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


 
                       MEDICARE PROGRAM INTEGRITY 

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

                             JOINT HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                  and

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 8, 2007

                               __________

                           Serial No. 110-20

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                     JOHN LEWIS, Georgia, Chairman

JOHN S. TANNER, Tennessee            JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
STEPHANIE TUBBS JONES, Ohio          DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey
JOSEPH CROWLEY, New York

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 28, 2007, announcing the hearing............     2

                               WITNESSES

The Honorable Daniel R. Levinson, Inspector General, U.S. 
  Department of Health and Human Services........................     6
Tim Hill, Director, Office of Financial Management, Centers for 
  Medicare and Medicaid Services.................................    22
R. Alexander Acosta, United States Attorney for the Southern 
  District of Florida, Miami, Florida............................    29

                       SUBMISSIONS FOR THE RECORD

Power Mobility Coalition, statement..............................    62
The Honorable Fortney Pete Stark, statement......................    63


                       MEDICARE PROGRAM INTEGRITY

                              ----------                              


                        THURSDAY, MARCH 8, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:00 a.m., in 
room 1100, Longworth House Office Building, Hon. Fortney Pete 
Stark (Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 28, 2007
HL-4

                  Chairmen Stark and Lewis Announce a

                 Hearing on Medicare Program Integrity

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
and Oversight Subcommittee Chairman John Lewis (D-GA) announced today 
that the Subcommittees will hold a joint hearing on Medicare program 
integrity, specifically focusing on Administration efforts to identify 
and eliminate fraud, waste and abuse. The hearing will take place at 
10:00 a.m. on Thursday, March 8, 2007, in Room 1100, Longworth House 
Office Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    The Medicare program will spend over $425 billion providing health 
care services to over 44 million seniors and people with disabilities 
in 2007. Fraud, waste and abuse in a program of this size can cost 
beneficiaries and taxpayers billions of dollars. Medicare has faced 
problems with overpayments, underpayments, unnecessary services and 
even criminal fraud. Multiple governmental agencies are charged with 
identifying, investigating and prosecuting incidents of fraud, waste 
and abuse in Medicare.
      
    In announcing the hearing, Health Subcommittee Chairman Stark said, 
``We owe it to beneficiaries and taxpayers to be good stewards of 
Medicare dollars. The Congress needs a better understanding of how 
agencies are working to minimize waste, fraud and abuse in the 
program.''
      
    ``When people abuse the Medicare program, they take advantage of 
senior citizens and people with disabilities who need medical services 
and care,'' said Oversight Subcommittee Chairman Lewis. ``We must find 
ways to detect and eliminate fraud to protect Medicare beneficiaries. 
Our Subcommittees will continue to work with governmental agencies to 
preserve the integrity of the Medicare program.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on prevention, detection, investigation and 
prosecution of Medicare fraud, waste and abuse at the Centers for 
Medicare and Medicaid Services, the Health and Human Services Office of 
Inspector General, and the Department of Justice.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
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March 22, 2007. Finally, please note that due to the change in House 
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FORMATTING REQUIREMENTS:

      
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noted above.

                                 

    Chairman STARK. With the consent of the Chairman of the 
Oversight Committee and the Ranking Member of the Oversight 
Committee, the joint hearing can proceed. I want to welcome 
everyone to the first Medicare Oversight hearing. Mr. Lewis and 
I felt that it was necessary to hold this as a joint meeting 
and I welcome that opportunity. The topic, of course, is 
protecting Medicare beneficiaries from abuse and protecting the 
taxpayers from waste and fraud.
    We are dealing with this in a program that is going to 
spend 400 billion dollars this calendar year and providing 
services for 44 million people.
    We will hear from three agencies, Inspector General Dan 
Levinson is in charge of the audits, inspections, 
investigations of fraud, waste and abuse. The Office of the 
Inspector General (OIG) has provided Centers for Medicare and 
Medicaid Services (CMS) and Congress with a lot of valuable 
information on everything from part B drugs to nursing home 
quality to the fraud in some durable medical equipment. It is 
interesting to note that the OIG Red Book which among other 
savings options suggests that Medicare Advantage Plans are 
overpaid. He picks the number 2.5 billion. In 2006 CMS reported 
improper Medicare payments of over 10 billion.
    I believe and I will ask General Levinson to correct me if 
I am wrong, but improper payments in our system do not imply 
that every improper payment is a fraud or is a violation.
    For those of you who balance your own checkbooks or do your 
own tax statements, if you could imagine something like 80 
million transactions, there are bound to be mistakes. I believe 
it is correct that the mistakes, the unintentional errors, the 
arithmetic errors, the transpositions show up in that 10 
billion and I would despair of ever getting that to zero just 
because of the human factor in the huge volume of relatively 
small transactions that must be processed by intermediaries and 
then surveyed by CMS. I just want to--I think I am correct to 
tell my colleagues that my guess would be that somewhere around 
half of the figures that come out from year to year are 
actually fraudulent or intentional mistakes and the other half 
is just what engineers would call the entropy in the system.
    The final witnesses responsible for investigating and 
prosecuting Medicare's bad actors and as a U.S. Attorney for 
the Southern District of Florida, who I gather has been fired, 
you are still with us so you are not on that list. Nobody has 
called you right? Okay, we have got a good one here.
    Mr. Acosta has identified numerous schemes to defraud 
Medicare in the durable medical equipment. For those of you who 
want some trivia, actually, the impetus for what are now called 
the Stark laws started because of a lot of good work done by 
the State legislature in Florida, by some investigative 
reporters from I think ``The Sun Journal,'' and in finding a 
lot of abuse in providing Medicare systems I think in those 
days in diagnostic--either diagnostic labs or imaging, but at 
any rate, several good reforms have come out of the State of 
Florida.
    I look forward to hearing from all the witnesses and I 
would recognize my colleague and friend, John Lewis, the 
Chairman of the Oversight Committee.
    Chairman LEWIS OF GEORGIA. Thank you, Chairman Stark. My 
colleague and Ranking Member Ramstad and I would like to thank 
you and Ranking Member Camp for holding this joint hearing 
today with the Subcommittee on Oversight.
    It is the responsibility of both Subcommittees to guard the 
integrity of the Medicare Program and protect its beneficiaries 
who many times are the most vulnerable people in our society. 
They are our parents and grandparents who have given their 
youth to this Nation and they deserve our protection and the 
finest public service.
    I want to thank the witnesses, each of the witnesses for 
being here today and for all their efforts to protect the 
Medicare Program. Your work has returned over 8.5 billion 
dollars to the program. You have done an excellent job. You 
have helped to move us down the road to reform that we are 
seeking in this Congress and we thank you.
    There is still so much more that we can do. I am very 
concerned that there has been almost no oversight of the new 
prescription drug benefit under Part D. This is not responsible 
leadership. I hope today I will hear each agency plan to reduce 
fraud in Medicare Part D.
    The fraud and abuse in the Medicare system, the shame and a 
disgrace, a view of the suspicion of people who question 
Government's social service. We must find a way to eliminate 
the fraud in the Medicare system so that it works for the 
people it was intended to serve.
    Your offices have uncovered some disturbing almost unreal 
and unbelievable cases. In some instances Federal money is used 
to support unethical, immoral and illegal behavior.
    In one unbelievable case a hospital performed painful 
medically unnecessary procedures on elderly resident of 
assisted living facilities simply because those procedures have 
a high rate of government reimbursement.
    In another case, a physician was providing a large amount 
of controlled substances to his patients not to treat their 
medical condition but to get the government reimbursement on 
those medications. Those patients were either abusing the drugs 
or selling them to other people. One person died as a result of 
this improper treatment and others were seriously injured.
    This violation of the public trust will not be tolerated by 
this Congress and we must hold these people accountable and do 
all we can to prevent this kind of abuse.
    This Congress is committed to finding ways to work even 
closer with our witnesses to ensure that Medicare beneficiaries 
are offered the best medical care we can deliver. The 
wrongdoers are held accountable and that the Medicare Program 
remains strong for the next generation of Americans.
    I look forward to learning more about each agency plan to 
oversee this important and necessary program that will benefit 
our citizens.
    Thank you very much for being here today.
    Thank you, Mr. Chairman. Mr. Chairman, it is my pleasure to 
recognize my friend and we have been friends since we have both 
been in the Congress, the Ranking Member of the Oversight 
Committee, Mr. Ramstad.
    Mr. RAMSTAD. Thank you very much, Chairman Lewis, and thank 
you for your kind words. Thank you, Chairman Stark, both of you 
for holding this important joint hearing on Medicare Program 
integrity.
    I join my colleagues in welcoming our witnesses who play 
such a key role in rooting out waste, fraud and abuse in the 
Medicare Program. I also would like to mention for the record 
that Ranking Member Camp is unable to be here today because he 
was called home yesterday by a family medical emergency.
    Medicare fraud, as we know, not only cheats taxpayers but 
it cheats millions of seniors and people with disability who 
rely on Medicare. Improper payments raise the already enormous 
costs of the program and they force vulnerable beneficiaries to 
pay cost sharing they should not have to pay.
    With an estimated 10 billion dollars, that is billion with 
a B, in 
Medicare overpayments last year alone, that adds up to real mone
y.
    With its multiple parts, players, providers and payment 
systems, it is no surprise the Medicare Program is at high risk 
for abuse by unscrupulous types out there. It is also ripe for 
misunderstanding and unintentional mistakes just because of its 
shear complexity.
    In fact, one of my colleagues said not long ago, the 
Medicare Program makes the Tax Code look simple and 
straightforward. I think there is a little bit of hyperbole in 
that statement, but you get the point.
    I look forward to hearing about efforts that are underway 
to identify vulnerable areas as well as the investigation and 
prosecution of intentional fraud and abuse. I will also be 
interested to hear whether additional tools are needed in your 
arsenal, our arsenal to go after waste, fraud and abuse.
    Thank you again, Mr. Chairman. I yield back.
    Chairman STARK. We will start with the Inspector General 
Dan Levinson's testimony. You may proceed General Levinson in 
any manner you are comfortable.
    If you are going to proceed, you have got to push that 
funny button on your mike so we can hear you.
    Mr. LEVINSON. I think it is on now; thank you.
    Chairman STARK. Thank you.

 STATEMENT OF INSPECTOR GENERAL DANIEL R. LEVINSON, OFFICE OF 
INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. LEVINSON. Good morning, Chairman Stark, Chairman Lewis, 
Ranking Member Ramstad and distinguished Members of the 
Committee.
    I appreciate the opportunity to appear before you today to 
discuss the important oversight role of the Office of Inspector 
General and the efforts we undertake to protect the integrity 
of the Department's programs including Medicare.
    My testimony today will briefly discuss OIG's statutory 
role within the Department, how we are organized to accomplish 
our mission to protect the integrity of the Department's 
programs and highlight some of the vulnerabilities within the 
Medicare Program as well as highlight recent and ongoing OIG 
work in these areas.
    I want to emphasize the importance of protecting the 
integrity of Medicare. It is a vitally important program that 
serves more than 43 million people and in fiscal year 2006, the 
program spent $382 billion dollars.
    To fulfill our mission, we rely heavily on working closely 
with, and leveraging the resources, of our law enforcement and 
Department partners. I am pleased that the Committee will be 
hearing from two of our colleagues today, the Department of 
Justice and CMS. Other key partners include the State Medicaid 
Fraud Control Units.
    Since Congress established our office in 1976, we have 
developed the necessary expertise to accomplish a wide range of 
oversight activities. We employ a comprehensive approach to our 
oversight work by conducting national reviews of programs to 
identify systemic vulnerabilities and to make recommendations 
to improve their efficiency and effectiveness; auditing 
specific payments, providers and programs to identify and 
recover overpayments; investigating specific instances of fraud 
or abuse; and pursuing appropriate enforcement actions as well 
as promoting voluntary compliance by issuing guidance to the 
healthcare industry and providers.
    Our work in this area and the resulting recommendations are 
described in our semiannual reports as well as a compendium of 
unimplemented OIG recommendations, all of which are provided to 
Congress. The OIG has produced a significant body of work.
    I will highlight three areas where we have had impact and 
where we think vulnerabilities in the Medicare Program merit 
our continued attention. They are (1) the integrity of Medicare 
payments, (2) the quality of long term care services, and (3) 
the new Medicare Part D.
    With respect to integrity of Medicare payments, OIG is 
particularly focused on payments for durable medical equipment 
and supplies, home health agencies, hospital operations, and 
part B prescription drugs, as described in my written 
statement.
    In the interest of time my oral testimony will focus on 
part B prescription drugs. The OIG has produced a large body of 
work recommending actions that would result in savings and 
payments for prescription drugs under Medicare part B. 
Consistent with the recommendations in our body of work, the 
MMA included provisions that instituted a new drug 
reimbursement methodology for part B.
    In addition to our substantial audit and evaluation work on 
part B drug pricing issues, we have pursued a number of 
enforcement cases involving pharmaceutical manufacturers. For 
example, one drug manufacturer paid more than 875 million 
dollars to resolve criminal and civil liability resulting from 
the sales and marketing of a prostate cancer drug. The company 
pleaded guilty to conspiring to violate the Prescription Drug 
Marketing Act by causing the sale of free samples and entered 
into a civil settlement and corporate integrity agreement 
related to the company's pricing, sales and marketing practices 
for the drug.
    Another area of continued focus has been the quality of 
care in nursing facilities, due to the increasing number of 
beneficiaries in these settings and the vulnerability of this 
population. As a result of OIG's work in this area, a number of 
programmatic and legislative changes have occurred to improve 
quality of care.
    For example, CMS has issued instructions to nursing 
facilities on the appropriate use of psychotropic drugs, 
promulgated regulations that required training standards for 
nurse aides, and required 
nursing homes to establish processes for handling abuse complain
ts.
    These are improvements, but more work must be done. The 
OIG's most recent reviews revealed weaknesses in the nursing 
home survey and certification process. We found that for the 
majority of cases requiring mandatory termination of nursing 
homes, CMS did not apply the remedy because case referrals from 
States were not timely and CMS's staff were reluctant to impose 
this severe remedy.
    In addition, we found that CMS did not investigate some of 
the most serious nursing home complaints within the required 
timeframe and that CMS's oversight of nursing home complaint 
investigations is limited. Our report made a number of 
recommendations to CMS to resolve these issues.
    Some nursing home care problems are so serious that they 
constitute failure of care and thereby implicate the Civil 
False Claims Act. A recent example of an egregious case of a 
failure of care involved a nursing home that settled its 
liability with the Government for $750,000 for allegedly 
providing skilled nursing services that were not rendered in 
accordance with applicable laws and rules and were so 
inadequate that they were not reimbursable under Medicare or 
Medicaid. The Government alleged that poor oversight and 
management of the facility's operations led to serious 
deficiencies in beneficiary care.
    A third priority for OIG is Medicare Part D. As Chairman 
Lewis has noted, with a new program, with so much money at 
stake, especially one as structurally and operationally complex 
as this is, we believe that oversight is necessary. To address 
this we are implementing a strategic plan to protect the 
integrity of Part D and its beneficiaries by focusing on (1) 
enforcement and compliance, (2) payment accuracy, (3) 
beneficiary access, (4) drug pricing and reimbursement and (5) 
the integrity of information systems.
    We have ongoing investigations of Medicare Part D cases 
along with audits and evaluations underway, as outlined in our 
Fiscal Year 2007 Work Plan, and we will share our findings and 
recommendations with CMS and Congress as the work is completed.
    In addition to enforcement efforts, we also promote 
voluntary industry compliance. Our approach in promoting 
industry compliance is twofold. First, we issue a variety of 
guidance, including advisory opinions, fraud alerts and special 
advisory bulletins, as well as compliance program guidance, 
which is designed to assist healthcare providers and suppliers 
to develop systems and structures to guard against fraud and 
abuse, to ensure appropriate billing, and to be responsible 
corporate citizens.
    Second, our approach to compliance addresses healthcare 
providers that the Government alleges have defrauded Medicare, 
Medicaid, or other Federal healthcare programs. In such cases, 
the Department of Justice may seek dollar recoveries through 
the Civil False Claims Act and we may seek to exclude the 
provider from future participation in Federal healthcare 
programs.
    The OIG will often agree not to pursue exclusion in 
exchange for the provider entering into an integrity agreement 
with us. Such integrity agreements require providers to 
establish or continue a compliance infrastructure, policies and 
procedures, training programs, internal controls and reporting 
mechanisms, review procedures and reporting to us. The OIG 
integrity agreements have been a catalyst for change in 
corporate culture and result in comprehensive internal control 
systems.
    In conclusion, we remain committed to a comprehensive 
approach to protect the integrity of the Medicare Program and 
to ensure that its beneficiaries receive high quality care. I 
appreciate the opportunity to share with the Committee our 
efforts and I would be happy to answer any questions you have.
    [The prepared statement of Mr. Levinson follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    

    Chairman STARK. Thank you, Mr. Levinson. I think with your 
forbearance and the Committees' to move us along, we would ask 
Mr. Hill and Mr. Acosta to testify now and then we can inquire 
of all three of you if that is satisfactory with you, Mr. 
General. Thank you.
    Mr. Hill, would you like to proceed?

