 million in fraudulent bills to the victim health care
benefit programs. The physician was also convicted of health care fraud
resulting in death in this case.
A Tennessee oncologist was sentenced to over 15 years'
imprisonment for defrauding Medicare, TennCare, and BlueCross
BlueShield at the expense of cancer patients. The defendant mixed
diluted versions of chemotherapy medications that were then given to
patients, and instructed her nurses to draw up partial doses of one of
the medications to administer to patients.
From 1996 through 2003, a physician employed an individual
to work at the physician's medical practice in Connecticut. Although
the individual was not licensed to practice medicine, he nonetheless
treated patients in the physician's medical practice. During this time,
he was referred to as ``Doctor'' by the physician and he wrote
prescriptions. The physician then billed insurance companies for
services that were rendered by the individual, representing them as
services rendered by a physician. They both pled guilty to conspiracy
to commit health care fraud. The physician also entered into a civil
settlement with the government and paid $160,000.
Hospice Care
Odyssey Healthcare, Inc., a Dallas, Texas-based hospice
provider, agreed to pay the United States $12.9 million to settle
allegations that the company billed the Medicare program for services
provided to hospice patients who were not terminally ill and hence were
ineligible for the Medicare hospice benefit. Odyssey Healthcare has
also entered into a Corporate Integrity Agreement with the HHS-OIG. The
Corporate Integrity Agreement addresses the company's practices
regarding compliance with applicable Medicare regulations.
Faith Hospice, Inc., settled allegations that it submitted
fraudulent claims to Medicare and Medicaid for ineligible hospice. The
investigation was initiated when a review of a sample of its medical
records showed that more than half of Faith Hospice's patients were
ineligible for hospice care. Under the agreement, the owner and Faith
Hospice forfeited $599,165.29 to the United States, one half of the
funds seized pursuant to the civil forfeiture action. The case occurred
in Alabama.
Skilled Nursing Facilities
USA Healthcare, Inc., (USAH) the owner of several skilled
nursing facilities based in Cullman, Alabama, settled allegations of
mischarging the Medicare Program by agreeing to pay the United States
$1,217,808.00. The investigation arose out of an audit of cost reports
filed by several of USAH's skilled nursing facilities which revealed
that the company violated Medicare rules by failing to disclose that
certain vendors were related to USAH by common ownership or control and
therefore should have been reimbursed by Medicare at a lower rate based
on actual costs and without inclusion of profit.
Medical Devices
The owner and operator of V&A Services, a medical
equipment supply company located in Stone Mountain, Georgia, was
convicted by a federal jury of 11 counts of Medicare fraud in a
motorized wheelchair fraud scheme. He was sentenced to 2 years and 3
months in federal prison to be followed by 3 years' supervised release.
He was ordered to pay restitution of $164,590 in connection with the
scheme. The judge entered an order of forfeiture at sentencing by which
the defendant forfeited $36,416 from a seized bank account and durable
medical equipment having a value of approximately $11,000.
The owner of a power wheelchair store was sentenced to 63
months in prison and ordered to pay over $4 million in restitution to
the Medicare and Medicaid programs after he was convicted by a jury of
paying recruiters to take beneficiaries to a medical clinic where a
physician would perform medically unnecessary procedures and then sign
false Certificates of Medical Necessity (CMN) forms authorizing the
beneficiaries to receive motorized wheelchairs. The physician also was
sentenced to 11 years and three months in prison for his participation
in the scheme for receiving payment for signing the CMNs, and for
submitting claims for services that either were not performed properly,
or were not performed at all.
The owner of a power wheelchair store pled guilty in
Lynchburg, Virginia to conspiracy to commit health care fraud for his
involvement in an intricate scheme involving power wheelchairs and
``power chair scooters.'' Among the allegations were that items not
needed and not ordered by the physician, were simply added after the
physician signed the Certificate of Medical Necessity.
In the Southern District of Texas, the owner of a Houston-
based DME company was sentenced to 63 months in prison for his role in
a motorized wheelchair scam. His company fraudulently billed Medicare
and Medicaid for almost $5 million and defrauded these health care
programs of at least $1.6 million.
south florida initiatives
The Secretary described special HHS demonstration projects
undertaken to combat Medicare DME fraud in South Florida and Miami. I
will discuss some of the parallel initiatives being taken by the U.S.