  STATEMENT OF TIMOTHY B. HILL, DIRECTOR, OFFICE OF FINANCIAL 
         MANAGEMENT, CENTERS FOR MEDICARE AND MEDICAID

    Mr. HILL. Thank you. Good morning, Chairman Stark, Chairman 
Lewis, Ranking Member Ramstad, other distinguished Members of 
the Committee. I am pleased to be here to discuss the Centers 
for Medicare and Medicaid Services' efforts to ensure the 
integrity of the Medicare Program.
    I would like to use my time today to briefly describe for 
you our approach to protecting the integrity of Medicare, give 
you an overview of some of our recent successes and describe to 
you some of our most pressing challenges.
    The CMS is accountable for ensuring the accuracy and 
appropriateness of more than $400 billion in trust fund 
payments each year to health plans, providers and 
beneficiaries. Our approach to fulfilling this obligation rests 
on a foundation of innovation, private sector partnership and 
State, local and Federal cooperation.
    Our first line of defense rests in the more than $700 
million dollars worth of performance based contracts with 
private sector entities whose job it is to investigate 
complaints of fraud, perform data analysis to identify 
potential vulnerabilities, measure the extent of misspent 
program funds and work with law enforcement to further 
investigate and prosecute fraud. These contracts allow CMS to 
utilize cutting edge technology, the most advanced analytic 
tools and expert investigative resources to address program 
vulnerabilities.
    We leverage this investment by driving cooperation between 
our contractors and our regional offices and State and local 
governments. The CMS now has field offices in high 
vulnerability areas around the country and they work directly 
with local contractors, local law enforcement, State Medicaid 
agencies and local provider communities to magnify the 
individual efforts of each of these groups to achieve better 
results.
    The last link in our efforts rests with our law enforcement 
partners, the Health and Human Services (HHS) Office of the 
Inspector General in the Department of Justice who investigate 
and prosecute Medicare fraud. Working cooperatively with agents 
in the field and staff at main Justice and the HHS OIG we make 
referrals, support ongoing investigations and assist in the 
eventual prosecution of nefarious providers.
    This intense level of collaboration with our contractors, 
partners, customers and stakeholders is critical to the success 
of our efforts. I am proud to say that in broad measure our 
approach has been successful. Since 2004 we have reduced the 
rate of improper payments in Medicare by 56 percent saving 
taxpayers nearly $11 billion. This is not to say that our job 
is complete. There is much more that needs to be done. 
Nonetheless, our aggressive pursuit of wrongdoers is paying 
off.
    Let me give you just a few examples. A CMS fraud fighting 
contractor in Ohio, Advance MED, received the prestigious 2006 
National Healthcare Anti-Fraud Association Investigation of the 
Year Award for their work on the case against Dr. Jorge 
Martinez, an Ohio physician. This case involved the death of 
two patients and Advance MED's efforts helped secure the 
doctor's conviction and sentence to life in prison, the first 
life sentence given in a healthcare fraud case.
    On a different front, CMS has been matching data between 
Medicare and Medicaid in 10 States to identify providers who 
might be defrauding both programs. Using this collaborative 
approach, we can detect fraudulent patterns that we cannot see 
looking at these two programs separately. So, far, over 50 
cases have been referred to law enforcement, $15 million in 
overpayments have been identified and $25 million have been 
saved through claims denials.
    We are using new legislative authority to contract with 
contingency-fee-based contractors, recovery audit contractors 
(RACs) to root out improper payments. These types of 
arrangements are widely used in the private sector but have not 
been available in Medicare until 2004. Last year the RACs 
collected nearly 70 million in overpayments and identified an 
additional 300 million in overpayments that are awaiting 
recoupment.
    We have put feet on the street in high fraud risk areas. We 
opened an office in Los Angeles, California to coordinate fraud 
and abuse efforts at the local level. In 2005 and 2006 the LA 
office identified over $2 billion in improper payments. We have 
been working with the local DA in LA to identify Medicare fraud 
through those who have not paid their taxes. So, far this Al 
Capone approach has resulted in three convictions of tax fraud, 
all including prison sentences, and in another 300 or so cases 
that are currently being developed.
    Similarly, in Miami, Florida, we have worked with the State 
and local law enforcement to address a Medicare infusion scam 
that involves clinics recruiting HIV AIDS patients, paying them 
kickbacks and then billing Medicare for astronomical amounts of 
infusion services. Our administrative efforts alone to clamp 
down on this scam have resulted in more than $1.8 billion in 
savings.
    We are also very active pursuing Part D fraud. Early in the 
program we identified an identity theft scam called the 299 
Scam where unsuspecting Medicare beneficiaries were contacted 
by supposed agents of non-existent Medicare prescription drug 
plans and tried to sell them those plans for $299. Working with 
our partners in law enforcement, we informed the beneficiaries 
of the scam and recovered stolen funds.
    Additionally through our data analysis of Part D drugs, we 
identified and stopped payments that were being made to an 
abandoned pharmacy in Miami, an effort that prevented 
approximately $3 million worth of improper payments from Part D 
plans.
    As I said, while we are continuing to make strides more 
needs to be done. This year's President's budget proposed 
several initiatives to leverage our existing resources, to 
reduce improper payments and expand our initiatives. Key among 
these is a requested increase in our discretionary Health Care 
Fraud and Abuse Control (HCFAC) appropriation of $183 million 
that would be allocated between Medicare, Medicaid, the OIG and 
the Department of Justice.
    Since the Medicare Integrity Program budget was capped in 
2003, CMS has sustained an approximate $90 million inflationary 
loss that has greatly diminished our purchasing power to 
undergo these activities. We believe that additional resources 
are needed to keep pace with inflation and allow us to devote 
needed antifraud efforts to an ever expanding program. With a 
return on investment of over 13-to-1, we believe the enactment 
of the President's proposal is a worthy investment.
    We have made great strides and we continue to look forward 
to working with you and other Members of Congress to enhance 
our efforts. I look forward to answering any questions that you 
might have.
    [The prepared statement of Mr. Hill follows:]
     Prepared Statement of Tim Hill, Director, Office of Financial 
         Management, Centers for Medicare and Medicaid Services
    Good afternoon Chairman Stark, Chairman Lewis and distinguished 
Members of the Subcommittees. I am pleased to be here today to discuss 
the Centers for Medicare and Medicaid Services' (CMS) efforts to 
improve the accuracy and integrity of payments under the Medicare 
program.
    Responsible and efficient stewardship of taxpayer dollars are 
critical goals of this Administration, as evidenced by the government-
wide effort to improve financial management under 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 firmly committed to ensuring the 
highest measure of accountability within the Medicare program. As part 
of that commitment, the President's FY 2008 budget requests $183 
million in discretionary HCFAC funding to build upon programs with a 
proven record for maintaining the integrity of the Medicare Trust Fund.
Background on Medicare
    Medicare is a Federal health insurance program that provides 
comprehensive health insurance to about 43 million people. About 36 
million individuals are entitled to Medicare because they are over the 
age of 65 and about 7 million beneficiaries under age 65 are entitled 
because of disability; those under age 65 generally begin to get 
Medicare after they have been entitled to Social Security disability 
cash benefits for 24 months. Net Medicare spending for 2007 is 
projected to be about $372 billion.
    The majority of Medicare spending is in fee-for-service (FFS), with 
hospital and physician services currently representing the largest 
shares of this spending. The FFS component of Medicare also covers a 
wide range of other items and services, including home health care, 
ambulance services, medical equipment, and preventive services. CMS 
processes claims and makes payments for FFS Medicare benefits through 
contracts with private companies: Carriers, Fiscal Intermediaries 
(FIs), and Durable Medical Equipment Medicare Administrative 
Contractors (DME MACs), and Quality Improvement Organizations 
(QIOs).\1\ 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 medical services that are reasonable and 
necessary, for eligible individuals. In addition, CMS contracts with 
Program Safeguard Contractors (PSCs) to detect and deter Medicare fraud 
and abuse. Quality Improvement Organizations (QIOs) are contractors 
that ensure that payment is made only for medically necessary services 
and investigate beneficiary complaints about quality of care.
---------------------------------------------------------------------------
    \1\ With the implementation of Medicare Contracting Reform (MCR) 
enacted by the Medicare Prescription Drug, Improvement and 
Modernization Act of 2003, Medicare contractor functions are being 
consolidated, and all contractors processing Medicare claims are called 
``Medicare Administrative Contractors'' or ``MACs.'' Although the 
durable medical equipment regional carriers (DMERCs) have been fully 
replaced by the DME MACs, while MCR implementation is underway, the 
original contractor terms--Carrier and FI--remain commonly used.
---------------------------------------------------------------------------
    In addition to FFS, Medicare also pays private plans. The Medicare 
Advantage plans, which include coordinated care plans, regional 
preferred provider organizations and private FFS plans, generally 
provide more benefits at a lower cost to beneficiaries. Both local and 
regional plans must provide all original Medicare benefits. In 2006, 
about 17 percent of beneficiaries were enrolled in Medicare Advantage 
local plans.
The Improper Payments Information Act of 2002
    Given the staggering size of Medicare program expenditures, even 
small payment errors can represent a significant impact to the Federal 
treasury and taxpayers. For this reason, CMS, as part of a sound 
financial management strategy, has a relatively long history of using 
improper payment calculations as a tool to preserve the fiscal 
integrity of Medicare. CMS uses improper payment calculations to 
identify the amount of money that has been inappropriately paid, 
identify and study the causes of the inappropriate payments, and focus 
on strengthening internal controls to stop the improper payments from 
continuing.
    In 1996, the Department of Health and Human Services' (DHHS) Office 
of Inspector General (OIG) began estimating improper payments in the 
Medicare FFS program as part of the Chief Financial Officer's Audit. 
The OIG produced FFS error rates from FY 1996 to FY 2002. Beginning in 
FY 2003, CMS, working with the OIG, implemented a much more robust 
process--the Comprehensive Error Rate Testing (CERT) program--to assess 
and measure improper payments in the Medicare FFS program. The CERT 
program not only produces a national paid claims error rate, but also 
very specific improper payment rates. These include:

      contractor-specific improper payment rates--which measure 
the accuracy of our claims processors;
      provider-type specific improper payment rates--which 
measure how well the providers who care for our beneficiaries are 
preparing and submitting claims to the program; and
      other management related information--which provides 
insight into payment errors by region and reason.

    Thus, in 2002 when the IPIA was enacted, CMS needed to make only 
minor changes to our ongoing processes for FFS Medicare to come into 
compliance with the Office of Management and Budget (OMB) guidance on 
the IPIA. In fact, CMS has gone beyond the scope of the IPIA 
requirements and OMB guidelines to calculate additional improper 
payment rates for FFS Medicare, as discussed earlier. This enhanced 
scrutiny reflects the Agency's increased commitment to use more 
detailed data and analysis to identify and eliminate improper payments.
    Calculating improper payment rates is only one step in the process. 
Remediation is the key part of CMS IPIA compliance activities. CMS, 
through its contractors, including the Carriers, FIs, DME MACs and QIOs 
use the error rates to identify where problems exist and target 
improvement efforts. The cornerstone of these efforts is our annual 
Error Rate Reduction Plan (ERRP), which includes agency level 
strategies to clarify CMS policies and implement new initiatives to 
reduce FFS Medicare improper payments. In the past, ERRPs have included 
plans to conduct special pilot studies (i.e. electronic medical record 
submission pilot) and specific education-related initiatives. CMS also 
directs Carriers, DME MACs, and FIs to develop local efforts to lower 
the FFS Medicare error rate by targeting provider education and claim 
review efforts to those services with the highest improper payments. 
The type and nature of the errors we see in the program all lend 
themselves to different types of corrective actions to mediate them.
    For example, a primary cause of Medicare payment errors in the past 
has been providers not submitting the medical record documentation 
needed to verify the appropriateness of payment in response to our 
requests for documentation. Many providers were concerned that 
submitting medical records to a CMS contractor would be in violation of 
the Health Insurance Portability and Accountability Act (HIPAA) 
regulations. However, the HIPAA Privacy Rule permits disclosure of 
protected health information to carry out treatment, payment or health 
care operations. Thus, we expanded our education efforts to ensure that 
providers understand that responding to our requests does not violate 
HIPAA.
    Another significant cause of errors has been providers not 
submitting the appropriate types of medical record documentation to 
support the types of services billed to the Medicare program. CMS 
implemented a number of corrective actions to reduce these types of 
errors, including education and more intensive efforts to locate and 
contact providers. These corrective actions have resulted in an 83 
percent decrease in documentation errors since 2004.
    CMS also uses contractor-specific error rates to evaluate the 
performance of the contractors that process Medicare claims. While our 
previous contracting authority, limited CMS's ability to take action 
against contractors with high error rates, implementation of Medicare 
Contracting Reform (MCR) enacted by the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (MMA) is changing the 
contracting process and the contractor incentive structure. One key 
outcome of this initiative is the ability to use incentives to get our 
contractors to eliminate improper payments. In 2004, CMS conducted a 
study to evaluate whether the Agency could reduce improper payments by 
using award fees as incentives for contractors to lower their paid 
claims and provider compliance error rates. The outcome of that pilot 
was positive and CMS plans to use award fees as incentives in the 
future to reduce improper payments as part of MCR.
    We believe our efforts in Medicare have been a success. In November 
2006, HHS reported a Medicare FFS paid claims error rate of 4.4 
percent, a significant decrease from the 5.2 percent reported in 2005, 
and significantly lower than the 10.1 percent rate reported in FY 2004. 
We have far exceeded our expectations, having reduced the error rate 
beyond the 2006 goal of 5.1 percent. With continued monitoring and 
error reducing efforts we aim to achieve our future targets of 4.3 
percent in 2007, 4.2 percent in 2008, and 4.1 percent in 2009.
                               Figure 1:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    We also are looking carefully at IPIA compliance for the new 
prescription drug benefit (Part D) and the expanded Medicare Advantage. 
CMS recruited staff during FY 2006 to oversee the development of 
payment error rates for Part C, Part D, and Retiree Drug Subsidy 
programs. CMS also awarded a contract to assist with the error rate 
development for these programs. During FY 2007, the contractor is 
performing a risk assessment and developing a pilot methodology to 
evaluate a selected risk element in each program.
    Finally, CMS, along with the States, have a strong interest in 
strengthening financial oversight and ensuring payment accuracy in the 
Medicaid program. The States provide a crucial first line of defense in 
safeguarding Medicaid program dollars. At the Federal level, our 
primary roles are to exercise proper oversight and review of State 
financial practices and to provide guidance and support for the States' 
program integrity efforts. To comply with the IPIA of 2002 and 
implementing guidance by OMB, CMS began measuring improper payments in 
Medicaid and the State Children's Health Insurance Program (SCHIP). In 
an effort to nationally implement IPIA for the Medicaid program, CMS 
published a proposed rule in August, 2004 which required states to 
measure improper payments in their Medicaid programs. Subsequently, CMS 
published an interim final rule in August 2006, lessening the burden of 
this process on the states. We hope to publish a final rule in the 
Fall. A component Medicaid FFS error rate will be reported in the FY 
2007 PAR and full Medicaid and SCHIP rates will be reported in the FY 
2008 PAR. The goals of the Payment Error Rate Measurement (PERM) 
project are:

      to report a national program error rate in the PAR for 
each fiscal year measured;
      to reduce improper payments in Medicaid and SCHIP through 
States' corrective actions; and
      to have States initiate recovery of erroneously paid 
Federal funds in these programs as identified through the PERM program.
Fraud, Waste and Abuse
    As previously mentioned, CMS' actions to safeguard Federal funds 
are not just 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, waste and abuse. To that end, CMS has 
made significant changes to its program integrity activities in recent 
years.
    The Program Safeguard Contractors (PSCs) are CMS' fraud, waste and 
abuse detection contractors. As of 2006, PSC's were established 
nationwide across all provider and supplier types in the Medicare fee-
for-service 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 (intermediaries, carriers, and 
Medicare Administrative Contractors).
    To further supplement the PSCs fraud identification efforts, CMS is 
making improvements to its own data analysis efforts. To achieve this, 
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.
    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 created a new satellite 
office in Los Angeles (LA), California to work in conjunction with an 
existing satellite office in Miami, Florida to help curtail fraudulent 
spending in those high risk areas. Through the combined efforts of the 
CMS LA satellite office, the PSC and the claims processing contractors 
operating in California, CMS has collectively identified over $2.1 
billion in improper payments in Calendar Years 2005 thru 2006. This 
includes the prepayment denial of claims based upon fraud indicators 
and the postpayment identification of overpayments for claims 
identified as potentially fraudulent or highly suspect. The LA 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..
    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 
now. 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 
both programs identify and address vulnerabilities. CMS has ten Medi-
Medi projects in place in key states and, as mandated by the Deficit 
Reduction Act of 2005, will expand the program nationwide. To date, 
over fifty 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 denied before payment was made. 
This project is contributing to overall reductions in payment errors.
    Section 306 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (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. It 
is clear that the RAC demonstration program accomplishes both of these 
goals. Given the success of this effort, Congress mandated the 
expansion of the RAC effort nationally in the Tax Relief and Health 
Care Act of 2006. CMS is now in the process of developing its expansion 
and implementation plans.
Provider Enrollment
    CMS has seen a marked increase in fraud and abuse activities over 
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 there 
are a large number of beneficiaries and providers/suppliers. CMS has 
undertaken numerous aggressive actions 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.
    The fraudulent business practices of unscrupulous durable medical 
equipment, orthotics, prosthetics, and supplies (DMEPOS) suppliers 
continue to cost the Medicare program billions of dollars. CMS is 
implementing new DMEPOS Accreditation Standards which will ensure 
DMEPOS suppliers meet CMS' supplier certification standards. All 
suppliers of DMEPOS must comply with the CMS quality standards in order 
to receive Medicare Part B payments and to retain a supplier billing 
number. The National Supplier Clearinghouse will not be able to issue a 
supplier billing number to any non accredited supplier, thus any 
nonaccredited supplier attempting to bill Medicare, will be 
automatically ?kicked-out' of the system.
    To accommodate suppliers that wish to participate in the Medicare 
DMEPOS program, CMS will phase-in the accreditation process and require 
accreditation organizations to prioritize their surveys to accredit 
suppliers in the selected Metropolitan Statistical Areas and 
competitive bidding areas. All suppliers who require accreditation to 
bid in any CMS conducted DMEPOS competitive bidding need to be given 
priority by the approved accrediting bodies. Those suppliers in a non-
competitive bidding area will be given a certain time frame in which to 
become accredited.
    CMS is taking the following steps to better monitor a provider or 
supplier once it has entered the program:

      Implement claims specialty editing to ensure suppliers 
are only paid for items they are properly licensed to provide;
      Increase the number of random site visits to suppliers;
      Require greater claims scrutiny for high fraud risk 
suppliers;
      Deactivate providers with inactive provider numbers; and
      Provide additional resources for investigative staff to 
increase proactive initiatives by the NSC and the PSCs.

    CMS is also implementing new strategies to remove fraudulent 
providers from the Medicare program. Our LA 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 when 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.
Medicare Advantage and Prescription Drug Oversight
    CMS has reduced the number of unsettled managed care cost reports. 
In FY 2006, CMS reduced the backlog of unsettled managed care cost 
reports by 16. Disallowances resulting from FY 2006 settlement activity 
amounted to about $33.5 million. For FY 2006, CMS had a rate of return 
of 36 to 1. The remaining backlog still represents a challenge to CMS 
because these cost reports have critical issues that must be resolved 
with Managed Care Organizations. These reports may eventually need 
audit adjustments. Many of the more recent cost reports sent to audit 
have fewer issues.
    In 2006, CMS developed a suite of tools to oversee the Medicare 
Prescription Drug Benefit (Part D). This included development of a Part 
D audit guide; audit checklists and worksheets; a Part D audit 
discussion guide; and a Part D audit standard operating procedure. 
These tools assist CMS in ensuring the accuracy of Part D payments.
    Finally, CMS is using Medicare Drug Integrity Contractors (MEDICs) 
in the new Part D program to monitor and analyze information to help 
identify potential fraud; work with law enforcement, prescription drug 
plans, consumer groups and other key partners to protect consumers and 
enforce Medicare's rules; and provide basic tips for consumers so that 
they can protect themselves from potential scams. Since November 2005, 
Delmarva Foundation, the first MEDIC which has an Enrollment & 
Eligibility Task Order, has addressed over 6758 complaints and 
conducted over 2000 investigations. The MEDICs were expanded in 
September 2006 with two new contracts: Electronic Data Systems (EDS), 
which operates in the Northern region of the country, and Science 
Applications International Corporation (SAIC) operating in the South. 
In addition, the Delmarva MEDIC was regionalized to serve the 
Southeast.
Collaboration with Law Enforcement Partners
    When instances of fraud or abuse are detected through any of these 
oversight mechanisms, CMS refers the cases to law enforcement. CMS has 
actively partnered with its law enforcement partners at the Department 
of Justice and HHS Office of Inspector General to aggressively pursue 
enforcement actions against those providers and suppliers that are 
found to be deliberately defrauding the Federal health care programs.
    For example, in 2006 the Delmarva Foundation, a MEDIC, identified a 
pattern of so-called ``$299 scams.'' Unsuspecting Medicare 
beneficiaries were being contacted by ``agents'' attempting to sell 
non-existent Medicare prescription drug plans for $299. CMS, in 
collaboration with Delmarva, responded by warning beneficiaries and 
their support groups about the scam pattern with a press release and a 
National Fraud Alert. Numerous referrals were made to federal law 
enforcement. To date, we have assisted beneficiaries in recovering more 
than $20,000 in funds stolen under these scams.
Conclusion
    For eight fiscal years running, auditors have issued an unqualified 
opinion on CMS' financial statements. This accomplishment reflects the 
Agency's accountability for the public resources entrusted to us, and 
the dedication and commitment of our program and financial managers to 
achieve even stronger financial management. We will continue to work to 
fully meet our fiduciary and operating responsibilities to our 
beneficiaries in years ahead.

                                 

    Chairman STARK. Thank you, Mr. Hill.
    Mr. Acosta is the United States Attorney for the Southern 
District of Florida, headquartered in Miami.
    Mr. ACOSTA. Correct.
    Chairman STARK. Why do you not proceed with your testimony 
in any manner in which you are comfortable.

 STATEMENT OF R. ALEXANDER ACOSTA, UNITED STATES ATTORNEY FOR 
        THE SOUTHERN DISTRICT OF FLORIDA, MIAMI, FLORIDA

    Mr. ACOSTA. Thank you, Mr. Chairman.
    Chairman Stark, Chairman Lewis, Ranking Member Ramstad, 
Members of the Committee, good morning.
    I appreciate the opportunity to appear before you to 
discuss our efforts to combat and to prosecute healthcare 
fraud. I'm the United States Attorney for the Southern District 
of Florida. Medicare and Medicaid spending in my district is 
quite substantial. As a result in my district we are extremely 
aggressive at engaging in investigating and prosecuting 
Medicare and Medicaid fraud.
    My submitted testimony already describes the efforts of the 
Department nationwide in the healthcare fraud area. I would 
therefore like to use my time this morning to talk a little bit 
about our efforts in South Florida.
    Since becoming United States Attorney I have made 
healthcare fraud a top priority. On the civil front, we in 
Miami are litigating a number of hospital and pharmaceutical 
healthcare fraud claims. This past December, for example, the 
University of Miami paid $2.2 million to resolve a claim 
related to billing by its teaching hospital, Jackson Memorial. 
The previous month, Larkin Hospital paid $15.4 million to 
resolve allegations of unnecessary medical treatments at that 
hospital. Earlier this year we entered into a whistle blower 
lawsuit against Abbott Labs that concerned fraudulent and 
inflated prices for pharmaceutical products causing excess 
reimbursements of over $175 million.
    Our most significant challenge, however, is on the criminal 
front. To address this challenge, in late 2005 I formed a South 
Florida Healthcare Fraud Initiative to bring together the 
healthcare fraud prosecution resources of the United States 
Attorney's Office, the OIG, the Federal Bureau of Investigation 
(FBI) and the Florida Attorney General's Office. Although still 
in its early phase, this healthcare fraud initiative has begun 
to pay dividends.
    Last fiscal year, the United States Attorneys across the 
Nation brought 355 criminal healthcare fraud claims, 355 claims 
nationwide. In South Florida, we filed 68 of these 355 claims, 
a 30-percent increase over the prior year's filings. Our 
conviction rate was 97 percent.
    I am particularly excited about our South Florida 
initiative because our prosecutors are doing much more than 
merely coordinating resources. We are developing and we are 
testing new law enforcement methods to add to our litigation 
arsenal, the arsenal that we use to combat and to prosecute 
healthcare fraud.
    I would like to describe two of these methods for you this 
morning. The first concerns the use of civil complaints to 
freeze or seize moneys paid because of healthcare fraud. A 
recent operation, ``Equity Excise'', is one example. In 
Operation Equity Excise, we identified clinics and durable 
medical equipment companies that engaged in healthcare fraud. 
We identified approximately 60 of these clinics. Often these 
companies closed abruptly to avoid detection by law enforcement 
and in the process, they abandoned accounts often with 
substantial sums of money. They walked away from these 
accounts.
    The FBI and OIG agents interviewed the signatories on these 
bank accounts. Many of the signatories denied that the 
companies existed. They had no knowledge of the companies. They 
denied any knowledge of the funds and they handed the funds 
right over to us. In this way, we located 34 individuals, the 
voluntarily surrendered $10.5 million.
    Twenty-three accounts, in 23 cases we could not locate the 
signatories on those accounts. Those accounts have $30 million 
in them. So we have filed claims against those accounts. We 
intend to provide notice by publication, proceed through 
default judgments, seize the money and return those 30 million 
in addition to the United States Treasury. That is $40 million 
returned the United States Treasury.
    I think it is important to emphasize we also intend to 
pursue criminal action where appropriate. Civil complaints are 
not our only option but for now at the very least by seizing 
these bank accounts through this Operation Equity Excise, we 
can return these $40 million of taxpayer money to the Federal 
treasury.
    I would like to talk about a second method that we are also 
refining through a recently implemented short term pro-active 
search operation, actually an operation that has been underway 
for less than 1 month. Working jointly with the Criminal 
Division of the FBI, HHS, OIG and local law enforcement in 
Miami, we implemented this operation on February 14th. The 
operation uses pro-active law enforcement methods adapted from 
our experience fighting illicit drug trafficking in South 
Florida, along with our experience in credit card fraud, our 
experience looking at real time data review that is often used 
to fight credit card fraud.
    Here our Federal agents are reviewing near real time 
billing patterns. We are looking in particular for instances of 
unusual spikes in billing. When those unusual spikes are 
identified, we then look behind that information to identify 
high levels of billing of particular items that make no medical 
sense.
    Once targets are identified, our FBI and OIG agents visit 
those offices an interview the providers where the fraud is 
taking place.
    In the short weeks that this operation has been underway, 
our agents have already executed arrests and have several 
investigations pending. In about a month. Such caught-in-the-
act cases are often easier to prosecute than the more typical 
healthcare fraud case that is based on historical evidence 
primarily.
    Finally, to augment the cooperation between our prosecutors 
and agents, we have co-located the prosecutors and the 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 together under the same roof in the same center will 
foster strong working relationships and a more proactive 
investigatory method.
    Chairman Stark and Lewis, Mr. Ramstad, Members of the 
Committee, I would like to close with a few words about the men 
and women who do this work. My office receives approximately 
$981,000 from the HCFAC account. To make these initiatives a 
success, I have matched this $981,000 with about 200 percent, 
with about an additional $2 million from general funds. With 
this we fund about a dozen attorneys and their staff who focus 
on healthcare fraud. These public servants work hard typically 
litigating against attorneys that are much better paid. They 
are often outnumbered. There are some meetings where there are 
a dozen attorneys against one individual; but because they are 
experts in their field, they are not outgunned. The Southern 
District is proud of their accomplishments, our results, our 
civil matters, our moneys seized and collected and our criminal 
prosecutions cover our outlays many times over.
    I thank the Committee for its time and I welcome your 
questions. Thank you.
    [The prepared statement of Mr. Acosta follows:]
               Prepared Statement of R. Alexander Acosta,
  United States Attorney for the Southern District of Florida, Miami, 
                                Florida
    Chairman Stark and Chairman Lewis, and distinguished members of the 
subcommittees, I appreciate the opportunity to appear before you to 
discuss some of the issues that are the focus of today's hearing. We 
are grateful for the leadership of your subcommittees on this important 
topic and to you, Chairmen Stark and Lewis, for allowing us this 
opportunity to discuss the Department of Justice's enforcement efforts 
to combat Medicare fraud.
    I am the United States Attorney for the Southern District of 
Florida, which includes three of Florida's largest metropolitan areas, 
Miami, Ft. Lauderdale, and West Palm Beach. These areas have a 
substantial population of senior citizens who are enrolled in the 
Medicare program. As a result, my district 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 my written testimony 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 the Department of Health and Human Services, and our 
accomplishments. I will conclude by describing some of the particular 
initiatives we are launching in my district to fight 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. Medicare is the Federal Government's second largest social 
insurance program, behind only Social Security, with 42.5 million 
beneficiaries and estimated total expenditures of nearly $418 billion 
in 2006.
    The Department of Justice is not, and cannot be, 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 (FDA-OCI), 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 inception of the Health Care 
Fraud and Abuse Control (HCFAC) program in 1997, 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 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 Program,'' which was established by the Health 
Insurance Portability and Accountability Act of 1996. This program 
provides the principal source of funding for Department of Justice 
efforts to combat Medicare fraud.
STATUTORY BACKGROUND AND FUNDING
    Social Security Act Section 1128C(a), as established by the Health 
Insurance Portability and Accountability Act of 1996 (P.L. 104-191, 
HIPAA or the Act), 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.
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    \1\ Also known as the Hospital Insurance (HI) Trust Fund. All 
further references to the Medicare Trust Fund refer to the HI Trust 
Fund.
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    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 annual 
maximum amounts available to HHS and DOJ for their health care fraud 
enforcement work, assigns specific authorities to the HHS Office of 
Inspector General (HHS-OIG), and stipulates the range of funding OIG 
must receive each year. In fiscal year (FY) 1997, HIPAA authorized HHS 
and DOJ to appropriate from the Account up to $104 million, and allowed 
the Departments to increase that appropriated amount by up to 15% 
annually until FY 2003. HIPAA also provided $47 million in dedicated 
funding for the FBI's health care fraud investigations beginning in 
1997 which also increased annually until 2003.
    Since FY 2003, 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 HHS-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. With the increasing pressures on the Department's 
discretionary funding and the resulting impact on resources for other 
critical Administration priorities and responsibilities, we are hopeful 
that 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. We anticipate, however, that current funding 
levels alone will be insufficient to address the accumulated numbers of 
pending cases resulting from the cap on HIPAA funding since FY 2003, 
the growth in the Medicare program due largely to the prescription drug 
benefit program, and an anticipated increase in referrals associated 
with the increases in anti-fraud funding to HHS agencies from the 
Deficit Reduction and Reconciliation Act of 2005. The President's FY 
2008 budget includes an additional $17.5 million through a 
discretionary cap adjustment proposal for the Department to address 
these funding concerns.
HCFAC PROGRAM ACCOMPLISHMENTS FY 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\
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    \2\ Actual collections, transfers and deposits that ultimately 
result from healthcare 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.
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    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.
INTERAGENCY 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 the 
Departments. Examples of this close cooperation include the following:

      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 also hold monthly CMS-DOJ conference calls involving 
CMS Program Integrity and other staff 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 HHS-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 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.
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    \4\ A portion of this $5.3 billion is included in the reported 
False Claims Act recoveries for this same period.
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    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 growing 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 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.
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    \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.
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    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, the Fraud Section handled or was involved in cases and 
investigations of a defunct health maintenance organization; a 
financial service holding company that serviced hospitals, nursing 
facilities, and other health care providers; and of durable medical 
equipment (DME) suppliers and pharmacies. Along with the USAO for the 
Northern District of Ohio, Fraud Section attorneys indicted seven 
individuals in a scheme involving a financial service holding company. 
Through its subsidiary corporations, the company bought accounts 
receivable from hospitals, nursing homes and other health care 
providers and medical concerns, and company executives illegally 
diverted the money for other unrelated purposes. In another case, 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 HMO and its 
subsequent takeover and liquidation by the state Department of 
Insurance.
    My district is actively working with the Fraud Section. We recently 
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. All three of these cases 
are scheduled to go to trial in 2007.
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 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 
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 is now negotiating an 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. 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 $806 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 United States Department of Health and Human Services, Office of 
Inspector General. 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

      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 K-Dur, 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 which was recognized by the National 
Health Care Anti-Fraud Association as the Investigation of the Year for 
2006.
      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 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 Office of 
Inspector General of the Department of Health and Human Services. 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.
Medicare 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 durable medical equipment 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 United States Attorney's Office for the Southern District of 
Florida (``SDFL'') has made health care fraud matters a top priority. 
We are litigating a number of hospital and pharmaceutical civil health 
care claims. This past December, for example, the University of Miami 
paid $2.2 million to resolve claims relating to bills submitted to 
Medicare Part B by its teaching hospital, Jackson Memorial Hospital. In 
November, Larkin Hospital paid $15.4 million to resolve a health care 
fraud suit concerning kickbacks and unnecessary medial treatments. 
Earlier last year, we entered into a whistleblower suit charging Abbott 
Labs with reporting fraudulent and inflated prices for pharmaceutical 
products to Medicare and Medicaid, causing over $175 million in excess 
payments.
    Our most significant challenge, however, is on the criminal front. 
Because health care expenditures are so substantial in South Florida, 
we are particularly vulnerable to fraud. To address this challenge, in 
late 2005, we 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.
    I am particularly excited about our Health Care Fraud Initiative 
because our prosecutors are doing much more than merely coordinating 
resources. We 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.
    Our recent ``Operation Equity Excise'' is an example. Working with 
HHS-OIG and the FBI, Operation Equity Excise identified clinics and 
durable medical equipment (DME) companies that engaged in health care 
fraud. Often, these companies closed abruptly to avoid detection from 
law enforcement, in the process abandoning bank accounts, often with 
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 millions, have not been located. Last month, we 
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 surge operation 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, HHS-OIG agents are reviewing real-time billing patterns. In 
the few weeks of operation, our 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.
CONCLUSION
    I hope my testimony has given you a comprehensive view of the 
Department's essential role in defending and protecting the financial 
integrity of 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 fund. The HCFAC 
program pays for itself multifold and helps ensure the safety and 
availability of medical services to all beneficiaries.

                                 

    Chairman STARK. Thank you, Mr. Acosta. I would like to 
recognize Chairman Lewis to inquire of our panel.
    Chairman LEWIS OF GEORGIA. Thank you very much, Chairman 
Stark.
    Let me thank each of you for your testimony.
    Mr. Inspector General, I am appalled by the level of abuse 
in the Medicare system. Could you tell Members of the Committee 
of what role do Medicare beneficiary play in detecting the 
abuse?
    Mr. LEVINSON. Medicare beneficiaries can play a very 
important part in uncovering abuse. Indeed, our Hotline is a 
very instrumental part of being able to detect patterns of 
abuse that occur in different parts of the country. Because of 
the nature of this national program and the fact that different 
forms of abuse can occur in different parts of the country, 
depending upon the demographics and the socioeconomic aspects 
of a particular part of the country, Hotline activity is a very 
key part of being able to uncover what is going on that might 
trigger the need for investigations either in southern 
California, in South Florida, as the United States Attorney has 
explained, and in other parts of the country. We certainly rely 
upon that as a very important vehicle, but that is only one of 
many tools.
    Chairman LEWIS OF GEORGIA. Do you have a system, any 
program to inform the people who benefit from Medicare about 
fraud? Is that something that Mr. Hill or other agencies get 
involved in? Do you send out a notice? How do you publicize? 
``Be on guard. Be alert.''
    Mr. HILL. There's a couple of ways that we can talk about 
that, sir. First and foremost is the requirement under the 
statute that we inform beneficiaries every year through a 
handbook of the benefits that are available to them. Now in 
this world of Part D, the choices that are available to them.
    A part of that handbook, and a significant part of that 
handbook, is a discussion of how to report fraud, how to look 
at the bills that they are getting, what they should be looking 
for to be sure that they are not being defrauded. So, the 
handbook is one element.
    It is also the case that for every service that a 
beneficiary gets, they get what we call a Medicare Summary 
Notice, basically a bill like a credit card statement of the 
previous quarter listing all the services that have been 
delivered on their behalf, what has been paid, what has not 
been paid, what the beneficiary owes. On that bill itself is 
the OIG hot line, the number to call the Medicare contractor if 
there are issues with the bill that they see. We encourage 
beneficiaries to review their bills because that, quite 
frankly, is one of the first places where we may see, or a 
beneficiary may see, that they did not get a service that we 
paid for. So, that is an ongoing exercise.
    Finally, the Department's Administration on Aging has a 
fairly robust program that they have used through the Area of 
Councils on Aging in all fifty States where they give grants to 
groups of senior citizens in the Area Councils on Aging to 
train beneficiaries to sort of go out and give lectures and 
training for beneficiaries about how to look at their bills, 
what to spot for in terms of fraud. So clearly for us the 
beneficiary is the first link, the first place that we can look 
to where we may spot problems.
    Chairman LEWIS OF GEORGIA. Thank you, Mr. Hill.
    Mr. LEVINSON. Mr. Lewis, it will be especially important 
going forward that beneficiary education be a very critical 
part of the Part D continued roll-out because of the 
complexities of the program and the newness of the program, it 
is going to be very, very important that beneficiaries 
understand how this complex program works. We on the IG side 
will be watching closely and reporting on issues that arise 
over the course of the next few years as Part D fully matures 
as to where there are issues concerning a lack, or a potential 
lack, of information that beneficiaries need in order to make 
educated choices.
    Chairman LEWIS OF GEORGIA. Thank you, Mr. Levinson.
    Mr. Acosta, do you think you need additional tools for 
enforcement? Is there something that the Congress should do?
    Mr. ACOSTA. Mr. Lewis, through our initiative, we are 
testing additional law enforcement methods and I think it is 
important to always look for better ways of prosecuting cases, 
of being more proactive and moving cases along. I think it is 
important that we do that.
    That said, I would like to take that question back to the 
Department to see if there are some statutes or changes that 
the Department think are necessary. From my perspective in 
South Florida, my focus is on doing more with what we have. 
That said, I do think it is important to--and I know that 
resources have been referenced previously--the HCFAC account 
for a number of years was statutorily frozen at 240 million.
    Chairman LEWIS OF GEORGIA. You said the HCFAC?
    Mr. ACOSTA. The HCFAC account, correct, for a number of 
years was statutorily frozen at 240 million. Of that, the 
Department of Justice litigating components received 49 
million. This past year Congress approved and the President 
signed a provision that permitted inflation adjustment to the 
account which is a good start.
    This year's budget asked for an additional $17 million and 
particularly with Medicare Part D forthcoming, I think it is 
critical that those resources be provided. We have a very large 
healthcare fraud caseload. As I said, in South Florida I have 
12 attorneys and I can afford that many because I supplement 
the HCFAC account with general funds. We have a very large 
caseload and that is before the anticipated caseload from 
Medicare Part D referrals as that program develops and goes 
forward. So I would put emphasis on fully funding the 
additional resources requested.
    Chairman LEWIS OF GEORGIA. Mr. Acosta, before my time 
expires, I just want to ask you about a case that took place 
last year. Your office obtained $15.4 million from a hospital 
to settle a case alleging that it performed medically 
unnecessary procedures which were painful and uncomfortable for 
a resident of an assisted living facility. The hospital also 
allegedly paid kick-back to a physician to refer a Medicare 
patient to the hospital.
    Mr. ACOSTA. The Larkin Hospital matter.
    Chairman LEWIS OF GEORGIA. I think when I first came here, 
Chairman Stark, you were dealing with the whole question of 
referrals and kick-back. I cannot believe that it is still 
going on 20-some years later.
    Could you tell me what percentage of your cases involve 
fraud and abuse by hospitals?
    Mr. ACOSTA. I can tell you a number of our civil cases 
involve fraud and abuse by hospitals. For example, this past 
November--I'm sorry. This past December we settled $2.2 million 
claim against Jackson Memorial Hospital. The previous month in 
November, we settled the $15.4 million claim against Larkin 
Hospital.
    In terms of the percentage of cases, the percentage of 
cases is small. We prosecuted 68 criminal cases out of the 350 
national cases, but I do not want to put too much emphasis on 
that percentage because I think it can be misleading because 
often the cases that concern hospitals are some of the most 
significant cases because they involved a number of 
individuals. So I think it is important to not just look at the 
number of cases but the size and the scope. The Larkin Hospital 
case, for example, involved a number of individuals who 
allegedly received unfair--I'm sorry--who allegedly received 
unnecessary medical treatment. In those types of cases where 
people or individuals are suffering I think, I think we have to 
give those a high priority. I think in addition to the size and 
the number of the cases, we need to look at harm to individuals 
and understand that just a handful that involve harm to 
individuals can sometimes be more significant than a number of 
cases that involve only money.
    If I could, I would like to add an additional point since 
you raised the Larkin Hospital case. I think it is also 
important to recognize that even where civil claims are made it 
is important to consider criminal matters. In cases like that, 
my office's policy is where criminal action is appropriate, 
too, to proceed and investigate criminally even after a civil 
matter has been resolved. So I just wanted to mention that to 
the Committee.
    Chairman LEWIS OF GEORGIA. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman STARK. Mr. Ramstad.
    Mr. RAMSTAD. Thank you, Mr. Chairman.
    Mr. Hill, as I'm sure you know, the Medicare Modernization 
Act transitioned the part A and part B payment carriers into 
larger Medicare administrative contractors to streamline the 
contracting process.
    I have two questions. Is the new contracting process 
working? Secondly, when the number of administrative 
contractors was reduced, did the number of improper payments to 
Medicare fee-for-service providers also go down?
    Mr. HILL. I think those are good questions. I think in 
terms of the transition to the Medicare Administrative 
Contractors (MAC), we are in the first phase of that so right 
now I believe four are up and running. So, we have 38 of the 
old contracts, 4 of the new ones and the 4 that we transitioned 
to first were durable medical equipment contractors who are the 
ones who process the durable medical equipment (DME) contracts. 
So, it is a little early to tell how much of an impact that 
they are going to have one way or another. I can tell you as a 
contracting matter that because we have the new authority, I 
can now hold the four contractors accountable for improper 
payments. The contracts are structured such that the payments 
or the incentives that the contractors get can be tied to, and 
in fact are tied to, their success at reducing the improper 
payments for the areas that they are processing claims for.
    They also now have more of an incentive to be innovative 
and cooperative with folks like in law enforcement and 
otherwise to sort of seek out folks who are improperly billing 
the program. So, the overall construct of having a competitive 
process under Federal Procurement Rules we believe is going to 
give us a much better tool to reduce improper payments.
    We are probably 6 months to a year away from having real 
results and having them on the contractors over time to see how 
well they are performing.
    Mr. RAMSTAD. Thank you for that response and I look forward 
to following that up when there is enough data to make a 
judgment.
    Mr. HILL. Absolutely.
    Mr. RAMSTAD. I would like to ask you a question, Inspector 
General Levinson if I could, please. I never cease to be amazed 
by the vernacular that is used around here in the Federal 
Government, but I saw a new one in the President's recent 
budget. He proposes in that budget to eliminate payments for 
never events in hospitals.
    Can you explain what in the world is a never event in 
Medicare and why is Medicare paying for events that never 
happened?
    Mr. LEVINSON. The reduction of accidents and mistakes, 
those things that occur in hospitals that should, ``never have 
occurred.'' Unfortunately, the expression used I do not think 
is especially revealing as to what the underlying issue is, but 
it is designed to presumably reduce the number of events--
mistakes, accidents--the kinds of things that one would expect 
never to occur in a hospital.
    Mr. RAMSTAD. I just wonder which creative mind down at the 
Office of Management and Budget (OMB) came up with that 
terminology. I appreciate the explanation. Also I want to ask 
you, Mr. Levinson, you mentioned in your testimony that for the 
3-year period between fiscal year 2004 and 2006 the average 
return on investment was nearly $13 for every dollar spent. I 
do not think you articulated this today, but it is in your 
written testimony.
    Mr. LEVINSON. Yes.
    Mr. RAMSTAD. On enforcement that is. What areas of fraud 
investigation by the IG produced a significant return on 
investment? Which areas were the most fruitful?
    Mr. LEVINSON. A very large part of those dollars in 
investigative receivables has to do with very large 
pharmaceutical cases concerning pricing and marketing. These 
are cases that by and large come out of the District of 
Massachusetts in Boston and the Eastern District of 
Pennsylvania in Philadelphia. These are very extensive national 
investigations that oftentimes can result in very significant 
multi, multi-million dollar settlements.
    Mr. RAMSTAD. If we could get that return on investment 
across the board, that is the Federal Government, for every 
dollar invested $13 return, we would be a lot better off. I 
appreciate your responses and your testimony. Thank you.
    I yield back.
    Chairman STARK. Thank you. I guess I would inquire--I want 
to thank the panel for taking the time to be with us and to 
enlighten us and in particular Inspector General Levinson who 
has been in touch with us from time to time on many issues. I 
appreciate his willingness to inform us and keep us up to speed 
on the activities of his office.
    In your testimony and prior to the introduction of the 
Thomas Memorial Stark Bill dealing with the end stage renal 
disease (ESRD) and dialysis payments, 10 years ago your 
predecessor recommended that reducing erythropoietin (EPO) 
reimbursements to more closely to resemble cost would save us 
$100 million a year, but since then Government Accountability 
Office (GAO) and the Medicare Payment Advisory Commission 
(MEDPAC) have both urged us to bundle in the drugs that are now 
separately billed.
    We think that would have two effects. It would probably cut 
down on over-prescribing which we have found causes some health 
problems, but it also would save us a good bit of money. Have 
you had a chance, Mr. Levinson, to study this and would you 
recommend to us that the bundling the separately billed drugs 
would be a better way or not as good a way as cost 
reimbursement?
    Mr. LEVINSON. Chairman Stark, we support the concept of 
developing a new comprehensive composite rate for ESRD 
services. The rate needs to be based on accurate cost 
information and medically justifiable usage of present 
separately billable services such as lab tests and drugs like 
EPO.
    With such a new rate, we would hope that greater savings to 
the Medicare Program would be realized, but at this point we 
have not made a specific recommendation on a composite rate.
    Chairman STARK. Thank you.
    Mr. Hill, you have mentioned in your testimony provider-
specific investigations. I also just parenthetically and very 
quickly how soon can we expect your plan for Part C error 
rates? Will we see that in the next few months or will it be 
longer?
    Mr. HILL. For the Part C error rate, we are as part of the 
President's management agenda and our compliance with the IPIA 
clearly we are required under--the Improper Payments 
Information Act of 2003 which requires us to do----
    Chairman STARK. When do you think we will see that? I only 
think of that. Will it be a year or six months?
    Mr. HILL. Oh, no, no. I think this fall we will be able to 
sort of come up and talk to you about----
    Chairman STARK. That is something that we will have some 
interest on other matters, but I just wondered.
    Mr. HILL. Right.
    Chairman STARK. In the provider-specific areas, you do not 
question the medical judgment of the providers. Do you? I mean 
do you make judgments to say, ``Gee, they should have removed 
his lung instead of his heart.''
    Or do you just look at the action taken and make a 
determination as to whether it is fairly paid?
    Mr. HILL. There are three levels of the review I think. 
First, you have got to make sure that the service is actually 
covered by Medicare. We do not pay for eye glasses and various 
other things.
    Chairman STARK. Right.
    Mr. HILL. Then the payment, is it the right payment amount, 
but finally there is a reasonable and necessary determination. 
We do make a determination in a gross sense as to whether or 
not that beneficiary needed that care.
    Chairman STARK. With medical advice?
    Mr. HILL. Correct.
    Chairman STARK. Okay.
    Mr. HILL. The physicians make these judgments of the 
carriers and we try very hard not to get into sort of gray 
areas in terms of where a physician's judgment should not be 
impinged upon, but there are certain instances where you can 
make a real clear cut case. Chairman Lewis was talking about 
patient issues. You can look at therapy services that are 
provided by a facility where you have got 10 hours----
    Chairman STARK. Do you think that you now have the data and 
the personnel to make quality judgments for providers?
    Mr. HILL. I think the quality issue is a challenge that we 
are going to need to face. As you know, the tax bill, recently 
enacted tax bill, has provided us some movement forward in 
terms of----
    Chairman STARK, but my question is do you think there is 
enough data there now to do that or would we--will we need to 
see that you are provided with a broader database and more 
information?
    Mr. HILL. I think the data that we would need to do real 
quality determinations comes from a patient health record more 
than just the claims data that we have and we are not quite 
there yet.
    Chairman STARK. Mr. Acosta, you mentioned $175 million that 
an institution owes us. I would remind you that this has been 
going on. I can remember and I do not mean to prejudice 
anybody, but Stanford overbilled us some five or 10 years back, 
the hospital in Pennsylvania I remember was on the hook for 9 
million. These were teaching institutions. You would call them 
centers of excellence.
    I do not know whether Hopkins ever did it, but I mean there 
have been some prestigious public institutions that have helped 
themselves to perhaps more Medicare reimbursement than they 
were entitled to.
    So, you have an institution or a provider, your are talking 
hundreds of millions. I again without being facetious, we have 
seen colleagues of ours go to jail on the Abscam traps and for 
a couple of hundred bucks worth of postage and for some big 
gifts or a golf trip. They will go and do 9 months hard time.
    Do you think that there are areas in which we should by 
legislation change the penalties? I have always felt that the 
chief executive--I look at the Abu Ghraib cases. We put away a 
lot of sergeants and second lieutenants, but the colonels and 
the generals never got touched.
    If, in fact, you were to prosecute on a criminal basis some 
of the CEOs of the institutions who walked away whether they 
are private, for profit or non-profit, that might have a very 
meritorious effect throughout the industry.
    My sense is they pay the fine and it is insignificant to 
the individuals who are responsible for the bad behavior. I 
guess my bottom line is would you consider suggesting to us 
areas in which we might stiffen the penalty as it were that 
would aid you in your work?
    Mr. ACOSTA. Chairman Stark, I think you raise a very 
important issue and one that needs a fair amount of 
consideration. Before this hearing I was speaking with one of 
my colleagues concerning an ongoing operation, actually the 
operation I mentioned earlier where we seized the funds in 
these bank accounts. We identified these 60 bank accounts for--
--
    Chairman STARK. Thirty million or so you said, yes.
    Mr. ACOSTA. Forty million total is what we are seeking. We 
have already collected ten million of those. What I was telling 
one of my colleagues is we have done this civilly. the next 
step we need to do is we need to pursue these individuals 
criminally because far too often individuals will look at that, 
at a civil fine, as the cost of doing business. I was actually 
mentioning it to one of my colleagues on this panel right 
before the hearing and that is exactly what we are doing in 
those civil cases. I mentioned when I rolled it out at the 
press conference it was important to pursue a criminal action 
where appropriate as well so that it is not the cost of doing 
business.
    That said, I think one of the challenges that needs to be 
recognized--there are two parts, two challenges that I think 
need to be recognized. One is in terms of case law and I do not 
agree and the Department does not necessarily agree with some 
of the case law, but there is case law out there that 
especially in areas that are as complex as Medicare or Medicaid 
where we are prosecuting something criminally the Government 
bears the burden of proving beyond a reasonable doubt that a 
defendant's statement is not true under a reasonable 
interpretation of law. In other words, it is not only that the 
defendant made a false statement from a civil perspective, but 
that it went beyond--we have this complex scheme and that under 
a reasonable view of that scheme they were still acting 
criminally. So that, that is one challenge that we face.
    The second point----
    Chairman STARK. We need somebody to replace Fitzgerald so I 
figure you can put somebody away for those statements.
    Mr. ACOSTA. As I said, we have some case law. We do not 
agree with the case law. That is not the Department's position, 
but it does require that we find levels of proof sufficient to 
bring criminal charges.
    The second comment that I would make in answer to your 
question is I think and I will change this into, if I could 
with your permission, into the banking area where we have been 
very aggressive in bank fraud. We recently obtained a 30-year 
sentence on a bank fraud case.
    In part the reason that we had a 30-year sentence is in the 
post-Enron world, the penalties that we are obtaining in the 
bank fraud area are quite substantial. I can tell you that in 
my district putting someone away for 30 years for making 
inaccurate statements on a balance sheet has certainly sent 
quite a signal.
    Chairman STARK. I would just repeat. I am sure that my 
colleagues would appreciate any suggestions that you would make 
to us as to areas in which that it would include historic laws, 
we should change the penalties or the standards for 
establishing what--the bright line I guess as you would call 
it--to help in your work because we are not the Judiciary 
Committee, but I suspect we do have the legislative authority 
to change penalties and would appreciate any suggestions that 
you could make to us along that line.
    Mr. ACOSTA. I will confirm it with my colleagues. I think 
you raise a very important point in which you are correct.
    Chairman STARK. Thank you.
    Mr. Hulshof.
    Mr. HULSHOF. Thank you, Mr. Chairman.
    Chairman STARK. You were a prosecutor, were you not?
    Mr. HULSHOF. Yes, sir, I was.
    Chairman STARK. We will let him write it.
    Mr. HULSHOF. In fact, as Mr. Acosta was talking about, 
being in a courtroom and being the sole white hat wearer and 
looking across the courtroom at ten attorneys, I had a 
flashback.
    Let me follow up on this then, Mr. Chairman. I appreciate 
that.
    As far as criminal penalties, is that an area that you 
say--because that is not what I heard you say, but perhaps you 
are suggesting. Do we need to beef up the criminal Mr. Acosta?
    Mr. ACOSTA. Congressman, the general criminal penalties 
that we use in the healthcare fraud area are the fraud 
penalties. I would take the question back to the Department to 
get the input from my colleagues before making a specific 
proposal.
    I do think and I will say that in the banking area, we have 
been very aggressive pursuing CEOs and executives. When you get 
a 30-year conviction that does get other CEOs' attention.
    Mr. HULSHOF. Along that, I would say let's just follow line 
for a bit. In those banking cases and again I was never good 
enough to be a Federal prosecutor. I was just toiling in the 
courtrooms in the State of Missouri. You are not talking about 
changing the burden of proof on the Government. The Government 
would always continue to have the burden of proof. I presume 
you are not suggesting anything about the standard of guilt 
being beyond a reasonable doubt. You are shaking your head no.
    As we all know, getting a civil judgment where the standard 
of proof is less as opposed to a criminal judgment is also--I 
mean there is a reason to have that dichotomy. I am not 
conversant with the case law you say specifically but--and I 
know you are speaking for yourself and not for those above you 
necessarily, but are you saying that this reasonable person 
standard on statements? Like if a statement were made that that 
is something that we might be able to change legislatively?
    Mr. ACOSTA. Congressman, what I am referring to is in the 
large civil cases where you have a lot--where you have many 
individuals involved in setting pricing, where you have a 
number of participants, it is exceedingly difficult to find a 
particular individual--because it is not a false statement's 
case.
    Mr. HULSHOF. Right.
    Mr. ACOSTA. It has to do with to find an individual whose 
intent to defraud went beyond a reasonable interpretation of an 
administrative scheme to a criminal level. You have as one of 
your colleagues referenced, a scheme that some say is more 
complex than the Tax Code and so it is not just enough to show 
that a mistake was made.
    Mr. HULSHOF. Right.
    Mr. ACOSTA. You have to show much more than that. What I am 
suggesting is that that level and some of the judicial 
interpretations--not the underlying burdens of proof, but some 
of the judicial interpretations do raise a challenge.
    Mr. HULSHOF. Okay. I will let you get off the hot seat so 
you are not criticizing those Federal judges. Just a couple of 
more generic comments. Here is a curiosity. You all have been 
great to talk about where providers had overcharged. Has the 
reverse ever happened? That actually you have seen under 
charging by providers?
    Mr. Hill, you are nodding.
    Mr. HILL. This is a question we get a lot and I think it is 
a fair question because providers fairly can ask, ``Well, if I 
make a mistake, will you give me the money back?`` In all the 
activities, at least on the administrative side, that we 
undergo we do an improper payment measurement. That is where we 
get the error rates. That error rate is a net rate. 
Underpayments and overpayments. Where we have underpaid, 
providers are given that.
    I also talked about the recovery audit contractors. The 
Congressional intent there was very clear. It is for 
overpayments and underpayments.
    Mr. HULSHOF. Okay.
    Mr. HILL. While it is a small percentage, there are those 
cases where folks have been underpaid.
    Mr. HULSHOF. My time is very short and I want to be 
respectful of the Chairman and the time limits. I will do this 
very quickly.
    I hear a lot about complexity. So I presented myself to a 
local hospital. They gave me a medical chart that I was a 70-
year-old man with a certain medical condition and we went 
through triage and I was to report. The point of the exercise 
was because I failed to mention one detail during my admission 
that they were wrong. The hospital was wrong. The whole point 
being that sometimes they act in the best interests and yet 
through no fault of their own, there is this, this error.
    Is the complexity something, Mr. Hill, that you can do this 
if you need in writing, but I mean is this something that we 
should focus on? Or is this more your purview and your 
bailiwick to try to help eliminate some of that complexity?
    Mr. HILL. I think the answer to the question is sort of 
both. Right? I mean we have an obligation, providers are 
serving our beneficiaries. It is a complex program. At the same 
time, as we are carrying out our duties, we have an obligation 
to the trust funds. At the same time, we look at a record. We 
need to apply some level of clinical judgment as to whether it 
was just, ``Oh, gee, I made a mistake. I forgot to check off 
that box.'' There is a reasonable basis to make that judgment 
versus where it is just clear out-and-out ``You were over-
billing us.'' We try very hard to make those distinctions.
    I am not going to sit here and tell you we always get it 
right, but it is clearly something we try and get right on an 
ongoing basis.
    As to the complexity of the statute and the underlying, we 
can always make it less complex I suppose but we do have an 
obligation on an ongoing basis to make it easier for the 
physicians caring for beneficiaries.
    Mr. HULSHOF. I thank the panel. I thank the Chair.
    Chairman STARK. Ms. Tubbs Jones is not here. Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Inspector General, I had a question for you. There is 
approximately 1500 employees that you have right now as I 
understand your testimony. Is that correct?
    Mr. LEVINSON. That is correct.
    Mr. PASCRELL. How many did you have 4 years ago?
    Mr. LEVINSON. Well, I was not in the office 4 years ago, 
but I would estimate that it would have been around 1400 to 
1450 over the last 3 years.
    Mr. PASCRELL. 1400.
    Mr. LEVINSON. There was a reduction. Historically, there 
had been close to 1500. I think for several years we dipped 
below that. For the last couple of years, through the great 
help in large part of this Committee, there has been a 
restoration to numbers that I think historically have been 
around 1500.
    Mr. PASCRELL. When you are investigating a $413 billion 
program which it was in 2006, I do not know how you do with 