Attorney's Office in SDFL in conjunction with the Criminal Fraud
Section and the OIG. In late 2005, through the leadership of U.S.
Attorney Alex Acosta, SDFL formed the South Florida Health Care Fraud
Initiative to bring together the health care fraud prosecution
resources of SDFL prosecutors, HHS-OIG and the FBI agents and Florida
Attorney General's Office attorneys, cross-designated as Special
Assistant United States Attorneys. Although still in its early phase,
our Health Care Fraud Initiative has begun to pay dividends. Last
fiscal year, we filed criminal charges against 111 defendants in 68
health care fraud cases, a 30% increase over the previous year. Our
conviction rate was 97%. These cases typically involve at least one,
and often several, million dollars in fraud.
Our prosecutors in South Florida are doing more than merely
coordinating resources; they are developing and testing new law
enforcement methods to add to our health care fraud litigation arsenal.
I would like to describe two of these methods. The first concerns the
use of civil complaints to freeze or seize money obtained through
health care fraud as soon as our evidence will satisfy a civil
standard.
``Operation Equity Excise'' is an example. Working with HHS-OIG and
the FBI, Operation Equity Excise identified clinics and DME companies
that engaged in health care fraud. Often, these companies closed
abruptly to avoid detection from law enforcement, and in that process
abandoning their bank accounts, leaving behind substantial balances.
Through this Operation, federal agents attempted to locate the
signatories on the bank accounts. Many of the signatories, who were
also typically listed as the president of the company, denied knowledge
of the operation of the company and denied having any claim or right to
the funds in the accounts. Thirty-four individuals were located; they
voluntarily surrendered the funds, resulting in approximately $10.5
million returned to the United States Treasury. The signatories on
twenty three accounts, with a total balance of over $30 million, have
not been located. SDFL has filed civil health care fraud complaints
against those individuals. We intend to provide notice through
publication, proceed through default judgment, and return those funds
to the Treasury as well. Importantly, our civil actions do not preclude
a subsequent criminal prosecution. Where supported by facts, we
continue to pursue criminal investigations of these companies. For now,
at the very least, by seizing the bank accounts, we can recover some of
the fraudulently paid moneys.
A second method is being refined through a recently-implemented
short-term, proactive, surge operation that we are undertaking jointly
with the Criminal Division, the FBI, HHS-OIG, and local law enforcement
in Miami-Dade County. The Medicare Fraud Strike Force uses proactive
law enforcement methods adapted from experience fighting illicit drug
trafficking along with real-time data review often used to fight credit
card fraud. A typical health care fraud prosecution relies heavily on
billing records and other historical evidence. In this operation,
however, HHSOIG agents have identified patterns that, standing alone,
reveal medically impossible claims. Our agents are visiting the offices
and interviewing providers as the fraud is taking place. Such ``caught-
in-the-act'' cases are often easier to prosecute than ones based solely
on historical evidence.
Finally, to augment the cooperation between the prosecutors and
agents, we have co-located the prosecutors and investigative agents in
a ``fusion center.'' Modeled after similar arrangements more
traditionally used in drug and organized crime prosecutions, we hope
that the proximity of the investigators and prosecutors, working
closely together, helps foster strong working relationships and a more
proactive investigative technique.
In order for the Committee to better understand some of the fraud
schemes we are seeing in Miami, let me present the facts of a typical
case involving kickbacks and durable medical equipment. On March 22,
2007, Ricardo R. Aguera, a/k/a Pichi, the owner of three Miami durable
medical equipment companies, was found guilty on all counts, following
a weeklong jury trial, of defrauding the Medicare Program of millions
of dollars. He was charged with one count of conspiracy and four counts
of soliciting and receiving kickbacks. Aguera was sentenced on June
12th to 121 months imprisonment, 3 years supervised release, and
approximately $1.7 million in restitution for defrauding the Medicare
Program of $17,373,000. Four other defendants, Ivan Aguera, Robert
Berenguer, Aristides Berenguer, and Carlos Berenguer, entered guilty
pleas to all counts in the indictment without plea agreements prior to
trial. All five defendants are related and run health care companies
that were involved in the fraud scheme.