your auditors and your inspectors, if that is adequate 
particularly in terms of what the return is of that 
investigation. It would seem to me that we are not doing 
enough, not nearly enough to reduce fraud.
    My second question is to the gentleman from Florida, the 
U.S. Attorney Mr. Acosta. Who have you found to be the biggest 
culprits in your investigations? Would you define it as 
specifically as possible?
    Mr. ACOSTA. Congressman, the most--South Florida has a 
particular problem with what I will call fly-by-night 
operations. They are operations that open up, often using false 
identification under assumed names, operate for three to 6 
months. The billings spike. They then shut down and move on.
    Mr. PASCRELL. Who are these people that open up these 
facilities?
    Mr. ACOSTA. Individual--I am sorry. I do not understand the 
Congressman's question.
    Mr. PASCRELL. What is the source? In other words, the 
biggest source is not the patient. The biggest source--or the 
recipient--the biggest source is somebody who is doing the 
business at hand.
    Mr. ACOSTA. Absolutely.
    Mr. PASCRELL. Tell me about them. Who are they?
    Mr. ACOSTA. I would not call them providers. Criminals. An 
individual who is a downright fraudster who will decide ``I 
want to make a little bit of money criminally and so I will go 
out there. I will use a false ID to open up and get a provider 
number and open up what I call to be a durable medical 
equipment company.''
    For example, one case that we had where an individual 
started throwing wheelchair parties, inviting people----
    Mr. PASCRELL. Wheelchair parties?
    Mr. ACOSTA. Wheelchair parties. Inviting people over to get 
their identifying information so that he could then bill the 
same wheelchair over and over and over again to the tune of 
several million dollars when in fact he never provided these 
individuals a wheelchair.
    He would literally invite people over to show them the 
wheelchair. In the process he would get their Social Security 
Number, their information. He would then bill out. They start, 
they operate, they shut down.
    One of the reasons that we started the fusion operation 
that I referenced in my opening is because these operations are 
fly by-night fraudsters who shut down, it is exceedingly 
difficult to use the traditional law enforcement model of a 
historical case, because a year from now they are long gone. 
The money is long gone. That is why the fusion center that 
started this past month that focuses on catches them in the 
act, a critical part of which is obtaining the near real time 
billing information is so important, because that way we can 
find them before they shut down and move on.
    Mr. PASCRELL. But is it not true that DME providers need 
nothing more as I understand it than a provider number and an 
address to bill Medicare?
    Mr. ACOSTA. Congressman, the frustration and the reason 
they are able to do this is because they do need an ID provider 
number and an address. That is exactly right.
    Mr. PASCRELL. Well, what are we doing about that?
    Mr. ACOSTA. Well, in the Southern District we prosecuted 68 
cases last year.
    Mr. PASCRELL. Sixty-eight?
    Mr. ACOSTA. Sixty-eight cases which compared to a national 
level is actually quite high. We have $981,000. We have a dozen 
individuals that used that money to pursue these. They do a 
very good job at going after these, but I will tell you, sir, 
it is a problem. It is a substantial problem and anything that 
we can do to further fight it I would welcome.
    Mr. PASCRELL. What is the punishment on the books if you 
get one of these DME providers who obtained a provider number 
and an address to bill Medicare. This seems to be widespread. 
This is not something isolated in Florida, that's for sure, but 
what do you do? What happens? How do you prosecute them?
    You said you prosecuted over 60 cases. Let's say people are 
found guilty of doing these things. Does the punishment fit the 
crime? Is this enough to be a detriment to those who want to 
get into this shady business and taking advantage of Medicare 
dollars?
    Mr. ACOSTA. Congressman, first, with respect to the 
punishment, the punishment would be a function of the amount of 
the fraud. So it would be referenced in the Federal Sentencing 
Guidelines. In the wheelchair case, for example, under the 
Federal Sentencing Guidelines, the punishment would range 
between three and I believe seven years. I am basing this on 
memory and so that is an approximate, but that is the 
punishment under the Federal Sentencing Guidelines. Those are 
the guidelines that are given to us that judges abide by.
    So when we prosecute a case, that is realistically the 
upside in terms or the top in terms of what we can obtain as a 
punishment. That references Mr. Stark's question I believe 
earlier where I alluded to, for example, the banking fraud 
area.
    Let me, if I could, also throw out an idea and a 
suggestion. This is one that we have been in talks with HHS 
about, because I do believe that prosecution is an important 
tool, but as in the case with credit card fraud prosecution has 
to come only after prevention.
    Credit card companies learned long ago that it is much 
better to have a strong prevention program that reviews billing 
statements. We have all gotten those calls from credit card 
companies.
    One discussion that we had with HHS is a bonding 
requirement in areas of particularly high levels of fraud. The 
advantage that that would have is it would in essence 
duplicate, triplicate our resources because the bonding company 
would become an additional investigative agent. They would be 
on the hook. Particularly where you have small fly by-night 
operations that are operating in the one to five million dollar 
range having a high bond level is something that I think is 
worth considering.
    We have been in discussions with HHS about that and I just 
propose that to the Committee as something that might merit 
further conversations.
    Mr. PASCRELL. If you want to go into business and let's say 
many HMOs in many States I sure as in Florida, we have 
increased the bonding, not the Federal Government, there is an 
increase in the bonding so that there is a risk here if you 
want to try to shaft people out there.
    There does not seem to be a risk involved and I am not so 
sure--maybe you can--I have overstayed my welcome here, but I 
am not so sure we have a sense of urgency about how much money 
is involved in fraud that your auditors and investigators are 
looking.
    I would tend to think that this is very vast. It is a shock 
to find out the kinds of practices and the amount of dollars 
that are being lost into the system. Medicare faces a greater 
danger than the Social Security in the trust fund. If we do not 
do something materially and have a sense of urgency I do not 
know how we are going to really catch up.
    Thank you, Mr. Chairman, I appreciate it.
    Chairman STARK. Okay. Mr. Tiberi has waited patiently and I 
am happy to recognize him at this point.
    Mr. TIBERI. Thank you, Mr. Chairman.
    Kind of following up on Mr. Pascrell's questioning on the 
durable medical goods, Mr. Acosta, you have mentioned it 
already regarding what you have done in Miami, Florida.
    Clearly reports have shown that the entities that you have 
prosecuted were not legitimate DME providers and they did not 
have legitimate provider numbers under current law.
    The question is how in the world were they able to receive 
numbers and how can we prevent that from happening in the 
future?
    Mr. ACOSTA. I will answer briefly and then with your 
permission I will defer to my colleagues. First, let me do say 
that there is a great sense of urgency on this. I think it is 
critical. Our prosecution numbers in Miami are up 30 percent. 
We receive from the HCFAC $981,000 and with that our 
prosecutions last year accounted for I believe $137 million 
give or take in fraud. So I do want the Committee to be aware 
of that because the resources are an important matter.
    With respect to provider numbers I will say that this is 
often closely tied to identity theft where both the individual 
seeking provider numbers as well as physician numbers that are 
used belong to actual individuals but identities are sometimes 
stolen. Beyond that I would defer to CMS. The CMS is the one 
that provides the numbers and so they are in a better position 
to answer.
    Mr. HILL. On the DME number--I mean clearly the sense of 
urgency is acute. There are two issues for us here. The first 
is that in fact, and this is a sort of mark on our process if 
you will, in many cases suppliers do have a legitimate supplier 
number. They have got in the system and they have got a number.
    The fact of the matter is they are able and are more nimble 
to stay one step ahead of us. When we do the site visit, they 
have got a building and they have got a plaque on the wall that 
says they are there and there is inventory and we do all the 
things and they have filled out the paperwork and they look 
like a legitimate business. Then when they begin to bill, it is 
clear that they are not. At one level the resources that we can 
make available to do the review and to do the on-sites 
sometimes just cannot keep up.
    Having said that, we are moving forward through the 
Medicare Modernization Act to require now this year sort of 
along the lines of the surety bonds a requirement for 
accreditation which is another level of review for the 
suppliers. So, not just CMS but an outside entity will come in, 
do unannounced site visits, there will be requirements for the 
DME suppliers that they will have to meet to be able to get 
accredited and then get numbers. So, again, it is more eyes 
looking at the entity to be sure that in fact they are meeting 
the requirements that are set out in the statute.
    Mr. TIBERI. Thank you.
    Mr. Levinson, do you have a comment on that?
    Mr. LEVINSON. Yes. We are also looking at DME providers' 
compliance with CMS standards so that CMS has a more 
comprehensive picture of providers who are not paying attention 
to the minimum standards that CMS does impose upon them such as 
properly obtaining the provider number and being eligible to 
participate in the program. We are involved in that work as we 
speak.
    Mr. TIBERI. Thank you.
    Mr. Hill, one other question that I would categorize under 
the term ``waste'' and not fraud. My aunt a couple of weeks ago 
had knee replacement surgery in a Columbus, Ohio, hospital. 
After she was recovering in the hospital, she was given a 
choice to either go home and have a shot at home that would 
cost $50 a day out of pocket and she is a Medicare Part D 
recipient as well or she could go to a nursing home and have 
that shot and she didn't have to pay anything.
    Now, obviously somebody is paying something and a lot more 
at a nursing home for 14 days than her being home for 14 days. 
I have heard this is a problem that is not just my aunt that 
this is pretty widespread. Can you comment on that?
    Mr. HILL. The issue here gets somewhat to Chairman Stark's 
question in terms of judgment, clinical judgment as to what 
should happen. Not knowing your aunt, not knowing the 
situation, typically to be discharged to a nursing home--I am 
not a physician, so I will get this wrong--you have got to be 
sick enough to be in a nursing home. You cannot go to a nursing 
home just to get a shot. So clearly there are incentives to get 
somebody into a nursing home because you are going to get 
reimbursed more in the nursing home.
    As we look at payment errors and as we look at areas where 
we need to refine our policies, one is the policy area of what 
we characterize as the site of service differential, the fact 
that you get paid more to do the same thing more in one site 
than another site, is an issue that we need to deal with.
    There is a proposal in the President's budget that does not 
quite get to the issue you are describe here but it is clearly 
one that we have to get to where there are incentives for 
delivering care in more expensive places just for the purposes 
of getting the expense not because the patient may not have 
necessarily needed it.
    Mr. TIBERI. I hope you look at that because there is a lot 
of money to be saved there.
    Mr. HILL. Absolutely.
    Mr. TIBERI. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. Thank you.
    Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman. May I say from the 
outset, Mr. Chairman, that I hope that we will do more of these 
hearings because as we talk about how we take care of things 
like the SGR and other issues that we have to come up with in 
terms of savings, I think probably the best way to go is to try 
to figure out where the abuse is so we do not have to go after 
those good providers who are paying the price for our need to 
have savings. I hope will continue to do more of these hearings 
so that we are able to target our efforts to try to make 
appropriate savings where possible within the healthcare field 
and certainly within Medicare.
    I want to thank the three of you for your testimony. If I 
can just try to clarify something. Mr. Levinson, I think there 
is general agreement--and please tell me if there is not--but 
there is general agreement that every dollar that you have been 
able to use to investigate any waste, fraud or abuse has 
translated into more than a dollar's worth of savings to the 
Medicare or certainly our healthcare programs to date.
    Mr. LEVINSON. That is correct. It has varied over the last 
few years from $11 to as much as $18 in terms of the return on 
investment (ROI).
    Mr. BECERRA. That type of return anyone on Wall Street 
would die to have. Let me ask you this. How much more money, 
how much more in resources could you efficiently handle before 
you say, ``Wait a minute. There is enough room to do the work, 
but I cannot staff up quick enough and I cannot given my 
limitations in size and space deal with more than x-amount.''
    What could you use without us coming back and having a 
hearing and saying we hear that we gave you money for 100 new 
investigators but you only got 50 and you still spent the money 
for 100?
    Mr. LEVINSON. Well, first let me again thank the Committee 
for the support it has given OIG over these last several years 
in getting us----
    Mr. BECERRA. Do me a favor. Cut to chase because we want to 
support you. Give me a sense of--the 5 minutes that I have, I 
want to ask other questions. Give us something that we can work 
with that is on the record. How can we help you realistically? 
We are not going to give you as much as you in the future can 
use, but maybe we can give you something now that you know you 
can make use of today?
    Mr. LEVINSON. I very much appreciate that. One of the great 
benefits of having the three organizations here represented at 
the table is that it underscores for the full Committee, for 
the full two Subcommittees, the understanding that this is a 
process in which every one of us has an important but related 
part.
    I run no program. Mr. Hill is involved in running the 
program.
    Mr. BECERRA. What could your shop use?
    Mr. LEVINSON. No matter how much money I might have if Mr. 
Acosta does not have resources----
    Mr. BECERRA. I will ask Mr. Acosta and Mr. Hill in a 
second. You tell me what your shop can use.
    Mr. LEVINSON. We are quite, I think, effectively 
integrating the new money that was most recently provided for 
our office. For better or for worse, I cannot give you a 
specific dollar figure this morning about how much more money 
we can ingest and state with assurance any particular result 
that we could accomplish without detailed analysis.
    Mr. BECERRA. That is fair. Let's do this. Let's stay in 
communication. I think, Mr. Chairman, we are going to continue 
to do that.
    I hope what you will do is you will look discretely at your 
various programs and you will tell us earnestly and to the 
degree that you can realistically how we could make a great 
investment of the taxpayer dollar in your shop and know that we 
are going to get that 11 or 18fold return on that investment. 
Again, you are not going to double the size of your operation. 
We know that, but there are things that you know and if we knew 
that you could do that we would try to help you do because it 
just helps us.
    We are going to be talking about how we cut programs within 
Medicare to save money. We are going to do it with a meat axe. 
We are going to try to be more surgical, but some of it is 
going to hit good providers and what you do is you go after 
those providers that are not doing that good. So, I would 
rather see us put a dollar in getting you more to return more 
than us going after providers simply because we could not find 
a better approach to tailor our need for savings.
    Mr. HILL. I understand.
    Mr. BECERRA. Let me ask a question that relates to the 
quality----
    Chairman STARK. Before you do, could the record just show 
at this that the staff behind Mr. Levinson have been holding up 
five fingers, eight fingers suggesting that that would be the 
percentage of raises that they feel they are entitled to. I 
thought that ought to just be part of the record.
    Mr. LEVINSON. As I said previously, I think the fact that 
you are holding this hearing has given all 1500 of us a little 
bit more power, a little bit more effectiveness in being able 
to accomplish the job. So, the hearing itself accomplishes a 
great deal on our behalf.
    Mr. BECERRA. I do not think any one of us here is looking 
to go after--this is not a witch hunt to try to go after a 
particular provider or go after particular government agencies 
saying, ``You are not doing enough.''
    We know that if we do this work right, the good providers 
will be able to take care of themselves and there may be some 
who are innocently doing things that they should not. If we 
just have someone just overseeing them saying, ``You know you 
are stepping out of bounds a bit.'' They would get right back 
in there, but there are some that are not. So, let's figure out 
where we go.
    Mr. Chairman, if I could just ask one last question.
    Chairman STARK. Go ahead. I stepped on your time.
    Mr. BECERRA. Thank you.
    Quality improvement organizations. The CMS, Mr. Hill, 
contracts with these quality improvement organizations to 
conduct these in-patient utilization reviews at hospitals and 
to try to determine if care is being provided appropriately.
    You are aware I am assuming of this Institute of Medicine 
(IOM) Report that said that we have to wonder if we are 
actually getting the best out of these organizations because 
they end up developing a very strong relationship, cozy 
relationship with the providers.
    It is not unlike the situation you see in cities when the 
building inspectors become very familiar with a lot of the 
developers in the area and the developers become friends of 
these building inspectors and it sometimes occurs that the 
building inspectors do not do right by the people because they 
have developed a friendship with the developers and the 
developers get away with some things.
    Tell me how you are responding to the IOM's recommendations 
with regard to the quality improvement organizations to make 
sure that we really are getting quality and appropriate care.
    Mr. HILL. Absolutely. I think--I do not think, I know that 
the quality improvement, not necessarily through the Quality 
Improvement Office (QIO), but quality improvement is a key 
priority for the Administration for Secretary Levinson--pardon 
me, Secretary Levitt.
    I did not mean to promote you there.
    The IOM report really gives us a good view into what is 
going on with the QIOs. Some of it is stuff that we were sort 
of aware of and sort of understanding. As you may or may not 
know, the way that they are funded and the way that we contract 
is on a 3-year cycle. We are at the end of the previous 3-year 
cycle and so we are going through a process now of looking at 
the recommendations and looking at what changes we can make to 
the structure of the QIOs, to the relationships that they have 
with the providers and the things that we ask them to do. Sort 
of what are the right things for them to be doing in the way 
our contracts are structured with them.
    So hopefully as we work our way through the fall we will be 
ready to sort of come up and talk in a very robust way about 
exactly how it is we are going to proceed with what we 
characterize----
    Chairman STARK. Would you yield at this point?
    Mr. BECERRA. Yes, Mr. Chairman.
    Chairman STARK. I thank the gentleman for yielding.
    A further point, Mr. Hill, though. You cannot do that with 
the Joint Commission on Accreditation of Healthcare 
Organizations (JCAHO) now can you because you do not contract 
with them?
    Mr. HILL. Correct.
    Chairman STARK. Would there be any reason that you 
shouldn't contract with JCAHO which would then give you the 
authority to say, ``Look. Let us review what you are doing.'' 
We have had several examples of their overlooking tragic 
errors.
    Mr. HILL. Right.
    Chairman STARK. I am going to meet in a little while with 
Senator Grassley and he and I both have felt that--and I would 
ask Mr. Levinson and Mr. Hill, is there any good reason that 
you can think of that you ought not to contract with JCAHO as 
you do the other quality agencies?
    Mr. HILL. I think that the JCAHO is, they are an 
organization that sort of attests that they meet our standards, 
so I am not quite sure it is a contract issue. There is a lot 
to discuss there.
    I think I am beginning to get out of the bounds of my----
    Chairman STARK. I am just wondering, to Mr. Levinson, there 
is no real reason that if you had a contract with them other 
than you allow them to deem hospitals, but you really--and we 
do not therefore really have any oversight. They just operate 
out there with absolutely no one reviewing their results and 
there have been instances where they have overlooked some 
things that are pretty serious.
    Mr. BECERRA. Mr. Chairman, if we could--I am sorry, Mr. 
Levinson. Go right ahead.
    Mr. LEVINSON. I just wanted to add, Chairman Stark, that we 
do not have any--we have not done any recent work with JCAHO 
but we do have QIO work in progress which we hope to share with 
you relatively soon.
    Chairman STARK. Thank you.
    Mr. BECERRA. Mr. Chairman, could I suggest in that regard?
    Mr. Hill, when are these QIO contracts going to be out 
again? Is it this fall?
    Mr. HILL. The fiscal year 2008, during the fiscal year 2008 
process.
    Mr. BECERRA. So, Mr. Chairman, it sees appropriate for us 
to be in touch right now with CMS before you go forward and 
start to let out these new contracts that we talk to you about 
what revisions you are making to the process to ensure that 
quality will be part of that requirement.
    Mr. HILL. Absolutely.
    Mr. BECERRA. Mr. Chairman, I know that we have votes in, 
but I see no more Members. Could I be indulged?
    Chairman STARK. Go right ahead.
    Mr. BECERRA. Thank you.
    Mr. Acosta, a question for you. We know that you get 
thousands of cases referred to you of reported Medicare fraud 
and abuse. I know that you do not have the capacity to deal 
with each and every one of those cases and many of those cases 
probably do not pan out to be more than just some complaint 
that is not legitimate, but obviously there are many of those 
that are.
    Give me a sense of the numbers. How many come to your 
office? How many do you investigate? How many do you prosecute? 
How many do you get a verdict or conviction or if it is a civil 
action some type of award or damage?
    Mr. ACOSTA. Thank you. Thank you for the question, 
Congressman Becerra. If I could, I am going to tie that into 
the question you brought to Mr. Levinson earlier about 
resources.
    We receive $981,000 from the HCFAC account as I said 
previously. I match that with my own general funds to the tune 
of approximately $2 million. That allows me to fund about 12 
attorney positions within my office. With that, last year, our 
criminal filings were up 30 percent to 68 cases, up from about 
50 the year before. The conviction ate is about 97 percent.
    Mr. BECERRA. Wow.
    Mr. ACOSTA. In addition to that we brought a number of 
civil cases. This fiscal year alone, our civil recoveries 
included the $15 million recovery from Larkin Hospital that 
Chairman Lewis referenced earlier.
    Mr. BECERRA. That is just one recovery.
    Mr. ACOSTA. That is just one recovery. The $2.2 million 
from Jackson Memorial Hospital, a teaching hospital, as Mr. 
Lewis referenced earlier. The $10 million that has been 
returned to the Federal treasury----
    Mr. BECERRA. Stop. Stop. You have already told me with one 
case you paid for your 12 attorneys that you have.
    Mr. ACOSTA. That is correct, Congressman.
    Mr. BECERRA. Stop. Stop. Stop.
    So, what could you efficiently ingest?
    Mr. ACOSTA. Well, this past year we requested and did not 
receive $11 million overall budget increase. The budget 
increase requested for this year is $17 million, part of which 
my office would receive.
    In addition, I have several--I have special Assistant 
United States Attorneys that are on loan to me from the State 
Attorney General's Office to prosecute more cases. We are 
willing to work with you to suggest a number. I am not in a 
position to suggest a number nationwide, but I think our point 
that our folks work very hard and more than pay for themselves 
is quite obvious.
    Mr. BECERRA. You have been gracious in providing us the 
information because everyone has constraints on the type of 
information and how it can be used that we can discuss. I 
appreciate that.
    Mr. Chairman, I think it is obvious that if you have a 97 
percent conviction rate, if you have got awards that single-
handedly pay for the 12 attorneys for the next 5 years, you are 
doing something that we should be trying to concentrate on 
more.
    Again, you are not convicting--the 97 percent conviction 
rate is not of those providers that are doing what we ask them 
to do under Medicare, it is folks that are not. Mr. Chairman, I 
hope that we take this and, as I said, I hope we continue to 
have follow-up conversations both publicly, formally and 
informally so we could figure out how we could concentrate some 
of our moneys because I know we are going to come here in about 
4 months and we are going to be agonized by what we have to do 
in Medicare to providers, many of whom are not in that 
percentage of those who you are trying to convict.
    I think you, Mr. Chairman, for yielding and I think the 
gentlemen for all their information and good testimony.
    Chairman STARK. Thank you, Mr. Becerra.
    I would just emphasize that the making public all of the 
tools which would come under at least the observation of 
Inspector General Levinson I think would have a meritorious 
effect on all providers.
    In other words, this is not like over-deducting your meals 
and figure you will never get audited by the IRS. These guys 
are looking and saying, ``Wait a minute. You know 97 out of 100 
people are getting caught.'' That is a whole different issue 
and I think is worth publicizing to some extent. It could very 
well be that you issue a report beyond The Red Book that might 
be a little be more oriented toward the average public and I 
think it would help.
    I think it would help Mr. Acosta and Mr. Hill's efforts. I 
want to thank Chairman Lewis for urging us to proceed on this 
matter today and to thank all of you for your help and your 
continued work for, principally for the beneficiaries but also 
for the taxpayers and all of the people involved in the 
Medicare system.
    You are to be commended and thank you for your assistance 
to us. We will be back to you because you are going to need 
more help as Mr. Becerra pointed out. I know that beyond just 
the fraud and abuse that Inspector General Levinson has 
indicated and his office has some areas and Mr. Hill as well 
where we might find savings beyond fraud and abuse. We are 
looking for that all the time.
    Chairman LEWIS OF GEORGIA. I do not have anything to add, 
Mr. Chairman, but thank you for conducting this hearing. I 
thank all of the witnesses for being here. I think this has 
been most helpful.
    Thank you so much for the job that you are doing.
    Chairman STARK. I would ask, I know Mr. Kind and perhaps 
others on the minority side will have questions and they could 
not remain, we will keep the record open and I would ask the 
witnesses if they would mind responding to any letters that the 
Committee Members send to them in the form of inquiry.
    With that, this hearing is ended.
    [Whereupon, at 11:46 a.m. the Subcommittees adjourned.]
    [Questions submitted by the Members to the Witnesses 
follow:]
               Question Submitted by Mr. Kind to Mr. Hill
    Question: Mr. Hill, in your testimony, you stated that 
``responsible and efficient stewardship of taxpayer dollars are 
critical goals'' of the Administration. You also stated that ``[t]he 
States provide a crucial first line of defense in safeguarding Medicare 
Program dollars.'' Given these stated goals of CMS, I would like the 
agency to explain its resistance to renewal of Wisconsin's SeniorCare 
program waiver.

    Extension of this 1115 Pharmacy Plus waiver is expected to save the 
Federal Government, and Medicare in particular, an estimated $404 
million through 2010. Wouldn't rejection of a SeniorCare extension be 
contrary to the Administration's own stated Medicare fiscal goals?

    Answer: Established in 2002, SeniorCare is the prescription drug 
assistance program for most lower income seniors in Wisconsin not 
qualified for full Medicaid benefits--specifically, Medicare 
beneficiaries and others with family incomes up to 200 percent of the 
Federal Poverty Level (FPL). SeniorCare was devised as a model 
`Pharmacy Plus' demonstration, authorized under the Social Security 
Act's Medicaid section 1115 waiver authority.
    The goal of this demonstration was to test how the provision of a 
pharmacy benefit to a non-Medicaid-covered low-income population would 
affect Medicaid costs, utilization, and future eligibility trends. As 
with other section 1115 demonstrations, CMS approval for Pharmacy Plus 
required the State to establish budget neutrality, meaning that the 
services provided under the demonstration would need to be offset by 
other savings in the Medicaid program. The overall theory behind 
Pharmacy Plus was that prescription drug programs for seniors would 
target scarce resources more effectively because participants would 
remain healthier, thereby reducing future health care costs that may 
result in their becoming eligible for Medicaid.
    The enactment of Medicare Part D has altered the landscape in which 
States provide prescription drug coverage to the age 65 and over 
population. Before January 1, 2006, SeniorCare was the only affordable 
prescription drug coverage option for most lower income seniors in 
Wisconsin not qualified for full Medicaid benefits. Today, seniors in 
Wisconsin and across the country have access to comprehensive 
prescription drug coverage through Medicare. Individuals eligible for 
full benefits under both Medicare and Medicaid now receive their 
prescription drug coverage through Medicare as well. At last count, 
more than 571,000 Wisconsin seniors, including dual eligibles, are 
receiving drug coverage through Medicare Part D or another creditable 
source.
    In addition to the standard Part D benefit, many beneficiaries with 
limited incomes qualify for the Low-Income Subsidy (LIS). Indeed, 
certain beneficiaries enrolled in Wisconsin's SeniorCare would be 
eligible for the LIS. The LIS provides substantial help to Medicare 
beneficiaries with limited incomes, including a generous Federal 
premium subsidy and minimal cost-sharing for covered drugs. Most LIS-
qualified beneficiaries receive the 100 percent subsidy, and therefore 
have no premium for Part D coverage.
    However, the establishment of a Federal Medicare prescription drug 
benefit had significant impact on the ability of Pharmacy Plus 
demonstrations to be budget neutral. Specifically, the advent of Part D 
and the low-income subsidy altered the circumstances under which CMS 
originally approved SeniorCare because now Medicare Part D, and not the 
Pharmacy Plus demonstration, is the main source for Medicaid savings by 
diverting individuals from full Medicaid eligibility. As a result, we 
believe it would be very difficult for Pharmacy Plus waivers, as they 
were originally structured, to meet the budget neutrality requirements 
in light of Part D.
    We greatly appreciate the leadership Wisconsin has demonstrated in 
providing prescription drug coverage to Wisconsin's most vulnerable 
citizens at a time when they had no other options for drug coverage. 
CMS does not want current SeniorCare beneficiaries to suffer any 
interruptions in drug coverage, and we are committed to partnering with 
Wisconsin officials to establish a transition and outreach plan in 
which we can all take confidence. That being said, we believe the 
transition must be made as quickly as possible. Wisconsin has deemed 
SeniorCare as creditable coverage relative to Part D, so individuals 
transitioning to Part D will not face a late enrollment penalty.