Previously convicted co-conspirator pharmacy owners, Henry Gonzalez
and Alfonso Rodriguez, billed the Medicare program for over $20 million
and reached agreements with DME owners, including the defendants, to
kickback half of the money paid by Medicare in exchange for the DME
owners bringing patients to the pharmacies. Testimony at trial revealed
that the DME owners paid the patients to get access to their Medicare
information so that the owners could buy phony prescriptions from
corrupt doctors to provide to the pharmacies. The heart of the
conspiracy centered around three Miami pharmacies, Lily's Pharmacy,
Unimed Pharmacy and Prestige Pharmacy, that illegally manufactured
aerosol medications including albuterol, metaproterenol, and ipatropium
bromide. These aerosol drugs are introduced into the lung through a
piece of durable medical equipment known as a nebulizer. Medicare pays
for such aerosol medication through the Part B program as it is taken
through a nebulizer. Knowing this Medicare system rule, the pharmacy
owners exploited the program by manufacturing the unnecessary, non-FDA
approved medicine through a process known as ``compounding.''
Evidence at trial established that at Lily's pharmacy, one of the
men making the medicine was trained to repair air conditioners and was
not a licensed pharmacist. The fraud scheme further relied on (1) paid
patients who provided their Medicare cards and signed delivery receipts
for medicine which the patients did not need and which they ultimately
discarded, (2) doctors who signed fraudulent prescriptions which listed
non-commercially-available medications, and (3) DME company owners that
recruited and paid the patients to take the false prescriptions to the
pharmacy owners.
Additional evidence at trial established that patients were paid
$100 to $150 per month for the use of their Medicare cards. Pharmacy
owners testified that the scheme of using ``compounding'' was designed
from the beginning to defraud Medicare. Unwilling to buy FDA-approved
medication to fill those prescriptions, pharmacies ``compounded'' the
aerosol medications by the gallons and then billed Medicare. Patients
testified that they did not want the boxes of medicine and the only
reason the patients visited the doctor with the DME owner was to
receive cash kickbacks.
conclusion
I hope my statement has given you a comprehensive view of the
Department's essential role in prosecuting and deterring fraud on the
Medicare program, restoring funds illegally stolen from the Medicare
program, and protecting our citizens from those health care fraud
schemes which have caused physical harm and loss of life. The
Department is committed to the ongoing success of the HCFAC program and
will continue to marshal its resources, including those provided by the
HCFAC program and its own discretionary funds, to prosecute fraud and
abuse in the Medicare program and restore the recovered proceeds of
fraud to the Medicare trust funds.
We welcome continuation of our close collaboration with the
Department of Health and Human Services as we co-direct the HCFAC
program, which generates savings that more than compensate for the
investment, and helps ensure the safety and availability of medical
services to all beneficiaries. We urge the Committee to fully fund the
President's FY08 Budget request for an additional $183 million through
a discretionary cap adjustment proposal for new program integrity work,
predominantly for the Part D and Medicare Advantage programs, of which
$17.5 million is designated for the integral health care fraud work of
the Department of Justice.
Thank you for the opportunity to provide you with this information
concerning the ongoing efforts of the Department of Justice to combat
healthcare and Medicare fraud.
endnotes
\1\ Also known as the Hospital Insurance (HI) Trust Fund. All
further references to the Medicare Trust Fund refer to the HI Trust
Fund
\2\ Actual collections, transfers, and deposits that ultimately
result from health care fraud judgments and settlements may not equal
the total ``won or negotiated'' during FY 2006.
\3\ Note that some of the judgments, settlements, and
administrative actions that occurred in FY 2005 will result in
transfers in future years, just as some of the transfers in FY 2005 are
attributable to actions from prior years.
\4\ A portion of this $5.3 billion is included in the reported
False Claims Act recoveries for this same period.
\5\ When a USAO accepts a criminal referral for consideration, the
office opens it as a matter pending in the district. A referral remains
a matter until an indictment or information is filed or it is declined
for prosecution.
[Whereupon, at 12:19 p.m., the committee was adjourned.]