                                 
    [Submissions for the Record follow:]
               Statement of the Power Mobility Coalition
    The Power Mobility Coalition (PMC), a nationwide association of 
suppliers and manufacturers of motorized wheelchairs and power operated 
vehicles, applauds the House Ways and Means Subcommittee on Health and 
the Subcommittee on Oversight for holding a joint hearing examining 
ways to identify and eradicate fraud within the Medicare program.
    The PMC has long supported efforts aimed at removing unscrupulous 
actors from the Medicare program. In fact, it was several PMC members 
who first identified pockets of suspicious activity in the delivery of 
power mobility devices (PMDs) in Harris, Country Texas and then brought 
these concerns to the attention of the Centers for Medicare and 
Medicaid Services (CMS) as early as April, 2003. The PMC, along with 
other leaders of the durable medical equipment (DME) industry, then 
partnered with CMS in the implementation of the ``Wheeler Dealer'' 
program that sought to root out fraudulent activity in the Medicare PMD 
benefit.
    The PMC was very supportive of anti-fraud initiatives contained in 
the Medicare Modernization Act (MMA), including the requirement that a 
Medicare beneficiary see a health care practitioner for a face-to-face 
examination prior to the submission of a PMD claim, increased quality 
standards for PMD suppliers, and the provision that requires all DME 
supplies to be accredited by a nationally recognized accreditation 
body. While these are all positive steps in efforts to clean up the 
Medicare program, the PMC feels that more could be done and, as a 
result, offers the following recommendations to the Subcommittees:
1. All New DME Suppliers or DME Suppliers Who Are Renewing Their 
        Supplier Number Must be Accredited
    CMS has released the new quality standards for all DME suppliers 
and has named the nationally recognized accreditation bodies that have 
``deemed status'' to ensure Medicare quality standards are being met. 
Since all the pieces of the accreditation puzzle are now in place, CMS 
must insist that all new DME suppliers become accredited before they 
can be awarded a Medicare supplier number. Further, DME suppliers who 
have to recertify for a supplier number should also be immediately 
subject to the accreditation requirement.
2. Accreditation Must Happen Prior to Implementation of Competitive 
        Bidding
    Program integrity is paramount to ensure Medicare beneficiaries 
receive the highest quality of products and services from lawful 
suppliers. Stringent quality standards coupled with mandated 
accreditation of suppliers will rid the Medicare program of 
unscrupulous actors and reinforce the integrity of those suppliers who 
play by the rules.
    Implementing competitive bidding and allowing non-accredited 
suppliers to participate in the bidding process is contrary to CMS' 
priority to safeguard Medicare resources and beneficiaries. Allowing 
non-accredited suppliers to bid and be awarded contracts will cause 
major disruption if the contracted supplier cannot obtain accreditation 
and the contract must then be terminated and subject to a ``rebid.'' In 
addition, non-accredited suppliers would have lower overhead and, as a 
result, would be able to submit lower bids which could artificially 
lower the single payment amount for accredited contracted suppliers.
3. Establish a DME Program Integrity Advisory Group
    DME manufacturers and suppliers know their business better than 
anyone and are constantly monitoring the marketplace. Lawful DME 
suppliers and manufacturers are anxious to share intelligence about 
potential fraudulent actors with CMS. The PMC recommends that CMS 
establish an advisory group comprised of DME suppliers, manufacturers 
and beneficiaries to work with CMS officials on developing proactive 
solutions to help detect and eliminate fraud.
4. Require Physician Certification on Documentation Supporting a PMD 
        Claim
    As part of recent administrative changes to the Medicare PMD 
benefit, while a physician must provide a prescription for PMDs, CMS no 
longer requires that the physician certify the need. The PMC recommends 
that the algorithmic formula contained in the PMD National Coverage 
Determination be codified in a form that will then need to be 
certified, under penalty of law, by the physician. Such certification

will strengthen the role of the physician as gatekeeper of the Medicare 
PMD benefit and put the physician in a position to ensure that the 
beneficiary meets the requirements necessary under the Medicare program 
to qualify for PMDs. A physician-certified document will also provide 
some much needed objectivity to the PMD claims process.
    The PMC appreciates the opportunity to comment on efforts to 
strengthen Medicare program integrity and provide recommendations for 
additional tools to help identify and prevent fraud. Moreover, the PMC 
agrees with many members of the Subcommittees who took pains to 
differentiate between innocent mistakes and omissions as a result of 
the complexities of the Medicare program and real fraud that harms 
beneficiaries, rips-off the taxpayers and taints the reputation of 
thousands of lawful PMDs suppliers nationwide. We must raise caution 
that overly restrictive anti-fraud measures that fail to distinguish 
between lawful suppliers and unscrupulous actors will only serve to 
further restrict access to PMDs, drive up program costs and deny needy 
beneficiaries high-quality PMDs.
    The Medicare PMD benefit provides thousands of beneficiaries with 
freedom, independence and the ability to live more healthier and active 
lives. PMDs save the Medicare program money by keeping beneficiaries 
with compromised or limited mobility out of more costly institutional 
settings and decreasing the need for hospitalizations. We look forward 
to working with the Committee to ensure that appropriate program 
safeguards are in place to protect both the Medicare trust fund as well 
as Medicare beneficiaries.

                                 

Dear Mr. Chairman:

    The House Ways and Means Committee held a hearing last week on 
Medicare program integrity. As requested by Chad Shearer, First Coast 
Service Options (FCSO), the primary Medicare administrator in Florida, 
is submitting the enclosed document for inclusion in the hearing 
record. The document is a progress report for a pilot program approved 
by CMS to combat Medicare fraud in Dade and Broward Counties.
    We appreciate the Committee's consideration of this material.

            Sincerely,
                                                     Curtis W. Lord

                                 ______
                                 

Report for South Florida Pilot

(Through February 28, 2007)

I. Executive Summary
    This report updates progress on First Coast Service Option's South 
Florida Pilot (SFP) through February 2007. Section II of this report 
continues to be framed in terms of the components of the statement of 
work for the SFP.
    First and foremost, prepayment safeguards designed to detect and 
prevent fraudulent infusion drug claims prior to payment, continue to 
be highly effective. In February 2007, only $8M was paid for these 
services in Dade and Broward Counties. At that level of payment, we 
believe the remaining degree of fraud in infusion drug payments is 
quite minimal. But as reported in previous monthly reports, 
unscrupulous providers in Dade and Broward Counties continue to bill 
significant volumes of infusion drug claims. Over $80M was billed in 
February 2007. A significant portion of that total, we think, was 
associated with fraudulent activity.
    Also as previously reported, efforts to steal from Medicare have 
moved beyond drug claims to claims for other services, mainly billed 
from Dade County. We believe unscrupulous providers have gravitated 
toward expensive diagnostic tests and procedures in an effort to 
replace income lost to the infusion scheme clean up. The prepayment 
intervention installed by the SFP in January, an edit that suspends 
claims with allowed amounts above $500 billed by general and family 
practice physicians in Dade and Broward Counties, has been highly 
effective in combating this shift, stopping $4.9M in billed charges in 
February 2007.
    To date, over 250 unique procedure codes have been billed with 
claims stopped by this new prepayment edit. The common denominator for 
these codes is that they describe expensive diagnostic tests or 
procedures not generally provided in an office setting by a general or 
family practice physician. Given the wide range of procedure codes 
involved in this scheme, the widespread (rather than provider or 
procedure specific) edit that has been installed to develop for medical 
records is ideal.
    Since the edit was turned on in very early January, providers have 
responded to only 40% of our requests for medical records. While this 
response rate has created a great deal of claim review, two things are 
clear:

    (1)  The 60% of claims for which we never get medical records 
suggests a high degree of fraud is present in these suspended claims, 
and
    (2)  The 40% of claims for which we do get medical records often 
contain medically unbelievable quantities of diagnostic tests or 
procedures; for example, one beneficiary allegedly received 59 nerve 
blocks over a six month period.

    In an effort to make this edit more efficient, we are evaluating 
three new potential medically unbelievable edits for pulmonary tests, 
vestibular tests and injections of nerve agents (nerve blocks). 
Medically unbelievable edits are designed to automatically deny 
services once they exceed the ``unbelievable'' threshold, avoiding the 
process of requesting medical records for those services. That would 
allow us to request medical records only in situations where suspended 
claims have a relatively greater chance of being legitimate.
    Provider enrollment results follow trends from prior months as the 
volume of new provider applications from Dade and Broward Counties 
continue to be lower than originally expected. As reported last month, 
however, the screening process has been tightened resulting in a 
considerable increase in the number of pre-enrollment site visits. 
Since the launch of the pilot only 33% of the provider enrollment 
applications in Dade and Broward Counties have been unconditionally 
approved.
    The objective of the SFP is to reduce CERT error rates in Dade and 
Broward Counties to levels seen elsewhere in Florida and ultimately 
below CMS' national target. To better track our progress, we have 
revised our charts that compare payments in South Florida against 
payments outside the SFP area. Specifically, these charts now show 
payment on a per beneficiary per month (PBPM) basis for Dade County, 
Broward County and the rest of the state. Separate charts have been 
prepared for drug and non-drug services.
    In terms of the Pilot Metrics, results for February 2007 reflect 
the following:

      CERT Scores: Please note this metric has been modified to 
track quarterly, not monthly, results increasing the sample size and 
reducing error rate variability.
      -- CERT scores continue to trend down in the SFP counties.
      -- For the Q3 2006 sample period, the Dade County CERT score 
currently stands at 11.7%; this compares to a previous quarter rate of 
57.8%.
      -- For the Q3 2006 sample period, the Broward County CERT score 
currently stands at 5.3%; this is up slightly from the previous quarter 
but compares very favorably to the last full year (November 2006) rate 
of 20.2%.

      Drug Payments: Per Beneficiary Per Month (PBPM): As noted 
previously, the Target Drug metrics have been replaced with new per 
beneficiary per month measures.
      -- The drug PBPM for Dade County peaked at $2,641 in May 2006 
compared to a PBPM of $352 that month for Florida with Dade and Broward 
Counties excluded. The Broward County PBPM peaked in June 2006 at 
$1,183 compared to a PBPM of $338 that month for Florida with Dade and 
Broward Counties excluded.
      -- The drug PBPM for Dade County was $283 in February 2007, an 
89% decrease from the peak in May 2006.
      -- Similarly, the drug PBPM for Broward County was $310 in 
February 2007, a 74% reduction from the peak in June 2006
      -- Based on the level of billed charges, the risk level of 
infusion drug fraud in and outside the SFP area remains high.

      Non-Drug Payments: Per Beneficiary Per Month (PBPM): The 
non-drug target metrics have also been replaced with PBPM measures. 
Separate PBPM measures are also included for services provided by 
general and family practice physicians.
      -- The non-drug PBPM for Dade County peaked in October 2006 at 
$279. The non-drug PBPM for Dade County for February 2007 was $129, a 
54% reduction from peak. This reflects the positive impact of the new 
general/family practice edit.
      -- The statewide non-drug PBPM, excluding Dade and Broward 
Counties, however, is only $71 suggesting there is still considerable 
work to be done in the SFP area.
      -- The non-drug PBPM for February 2007 in Dade is 82% higher than 
the statewide PBPM excluding Dade and Broward Counties. The Broward 
non-drug PBPM is 24% higher than the statewide number.

    In summary, the threat of infusion drug fraud remains high but is 
largely contained in Dade and Broward Counties. The focus of the SFP 
has shifted to fraud involving non-drug services where there is still 
plenty of work to do.
II. Progress Against Statement of Work
  A. Provider Enrollment
    1. Site Visit Process

      In February, 22 sites were added to the list of providers 
to be visited prior to enrollment.
      Of the ten site visits completed during the month, three 
applications were denied because the providers were not operational. Of 
the seven applications approved, three were considered high-risk and 
will be placed on pre-payment claim review for all services billed.
      A total of 20 site visits to existing providers were made 
this month. Of that total, seven resulted in the revocation of the 
provider's billing number. Five site visits were inconclusive and will 
require follow-up work in March.
      Since the beginning of SFP site visits, 56 applications 
have been denied or approved with 100% claim monitoring, while 41 
billing numbers have been revoked.
      The site visit process has been modified to cease 
appointment scheduling for new provider visits. The revised process 
instead simply notifies the provider that a site visit will occur 
during the reported normal hours of operation. This will make extensive 
staging and preparation work that is observed on some visits more 
difficult.
    2. Five or More Reassignment Process
      A total of 29 providers have been identified since 
inception that meet the five or more reassignment criteria. Of that 
total, 22 applications have completed processing, resulting in the 
deactivation of 118 provider numbers. The remaining seven responses are 
pending.
  B. Data Analysis
    1. Spike Billing/Monitoring Report Development
      An early detection report is being developed to track 
movement of physicians from Dade and Broward Counties to other areas of 
Florida using provider enrollment information. The goal is to run a 
weekly report of newly enrolled providers that are, or have been, 
enrolled in Dade and Broward Counties and assign a risk level. High-
risk providers will be immediately placed on pre-payment review even 
before we receive their initial claims. This report will be ready by 
the end of March.
      As mentioned in the Executive Summary, analysis of claims 
suspended by the non-drug $500 edit for general and family 
practitioners shows that development of certain medically unbelievable 
edits is needed. The evaluation and edit criteria will be ready by the 
end of March.
      A statistical tool is being developed to assist with the 
analytical work needed to implement medically unbelievable edits that 
span a period of time. This new statistical tool, which will be 
modified to analyze data over time to help insure legitimate providers 
are not affected, will be ready by the end of March.
      An evaluation of the expansion of the infusion 
``specialty edits'' statewide for general and family practitioners was 
completed. Movement of some infusion clinics outside South Florida 
prompted the evaluation. The results show that over 150 legitimate 
providers would have had their claims hit the existing edit structure. 
These providers typically are designated as family practice, but have 
had additional training in cardiology, rheumatology and other 
specialties. We will work with the PSC on alternative solutions to 
statewide editing.
    2. Predictive Modeling
      The scoring of high-risk providers in South Florida has 
been completed. The results of the scoring will be used to prioritize 
providers for enrollment revalidation.
    3. Pending Claims Analysis
      A new pending claim data report is being developed that 
will compare a provider's pending billed amounts to billed and paid 
amounts for the previous month. A statistical evaluation of the results 
will also be developed. This report, which will assist in identifying 
aberrancies in pending claim data, will be ready in early April.
  C. Claims Editing
    1. Provider-Specific Edits
      Total savings from edits for new providers and providers 
previously cleared by the PSC in February are approximately $900K.
    2. Widespread Edits
      The non-drug edit designed to suspend claims for medical 
record development for amounts over $500 billed by general and family 
practitioners in Dade and Broward Counties saved $4.9 million in 
February.
      The widespread edit for internal medicine physicians 
implemented by the SFP in November saved $2.2 million in February. This 
edit was not expected to generate large savings like the general and 
family practitioner specialty edits illustrating that unscrupulous 
providers continue to bill for drug services.
    3. Medically Unbelievable Edits
      As noted in the Executive Summary of this report, work on 
designing medically unbelievable edits for three groups of services: 
vestibular testing, pulmonary testing and injection of nerve agents 
(nerve blocks).
  D. Payment Suspensions
      No payment suspensions have been necessary to date given 
the effectiveness of other corrective actions.
  E. Infusion Reporting
      The February monthly reports were produced and forwarded 
to the PSC on March 12.
      A new request for two additional (100% pre-payment 
review) edits was submitted by the PSC. The criteria are currently 
being developed.
III. Reporting
  A. SFP Claims Editing Savings
                               February        Cumulative
      Provider Specific Edits:
                                $ .9M            $ 2.2M
      Widespread Edits:
                                $7.1M            $10.3M
  B. Provider Enrollment Activity
      The ``Site Visit of Existing Providers July 2006 through 
February 2007'' chart includes three follow-up visits of providers from 
last month which resulted in one additional provider going operational 
without monitoring; results from the other two are still being 
evaluated.
  C. Pilot Metrics
      A summary of each metric being used to measure the 
success of the SFP is included in the Executive Summary.
      --CERT Scores
      --Drug Reimbursement: PBPM
      --Non-Drug Reimbursement: PBPM
      --General and Family Practices: PBPM

                                 
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